Edgar Filing: COMSCORE, INC.

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Smaller reporting company

SCOR 9.30.13 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________

FORM 10-Q

________________________________

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-33520

________________________________

comScore, Inc.

(Exact name of registrant as specified in its charter)

________________________________



Delaware		54-1955550
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

11950 Democracy Drive, Suite 600 Reston, VA		20190
(Address of principal executive offices)		(Zip Code)

(703) 438-2000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of October 28, 2013, there were 35,691,463 shares of the registrant’s common stock outstanding.

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COMSCORE, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2013

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosure about Market Risk	34
Item 4. Controls and Procedures	34
PART II. OTHER INFORMATION	36
Item 1. Legal Proceedings	36
Item 1A. Risk Factors	36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3. Defaults Upon Senior Securities	56
Item 4. Mine Safety Disclosures	56
Item 5. Other Information	56
Item 6. Exhibits	56
SIGNATURES	57
EXHIBIT INDEX	58
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosure About Market Risk” under Items 2 and 3, respectively, of Part I of this report, and the sections entitled “Legal Proceedings,” “Risk Factors,” and “Unregistered Sales of Equity Securities and Use of Proceeds” under Items 1, 1A and 2, respectively, of Part II of this report, may contain forward-looking statements. These statements may relate to, but are not limited to, expectations of future operating results or financial performance, macroeconomic trends that we expect may influence our business, plans for capital expenditures, expectations regarding the introduction of new products, regulatory compliance and expected changes in the regulatory landscape affecting our business, expected impact of litigation, plans for growth and future operations, effects of acquisitions, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These risks and other factors include, but are not limited to, those listed under the section entitled “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “continue,” “seek” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events and/or results may differ materially.

We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission, we do not plan to publicly update or revise any forward-looking statements, whether as a result of any new information, future events or otherwise, other than through the filing of periodic reports in accordance with the Securities Exchange Act of 1934, as amended. Investors and potential investors should not place undue reliance on our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of any of the events described in the “Risk Factors” section and elsewhere in this

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Quarterly Report on Form 10-Q could harm our business, prospects, operating results and financial condition. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

COMSCORE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)



	September 30, 2013			December 31, 2012
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	79,794		$	61,764
Accounts receivable, net of allowances of $1,245 and $1,117, respectively	66,284			68,348
Prepaid expenses and other current assets	8,271			8,877
Deferred tax assets	10,341			9,940
Total current assets	164,690			148,929
Property and equipment, net	38,582			31,418
Other non-current assets	1,233			414
Long-term deferred tax assets	8,595			12,065
Intangible assets, net	34,687			40,759
Goodwill	102,991			102,900
Total assets	$	350,778		$	336,485
Liabilities and Equity
Current liabilities:
Borrowings under revolving credit facility	$	—		$	—
Accounts payable	6,925			7,229
Accrued expenses	31,223			24,409
Deferred revenues	73,648			80,824
Deferred rent	1,100			807
Deferred tax liabilities	—			17
Capital lease obligations	8,596			8,020
Total current liabilities	121,492			121,306
Deferred rent, long-term	11,311			10,096
Deferred revenue, long-term	1,223			1,715
Deferred tax liabilities, long-term	—			130
Capital lease obligations, long-term	10,185			6,478
Other long-term liabilities	1,089			1,117
Total liabilities	145,300			140,842
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value per share; 5,000,000 shares authorized at September 30, 2013 and December 31, 2012; no shares issued or outstanding at September 30, 2013 and December 31, 2012	—			—
Common stock, $0.001 par value per share; 100,000,000 shares authorized at September 30, 2013 and December 31, 2012; 35,691,505 shares issued and 35,668,068 outstanding as of September 30, 2013 and 35,679,430 shares issued and outstanding at December 31, 2012, respectively	36			36
Additional paid-in capital	287,488			274,622
Accumulated other comprehensive income	1,793			1,825
Accumulated deficit	(83,343		)	(80,840		)
Treasury stock, at cost, 23,437 and 0 shares as of September 30, 2013 and December 31, 2012, respectively	(496		)	—
Total stockholders’ equity	205,478			195,643
Total liabilities and stockholders’ equity	$	350,778		$	336,485

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The accompanying notes are an integral part of these consolidated financial statements.

COMSCORE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(Unaudited)

(In thousands, except share and per share data)



	Three Months Ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Revenues	$	71,606		$	64,273		$	210,365		$	186,839
Cost of revenues (excludes amortization of intangible assets) (1)	21,603			21,933			65,767			62,705
Selling and marketing (1)	24,255			22,928			74,204			66,508
Research and development (1)	10,441			8,963			30,467			25,266
General and administrative (1)	12,492			9,400			32,742			28,231
Amortization of intangible assets	1,956			2,385			6,043			7,007
Impairment of intangible assets	—			—			—			3,349
Gain on asset disposition	(4		)	—			(214		)	—
Settlement of litigation	—			—			(1,160		)	—
Total expenses from operations	70,743			65,609			207,849			193,066
Income (loss) from operations	863			(1,336		)	2,516			(6,227		)
Interest and other (expense), net	(238		)	(174		)	(570		)	(541		)
Gain (loss) from foreign currency	82			(205		)	(165		)	(772		)
Income (loss) before income tax provision	707			(1,715		)	1,781			(7,540		)
Income tax provision	(789		)	(1,403		)	(4,284		)	(2,636		)
Net loss	$	(82	)	$	(3,118	)	$	(2,503	)	$	(10,176	)
Net loss available to common stockholders per common share:
Basic	$	0.00		$	(0.09	)	$	(0.07	)	$	(0.31	)
Diluted	$	0.00		$	(0.09	)	$	(0.07	)	$	(0.31	)
Weighted-average number of shares used in per share calculation - common stock:
Basic	34,502,456			33,470,628			34,417,609			33,120,233
Diluted	34,502,456			33,470,628			34,417,609			33,120,233

Comprehensive (loss) income:
Net loss	$	(82	)	$	(3,118	)	$	(2,503	)	$	(10,176	)
Other comprehensive (loss) income:
Foreign currency translation adjustment	1,094			1,226			(32		)	542
Total comprehensive (loss) income	$	1,012		$	(1,892	)	$	(2,535	)	$	(9,634	)

(1) Amortization of stock-based compensation is included in the line items above as follows:
Cost of revenues	$	887		$	636		$	2,435		$	1,840
Selling and marketing	$	2,487		$	3,113		$	8,519		$	8,297
Research and development	$	947		$	504		$	2,163		$	1,394
General and administrative	$	2,922		$	1,911		$	6,271		$	6,062

The accompanying notes are an integral part of these consolidated financial statements.

COMSCORE, INC.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share data)



	Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive (Loss) Income			Accumulated Stockholders’ Deficit			Treasury stock, at cost			Total Stockholders’ Equity
	Shares		Amount		Additional Paid-In Capital			Accumulated Other Comprehensive (Loss) Income			Accumulated Stockholders’ Deficit			Treasury stock, at cost			Total Stockholders’ Equity
Balance at December 31, 2011	34,015,434		$	34	$	258,967		$	617		$	(69,051	)	$	—		$	190,567
Net loss	—		—		—			—			(10,176		)	—			(10,176		)
Foreign currency translation adjustment	—		—		—			542			—			—			542
Exercise of common stock options	362,680		—		222			—			—			—			222
Exercise of common stock warrants	19,895		—		—			—			—			—			—
Issuance of restricted stock	1,649,814		2		(2		)	—			—			—			—
Restricted stock cancelled	(204,495	)	—		—			—			—			—			—
Restricted stock units vested	151,641		—		—			—			—			—			—
Common stock received for tax withholding	(349,926	)	—		(7,176		)	—			—			—			(7,176		)
Stock based compensation	—		—		18,667			—			—			—			18,667
Excess tax benefits from stock based compensation, net	—		—		(51		)	—			—			—			(51		)
Balance at September 30, 2012	35,645,043		36		$	270,627		$	1,159		$	(79,227	)	$	—		$	192,595

Balance at December 31, 2012	35,679,430		$	36	$	274,622		$	1,825		$	(80,840	)	$	—		$	195,643
Net loss	—		—		—			—			(2,503		)	—			(2,503		)
Foreign currency translation adjustment	—		—		—			(32		)	—			—			(32		)
Exercise of common stock options	44,518		—		189			—			—			—			189
Issuance of restricted stock	447,821		—		—			—			—			—			—
Restricted stock cancelled	(189,970	)	—		—			—			—			—			—
Restricted stock units vested	195,381		—		—			—			—			—			—
Common stock received for tax withholding	(485,675	)	—		(8,643		)	—			—						(8,643		)
Repurchase of common stock	(23,437	)	—		—			—			—			(496		)	(496		)
Stock based compensation	—		—		21,320			—			—			—			21,320
Balance at September 30, 2013	35,668,068		$	36	$	287,488		$	1,793		$	(83,343	)	$	(496	)	$	205,478

The accompanying notes are an integral part of these consolidated financial statements.

COMSCORE, INC.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



	Nine months ended September 30,
	2013			2012
Operating activities
Net loss	$	(2,503	)	$	(10,176	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation	12,120			10,469
Amortization of intangible assets	6,043			7,007
Impairment of intangible assets	—			3,349
Provision for bad debts	596			1,151
Stock-based compensation	19,388			17,593
Amortization of deferred rent	(122		)	543
Deferred tax provision	2,894			1,651
(Gain) Loss on asset disposal	(228		)	(24		)
Changes in operating assets and liabilities:
Accounts receivable	1,585			11,540
Prepaid expenses and other current assets	622			(847		)
Accounts payable, accrued expenses, and other liabilities	3,783			(8,839		)
Deferred revenues	(7,003		)	(314		)
Deferred rent	1,637			25
Net cash provided by operating activities	38,812			33,128

Investing activities
Proceeds from asset disposition	160			—
Purchase of property and equipment	(3,560		)	(4,960		)
Net cash used in investing activities	(3,400		)	(4,960		)

Financing activities
Proceeds from the exercise of common stock options	189			222
Repurchase of common stock (withholding taxes)	(8,643		)	(7,176		)
Repurchase of common stock (treasury shares)	(496		)	—
Principal payments on capital lease obligations	(7,327		)	(5,113		)
Proceeds from financing arrangements	3,952			4,131
Principal payments on financing arrangements	(3,952		)	—
Debt issuance costs	(479		)	—
Net cash used in financing activities	(16,756		)	(7,936		)
Effect of exchange rate changes on cash	(626		)	844
Net increase in cash and cash equivalents	18,030			21,076
Cash and cash equivalents at beginning of period	61,764			38,071
Cash and cash equivalents at end of period	$	79,794		$	59,147

Supplemental cash flow disclosures
Interest paid	$	492		$	576
Income taxes paid	$	1,112		$	554
Supplemental noncash investing and financing activities
Capital lease obligations incurred	$	11,616		$	5,150
Accrued capital expenditures	$	6,273		$	1,892
Leasehold improvements acquired through lease incentives	$	1,637		$	—

The accompanying notes are an integral part of these consolidated financial statements.

COMSCORE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.	Organization

comScore, Inc. (the “Company”), a Delaware corporation incorporated in August 1999, provides on-demand digital analytics that enable customers to make well-informed business decisions and implement more effective digital business strategies. More specifically, the Company is an Internet technology company that measures what people do as they navigate the digital world and analyzes that information to provide insights and recommended actions for the Company's customers to maximize the value of their digital investments. The Company’s products offer customers deep insights into consumer behavior, including objective, detailed information regarding usage of their online properties and those of their competitors, coupled with information on consumer demographic characteristics, attitudes, lifestyles and offline behavior. The Company provides its products through a scalable, Software-as-a-Service, SaaS, delivery model, which eliminates the need for customers to install and maintain hardware and software in order to use the Company’s products.

The Company’s digital marketing intelligence platform is comprised of proprietary databases and a computational infrastructure that measures, analyzes and reports on digital activity worldwide. The foundation of the platform is data collected from a panel of more than two million Internet users worldwide who have granted to the Company explicit permission to confidentially measure their Internet usage patterns, online and certain offline buying behavior and other activities. For measuring and reporting online audiences, comScore also supplements panel information with census information obtained from the Company's tagged network of global websites, referred to as the comScore Census Network. This panel information is complemented by a Unified Digital Measurement approach to digital audience measurement. Unified Digital Measurement blends panel and census methodologies into a product that provides a direct linkage and reconciliation between census and panel measurement. By applying advanced statistical methodologies to the panel data, the Company projects consumers’ online behavior for the total online population and a wide variety of user categories. In addition to the Company’s comScore Census Network products, the Company provides software and other products to the large mobile networks that deliver network analysis focused on the experience of wireless subscribers, as well as network intelligence with respect to performance, capacity and configuration analytics. The Company also provides digital and monetization analytics and innovative video measurement products.



2.	Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated upon consolidation. The Company consolidates investments where it has a controlling financial interest. The usual condition for controlling financial interest is ownership of a majority of the voting interest and, therefore, as a general rule, ownership, directly or indirectly, of more than 50% of the outstanding voting shares is a condition indicating consolidation. For investments in variable interest entities, the Company would consolidate when it is determined to be the primary beneficiary of a variable interest entity. The Company does not have any variable interest entities.

Unaudited Interim Financial Information

The consolidated interim financial statements included in this quarterly report on Form 10-Q have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated interim financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained in this quarterly report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, for a quarterly report on Form 10-Q and are adequate to make the information presented not misleading. The consolidated interim financial statements included herein, reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. These consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, filed February 20, 2013 with the SEC. The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2013 or thereafter. All references to September 30, 2013 and 2012 or to the three and nine months ended September 30, 2013 and 2012 in the notes to the consolidated interim financial statements are unaudited.

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Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expense during the reporting periods. Significant estimates and assumptions are inherent in the analysis and the measurement of deferred tax assets, the identification and quantification of income tax liabilities due to

uncertain tax positions, recoverability of intangible assets, other long-lived assets and goodwill, estimates related to outstanding litigation, and the determination of the allowance for doubtful accounts. The Company bases its estimates on historical experience and assumptions that it believes are reasonable. Actual results could differ from those estimates.

Fair Value Measurements

The Company evaluates the fair value of certain assets and liabilities using the fair value hierarchy. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the Company applies the fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1 — observable inputs such as quoted prices in active markets;

Level 2 — inputs other than the quoted prices in active markets that are observable either directly or indirectly;

Level 3 — unobservable inputs of which there is little or no market data, which require the Company to develop its own assumptions.

The Company does not currently have any assets or liabilities that are measured at fair value on a recurring basis. However, cash equivalents, accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses, deferred revenue, deferred rent and capital lease obligations reported in the consolidated balance sheets equal or approximate their respective fair values.

Assets and liabilities that are measured at fair value on a non-recurring basis include fixed assets, intangible assets and goodwill. The Company recognizes these items at fair value when they are considered to be impaired or upon initial recognition. During the first quarter of 2013, certain intangible assets acquired were measured at fair value using significant unobservable inputs (Level 3) as described in Note 3. During the nine months ended September 30, 2013, the Company recorded these assets as follows:

Fair Value Measurements Using

March 31, 2013

Quoted

Prices in

Active

Markets for

Identical

Assets

Significant

Other

Observable

Inputs

Significant

Unobservable

Inputs

Total Gains (Losses)

(Level 1)

(Level 2)

(Level 3)

Description

(In thousands)

Long-lived assets held and used

1,182

—

During the second quarter of 2012 certain intangible assets were measured at fair value using significant unobservable inputs (Level 3). During the nine months ended September 30, 2012, the Company recorded an impairment charge of $3.3 million pertaining to these assets as follows:

Fair Value Measurements Using

June 30,
2012

Quoted

Prices in

Active

Markets for

Identical

Assets

Significant

Other

Observable

Inputs

Significant

Unobservable

Inputs

Total

Gains

(Level 1)

(Level 2)

(Level 3)

(Losses)

Description

(In thousands)

Long-lived assets held and used

2,500

(3,349

)

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Cash and Cash Equivalents and Investments

Cash and cash equivalents consist of highly liquid investments with an original maturity of three months or less at the time of purchase. Cash and cash equivalents consist primarily of bank deposit accounts. The Company maintains cash and cash equivalents at financial institutions. The combined account balances at each institution typically exceed FDIC insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company believes the risk is not significant.

Interest income on investments and excess cash balances was a nominal amount for the three and nine months ended September 30, 2013 and 2012.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and are non-interest bearing. The Company generally grants uncollateralized credit terms to its customers and maintains an allowance for doubtful accounts to reserve for potentially uncollectible receivables. Allowances are based on management’s judgment, which considers historical experience and specific knowledge of accounts where collectibility may not be probable. The Company makes provisions based on historical bad debt experience, a specific review of all significant outstanding invoices and an assessment of general economic conditions. If the financial condition of a customer deteriorates, resulting in an impairment of its ability to make payments, additional allowances may be required.

Property and Equipment

Property and equipment is stated at cost, net of accumulated depreciation. Property and equipment is depreciated on a straight-line basis over the estimated useful lives of the assets, ranging from three to five years. Assets under capital leases are recorded at their net present value at the inception of the lease and are included in the appropriate asset category. Assets under capital leases and leasehold improvements are amortized over the shorter of the related lease terms or their useful lives. Replacements and major improvements are capitalized; maintenance and repairs are charged to expense as incurred. Amortization of assets under capital leases is included within the expense category in which the asset is deployed.

Business Combinations

The Company recognizes all of the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. Acquisition-related costs are recognized separately from the acquisition and expensed as incurred. Generally, restructuring costs incurred in periods subsequent to the acquisition date are expensed when incurred. Subsequent changes to the purchase price (i.e., working capital adjustments) or other fair value adjustments determined during the measurement period are recorded as an adjustment to goodwill. All subsequent changes to an income tax valuation allowance or uncertain tax position that relate to the acquired company and existed at the acquisition date that occur both within the measurement period and as a result of facts and circumstances that existed at the acquisition date are recognized as an adjustment to goodwill. All other changes in income tax valuation allowances are recognized as a reduction or increase to income tax expense or as a direct adjustment to additional paid-in capital as required.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed when a business is acquired. The allocation of the purchase price to intangible assets and goodwill involves the extensive use of management’s estimates and assumptions, and the result of the allocation process can have a significant impact on future operating results. The Company estimates the fair value of identifiable intangible assets acquired using various valuation methods, including the excess earnings and relief from royalty methods.

Intangible assets with finite lives are amortized over their useful lives while goodwill is not amortized but is evaluated for potential impairment at least annually by comparing the fair value of a reporting unit to its carrying value including goodwill recorded by the reporting unit. If the carrying value exceeds the fair value, impairment is measured by comparing the implied fair value of the goodwill to its carrying value, and any impairment determined is recorded in the current period. All of the Company’s goodwill is associated with its single reporting unit. Accordingly, on an annual basis the Company performs the impairment assessment for goodwill at the enterprise level. The Company completed its annual impairment analysis as of October 1st for 2012 and determined that there was no impairment of goodwill. There have been no indicators of impairment suggesting that an interim assessment was necessary for goodwill since the October 1, 2012 analysis.

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Intangible assets with finite lives are amortized using the straight-line method over the following useful lives:



	Useful Lives (Years)
Acquired methodologies/technology	3 to 10
Customer relationships	3 to 12
Panel	7
Intellectual property	7 to 13
Trade names	2 to 10

Impairment of Long-Lived Assets

The Company’s long-lived assets primarily consist of property and equipment and intangible assets. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of such assets may not be recoverable. If an indication of impairment is present, the Company compares the estimated undiscounted future cash flows to be generated by the asset to its carrying amount. Recoverability measurement and estimation of undiscounted cash flows are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If the undiscounted future cash flows are less than the carrying amount of the asset group, the Company records an impairment loss equal to the excess of the asset group’s carrying amount over its fair value. The fair value is determined based on valuation techniques such as a comparison to fair values of similar assets or using a discounted cash flow analysis. Although the Company believes that the carrying values of its long-lived assets are appropriately stated, changes in strategy or market conditions or significant technological developments could significantly impact these judgments and require adjustments to recorded asset balances. There were no impairment charges recognized during the three and nine months ended September 30, 2013. During the three and six months ended June 30, 2012, the Company recorded an impairment charge of $3.3 million related to certain intangible assets. There were no impairment charges recognized during the three months ended September 30, 2012.

Leases

The Company leases its facilities and accounts for those leases as operating leases. For facility leases that contain rent escalations or rent concession provisions, the Company records the total rent payable during the lease term on a straight-line basis over the term of the lease. The Company records the difference between the rent paid and the straight-line rent as a deferred rent liability. Leasehold improvements funded by landlord incentives or allowances are recorded as leasehold improvement assets and a deferred rent liability which is amortized as a reduction of rent expense over the term of the lease.

The Company records capital leases as an asset and an obligation at an amount equal to the present value of the minimum lease payments as determined at the beginning of the lease term. Amortization of capitalized leased assets is computed on a straight-line basis over the term of the lease and is included in depreciation and amortization expense.

Foreign Currency

The functional currency of the Company’s foreign subsidiaries is the local currency. All assets and liabilities are translated at the current exchange rate as of the end of the period, and revenues and expenses are translated at average exchange rates in effect during the period. The gain or loss resulting from the process of translating foreign currency financial statements into U.S. dollars is reflected as foreign currency cumulative translation adjustment and reported as a component of accumulated other comprehensive income.

The Company incurred a foreign currency transaction gain of $0.1 million and a loss of $0.2 million for the three and nine months ended September 30, 2013, respectively, and foreign currency transaction losses of $0.2 million and $0.8 million for the three and nine months ended September 30, 2012, respectively. These gains and losses are the result of transactions denominated in currencies other than the functional currency of the Company’s foreign subsidiaries. The majority of the Company’s foreign operations are denominated in the euro, the British Pound and various currencies in Latin America.

Revenue Recognition

The Company recognizes revenues when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or the services have been rendered, (iii) the fee is fixed or determinable, and (iv) collection of the resulting receivable is reasonably assured.

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The Company generates revenues by providing access to the Company’s online database or delivering information obtained from the database, usually in the form of periodic reports. Revenues are typically recognized on a straight-line basis over the period in which access to data or reports is provided, which generally ranges from three to twenty-four months.

Revenues are also generated through survey services under contracts ranging in term from two months to one year. Survey services consist of survey and questionnaire design with subsequent data collection, analysis and reporting. At the outset of an arrangement, total arrangement consideration is allocated between the development of the survey questionnaire and subsequent data collection, analysis and reporting services based on relative selling price. Revenue allocated to the survey questionnaire is recognized when it is delivered and revenue allocated to the data collection, analysis and reporting services is recognized on a straight-line basis over the estimated data collection period once the survey or questionnaire design has been delivered. Any change in the estimated data collection period results in an adjustment to revenues recognized in future periods.

Certain of the Company’s arrangements contain multiple elements, consisting of the various services the Company offers. Multiple element arrangements typically consist of either subscriptions to multiple online products or a subscription to the Company’s online database combined with customized services.

For these types of arrangements, the Company uses a hierarchy to determine the selling price to be used for allocating arrangement consideration to deliverables: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”) if VSOE is not available, or (iii) an estimated selling price (“ESP”) if neither VSOE nor TPE are available. VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable on a stand-alone basis. ESP reflects the Company’s estimate of what the selling price of a deliverable would be if it was sold regularly on a stand-alone basis.

The Company has concluded it does not have VSOE, for these types of arrangements, and TPE is generally not available because the Company’s service offerings are highly differentiated and the Company is unable to obtain reliable information on the products and pricing practices of the Company’s competitors. As such, ESP is used to allocate the total arrangement consideration at the arrangement inception based on each element’s relative selling price.

The Company’s process for determining ESP involves management’s judgments based on multiple factors that may vary depending upon the unique facts and circumstances related to each product suite and deliverable. The Company determines ESP by considering several external and internal factors including, but not limited to, current pricing practices, pricing concentrations (such as industry, channel, customer class or geography), internal costs and market penetration of a product or service. The total arrangement consideration is allocated to each of the elements based on the relative selling price. If the ESP is determined as a range of selling prices, the mid-point of the range is used in the relative-selling-price method. Once the total arrangement consideration has been allocated to each deliverable based on the relative allocation of the arrangement fee, the Company commences revenue recognition for each deliverable on a stand-alone basis as the data or service is delivered.

Generally, contracts are non-refundable and non-cancelable. In the event a portion of a contract is refundable, revenue recognition is delayed until the refund provisions lapse. A limited number of customers have the right to cancel their contracts by providing a written notice of cancellation. In the event that a customer cancels its contract, the customer is not entitled to a refund for prior services, and will be charged for costs incurred plus services performed up to the cancellation date.

Advance payments are recorded as deferred revenues until services are delivered or obligations are met and revenue can be recognized. Deferred revenues represent the excess of amounts invoiced over amounts recognized as revenues.

The Company also generates revenue through software licenses, professional services (including software customization, implementation, training and consulting services), and maintenance and technical support contracts. The Company’s arrangements generally contain multiple elements, consisting of the various service offerings. The Company recognizes software license arrangements that include significant modification and customization of the software in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 985-605, Software Recognition, and ASC 605-35, Revenue Recognition-Construction-Type and Certain Production-Type Contracts, using either percentage-of-completion or the completed-contract method. Under the percentage-of-completion method, the Company uses the input method to measure progress, which is based on the ratio of costs incurred to date to total estimated costs at completion. The percentage-of-completion method is used when reliable estimates of progress and completion under the contract can be made. Under the completed-contract method, billings and costs (to the extent they are recoverable) are accumulated on the balance sheet, but no profit or income is recorded before user acceptance of the software license. The completed-contract method is used when reliable estimates cannot be made or other terms under the contract require it. To the extent estimated costs are expected to exceed revenue, the Company accrues for costs immediately.

The Company accounts for nonmonetary transactions under ASC 845, Nonmonetary Transactions. Nonmonetary transactions with commercial substance are recorded at the estimated fair value of assets surrendered including cash, if cash is

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less than 25% of the fair value of the overall exchange, unless the fair value of the assets received is more clearly evident, in which case the fair value of the asset received is used. During the three and nine months ended September 30, 2013 the Company recognized $0.4 million and $1.1 million in revenue related to nonmonetary transactions. Due to timing differences in the delivery and receipt of the respective nonmonetary assets exchanged, the expense recognized in each period is different from the amount of revenue recognized. As a result, during the three and nine months ended September 30, 2013, the Company recognized $0.4 million and $1.3 million in expense related to nonmonetary transactions.

Stock-Based Compensation

The Company estimates the fair value of share-based awards on the date of grant. The fair value of stock options with only service conditions is determined using the Black-Scholes option-pricing model. The fair value of market-based stock options and restricted stock units is determined using a Monte Carlo simulation embedded in a lattice model. The fair value of restricted stock awards is based on the closing price of the Company’s common stock on the date of grant. The determination of the fair value of the Company’s stock option awards and restricted stock awards is based on a variety of factors including, but not limited to, the Company’s common stock price, expected stock price volatility over the expected life of awards, and actual and projected exercise behavior. Additionally, the Company has estimated forfeitures for share-based awards at the dates of grant based on historical experience and future expectations. The forfeiture estimate is revised as necessary if actual forfeitures differ from these estimates.

The Company issues restricted stock awards where restrictions lapse upon the passage of time (service vesting), achieving performance targets, or some combination of these restrictions. For those restricted stock awards with only service conditions, the Company recognizes compensation cost on a straight-line basis over the explicit service period. For awards with both performance and service conditions, the Company starts recognizing compensation cost over the remaining service period, when it is probable the performance condition will be met. For stock awards that contain performance or market vesting conditions, the Company excludes these awards from diluted earnings per share computations until the contingency is met as of the end of that reporting period.

Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred income taxes are provided for temporary differences in recognizing certain income, expense and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the difference between the tax bases of assets and liabilities and their financial reporting amounts. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized.

The Company records a valuation allowance when it determines, based on available positive and negative evidence, that it is more-likely-than-not that some portion or all of its deferred tax assets will not be realized. The Company determines the realizability of its deferred tax assets primarily based on the reversal of existing taxable temporary differences and projections of future taxable income (exclusive of reversing temporary differences and carryforwards). In evaluating such projections, the Company considers its history of profitability, the competitive environment, the overall outlook for the online marketing industry and general economic conditions. In addition, the Company considers the timeframe over which it would take to utilize the deferred tax assets prior to their expiration.

For certain tax positions, the Company uses a more-likely-than-not threshold based on the technical merits of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold are measured at the largest amount of tax benefits determined on a cumulative probability basis, which are more-likely-than-not to be realized upon ultimate settlement in the financial statements. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense.

Earnings Per Share

Basic net loss per common share excludes dilution for potential common stock issuances and is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted earnings per share assumes the exercise of stock options and warrants using the treasury stock method.

On June 3, 2013 the Company announced that its board of directors had approved the repurchase of up to $50 million of the Company's common stock. Such repurchases may be made from time to time subject to pre-determined price and volume guidelines established by the Company's board of directors. The weighted-average shares outstanding-common stock has been adjusted downward for share repurchases made during the three months ended June 30, 2013. No share repurchases have been

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made during the three months ended September 30, 2013. See Footnote 10 for more information pertaining to the Company's share repurchases.

The following table provides a reconciliation of the numerators and denominators used in computing basic and diluted net loss per common share:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(In thousands, except share and per share data)
Net loss	$	(82	)	$	(3,118	)	$	(2,503	)	$	(10,176	)
Net loss per share - common stock:
Basic	$	0.00		$	(0.09	)	$	(0.07	)	$	(0.31	)
Diluted	$	0.00		$	(0.09	)	$	(0.07	)	$	(0.31	)
Weighted-average shares outstanding-common stock, basic and dilutive	34,502,456			33,470,628			34,417,609			33,120,233

The following is a summary of common stock equivalents for the securities outstanding during the respective periods that have been excluded from the earnings per share calculations as their impact was anti-dilutive.



	Three Months Ended September 30,		Nine Months Ended September 30,
	2013	2012	2013	2012
Stock options and restricted stock	694,829	1,922,373	694,781	1,759,335
Common stock warrants	—	—	—	4,002

Recent Pronouncements

In July 2013, FASB issued Accounting Standards Update 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Exists. This update requires unrecognized tax benefits to be offset against a deferred tax asset for a net operating loss carryforward, similar tax loss or tax credit carryforward in certain situations. This update was created due to the diversity in practice in presentation of unrecognized tax benefits in those instances. Some entities present unrecognized tax benefits as a liability unless the unrecognized tax benefit is directly associated with a tax position taken in a tax year that results in, or resulted in, the recognition of a net operating loss or tax credit carryforward for that year and the net operating loss or tax credit carryforward for that year has not been utilized. Other entities present unrecognized tax benefits as a reduction of a deferred tax asset for a net operating loss or tax credit carryforward in certain circumstances. The objective of this update is to eliminate this diversity in practice. The amendments in this update should be applied prospectively for reporting periods beginning after December 15, 2013. This standard did not have a material impact on the Company’s financial statements.



3.	Asset Disposition

On March 18, 2013, the Company and its wholly-owned subsidiary RSC The Quality Measurement Company (also known as ARSgroup), sold certain assets related to its ARS Non-Health Copy-Testing and Equity Tracking business to MSW.ARS LLC, a Delaware limited liability company ("Buyer").

In connection with the disposition, the Company will receive total proceeds of $1.0 million in cash, with $0.25 million received at closing on March 18, 2013, net of advisory fees, and $0.75 million placed in escrow, which will be received in three equal quarterly payments beginning June 30, 2013 and ending on December 31, 2013. The first two payments scheduled for June 30, 2013 and September 30, 2013 have been received. In addition, the Company entered into a license agreement in which it will retain the right to use the necessary intellectual property to continue to provide the ARS Copy-Testing and Equity Tracking services to its Health related customers and recorded an intangible asset of $1.2 million based on the estimated fair value of the licensed intellectual property. In determining the fair value of the intangible asset, the Company prepared a discounted cash flow (“DCF”) analysis. In preparing the DCF analysis, the Company used a combination of income approaches including the relief from royalty approach and the excess earnings approach. Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount rates, terminal growth rates, royalty rates and the amount

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and timing of expected future cash flows. The cash flows employed in the DCF analysis were based on the Company’s most recent budgets, forecasts and business plans as well as growth rate assumptions for years beyond the current business plan period. Significant assumptions used include a discount rate of 18.5%, which is based on an assessment of the risk inherent in the future revenue streams and cash flows associated with the health related customers of ARS, as well as a royalty rate of 3.0%, which is based on an analysis of royalty rates in similar, market transactions. This intangible asset will be amortized on a straight-line basis over its estimated useful life of 3 years beginning April 1, 2013. The assets disposed of included computer equipment, furniture and fixtures, intellectual property and the intangible assets associated with the ARSgroup. Due to the fact that the Company will continue to provide the ARS Copy-Testing and Equity Tracking services to its Health related customers and has therefore not eliminated the operations and cash flows of the ARSgroup, management has concluded that the disposition does not qualify for presentation as discontinued operations.

As a result of the disposition, during the three months ended March 31, 2013, the Company recorded a gain on the Disposition of $0.2 million, determined as follows (in thousands):



Cash proceeds received at closing, net	$	160
Proceeds receivable (placed in escrow)	750
Fair value of licensed intellectual property	1,182
	2,092
Carrying value of assets disposed	(1,436		)
Goodwill allocated to disposition	(289		)
Fair value of accelerated equity awards	(157		)
Gain on disposition	$	210



4.	Goodwill and Intangible Assets

The change in the carrying value of goodwill for the nine months ended September 30, 2013 is as follows (in thousands):



Balance as of December 31, 2012	$	102,900
Goodwill allocated to ARS disposition	(289		)
Translation adjustments	380
Balance as of September 30, 2013	$	102,991

Certain of the Company’s intangible assets are recorded in euros, British Pounds and the local currencies of the Company’s South American subsidiaries, and therefore, the gross carrying amount and accumulated amortization are subject to foreign currency translation adjustments. The carrying values of the Company’s amortizable acquired intangible assets are as follows (in thousands):



	September 30, 2013							December 31, 2012
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Acquired methodologies/technology	$	7,725	$	(5,113	)	$	2,612	$	8,412	$	(4,372	)	$	4,040
Customer relationships	35,488		(14,112		)	21,376		35,766		(11,230		)	24,536
Panel	1,638		(1,248		)	390		1,639		(1,073		)	566
Intellectual property	13,571		(3,612		)	9,959		13,571		(2,459		)	11,112
Trade names	2,882		(2,532		)	350		4,153		(3,648		)	505
	$	61,304	$	(26,617	)	$	34,687	$	63,541	$	(22,782	)	$	40,759

Amortization expense related to intangible assets was approximately $2.0 million and $6.0 million for the three and nine months ended September 30, 2013, respectively, and $2.4 million and $7.0 million for the three and nine months ended September 30, 2012, respectively.

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The weighted average remaining amortization period by major asset class as of September 30, 2013, is as follows:



	(In years)
Acquired methodologies/technology	2.0
Customer relationships	6.2
Panel	1.7
Intellectual property	7.7
Trade names	1.7

The estimated future amortization of acquired intangible assets as of September 30, 2013 is as follows:



	(In thousands)
2013	$	1,911
2014	7,653
2015	6,644
2016	5,347
2017	4,287
Thereafter	8,845
	$	34,687



5.	Accrued Expenses

Accrued expenses consist of the following:



	September 30,		December 31,
	2013		2012
	(In thousands)
Payroll and related	$	8,532	$	5,556
Fixed asset additions	5,519		146
Stock-based compensation	4,852		6,652
Cost of revenues	3,909		4,892
Professional fees	2,660		1,333
Income, sales and other taxes	2,209		2,733
Other	3,542		3,097
	$	31,223	$	24,409

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6.	Long-term Debt and Other Financing Arrangement

Capital Leases

The Company has a lease financing arrangement with Banc of America Leasing & Capital, LLC in the amount of $10.0 million, of which the Company can utilize approximately $10.0 million as of September 30, 2013 for future capital leases. This arrangement allows the Company to lease new software, hardware and other computer equipment as it expands its technology infrastructure in support of its business growth. Under this arrangement, the Company may enter into new capital leases prior to February 26, 2014. The amounts the Company has utilized to date under this arrangement have not lowered the amount available for future capital leases, because those amounts have been assigned by Banc of America Leasing & Capital, LLC under separate third-party arrangements. In addition, the Company enters into capital leases under non-committed arrangements, typically directly with equipment manufacturers. Future minimum payments under capital leases with initial terms of one year or more are as follows:



	(In thousands)
2013	$	2,759
2014	8,471
2015	6,352
2016	2,257
2017	47
Total minimum lease payments	19,886
Less amount representing interest	(1,105		)
Present value of net minimum lease payments	18,781
Less current portion	8,596
Capital lease obligations, long-term	$	10,185

During the nine months ended September 30, 2013 and 2012, the Company acquired $10.2 million and $4.7 million, respectively, in computer equipment through the issuance of capital leases. This non-cash investing activity has been excluded from the consolidated statement of cash flows.

Revolving Credit Facility

On September 26, 2013, the Company entered into a Credit Agreement (the “Credit Agreement”) with several banks (the "Lenders") with Bank of America, N.A. (“Bank of America”) as administrative agent, lead lender, and letter of credit issuer. The Credit Agreement provides for a five-year revolving credit facility of $100.0 million, which includes a $10.0 million sublimit for issuance of standby letters of credit, a $10 million sublimit for swing line loans and a $10.0 million sublimit for alternative currency lending. The maturity date of the Credit Agreement is September 26, 2018. The Credit Agreement also contains an expansion option permitting the Company to request an increase of the credit facility up to an aggregate additional $50 million, subject to certain conditions. Borrowings under the Revolving Credit Facility shall be used towards working capital and other general corporate purposes as well as for the issuance of letters of credit, and the repurchase of equity interests in the Company not to exceed $50 million during the five-year revolver term.

Base rate loans and swing line loans will bear interest at the Base Rate plus the Applicable Rate, as such terms are defined in the Credit Agreement and summarized below. The Base Rate is the highest rate of the following: (a) the Federal Funds rate plus 0.50%, (b) the publicly announced Bank of America prime rate, and (c) the Eurocurrency rate, as defined in the Credit Agreement plus 1.0%. The Applicable Rate for base rate loans and swing line loans is 0.50% to 1.50% depending on the Company’s funded debt-to-EBITDA ratio at the end of each fiscal quarter. Amounts supporting letters of credit bear interest at the applicable rate for revolving loans. Each Eurocurrency rate loan will bear interest at the Eurocurrency Rate plus the Applicable Rate ranging from 1.50% to 2.50% depending on the Company's funded debt-to-EBITDA ratio at the end of each fiscal quarter. Beginning on September 26, 2013 through the maturity date of the five-year revolver term, the Company is obligated to pay a fee, payable quarterly in arrears, based on the average unused portion of the available amounts under the Credit Agreement at a rate of 0.20% to 0.35% per annum depending on the Company’s funded debt-to-EBITDA ratio at the end of each fiscal quarter.

The Credit Agreement contains various usual and customary covenants, including, but not limited to: financial covenants requiring maximum funded debt-to-EBITDA ratio and cash flow-to-fixed charge ratios and covenants relating to the Company’s ability to dispose of assets, make certain acquisitions, be acquired, incur indebtedness, grant liens and make certain

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investments. As of September 30, 2013 the Company was in full compliance with all covenants contained in the Credit Agreement and remains so as of the date of this report.

As of September 30, 2013, the Company did not have an outstanding balance under the terms of the Company’s Credit Agreement.

The Company maintains letters of credit in lieu of security deposits with respect to certain office leases as well as to satisfy performance guarantees under certain contracts. As of September 30, 2013, $3.7 million in letters of credit were outstanding, leaving $6.3 million available for additional letters of credit. These letters of credit may be reduced periodically provided the Company meets the conditional criteria of each related lease agreement.



7.	Commitments and Contingencies

Leases

In addition to equipment financed through capital leases, the Company is obligated under various noncancelable operating leases for office facilities and equipment. These leases generally provide for renewal options and escalation increases. Future minimum payments under noncancelable lease agreements with initial terms of one year or more are as follows:



	(In thousands)
2013	$	2,465
2014	9,905
2015	9,936
2016	9,935
2017	9,752
Thereafter	37,522
Total minimum lease payments	$	79,515

Total rent expense, under non-cancellable operating leases, was $2.3 million and $6.7 million for the three and nine months ended September 30, 2013, respectively, and $2.3 million and $6.2 million for the three and nine months ended September 30, 2012, respectively.

Contingencies

During the three months ended June 30, 2013 the Company settled certain patent litigation lawsuits that it initiated against certain third-parties. The Company recognized a net gain of $1.2 million during the three months ended June 30, 2013 related to these settlements.

On August 23, 2011, the Company received notice that Mike Harris and Jeff Dunstan, individually and on behalf of a class of similarly situated individuals, filed a lawsuit against the Company in the United States District Court for the Northern District of Illinois, Eastern Division, alleging, among other things, violations by the Company of the Stored Communications Act, the Electronic Communications Privacy Act, Computer Fraud and Abuse Act and the Illinois Consumer Fraud and Deceptive Practices Act as well as unjust enrichment. The complaint seeks unspecified damages, including statutory damages per violation and punitive damages, injunctive relief and reasonable attorneys’ fees of the plaintiffs. In October 2012, the plaintiffs filed an amended complaint which, among other things, removed the claim relating to alleged violations of the Illinois Consumer Fraud and Deceptive Practices Act. On April 2, 2013, the District Court issued an order certifying a class for only three of the four claims, refusing to certify a class for unjust enrichment. Merits based discovery is underway and expected to continue through calendar year 2013. Based on examination of the remaining claims, the Company believes that they are without merit. The Company continues to investigate the claims and intends to vigorously protect and defend itself. It is not possible for the Company to estimate a potential range of loss at this time.

From time to time, the Company is exposed to asserted and unasserted potential claims encountered in the normal course of business. Although the outcome of any legal proceeding cannot be predicted with certainty, management believes that the final outcome and resolution of these matters will not materially affect the Company’s consolidated financial position or results of operations.

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8.	Income Taxes

The Company’s income tax provision for interim periods is calculated by applying its estimated annual effective tax rate on ordinary income before taxes to year-to-date ordinary book income before taxes. The income tax effects of any extraordinary, significant unusual or infrequent items not included in ordinary book income are determined separately and recognized in the period in which the items arise.

During the three and nine months ended September 30, 2013, the Company recorded income tax provisions of $0.8 million and $4.3 million resulting in effective tax rates of 111.6% and 240.5%, respectively. During the three and nine months ended September 30, 2012, the Company recorded income tax provisions of $1.4 million and $2.6 million resulting in effective tax rates of 81.8% and 35.0%, respectively. These effective tax rates differ from the Federal statutory rate of 35% primarily due to the effects of valuation allowances associated with foreign losses, state income taxes, foreign income taxes, nondeductible expenses such as certain stock compensation and meals and entertainment, unrecognized tax benefits and changes in statutory tax rates which took effect during the year.

The exercise of certain stock options and the vesting of certain restricted stock awards during the three and nine months ended September 30, 2013 and 2012, generated income tax deductions equal to the excess of the fair market value over the exercise price or grant date fair value, as applicable. The Company will not recognize a deferred tax asset with respect to the excess of tax over book stock compensation deductions until the tax deductions actually reduce its current taxes payable. As such, the Company has not recorded a deferred tax asset in the accompanying consolidated financial statements related to the additional net operating losses generated from the windfall tax deductions associated with the exercise of these stock options and the vesting of restricted stock awards. If and when the Company utilizes these net operating losses to reduce income taxes payable, the tax benefit will be recorded as an increase in additional paid-in capital.

During the three and nine months ended September 30, 2013, certain stock options were exercised and certain shares related to restricted stock awards vested at times when the Company’s stock price was substantially lower than the fair value of those shares at the time of grant. As a result, the income tax deduction related to such shares is less than the expense previously recognized for book purposes. Such shortfalls reduce additional paid-in capital to the extent windfall tax benefits have been previously recognized. As of December 31, 2012, the Company did not have additional paid-in capital related to windfall tax benefits. As such, a shortfall of $1.0 million has been included in income tax expense for the nine months ended September 30, 2013. No shortfall was included in income tax expense for the three months ended September 30, 2013. During the three and nine months ended September 30, 2012, $0.0 million and $0.1 million of shortfalls reduced additional paid-in capital and $0.2 million and $0.5 million of the shortfalls were included in income tax expense.

As of September 30, 2013 and December 31, 2012, the Company had a valuation allowance related to the deferred tax assets of certain foreign subsidiaries (primarily net operating loss carryforwards) that are either loss companies or are in their start-up phases, the U.S. capital loss carryforwards and certain state net operating loss carryforwards. Management will continue to evaluate the Company’s deferred tax position of its U.S. and foreign companies throughout 2013 to determine the appropriate level of valuation allowance required against its deferred tax assets.

As of September 30, 2013 and December 31, 2012, the Company had unrecognized tax benefits of approximately $1.4 million. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of September 30, 2013 and December 31, 2012, the amount of accrued interest and penalties on unrecognized tax benefits was approximately $0.7 million.

The Company or one of its subsidiaries files income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. For income tax returns filed by the Company, the Company is no longer subject to U.S. Federal examinations by tax authorities for years before 2010 or state and local examinations by tax authorities for years before 2009 although tax attribute carryforwards generated prior to these years may still be adjusted upon examination by tax authorities.



9.	Stockholders’ Equity

1999 Stock Option Plan and 2007 Equity Incentive Plan

Prior to the effective date of the registration statement for the Company’s initial public offering (“IPO”) on June 26, 2007, eligible employees and non-employees were awarded options to purchase shares of the Company’s common stock, restricted stock or restricted stock units pursuant to the Company’s 1999 Stock Plan (the “1999 Plan”). Upon the effective date of the registration statement of the Company’s IPO, the Company ceased using the 1999 Plan for the issuance of new equity awards. Upon the closing of the Company’s IPO on July 2, 2007, the Company established its 2007 Equity Incentive Plan, as amended (the “2007 Plan” and together with the 1999 Plan, the “Plans”). The 1999 Plan will continue to govern the terms and

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conditions of outstanding awards granted thereunder, but no further shares are authorized for new awards under the 1999 Plan. As of September 30, 2013 and December 31, 2012, the Plans provided for the issuance of a maximum of approximately 9.9 million shares and 8.5 million shares, respectively, of common stock. In addition, the 2007 Plan provides for annual increases in the number of shares available for issuance thereunder on the first day of each fiscal year beginning with the 2008 fiscal year, equal to the lesser of: (i) 4% of the outstanding shares of the Company’s common stock on the last day of the immediately preceding fiscal year; (ii) 1,800,000 shares; or (iii) such other amount as the Company’s Board of Directors may determine. The vesting period of options granted under the Plans is determined by the Board of Directors, although, for service-based options the vesting has historically been generally ratable over a four-year period. Options generally expire 10 years from the date of the grant. Effective January 1, 2013, the shares available for grant increased by 1,427,177 pursuant to the automatic share reserve increase provision under the Plans. Accordingly, as of September 30, 2013, a total of 3,153,644 shares were available for future grant under the 2007 Plan.

The Company estimates the fair value of stock option awards using the Black-Scholes option-pricing formula and a single option award approach. The Company then amortizes the fair value of awards expected to vest on a ratable straight-line basis over the requisite service periods of the awards, which is generally the period from the grant date to the end of the vesting period.

A summary of the Plans is presented below:



	Number of Shares		Weighted- Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Options outstanding at December 31, 2012	90,552		$	4.38	2.99	851
Options granted	—		$	—
Options exercised	(44,518	)	$	4.24		855
Options forfeited	—		$	—
Options expired	(255	)	$	9.73
Options outstanding and exercisable at September 30, 2013	45,779		$	4.49	2.31	1,121

The intrinsic value of exercised stock options is calculated based on the difference between the exercise price and the quoted market price of the Company’s common stock as of the close of the exercise date. The aggregate intrinsic value for options outstanding and exercisable is calculated as the difference between the exercise price of the underlying stock option awards and the quoted market price of the Company’s common stock at September 30, 2013. As of September 30, 2013, there is no unrecognized compensation expense related to non-vested stock options granted prior to that date. The Company’s nonvested stock awards are comprised of restricted stock and restricted stock units. The Company has a right of repurchase on such shares that lapse at a rate of twenty-five percent (25)% of the total shares awarded at each successive anniversary of the initial award date, provided that the employee continues to provide services to the Company. In the event that an employee terminates their employment with the Company, any shares that remain unvested and consequently subject to the right of repurchase shall be automatically reacquired by the Company at the original purchase price paid by the employee. During the three months ended September 30, 2013, 15,224 forfeited shares of restricted stock have been repurchased by the Company at no cost.

A summary of the status for nonvested stock awards as of September 30, 2013 is presented as follows:



Nonvested Stock Awards	Restricted Stock		Restricted Stock Units		Total Number of Shares Underlying Awards		Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2012	1,969,710		466,824		2,436,534		$	20.82
Granted	447,821		941,365		1,389,186		19.31
Vested	(1,139,234	)	(195,381	)	(1,334,615	)	17.69
Forfeited	(189,970	)	(140,267	)	(330,237	)	20.80
Nonvested at September 30, 2013	1,088,327		1,072,541		2,160,868		$	21.78

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The aggregate intrinsic value for all non-vested shares of restricted stock and restricted stock units outstanding as of September 30, 2013 was $62.6 million.

As of September 30, 2013, total unrecognized compensation expense related to non-vested restricted stock and restricted stock units was $29.6 million, which the Company expects to recognize over a weighted-average period of approximately 1.21 years. Total unrecognized compensation expense may be increased or decreased in future periods for subsequent grants or forfeitures.

Of the 197,762 shares of the Company’s restricted stock and restricted stock units vesting during the three months ended September 30, 2013, the Company repurchased 56,332 shares at an aggregate purchase price of approximately $1.6 million pursuant to the stockholder’s right under the Plans to elect to use common stock to satisfy tax withholding obligations.

Shares Reserved for Issuance

At September 30, 2013, the Company had reserved for future issuance the following shares of common stock upon the exercise of options:



Common stock available for future issuances under the Plans	3,153,644
Common stock reserved for outstanding options and restricted stock units	1,118,320
	4,271,964



10.	Share Repurchases

As part of the share repurchase program, shares may be purchased in open market transactions or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act. The timing, manner, price and amount of any repurchases will be determined at the Company's discretion, and the share repurchase program may be suspended, terminated or modified at any time for any reason. Shares repurchased are classified as Treasury Stock and presented as a deduction from Stockholder's Equity. Cash paid for share repurchases for the three and nine months ended September 30, 2013, under the recently announced share repurchase program, was as follows:



	Three Months Ended September 30, 2013	Nine Months Ended September 30, 2013
(Amounts in millions, except share and per share data)
Total number of shares repurchased	—	23,437
Average price paid per share	N/A	$21.11
Total share repurchases	—	$0.5



11.	Geographic Information

The Company attributes revenues to customers based on the location of the customer. The composition of the Company’s sales to unaffiliated customers between those in the United States and those in other locations for the three and nine months ended September 30, 2013 and 2012 is set forth below:



	Three Months Ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012
	(In thousands)
United States	$	50,291	$	46,979	$	148,306	$	135,507
Europe	12,508		10,361		36,430		31,273
Canada	3,465		2,922		9,824		8,429
Other	5,342		4,011		15,805		11,630
Total Revenues	$	71,606	$	64,273	$	210,365	$	186,839

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The composition of the Company’s property and equipment between those in the United States and those in other countries as of the end of each period is set forth below:



	September 30, 2013		December 31, 2012
	(In thousands)
United States	$	33,084	$	24,810
Europe	4,475		5,477
Canada	279		291
Other	744		840
Total	$	38,582	$	31,418

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ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q . In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk factors” and elsewhere in this document. See also “Cautionary Note Concerning Forward-Looking Statements” at the beginning of this Quarterly Report on Form 10-Q.

Overview

We provide leading, on-demand digital analytics that enable our customers to make well-informed, data-driven decisions and implement more effective digital business strategies. More specifically, we are an Internet technology company that measures what people do as they navigate the digital world, and we turn that information into insights and actions for our clients to maximize the value of their digital investments. One of the key elements of our products is our ability to effectively combine our proprietary comScore data (which we obtain via our global panel and census network) with our clients' own data. Our products provide our customers with deep insight into consumer behavior, including objective, detailed information regarding usage of their online properties and those of their competitors, coupled with information on consumer demographic characteristics, attitudes, lifestyles and offline behavior. In addition, we offer mobile operator analytics products that provide comprehensive marketing and customer care insight to the various mobile carriers worldwide. During the three months ended September 30, 2013, we provided services to approximately 2,300 customers worldwide with our broad geographic base of employees located in 31 locations in 23 countries.

We deliver our products on-demand using our digital measurement and analytics platforms, which are comprised of proprietary databases, internally developed software, and a computational infrastructure that measures, analyzes and reports on digital activity. Our scalable, Software-as-a-Service, or SaaS, delivery model, eliminates the need for our customers to install and maintain hardware and software in order to use our products. Our products are hosted and maintained by us, which significantly reduces the cost and complexity for our customers relative to traditional software products and provides significant operating efficiencies. We can quickly deploy or update our products with minimal to no lead time, which significantly enhances our customers’ productivity. We offer our products as a subscription-based service for which our customers pay a recurring fee during the subscription term.

Our digital media measurement and analytics platforms are comprised of proprietary databases and a computational infrastructure that measures, analyzes and reports on digital activity worldwide. The foundation of our platform is data collected from our comScore panel of approximately two million Internet users worldwide who have granted us explicit permission to confidentially measure their Internet usage patterns, online and certain offline buying behavior and other activities. By applying advanced statistical methodologies to our panel data, we project consumers’ online behavior for the total online population and a wide variety of user categories. This panel information is complemented by our Unified Digital Measurement^™ methodology which enables us to more accurately measure digital audiences. Our Unified Digital Measurement approach blends panel and census methodologies into products that provide a direct linkage and reconciliation between census and panel measurement. Our tagged network of global websites and apps is referred to as the comScore Census Network^™, which has been built with a substantial infrastructure and technology that processes over 1.6 trillion events per month worldwide. We also provide products to the large mobile networks that deliver network analysis focused on the experience of wireless subscribers, as well as network intelligence with respect to performance, capacity and configuration analytics. We also provide digital (web, apps, video, gaming, and other digital assets) and monetization analytics and innovative video measurement products.

We deliver our Analytics for a Digital World^™ through a wide array of products organized around the following four major suites: audience analytics, advertising analytics, digital business analytics and mobile operator analytics. Our audience analytics products deliver digital media intelligence by providing an independent, third-party measurement of the size, behavior and characteristics of Internet users on multiple devices, such as TVs, PCs, smartphones and tablets as well as insight into the effectiveness of online advertising. Our core product offerings are built around our Media Metrix ^™ product, but also include Video Metrix ^™, Mobile Metrix ^™, Plan Metrix ^™ and Ad Metrix ^™. As the Internet evolves, we are continually creating new solutions, such as Social Essentials, which provides insight into the audience size, composition, behavior and brand engagement of consumers reached by brands on Facebook. We typically deliver our audience analytics products electronically in the form of weekly, monthly or quarterly subscription-based reports. Customers can access current and historical data and analyze this data anytime online.

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Our advertising analytics products combine the proprietary information gathered from our comScore Census Network with the vertical industry expertise of comScore analysts to deliver digital marketing intelligence, including the measurement of online advertising effectiveness, customized for specific industries. Our advertising analytics products include the AdEffx, ^™ suite Media Planner 2.0 ^™ and validated Campaign Essentials ^™, which provide a solution for developing, executing and evaluating online advertising campaigns across multiple platforms, including TV, Web (Display and Video) and Mobile (Smartphones and Tablets). In August 2011, we acquired AdXpose, which provides advertisers and publishers with greater transparency in the quality, safety, and performance of their digital advertising campaigns by allowing them to verify and optimize billions of campaign data points captured in real-time. The combination of AdXpose with our Campaign Essentials product has enabled us to develop a new product we refer to as validated Campaign Essentials, or vCE, which provides intelligence regarding validated impressions, ads that are actually seen, shown in safe content and delivered to the right target audience. Our advertising analytics products are typically delivered on a monthly, quarterly or ad hoc basis.

Our digital business analytics products help organizations optimize the customer experience on their digital assets (websites, apps, video, etc.) and maximize return on digital media investments by allowing marketers to collect, view and distribute information tailored to their specific business requirements. Our digital business analytics platform is designed to integrate data from multiple sources including web, mobile, video and social media interactions. Our digital business analytics services are provided primarily through Digital Analytix ^™ our SaaS based product that enables our customers to have access to all of their proprietary click stream data. Our digital business analytics platform is further enhanced by data obtained as part of our audience measurement efforts, and viewable on a quick turnaround basis. Customers can access our digital business analytics data sets and reports anytime online.

Our mobile operator analytics products suite connects mobile behavior, content merchandising, and device capabilities to provide comprehensive mobile market intelligence to mobile carriers worldwide. Our core software product, Subscriber Analytix ^™, powered by XPLORE ^™, provides mobile carriers with information on network optimization and capacity planning, customer experience, and market intelligence. Our mobile operator analytics platform is designed to integrate data from multiple sources including web and mobile interactions as well as customer relationship management, call center and back office systems. Customers can access our mobile and network data sets and reports anytime online via our software-based delivery platform.

Company History

Our company was founded in August 1999. In 2007, we completed our initial public offering. We have complemented our internal development initiatives with targeted acquisitions. In February 2010, we acquired the outstanding stock of ARSgroup, Inc. to expand our ability to provide our customers with actionable information to improve their creative and strategic messaging targeted to specific audiences. In July 2010, we acquired the outstanding stock of Nexius, Inc., a provider of software products to the large mobile networks that deliver network analysis focused on the experience of wireless subscribers, as well as network intelligence with respect to performance, capacity and configuration analytics. In August 2010, we acquired the outstanding stock of Nedstat B.V., a provider of web analytics and innovative video measurement products based in Amsterdam, Netherlands. In August 2011, we acquired all of the outstanding equity of AdXpose, Inc., a provider of digital advertising analytics products based in Seattle, Washington. In the first quarter of 2013 we sold certain assets related to the ARS Non-Health Copy-Testing and Equity Tracking business.

Since our initial public offering in 2007, our revenues and expenses have grown significantly. We attribute the growth in our revenue and expenses primarily to:


•	increased sales to existing customers, as a result of our efforts to deepen our relationships with these customers by increasing their awareness of, and confidence in, the value of our digital marketing intelligence platform;


•	growth in our customer base through the addition of new customers and from acquired businesses;


•	the sales of new products to existing and new customers; and


•	growth in sales outside of the U.S., as a result of entering into new international markets.

As a result of economic events such as the global financial crisis in the credit markets, softness in the housing markets, difficulties in the financial services sector, political uncertainty in the Middle East, and concerns regarding the eurozone, the direction and relative strength of the U.S. and global economies have become somewhat uncertain in 2011 and 2012. During this period, a limited number of our current and potential customers ceased, delayed or reduced renewals of existing subscriptions and purchases of new or additional services and products, presumably due to the economic downturn. Further, certain of our existing customers exited the market due to industry consolidation and bankruptcy in connection with these challenging economic conditions. Since these negative economic events began in 2008, we continued to add net new customers each year and our existing customers renewed their subscriptions at a rate of over 90% based on dollars renewed each year.

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Notwithstanding our performance during these macroeconomic trends, if economic recovery slows or economic conditions deteriorate, our operating results could be adversely affected in coming periods.

Our Revenues

We derive our revenues primarily from the fees that we charge for subscription-based products, customized projects, and software licenses. We define subscription-based revenues as revenues that we generate from products that we deliver to a customer on a recurring basis, as well as arrangements where a customer is committing up-front to purchase a series of deliverables over time, which includes revenue from software licenses as further discussed below. We define project revenues as revenues that we generate from customized projects that are performed for a specific customer on a non-recurring basis. A significant characteristic of our SaaS-based business model is our large percentage of subscription-based contracts. Subscription-based revenues accounted for 86% and 85% of total revenues in the nine months ended September 30, 2013 and the full year 2012, respectively. Many of our customers who initially purchased a customized project have subsequently purchased one of our subscription-based products. Similarly, many of our subscription-based customers have subsequently purchased additional customized projects.

Historically, we have generated most of our revenues from the sale and delivery of our products to companies and organizations located within the United States. We intend to expand our international revenues by selling our products and deploying our direct sales force model in additional international markets in the future. For the year ended December 31, 2012, our international revenues were $71.8 million, an increase of $11.8 million, or 20% over international revenues of $60.0 million for the year ended December 31, 2011. For the nine months ended September 30, 2013, our international revenues were $62.1 million, an increase of $10.8 million, or 21% over international revenues of $51.3 million for the nine months ended September 30, 2012. International revenues comprised approximately 30%, 28% and 26% of our total revenues for the nine months ended September 30, 2013 and for the fiscal years ended December 31, 2012 and 2011, respectively.

We anticipate that revenues from our U.S. customers will continue to constitute a substantial portion of our revenues in coming periods, but we expect that revenues from customers outside of the U.S. will increase as a percentage of total revenues as we build greater international recognition of our brand and expand our sales operations globally.

Subscription Revenues

We generate a significant portion of our subscription-based revenues from our Media Metrix product suite. Products within the Media Metrix suite include Media Metrix 360, Media Metrix, Plan Metrix, World Metrix, Video Metrix and Ad Metrix. These product offerings provide subscribers with intelligence on digital media usage, audience characteristics, audience demographics and online and offline purchasing behavior. Customers who subscribe to our Media Metrix products are provided with login IDs to our web site, have access to our database and can generate reports anytime.

We also generate subscription-based revenues from certain reports and analyses provided through our customer research products, if that work is procured by customers on a recurring basis. Through our customer research products, we deliver digital marketing intelligence relating to specific industries, such as automotive, consumer packaged goods, entertainment, financial services, media, pharmaceutical, retail, technology, telecommunications and travel. This marketing intelligence leverages our global consumer panel and extensive database to deliver information unique to a particular customer’s needs on a recurring schedule, as well as on a continual-access basis. Our Marketing Solutions customer agreements typically include a fixed fee with an initial term of at least one year. We also provide these products on a non-subscription basis as described under “Project Revenues” below.

In addition, we generate subscription-based revenues from survey products that we sell to our customers. In conducting our surveys, we generally use our global Internet user panel. After questionnaires are distributed to the panel members and completed, we compile their responses and then deliver our findings to the customer, who also has ongoing access to the survey response data as they are compiled and updated over time. This data includes responses and information collected from the actual survey questionnaires and can also include behavioral information that we passively collect from our panelists. If a customer has a history of purchasing survey products in each of the last four quarters, we believe this indicates the surveys are being conducted on a recurring basis, and we classify the revenues generated from such survey products as subscription-based revenues. Our contracts for survey services typically include a fixed fee with terms that range from two months to one year.

Our acquisition of Nedstat resulted in additional revenue sources, including software subscriptions, server calls, and professional services. Our arrangements generally contain multiple elements, consisting of the various service offerings. Our acquisition of AdXpose resulted in additional revenue sources, including fees for the use of the AdXpose platform. Customers using the AdXpose platform generally pay a fixed fee for each impression that is generated using the AdXpose technology. Revenue is recognized on a usage basis when the impression is delivered and reported via the AdXpose service portal.

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Project Revenues

We generate project revenues by providing customized information reports to our customers on a nonrecurring basis through comScore Marketing Solutions. For example, a customer in the media industry might request a custom report that profiles the behavior of the customer’s active online users and contrasts their market share and loyalty with similar metrics for a competitor’s online user base. If this customer continues to request the report beyond an initial project term of at least nine months and enters into an agreement to purchase the report on a recurring basis, we begin to classify these future revenues as subscription-based.

Software Licenses

We generate subscription revenue through software licenses, professional services (including software customization, implementation, training and consulting services), and maintenance and technical support contracts. We recognize software license arrangements that include significant modification and customization of the software in accordance with FASB Accounting Standards Codification (“ASC”) 985-605, Software Recognition, and ASC 605-35, Revenue Recognition-Construction-Type and Certain Production-Type Contracts, using either percentage-of-completion or the completed-contract method. Under the percentage-of-completion method, the Company uses the input method to measure progress, which is based on the ratio of costs incurred to date to total estimated costs at completion. The percentage-of-completion method is used when reliable estimates of progress and completion under the contract can be made. Under the completed-contract method, billings and costs (to the extent they are recoverable) are accumulated on the balance sheet, but no profit or income is recorded before user acceptance of the software license. The completed-contract method is used when reliable estimates cannot be made or other terms under the contract require it. To the extent estimated costs are expected to exceed revenue, the Company accrues for costs immediately.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the amounts reported in our consolidated financial statements and the accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

Management considers an accounting policy to be critical if it is important to our financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. The development and selection of these critical accounting policies have been determined by our management. Due to the significant judgment involved in selecting certain of the assumptions used in these areas, it is possible that different parties could choose different assumptions and reach different conclusions. Our critical accounting policies relates to: (a) revenue recognition; (b) fair value measurements; (c) business combinations; (d) goodwill and intangible assets; (e) long-lived assets; (f) allowance for doubtful accounts; (g) income taxes; and (h) stock-based compensation.

Our significant accounting policies are described in more detail in the notes to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q and in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2012. For a discussion of our critical accounting policies and estimates, see “Critical Accounting Policies and Estimates” included in our Annual Report on Form 10-K for the year ended December 31, 2012 under the caption Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Seasonality

Historically, a slightly higher percentage of our customers have renewed their subscription products with us during the fourth quarter than in other quarters.

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Results of Operations

The following table sets forth selected consolidated statements of operations data as a percentage of total revenues for each of the periods indicated.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues	30.2		34.1		31.3		33.6
Selling and marketing	33.9		35.7		35.3		35.6
Research and development	14.6		13.9		14.5		13.5
General and administrative	17.4		14.6		15.6		15.1
Amortization of intangible assets	2.7		3.7		2.9		3.8
Impairment of intangible assets	—		—		—		1.8
Gain on asset disposition	—		—		(0.1	)	—
Settlement of litigation	—		—		(0.6	)	—
Total expenses from operations	98.8		102.0		98.9		103.4
Income from operations	1.2		(2.0	)	1.1		(3.4	)
Interest and other (expense), net	(0.3	)	(0.3	)	(0.3	)	(0.3	)
Gain (loss) from foreign currency	0.1		(0.3	)	(0.1	)	(0.4	)
Income before income tax (provision) benefit	1.0		(2.6	)	0.7		(4.1	)
Income tax (provision) benefit	(1.1	)	(2.2	)	(2.0	)	(1.4	)
Net loss attributable to common stockholders	(0.1	)%	(4.8	)%	(1.3	)%	(5.5	)%

Three and Nine Months period ended September 30, 2013 Compared to the Three and Nine Months period ended September 30, 2012

Revenues



	Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change
	2013		2012		$		%		2013		2012		$		%
	(In thousands)
Revenues	$	71,606	$	64,273	$	7,333	11.4	%	$	210,365	$	186,839	$	23,526	12.6	%

Total revenues increased by approximately $7.3 million, or approximately 11.4%, during the three months ended September 30, 2013 as compared to the three months ended September 30, 2012. We attribute the revenue growth to increased sales to our existing customer base coupled with a slight increase in revenue from new customers. Revenue from existing customers increased $6.8 million from $57.7 million for the three months ended September 30, 2012 to $64.5 million for the three months ended September 30, 2013, while revenue from new customers increased $0.5 million from $6.6 million for the three months ended September 30, 2012 to $7.1 million for the three months ended September 30, 2013.

We experienced continued growth in subscription revenues, which increased by approximately $9.0 million during the three months ended September 30, 2013, from $53.5 million in the prior year period. We experienced a decline in our project revenues, which decreased by approximately $1.7 million during the three months ended September 30, 2013, from $10.8 million in the prior year period. The increase in subscription revenues is partially attributable to the reclassification of certain revenue streams from project revenue into subscription revenue as those revenue streams have evolved to subscription revenue over time.

Revenues from U.S customers were $50.3 million for the three months ended September 30, 2013, or approximately 70% of total revenues, while revenues from customers outside of the U.S. was $21.3 million for the three months ended September 30, 2013, or approximately 30% of total revenues. Our focus on organic growth efforts in international markets resulted in a $4.0 million increase in international revenues during the three months ended September 30, 2013 as compared to the prior year period, comprised primarily of increases of $2.2 million in Europe, $0.8 million in Asia, $0.5 million in Canada and $0.7 million in Latin America.

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Total revenues increased by approximately $23.5 million, or approximately 12.6%, during the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012. We attribute the revenue growth to increased sales to our existing customer base coupled with a slight increase in revenue from new customers. Revenue from existing customers increased $20.2 million from $167.6 million for the nine months ended September 30, 2012 to $187.8 million for the nine months ended September 30, 2013, while revenue from new customers increased $3.4 million from $19.2 million for the nine months ended September 30, 2012 to $22.6 million for the nine months ended September 30, 2013.

We experienced continued growth in subscription revenues, which increased by approximately $23.9 million during the nine months ended September 30, 2013, from $157.6 million in the prior year period. We experienced a slight decline in our project revenues, which decreased by approximately $0.3 million during the nine months ended September 30, 2013, from $29.2 million in the prior year period. The increase in subscription revenues is partially attributable to the reclassification of certain revenue streams from project revenue into subscription revenue as those revenue streams have evolved to subscription revenue over time.

Revenues from U.S customers were $148.3 million for the nine months ended September 30, 2013, or approximately 70% of total revenues, while revenues from customers outside of the U.S. was $62.1 million for the nine months ended September 30, 2013, or approximately 30% of total revenues. Our focus on organic growth efforts in international markets resulted in a $10.8 million increase in international revenues during the nine months ended September 30, 2013 as compared to the prior year period, comprised primarily of increases of $5.2 million in Europe, $2.4 million in Asia, $1.4 million in Canada and $1.7 million in Latin America.

Operating Expenses

The majority of our operating expenses consist of employee salaries and related benefits, stock compensation expense, professional fees, rent and other facility related costs, depreciation expense, and amortization and impairment of acquired intangible assets. Our single largest operating expense relates to our people. In order to effectively motivate our employees and to provide them with proper long-term incentives, we pay the vast majority of our annual bonuses using our common stock. In addition, three of our most senior executives, including our Chief Executive Officer, have agreed to receive shares of our common stock instead of a cash salary.

Our total operating expenses increased by approximately $5.0 million, or approximately 8%, during the three months ended September 30, 2013 as compared to the three months ended September 30, 2012. This increase is primarily attributable to increased expenditures for employee salaries, benefits and related costs of $2.4 million associated with our increased headcount, increased professional fees of $2.3 million and increased commissions of $1.4 million associated with our increased level of bookings. The increases were partially offset by a decrease in amortization expense of $0.4 million and a decrease in bad debt expense of $0.4 million.

Our total operating expenses increased by approximately $14.8 million, or approximately 8%, during the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012. This increase is primarily attributable to increased expenditures for employee salaries, benefits and related costs of $9.2 million associated with our increased headcount, increased commissions of $3.8 million associated with our increased level of bookings, increased professional fees of $3.8 million, increased rent and other facility or facility related costs and depreciation expense of $2.2 million, increased stock-based compensation of $1.8 million and an increase of $1.4 million related to the usage of third-party providers for support related to our data collection efforts. The increases were partially offset by a gain related to the settlements of certain patent litigation lawsuits of $1.2 million, decrease in amortization expense of $1.0 million, decreased royalties and reseller fees of $1.0 million associated with a decrease in the usage of third-parties to sell our products, a decrease of $0.6 million related to the usage of third-party providers for support related to our data collection efforts, a decrease of $0.5 million related to reduced travel costs and a decrease related to an impairment charge of $3.3 million that was recorded in 2012.

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Cost of Revenues



	Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change
	2013			2012			$			%		2013			2012			$		%
	(In thousands)
Cost of revenues	$	21,603		$	21,933		$	(330	)	(1.5	)%	$	65,767		$	62,705		$	3,062	4.9	%
As a percentage of revenues	30.2		%	34.1		%						31.3		%	33.6		%

Cost of revenues consists primarily of expenses related to operating our network infrastructure, producing our products, and the recruitment, maintenance and support of our consumer panels. Expenses associated with these areas include the salaries, stock-based compensation, and related personnel expenses of network operations, survey operations, custom analytics and technical support, all of which are expensed as they are incurred. Cost of revenues also includes data collection costs for our products, operational costs associated with our data centers, including depreciation expense associated with computer equipment that supports our panel and systems, and allocated overhead, which is comprised of rent and other facilities related costs, and depreciation expense generated by general purpose equipment and software.

Cost of revenues decreased by approximately $0.3 million during the three months ended September 30, 2013 compared to the three months ended September 30, 2012. This decrease is primarily attributable to a decrease of $0.2 million in employee salaries, benefits and related costs due to the reallocation of certain operating resources to research and development activities.

Cost of revenues increased by approximately $3.1 million during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. This increase is primarily attributable to an increase of $1.4 million related to the usage of third-party providers for support related to our data collection efforts, increased rent and depreciation of $1.0 million, increased expenditures for employee salaries, benefits and related costs of $0.9 million associated with our increased headcount, increased panel recruitment costs of $0.7 million associated with new panels in the UK and Spain, and increased stock compensation of $0.6 million. These increases were partially offset by decreased royalties and reseller fees of $1.0 million associated with a decrease in the usage of third-parties to sell our products and a decrease of $0.3 million associated with a reduction in the usage of third-party providers for customer service and support related to our data collection efforts.

Cost of revenues decreased as a percentage of revenues during the three and nine months ended September 30, 2013 as compared to the same periods in 2012, due to increased operating leverage and the reallocation of certain operating resources to research and development activities.

Selling and Marketing Expenses



	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
	2013			2012			$		%		2013			2012			$		%
	(In thousands)
Selling and marketing	$	24,255		$	22,928		$	1,327	5.8	%	$	74,204		$	66,508		$	7,696	11.6	%
As a percentage of revenues	33.9		%	35.7		%					35.3		%	35.6		%

Selling and marketing expenses consist primarily of salaries, benefits, commissions, bonuses, and stock-based compensation paid to our direct sales force and industry analysts, as well as costs related to online and offline advertising, industry conferences, promotional materials, public relations, other sales and marketing programs, and allocated overhead, which is comprised of rent and other facilities related costs, and depreciation expense generated by general purpose equipment and software. All selling and marketing costs are expensed as they are incurred. Commission plans are developed for our account managers with criteria and size of sales quotas that vary depending upon the individual’s role. Commissions are expensed as selling and marketing costs when a sales contract is executed by both the customer and us. Selling and marketing expenses have increased because we have been recruiting for additional salespeople in order to support international growth, especially in our DAx and vCE product offerings.

Selling and marketing expenses increased by $1.3 million during the three months ended September 30, 2013 compared to the three months ended September 30, 2012. This increase is primarily attributable to increased commissions of $1.4 million associated with our increased level of bookings and increases in employee salaries, benefits and related costs of $0.9 million. These costs were partially offset by a decrease of $0.6 million in stock-based compensation and a decrease of $0.2 million in travel related costs.

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Selling and marketing expenses increased by $7.7 million during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. This increase is primarily attributable to increased commissions of $3.8 million associated with our increased level of bookings, increased employee salaries, benefits and related costs of $3.7 million associated with our increased sales force, increased rent and depreciation expense of $0.6 million and increased stock-based compensation of $0.2 million. These costs were partially offset by a decrease of $0.5 million in travel related costs.

Selling and marketing expenses remained relatively constant as a percentage of revenues during the three and nine months ended September 30, 2013 as compared to the same period in 2012.

Research and Development Expenses



	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
	2013			2012			$		%		2013			2012			$		%
	(In thousands)
Research and development	$	10,441		$	8,963		$	1,478	16.5	%	$	30,467		$	25,266		$	5,201	20.6	%
As a percentage of revenues	14.6		%	13.9		%					14.5		%	13.5		%

Research and development expenses include new product development costs, consisting primarily of salaries, benefits, stock-based compensation and related costs for personnel associated with research and development activities, fees paid to third parties to develop new products and allocated overhead, which is comprised of rent and other facilities related costs, and depreciation expense generated by general purpose equipment and software.

Research and development expenses increased $1.5 million during the three months ended September 30, 2013 compared to the three months ended September 30, 2012. This increase is primarily attributable to increased employee salaries, benefits and related costs of $1.7 million associated with a reallocation of resources to focus on the development of new products.

Research and development expenses increased $5.2 million during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. This increase is primarily attributable to increased employee salaries, benefits and related costs of $3.8 million associated with a reallocation of resources to focus on the development of new products, increased stock-based compensation of $0.8 million and increased rent and depreciation expense of $0.6 million.

Research and development expenses increased slightly as a percentage of revenues for the three and nine months ended September 30, 2013 as compared to the same periods in 2012, due to the increase in the allocation of resources to research and development activities for the development of new products.

General and Administrative Expenses



	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
	2013			2012			$		%		2013			2012			$		%
	(In thousands)
General and administrative	$	12,492		$	9,400		$	3,092	32.9	%	$	32,742		$	28,231		$	4,511	16.0	%
As a percentage of revenues	17.4		%	14.6		%					15.6		%	15.1		%

General and administrative expenses consist primarily of salaries, benefits, stock-based compensation, and related expenses for executive management, finance, accounting, human capital, legal and other administrative functions, as well as professional fees, overhead, including allocated overhead, which is comprised of rent and other facilities related costs, and depreciation expense generated by general purpose equipment and software, and expenses incurred for other general corporate purposes.

General and administrative expenses increased by $3.1 million during the three months ended September 30, 2013 as compared to the three months ended September 30, 2012. This increase is primarily attributable to increased professional fees of $2.3 million and an increase in stock-based compensation of $1.0 million. These costs were partially offset by a reduction of $0.4 million in bad debt expense.

General and administrative expenses increased by $4.5 million during the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012. This increase is primarily attributable to increased professional fees of

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$3.8 million and an increase in employee salaries, benefits and related costs of $0.8 million. These costs were partially offset by a reduction of $0.7 million in bad debt expense.

General and administrative expenses increased as a percentage of revenues during the three months ended September 30, 2013 as compared to the same period in 2012, due to increased professional fees related to certain ongoing litigation. General and administrative expenses remained relatively constant during the nine months ended September 30, 2013 as compared to the same period in 2012.

Amortization Expense



	Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change
	2013			2012			$			%		2013			2012			$			%
	(In thousands)
Amortization expense	$	1,956		$	2,385		$	(429	)	(18.0	)%	$	6,043		$	7,007		$	(964	)	(13.8	)%
As a percentage of revenues	2.7		%	3.7		%						2.9		%	3.8		%

Amortization expense consists of charges related to the amortization of intangible assets associated with acquisitions.

Amortization expense decreased $0.4 million and $1.0 million during the three and nine months ended September 30, 2013, respectively, as compared to the three and nine months ended September 30, 2012 due principally to the sale of certain intangible assets associated with the ARS Non-Health Copy-Testing and Equity Tracking business.

Gain on Asset Disposition

During the three months ended March 31, 2013, we completed the sale of certain assets related to our ARS Non-Health Copy-Testing and Equity Tracking business. In connection with the disposition, we will receive total proceeds of $1.0 million in cash, with $0.25 million received at closing on March 18, 2013 and $0.75 million placed in escrow, scheduled to be received in three equal quarterly payments beginning June 30, 2013 and ending on December 31, 2013. The first two payments scheduled for June 30, 2013 and September 30, 2013 have been received. In addition, we entered into a license agreement in which we will retain the right to use the necessary intellectual property to continue to provide the ARS Copy-Testing and Equity Tracking services to our Health related customers and recorded an intangible asset of $1.2 million based on the estimated fair value of the licensed intellectual property. In determining the fair value of the intangible asset, the Company prepared a discounted cash flow (“DCF”) analysis using a combination of income approaches including the relief from royalty approach and the excess earnings approach. Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount rates, terminal growth rates, royalty rates and the amount and timing of expected future cash flows. The cash flows employed in the DCF analysis were based on the Company’s most recent budgets, forecasts and business plans as well as growth rate assumptions for years beyond the current business plan period. Significant assumptions used include a discount rate of 18.5%, which is based on an assessment of the risk inherent in the future revenue streams and cash flows associated with the health related customers of ARS, as well as a royalty rate of 3.0%, which is based on an analysis of royalty rates in similar, market transactions. This intangible asset will be amortized on a straight-line basis over its estimated useful life of 3 years beginning April 1, 2013. The assets disposed of included computer equipment, furniture and fixtures, intellectual property and the intangible assets associated with the ARSgroup. Due to the fact that we will continue to provide the ARS Copy-Testing and Equity Tracking services to its Health related customers and have therefore not eliminated the operations and cash flows of the ARSgroup, we have concluded that the disposition does not qualify for presentation as discontinued operations. In connection with this transaction we recorded a gain on the disposition of $0.2 million.

Settlement of Litigation

During the three months ended June 30, 2013, we settled patent litigation lawsuits that we initiated against certain third-parties. In aggregate, the settlement of these lawsuits resulted in the recognition of a net gain of approximately $1.2 million during the three months ended June 30, 2013.

Interest and Other Income (Expense), Net

Interest and other income/expense, net, consists of interest income, interest expense and gains or losses on disposals of fixed assets.

Interest income consists of interest earned from our cash and cash equivalent balances. Interest expense is incurred due to capital leases pursuant to several equipment loan and security agreements to finance the lease of various hardware and other

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equipment purchases and our revolving credit facility. Our capital lease obligations are secured by a senior security interest in eligible equipment.

Interest and other income (expense), net for the three and nine months ended September 30, 2013 resulted in net expense of $0.2 million and $0.6 million, respectively, as compared to $0.2 million and $0.5 million of net interest expense for the three and nine months ended September 30, 2012, respectively.

Loss From Foreign Currency

The functional currency of our foreign subsidiaries is the local currency. All assets and liabilities are translated at the current exchange rates as of the end of the period, and revenues and expenses are translated at average rates in effect during the period. The gain or loss resulting from the process of translating the foreign currency financial statements into U.S. dollars is included as a component of other comprehensive (loss) income.

We recorded a transaction gain of $0.1 million and a transaction loss of $0.2 million during the three and nine months ended September 30, 2013, respectively, as compared to transaction losses of $0.2 million and $0.8 million during the three and nine months ended September 30, 2012, respectively, due to our continued international presence in Europe and Latin America. Our foreign currency transactions are recorded primarily as a result of fluctuations in the exchange rate between the U.S. dollar and the British Pound, Euro, and the functional currencies of our Latin America entities.

Provision for Income Taxes

During the three and nine months ended September 30, 2013, we recorded income tax provisions of $0.8 million and $4.3 million, respectively, as compared to income tax provisions of $1.4 million and $2.6 million during the comparable periods of 2012, respectively. The tax provisions for the three and nine months ended September 30, 2013 were attributable to current tax expense of $0.6 million and $1.4 million, respectively, and deferred tax expense of $0.2 million and $2.9 million, respectively. These amounts include $0.1 million of current and deferred tax benefit and $0.9 million of current and deferred tax expense for discrete items such as stock compensation, statutory rate changes and changes in uncertain tax positions recorded during the three and nine months ended September 30, 2013, respectively. Also, included in the tax provision for nine months ended September 30, 2013 is $0.1 million of tax expense related to the gain on the sale of certain assets related to our ARS Non-Health Copy-Testing and Equity Tracking business.

The tax provisions for the three and nine months ended September 30, 2012 were attributable to current tax expense of $8.0 million and $1.0 million, respectively, and deferred tax benefits of $6.6 million and deferred tax expense of $1.6 million, respectively. These amounts included $0.3 million and $3.2 million of current and deferred tax expense for discrete items such as stock compensation, statutory rate changes and changes in uncertain tax positions recorded during the three and nine months ended September 30, 2012, respectively. Included within these amounts is deferred tax expense of $2.5 million associated with the write-off of a deferred tax asset related to certain market-based stock awards that will never be realized due to the expiration of the stock awards prior to vesting.

Recent Accounting Pronouncements

Recent accounting pronouncements are detailed in Note 2 to our Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.

Liquidity and Capital Resources

The following table summarizes our cash flows:



	Nine Months Ended September 30,
	2013			2012
	(In thousands)
Consolidated Cash Flow Data
Net cash provided by operating activities	$	38,812		$	33,128
Net cash used in investing activities	(3,400		)	(4,960		)
Net cash used in financing activities	(16,756		)	(7,936		)
Effect of exchange rate changes on cash	(626		)	844
Net increase in cash and cash equivalents	$	18,030		$	21,076

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Our principal uses of cash historically have consisted of cash paid for business acquisitions, payroll and other operating expenses and payments related to the investments in equipment primarily to support our consumer panel and technical infrastructure required to support our customer base. As of September 30, 2013, our principal sources of liquidity consisted of $79.8 million in cash, the majority of which represents cash generated from operating activities. During the nine months ended September 30, 2013, we also borrowed and repaid approximately $4.0 million under our revolving credit facility. As of September 30, 2013, $11.2 million of the $79.8 million in cash on hand is held by foreign subsidiaries and would be subject to tax withholding payments if it is repatriated to the U.S. It is management's current intention that all foreign earnings will be indefinitely reinvested in these foreign countries and will not be repatriated to the U.S. However, if we were to repatriate these funds to the U.S., they would be subject to income tax payments ranging from 5% to 15% of the amount repatriated.

Base rate loans and swing line loans will bear interest at the Base rate plus the Applicable Rate, as such terms are defined in the Credit Agreement and summarized below. The Base Rate is the highest rate of the following: (a) the Federal Funds rate plus 0.50%, (b) the publicly announced Bank of America prime rate, and (c) the Eurocurrency rate as defined in the Credit Agreement plus 1.0%. The Applicable Rate for base rate loans and swing line loans is 0.50% to 1.50% depending on the Company's funded debt-to-EBITDA ratio at the end of each fiscal quarter. Amounts supporting letters of credit bear interest at the Applicable Rate for revolving loans. Each Eurocurrency rate loan will bear interest at the Eurocurrency Rate (as defined in the Credit Agreement) plus the Applicable Rate ranging from 1.50% to 2.50% depending on our funded debt-to-EBITDA ratio at the end of each fiscal quarter. Beginning September 26, 2013 through the five-year revolver term, we are obligated to pay a fee, payable quarterly in arrears, based on the average unused portion of the available amounts under the Credit Agreement at a rate of 0.20% to 0.35% per annum depending on the Company's funded debt-to-EBITDA ratio at the end of each fiscal quarter.

Under the terms of the Credit Agreement, we are subject to various usual and customary covenants, including, but not limited to: financial covenants requiring maximum funded debt-to-EBITDA ratio and cash flow-to-fixed charge ratios and covenants relating to the Company's ability to dispose of assets, make certain acquisitions, be acquired, incur indebtedness, grant liens and make certain investments. As of September 26, 2013, we were in full compliance with all covenants contained in the Credit Agreement.

As of September 30, 2013, there are no amounts outstanding under the terms of our Credit Agreement.

We maintain letters of credit in lieu of security deposits with respect to certain office leases as well as to satisfy performance guarantees under certain contracts. As of September 30, 2013, $3.7 million in letters of credit were outstanding, leaving $6.3 million available for additional letters of credit under the Credit Agreement. These letters of credit may be reduced periodically provided that we meet the conditional criteria of each related lease agreement.

Operating Activities

Our cash flows from operating activities are significantly influenced by our investments in personnel and infrastructure to support the anticipated growth in our business, increases in the number of customers using our products and the amount and timing of payments made by these customers.

We generated approximately $38.8 million of net cash from operating activities during the nine months ended September 30, 2013. Our cash flows from operations were driven by our net loss of $2.5 million, offset by $40.7 million in non-cash items such as depreciation, amortization, provision for bad debts, stock-based compensation, and a non-cash deferred tax benefit. In addition, our operating cash flows were positively impacted by a $1.6 million decrease in accounts receivable associated with enhanced collection activities, a $1.6 million increase in deferred rent and by a $3.8 million increase in accounts payable, accrued expense and other liabilities associated with the timing of payments associated with annual bonuses and professional fees accrued as of December 31, 2012.

We generated approximately $33.1 million of net cash from operating activities during the nine months ended September 30, 2012. Our cash flows from operations were driven by our net loss of $10.2 million, offset by $41.7 million in non-cash items such as depreciation, impairment of intangible assets, amortization, provision for bad debts, stock-based compensation,

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and a non-cash deferred tax benefit. In addition, our operating cash flows were positively impacted by a $11.5 million decrease in accounts receivable associated with enhanced collection activities. Cash flows from operations were negatively impacted by a $8.8 million decrease in accounts payable, accrued expense and other liabilities associated with the timing of payments related to annual bonuses paid in the first quarter of the year and professional fees accrued as of December 31, 2011, and a $0.8 million increase in prepaid expenses and other current assets.

Investing Activities

Our primary regularly recurring investing activities have consisted of purchases of computer network equipment to support our Internet user panel and maintenance of our database, furniture and equipment to support our operations, purchases and sales of marketable securities, and payments related to the acquisition of several companies. As our customer base continues to expand, we expect purchases of technical infrastructure equipment to grow in absolute dollars. The extent of these investments will be affected by our ability to expand relationships with existing customers, grow our customer base, introduce new digital formats and increase our international presence.

We used $3.4 million of net cash in investing activities during the nine months ended September 30, 2013. Our cash used for investing activities was driven by the use of $3.6 million of net cash associated with the purchase of property and equipment to maintain and expand our technology infrastructure, offset slightly by $0.2 million in proceeds from the disposition of the ARS Non-Health Copy-Testing and Equity Tracking business.

We used $5.0 million of net cash in investing activities during the nine months ended September 30, 2012, associated with the purchase of property and equipment to maintain and expand our technology infrastructure.

We expect to achieve greater economies of scale and operating leverage as we expand our customer base and utilize our Internet user panel and technical infrastructure more efficiently. While we anticipate that it will be necessary for us to continue to invest in our Internet user panel, technical infrastructure and technical personnel to support the combination of an increased customer base, new products, international expansion and new digital market intelligence formats, we believe that these investment requirements will be less than the revenue growth generated by these actions. This should result in a lower rate of growth in our capital expenditures to support our technical infrastructure. In any given period, the timing of our incremental capital expenditure requirements could impact our cost of revenues, both in absolute dollars and as a percentage of revenues.

Financing Activities

We used $16.8 million of cash during the nine months ended September 30, 2013 for financing activities. This included $8.6 million for shares we repurchased pursuant to the exercise by stock incentive plan participants of their right to elect to use common stock to satisfy their tax withholding obligations. We also used $0.5 million to repurchase shares under our share repurchase program. In addition we used $7.3 million to make payments on our capital lease obligations. During the nine months ended September 30, 2013, we received $4.0 million in cash related to borrowings under our revolving credit facility and we repaid $4.0 million under our revolving credit facility. We borrowed these funds to pay down certain short-term intercompany loans in order to minimize the potential impact of foreign exchange rate fluctuations.

We used $7.9 million of cash during the nine months ended September 30, 2012 for financing activities. This included $7.2 million for shares we repurchased pursuant to the exercise by stock incentive plan participants of their right to elect to use common stock to satisfy their tax withholding obligations. In addition we used $5.1 million to make payments on our capital lease obligations offset by $0.2 million in proceeds from the exercise of our common stock options. During the nine months ended September 30, 2012, we received $4.1 million in financing activities related to borrowings under our revolving credit facility.

We do not have any special purpose entities and we do not engage in off-balance sheet financing arrangements.

Contractual Obligations and Known Future Cash Requirements

Our principal lease commitments consist of obligations under leases for office space and computer and telecommunications equipment. In prior and current periods, we financed the purchase of some of our computer equipment under capital lease arrangements over a period of either 36 or 42 months. Our purchase obligations relate to outstanding orders to purchase computer equipment, are typically small and they do not materially impact our overall liquidity.

During the three months ended March 31, 2013, we entered into a $10.0 million lease financing arrangement with Banc of America Leasing & Capital, LLC. The funds the Company has utilized to date under this arrangement have not lowered the amount available for future capital leases, because those amounts have been assigned by Banc of America Leasing & Capital, LLC under separate third-party arrangements. This arrangement has been established to allow us to finance the purchase of new

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software, hardware and other computer equipment as we expand our technology infrastructure in support of our business growth. As of September 30, 2013, we have total outstanding amounts under this arrangement and other arrangements with Banc of America of approximately $14.2 million. These leases bear an interest rate of approximately 5% per annum. The base terms for these leases range from three years to three and a half years and include a nominal charge in the event of prepayment. Lease payments under the combined arrangements are approximately $7.2 million per year as of September 30, 2013. Assets acquired under the equipment lease secure the obligations. In addition to our leasing arrangement with Banc of America, we have also entered into a number of capital lease arrangements with various equipment vendors. As of September 30, 2013, we have total borrowings under these arrangements of $4.5 million.

As of September 30, 2013, $3.7 million in letters of credit were outstanding, leaving $6.3 million available for additional letters of credit under the Credit Facility. These letters of credit may be reduced periodically provided we meet the conditional criteria of each related lease agreement.

As noted in the liquidity and capital resources section, in September 2013, we entered into a $100.0 million revolving credit agreement with several banks, Bank of America, N.A is the lead lender. As of September 30, 2013, there are no amounts outstanding under the terms of our Credit Agreement.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements (as defined in Item 303 of Regulation S-K).

Item 3. Quantitative and Qualitative Disclosure about Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. We do not hold or issue financial instruments for trading purposes or have any derivative financial instruments. As of September 30, 2013, our cash reserves were maintained primarily in bank deposit accounts totaling $79.8 million.

Foreign Currency Risk

A portion of our revenues and expenses from business operations in foreign countries are derived from transactions denominated in currencies other than the functional currency of our operations in those countries. As such, we have exposure to adverse changes in exchange rates associated with revenues and operating expenses of our foreign operations, but we believe this exposure to not be significant at this time. As such, we do not currently engage in any transactions that hedge foreign currency exchange rate risk. In addition, because we have operations outside of the U.S., the reported amounts of revenues, expenses, assets and liabilities may fluctuate due to movements in foreign currency exchange rates and the resulting foreign currency translation adjustments. As we grow our international operations, our exposure to foreign currency risk could become more significant.

Interest Rate Sensitivity

As of September 30, 2013, our principal sources of liquidity consisted of cash and cash equivalents of $79.8 million. These amounts were invested primarily in bank deposit accounts. The cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes. We believe that we do not have any material exposure to changes in the fair value as a result of changes in interest rates. Changes in interest rates, however, will change future investment income. If overall interest rates changed by 1% during the nine months ended September 30, 2013, our interest exposure would have been less than $0.1 million, assuming consistent investment levels.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act of 1934 (the “Exchange Act”) Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report (the “Evaluation Date”), have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective, in all material respects, to ensure that information required to be disclosed in the reports that we file and submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rule and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in various legal proceedings arising from the normal course of business activities. Except as described below, we are not presently a party to any pending legal proceedings the outcome of which we believe, if determined adversely to us, would individually or in the aggregate have a material adverse impact on our consolidated results of operations, cash flows or financial position.

Privacy Class Action Litigation

On August 23, 2011, we received notice that Mike Harris and Jeff Dunstan, individually and on behalf of a class of similarly situated individuals, filed a lawsuit against us in the United States District Court for the Northern District of Illinois, Eastern Division, alleging, among other things, violations by us of the Stored Communications Act, the Electronic Communications Privacy Act, Computer Fraud and Abuse Act and the Illinois Consumer Fraud and Deceptive Practices Act as well as unjust enrichment. The complaint seeks unspecified damages, including statutory damages per violation and punitive damages, injunctive relief and reasonable attorneys’ fees of the plaintiffs. In October 2012, the plaintiffs filed an amended complaint which, among other things, removed the claim relating to alleged violations of the Illinois Consumer Fraud and Deceptive Practices Act. On April 2, 2013, the District Court issued an order certifying a class for only three of the four claims, refusing to certify a class for unjust enrichment. Discovery is underway and expected to continue through 2013. Based on examination of the remaining claims, we believe that they are without merit, and we intend to vigorously protect and defend ourselves. There can be no assurance, however, that we will prevail in this matter, and any adverse ruling may have a significant impact on our business and results of operation. In addition, if this matter proceeds to trial, we may incur significant legal fees until this matter is resolved.



ITEM 1A.	RISK FACTORS

An investment in our common stock involves a substantial risk of loss. You should carefully consider these risk factors, together with all of the other information included herewith, before you decide to purchase shares of our common stock. The occurrence of any of the following risks could materially adversely affect our business, financial condition or operating results. In that case, the trading price of our common stock could decline, and you may lose part or all of your investment.

Risks Related to Our Business and Our Technologies

We derive a significant portion of our revenues from sales of our subscription-based digital marketing intelligence products. If our customers terminate or fail to renew their subscriptions, our business could suffer.

We currently derive a significant portion of our revenues from our subscription-based digital marketing intelligence products. Subscription-based products accounted for 86% and 85% of our revenues during the nine months ended September 30, 2013 and the full year 2012, respectively. Uncertain economic conditions or other factors, such as the failure or consolidation of large financial institutions, may cause certain customers to terminate or reduce their subscriptions. If our customers terminate their subscriptions for our products, do not renew their subscriptions, delay renewals of their subscriptions or renew on terms less favorable to us, our revenues could decline and our business could suffer.

Our customers have no obligation to renew after the expiration of their initial subscription period, which is typically one year, and we cannot be assured that current subscriptions will be renewed at the same or higher dollar amounts, if at all. Some of our customers have elected not to renew their subscription agreements with us in the past. If we experience a change of control, as defined in such agreements, some of our customers also have the right to terminate their subscriptions. Moreover, some of our major customers have the right to cancel their subscription agreements without cause at any time. Given the current unpredictable economic conditions as well as our limited historical data with respect to rates of customer subscription renewals, we may have difficulty accurately predicting future customer renewal rates. Our customer renewal rates may decline or fluctuate as a result of a number of factors, including customer satisfaction or dissatisfaction with our products, the costs or functionality of our products, the prices or functionality of products offered by our competitors, mergers and acquisitions affecting our customer base, general economic conditions or reductions in our customers’ spending levels. In this regard, we have seen a number of customers with weaker balance sheets choosing not to renew subscriptions with us during economic downturns.

Our quarterly results of operations may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of securities analysts or investors, which could cause our stock price to decline.

Our quarterly results of operations may fluctuate as a result of a variety of factors, many of which are outside of our control. If our quarterly revenues or results of operations do not meet or exceed the expectations of securities analysts or investors, the price of our common stock could decline substantially. In addition to the other risk factors set forth in this “Risk Factors” section, factors that may cause fluctuations in our quarterly revenues or results of operations include:


•	our ability to increase sales to existing customers and attract new customers;


•	our failure to accurately estimate or control costs — including those incurred as a result of acquisitions, investments, other business development initiatives and litigation;


•	the timing of contract renewals, delivery of products and duration of contracts and the corresponding timing of revenue recognition as well as the effects of revenue derived from new lines of business and recently-acquired companies;


•	the uncertainties associated with the integration of acquired new lines of business, and operations in countries in which we may have little or no previous experience;


•	the mix of subscription-based versus project-based revenues;


•	changes in our customers’ subscription renewal behaviors and spending on projects;


•	our ability to estimate revenues and cash flows associated with new lines of business and business operations acquired by us;


•	the impact on our contract renewal rates, for both our subscription and project-based products, caused by our customers’ budgetary constraints, competition, customer dissatisfaction, customer corporate restructuring or change in control, or our customers’ actual or perceived lack of need for our products;


•	the potential loss of significant customers;


•	the effect of revenues generated from significant one-time projects or the loss of such projects;


•	the impact of our decision to discontinue certain products;


•	the amount and timing of capital expenditures and operating costs related to the maintenance and expansion of our operations and infrastructure;


•	the timing and success of new product introductions by us or our competitors;


•	variations in the demand for our products and the implementation cycles of our products by our customers;


•	changes in our pricing and discounting policies or those of our competitors;


•	service outages, other technical difficulties or security breaches;


•	limitations relating to the capacity of our networks, systems and processes;


•	maintaining appropriate staffing levels and capabilities relative to projected growth, or retaining key personnel as a result of the integration of recent acquisitions;


•	adverse judgments or settlements in legal disputes;


•	the cost and timing of organizational restructuring, in particular in international jurisdictions;


•	the extent to which certain expenses are more or less deductible for tax purposes, such as share-based compensation that fluctuates based on the timing of vesting and our stock price;


•	the timing of any additional reversal of our deferred tax valuation allowance;


•	adoption of new accounting pronouncements; and


•	general economic, political, industry and market conditions and those conditions specific to Internet usage and online businesses.

We believe that our quarterly revenues and results of operations on a year-over-year and sequential quarter-over-quarter basis may vary significantly in the future and that period-to-period comparisons of our operating results may not be meaningful. Investors are cautioned not to rely on the results of prior quarters as an indication of future performance.

Our business may be harmed if we deliver, or are perceived to deliver, inaccurate information to our customers, to the media or to the public generally.

If the information that we provide to our customers, to the media, or to the public is inaccurate, or perceived to be inaccurate, our brand may be harmed. The information that we collect or that is included in our databases and the statistical projections that we provide to our customers, to the media or to