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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number
000-1158172
COMSCORE, INC.
(Exact name of Registrant as
Specified in its Charter)
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Delaware
(State or Other Jurisdiction
of
Incorporation or Organization)
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54-1955550
(I.R.S. Employer
Identification Number)
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11950 Democracy Drive, Suite 600
Reston, Virginia 20190
(Address of Principal Executive
Offices)
(703) 438-2000
(Registrants Telephone
Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.001 per share
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The NASDAQ Stock Market LLC
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
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 o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
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. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the registrants voting and
non-voting common equity held by non-affiliates of the
registrant on June 30, 2009, the last business day of the
registrants most recently completed second fiscal quarter,
was $283.9 million (based on the closing sales price of the
registrants common stock as reported by the NASDAQ Global
Market on that date). Shares of the registrants common
stock held by each officer and director and each person who owns
more than 10% or more of the outstanding common stock of the
registrant have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date: As of March 10, 2010, there were
30,928,905 shares of the registrants common stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Specified portions of the registrants Proxy Statement with
respect to its 2010 annual meeting of stockholders, anticipated
to be filed with the Securities and Exchange Commission no later
than 120 days following the registrants fiscal year
ended December 31, 2009, are incorporated by reference in
Part III of this annual report on
Form 10-K.
COMSCORE,
INC.
ANNUAL
REPORT ON
FORM 10-K
FOR THE
PERIOD ENDED DECEMBER 31, 2009
TABLE OF
CONTENTS
CAUTIONARY
NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on
Form 10-K,
including the Managements Discussion and Analysis of
Financial Condition and Results of Operations section in
Item 7 of this report, and other materials accompanying
this Annual Report on
Form 10-K
contain forward-looking statements within the meaning of and
safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended, and Section 27A of the Securities
Act of 1933, as amended. We attempt, whenever possible, to
identify these forward- looking statements by words such as
intends, will, plans,
anticipates, expects, may,
estimates, believes, should,
projects, or continue, or the negative
of those words and other comparable words. Similarly, statements
that describe our business strategy, goals, prospects,
opportunities, outlook, objectives, plans or intentions are also
forward-looking statements. These statements may relate to, but
are not limited to, expectations of future operating results or
financial performance, capital expenditures, introduction of new
products, regulatory compliance, plans for growth, expected
economic conditions, and future operations, as well as
assumptions relating to the foregoing.
These statements are based on current expectations and
assumptions regarding future events and business performance and
involve known and unknown risks, uncertainties and other factors
that may cause actual events or results to be materially
different from any future events or results expressed or implied
by these statements. These factors include those set forth in
the following discussion and within Item 1A Risk
Factors of this Annual Report on
Form 10-K
and elsewhere within this report.
You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this Annual
Report on
Form 10-K.
You should carefully review the risk factors described in other
documents that we file from time to time with the
U.S. Securities and Exchange Commission, or SEC. Except as
required by applicable law, including the rules and regulations
of the SEC, 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.
PART I
Overview
We provide a leading digital marketing intelligence platform
that helps our customers make better-informed business decisions
and implement more effective digital business strategies. Our
products and solutions offer our 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.
Our digital marketing intelligence platform is comprised of
proprietary databases and a computational infrastructure that
measures, analyzes and reports on digital activity. The
foundation of our platform is data collected from our comScore
panel of approximately two million Internet users worldwide,
which is comprised of persons and households with at least one
computer being actively measured by us within the previous
thirty-day
period that 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. Beginning in
Summer 2009, the panel information has been complemented by
comScore Media Metrix 360, a Unified Digital
Measurement solution to digital audience measurement that
blends panel and server methodologies into an approach that
provided a direct linkage and reconciliation between server and
panel measurement.
We deliver our digital marketing intelligence through our
comScore Media Metrix product family and through our comScore
Marketing Solutions products. Media Metrix delivers digital
media intelligence by providing an independent, third-party
measurement of the size, behavior and characteristics of Web
site and online advertising network audiences among home, work,
mobile and university Internet users as well as insight into the
effectiveness of online advertising. Our Marketing Solutions
products combine the proprietary information gathered from the
comScore panel with the vertical industry expertise of comScore
analysts to deliver digital marketing intelligence, including
the measurement of online advertising effectiveness, customized
for specific industries. We typically deliver our Media Metrix
products electronically in the form of weekly, monthly or
quarterly reports. Customers can access current and historical
Media Metrix data and analyze these data anytime online. Our
Marketing Solutions products are typically delivered on a
monthly, quarterly or ad hoc basis through electronic reports
and analyses.
Industry
Background
Growth
of Digital Commerce, Content, Advertising and
Communications
The Internet is a global digital medium for commerce, content,
advertising and communications. According to IDC, more than
1.6 billion devices worldwide were used to access the
Internet in 2009, including PCs, mobile phones, and online
videogame consoles. By 2013, the total number of devices
accessing the Internet is projected to increase to more than
2.7 billion. As the online population continues to grow,
the Internet is increasingly becoming a tool for research and
commerce and for distributing and consuming media. According to
eMarketer, the global
business-to-consumer
eCommerce market is projected to grow from approximately
$600 billion in 2007 to $1.1 trillion in 2011. According to
Jupiter Research, 86% of online users in the United States
research offline purchases using the Internet, making the
Internet an important channel for both online and offline
merchants. Consumers are also using the Internet to access an
increasing amount of digital content across media formats
including video, music, text and games. According to IDC, global
online video revenue is expected to reach $12 billion by
2012, with more than $9 billion coming from the
U.S. market.
As consumers increasingly use the Internet to research and make
purchases and to consume digital media, advertisers are shifting
more of their marketing budgets to digital channels. Despite the
size and growth of the digital marketing sector, the shift of
traditional advertising spending to the Internet has yet to
match the rate of consumption of online media. According to
Forrester Research report titled U.S. Interactive
Marketing Forecast,
2009-2014,
interactive marketing is projected to near $55 billion,
representing 21% of all marketing spend in 2014 as marketers are
expected to shift dollars away from traditional media and toward
search marketing, display
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advertising, email marketing, social media, and mobile
marketing. As advertisers spend more of their marketing budgets
to reach Internet users, we believe that digital marketing will
continue to grow.
In addition to the growth in online commerce, content and
marketing, a number of new digital technologies and devices are
emerging that enable users to access content and communicate in
new ways. Internet-enabled mobile phones allow users to access
digital content such as games, music, video and news on their
mobile devices through a wireless connection to the Internet. By
2013, IDC forecasts that worldwide shipments of converged mobile
devices, also known as smartphones, will surpass
390 million units, growing at a compound annual growth rate
of 20.9% for the
2009-2013
forecast period. Other digital communications technologies such
as voice over Internet protocol (VoIP) utilize the Internet
network infrastructure to enable efficient and cost-effective
personal communications such as chat and VoIP-based telephony.
According to Infonetics, the worldwide number of VoIP
subscribers is projected to exceed 225 million by 2013.
Delivery of digital television services over a network
infrastructure using Internet Protocol, or IPTV, has a number of
advantages over conventional television, including two-way
communications, digital content and features, and interactivity.
According to Infonetics, the worldwide number of IPTV
subscribers is projected to grow to 155 million by 2013. We
believe these and other new digital media and communications
devices and services offer a similar opportunity as the Internet
for us to measure and analyze user behavior.
Importance
of Digital Marketing Intelligence
The interactive nature of digital media such as the Internet on
computers and mobile devices enables businesses to access a
wealth of user information that was virtually unavailable
through offline audience measurement and marketing intelligence
techniques. Digital media provide businesses with the
opportunity to measure detailed user activity, such as how users
interact with Web page content; to assess how users respond to
online marketing, such as which online ads users click on to
pursue a transaction; and to analyze how audiences and user
behavior compare across various Web sites. This type of detailed
user data can be combined with demographic, attitudinal and
transactional information to develop a deeper understanding of
user behavior, attributes and preferences. Unlike offline media
such as television and radio, which generally only allow for the
passive measurement of relative audience size, digital media
enable businesses to actively understand the link between
digital content, advertising and user behavior.
We believe that the growth in the online and digital media
markets for digital commerce, content, advertising and
communications creates an unprecedented opportunity for
businesses to acquire a deeper understanding of both their
customers and their competitive market position. Businesses can
use accurate, relevant and objective digital marketing
intelligence to develop and validate key strategies and improve
performance. For example, with a deep understanding of the size,
demographic composition and other characteristics of its
audience, an online content provider can better communicate the
value of its audience to potential advertisers. With detailed
metrics on the effectiveness of an online advertising campaign
and how that campaign influences online and offline purchasing
behavior, a business can refine its marketing initiatives. With
insight into market share and customer behavior and preferences,
a business can understand not only how its digital business is
performing relative to its competitors but also the drivers
behind such performance. Moreover, by using the appropriate
digital marketing intelligence, businesses can refine their
digital content, commerce, advertising and communications
initiatives to enhance the effectiveness and return on
investment of their marketing spending, enabling them to build
more successful businesses.
Challenges
in Providing Digital Marketing Intelligence
While the interactive and dynamic nature of digital markets
creates the opportunity for businesses to gain deep insights
into user behavior and competitive standing, there are a number
of issues unique to the Internet that make it challenging for
companies to provide digital marketing intelligence. Compared to
offline media such as television or radio, the markets for
digital media are significantly more fragmented, complex and
dynamic. As of December 31, 2009, we believe that there
were approximately 18,000 global Web sites that each receive at
least 500,000 unique visitors per month, as compared to only a
few hundred channels typically available with standard digital
cable or satellite television and broadcast or satellite radio.
The complexities of online user activity and the breadth of
digital
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content and advertising make providing digital marketing
intelligence a technically challenging and highly data-intensive
process.
Digital media continues to develop at a rapid pace and includes
numerous formats such as textual content, streaming and
downloadable video and music, instant messaging, VoIP telephony,
online gaming and email. Digital advertising also includes
multiple formats such as display, search, rich media and video.
Detailed user activity such as viewing, clicking or downloading
various components of a Web page across digital media or
interacting with various advertising formats creates a
substantial amount of data that must be captured on a continuous
basis. The data must also be cleansed for quality, relevancy and
privacy protection and be organized to enable companies to
obtain relevant digital marketing intelligence. This capture of
audience data can prove extremely challenging when it involves
millions of Internet users with varying demographic
characteristics accessing tens of thousands of Web sites across
diverse geographies. In addition, the ongoing development of
digital media programming languages and technologies contributes
to the challenge of accurately measuring user activity. For
example, online publishers and advertisers have started to use
Asynchronous JavaScript and XML, or AJAX, a development
technique that allows Web applications to quickly make
incremental updates without having to refresh the entire Web
page. Prior to AJAX, marketers relied heavily on page view
statistics to plan and evaluate their online media spending
programs. With AJAX, we believe marketers are beginning to
question the definition of, and need for, page views, and are
seeking alternative metrics for measuring the usage and
effectiveness of online media. To maintain their relevance,
audience and media measurement technologies must keep pace with
the continued evolution and increasing complexity of digital
media.
Need for Accuracy and Reliability. Relevant
digital marketing intelligence requires access to accurate and
reliable global data that measure online user activity. Existing
data collection methodologies, including those that rely on
third party sources, surveys or panels, face significant
challenges and limitations. Survey or panel methodologies must
measure a sufficiently large and representative sample size of
Internet users to accurately capture data that is statistically
projectable to the broader Internet population. In addition, the
international composition of Internet audiences requires a
geographically dispersed sample to accurately capture global
digital activity. Digital marketing intelligence that depends on
third-party sources to obtain Internet audience usage data has
the potential to be biased, may be constrained by the data that
the third party is capable of capturing, and may be limited in
its application. For example, a solution that relies on data
supplied by an Internet service provider, or ISP, may show a
bias toward the demographic composition or other characteristics
of that ISPs users. We believe that a meaningful digital
media sourcing methodology must be based on data sourced from a
large, representative global sample of online users that can be
parsed, enhanced, mined and analyzed; must evolve rapidly and be
flexible to adapt to changing technologies; and must be able to
provide actionable digital marketing intelligence that can be
used to improve business decision-making.
Need for Third-Party Objectivity. We believe
that the availability of objective third-party data that measure
digital audience size, behavior, demographic and attitudinal
characteristics represents a key factor in the continued growth
of digital content, advertising and commerce. This is similar to
offline media markets, such as television and radio, whose
development was significantly enhanced by the introduction of
third-party audience measurement ratings that provided a basis
for the pricing of advertising in those media. As the buying and
selling of online advertising continues to grow, we believe that
companies on both sides of the advertising transaction will
increasingly seek third-party marketing intelligence to assess
the value and effectiveness of digital media. In addition, as
advertisers work with Web site publishers to target online
advertising campaigns to reach a specific demographic or
behavioral user profile, the need for objective audience and
user information, unbiased by either party to the transaction,
will become increasingly important.
Need for Competitive Information. In addition
to the scope, complexity and rapid evolution of online digital
media, the lack of data on competitors makes it difficult for
companies to gain a comprehensive view of user behavior beyond
their own digital businesses. While products and tools exist
that enable companies to understand user activity on their own
Web sites, these products are unable to provide a view of
digital audience activity on other Web sites or offline. In
order for publishers, marketers, merchants and service providers
to benefit from accurate and comprehensive digital marketing
intelligence they need to understand user activity on Web sites
across the Internet and how online consumer behavior translates
into offline actions.
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The
comScore Digital Marketing Intelligence Platform
We provide a leading digital marketing intelligence platform
that enables our customers to devise and implement more
effective digital business strategies. Our platform is comprised
of proprietary databases and a computational infrastructure that
measures, analyzes and reports digital activity from our global
panel of approximately two million Internet users. This panel
information is complemented by a Unified Digital Measurement
solution to digital audience measurement. Unified Digital
Measurement blends panel and server methodologies into a
solution that provides a direct linkage and reconciliation
between server and panel measurement. We offer our customers
deep insights into consumer behavior on their own online
properties and those of their competitors, including objective,
detailed information on users demographic characteristics,
attitudes, lifestyles and multi-channel buying activity. We also
provide industry-specific metrics to our customers.
We deliver our digital marketing intelligence through our
comScore Media Metrix product family, comScore Marketing
Solutions products and mobile media measurement products. Media
Metrix provides intelligence on digital media usage, including a
measurement of the size, behavior and characteristics of the
audiences for individual Web sites and advertising networks
within the global home, work and university Internet user
populations as well as insight into the effectiveness of online
advertising. Our Marketing Solutions products combine the
proprietary information gathered from our user panel with the
vertical industry expertise of comScore analysts to deliver
digital marketing intelligence customized for specific
industries. Media Metrix and Marketing Solutions products are
typically delivered electronically in the form of periodic
reports, through customized analyses or are generally available
online via a user interface on the comScore Web site.
Key attributes of our platform include:
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Panel of global Internet users. Our ability to
provide digital marketing intelligence is based on information
continuously gathered from a broad cross-section 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. Through our proprietary
technology, we measure detailed Internet audience activity
across the spectrum of digital content and marketing channels.
Many comScore panelists also participate in online survey
research that captures and integrates demographic, attitudinal,
lifestyle and product preference information with Internet
behavior data. The global nature of our Internet panel enables
us to provide digital marketing intelligence for over 30
individual countries. Our global capability is valuable to
companies based in international markets as well as to
multi-national companies that want to better understand their
global Internet audiences and the effectiveness of their global
digital business initiatives. This panel information is
complemented by a Unified Digital Measurement solution to
digital audience measurement. Unified Digital Measurement blends
panel and server methodologies into a solution that provides a
direct linkage and reconciliation between server and panel
measurement.
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Census data collection and measurement. Our
Unified Digital Measurement solution combines panel measurement
of people and audience demographics with a comprehensive and
accurate representation of the consumption of a sites
media, which is accomplished by site owners including comScore
beacons or reporting pixels on all of their site
content. Census measurement using web beacons reports every
server call that the site owner would register from all
locations and devices, allows for full representation of these
audiences and devices, and fully reconciles Media Metrix site
audience measurement with publishers internal server logs
or web analytics metrics.
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Scalable technology infrastructure. We
developed our databases and computational infrastructure to
support the growth in online activity among our global Internet
panel and the increasing complexity of digital content formats,
advertising channels and communication applications. The design
of our technology infrastructure is based on distributed
processing and data capture environments that allow for the
collection and organization of vast amounts of data on online
activity, including usage of proprietary networks such as AOL,
instant messaging and audio and video streaming. Our database
infrastructure currently captures approximately
11.7 billion URL records each week from our global Internet
panel, resulting in over 52 billion URLs and 52 terabytes
of data collected by our platform each month. We believe that
our efficient and scalable technology infrastructure allows us
to operate and expand our data collection infrastructure on a
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cost-effective basis. In recognition of the scale of our data
collection and warehousing technology, we have received multiple
awards, including the 2001, 2003 and 2005 Winter Corporation
Grand Prize for Database Size on a Windows NT Platform.
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In addition to the ability to scale linearly and efficiently in
processing panel based data, we have also added the ability to
scale quickly and efficiently in the support of our Media Metrix
360 effort. In April 2009, we were capturing more than
10 billion tracking events per month outside of the panel.
In January 2010, we captured more than 193 billion tracking
events outside of the panel to support the processing for Media
Metrix 360. While supporting this large growth in tracking
events we also reduced the processing time for delivering this
data to our clients in our comScore Direct web interface to a
few hours after event recordation.
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Benefits of our platform include:
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Advanced digital marketing intelligence. We
use our proprietary technology to compile vast amounts of data
on Internet user activity and to organize the data into
discrete, measurable elements that can be used to provide
actionable insights to our customers. We believe that our
digital marketing intelligence platform enables companies to
gain a deeper understanding of their digital audiences, which
allows them to better assess and improve their company and
product-specific competitive position. Because our marketing
intelligence is based on a large sample of global Internet users
and can incorporate multi-channel transactional data, we are
able to provide companies with an enhanced understanding of
digital audience activity beyond their own Web sites and the
ability to better assess the link between digital marketing and
offline user activity. Digital content providers, marketers,
advertising agencies, merchants and service providers can use
the insights our platform provides to craft improved marketing
campaigns and strategies and to measure the effectiveness and
return on investment of their digital initiatives.
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Objective third-party resource for digital marketing
intelligence. We are an independent company that
is not affiliated with the digital businesses we measure and
analyze, allowing us to serve as an objective third-party
provider of digital marketing intelligence. Because businesses
use our data to plan and evaluate the purchase and sale of
online advertising and to measure the effectiveness of digital
marketing, it is important that we provide unbiased data,
marketing intelligence, reports and analyses. We deploy advanced
statistical methodologies in building and maintaining the
comScore global Internet user panel and utilize proven data
capture, and computational practices in collecting,
statistically projecting, aggregating and analyzing information
regarding online user activity. We believe that our approach
ensures that the insights we provide are as objective as
possible and allows us to deliver products and services that are
of value to our customers in their key business decision-making.
We believe that the media industry views us as a highly
recognized and credible resource for digital marketing
intelligence. For example, between January 1, 2009 and
December 31, 2009, our information on digital activity was
cited more than 113,000 times by third-party media outlets, an
average of approximately 311 citations per day. Our data are
regularly cited by well-known media outlets such as the
Associated Press, Reuters, Bloomberg, CNBC, The New York Times
and The Wall Street Journal. Moreover, many of the leading Wall
Street investment banks also purchase and cite our data in their
published research reports prepared by financial analysts that
cover Internet businesses.
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Vertical industry expertise. We have developed
expertise across a variety of industries to provide digital
marketing intelligence specifically tailored to the needs of our
customers operating in specific industry sectors. We have
dedicated personnel to address the automotive, consumer packaged
goods, entertainment, financial services, media, pharmaceutical,
retail, technology, telecommunications and travel sectors. We
believe that companies across different industries have distinct
information and marketing intelligence needs related to
understanding their digital audiences and buyers, evaluating
marketing initiatives and understanding company or
product-specific competitive position. For example, a
pharmaceutical company may want to understand how online
research by consumers influences new prescriptions for a
particular drug, while a financial services company may want to
assess the effectiveness of its online advertising campaigns in
signing up new consumers and how this compares to the efforts of
its competitors. By working with companies in various industries
over the course of multiple years, we have developed
industry-specific applications of our data and our client
service representatives have developed industry-specific
knowledge and expertise that allow us to deliver relevant and
meaningful marketing insight to our customers.
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Ease of use and functionality. The comScore
digital marketing intelligence platform is designed to be easy
to use by our customers. Our Media Metrix products are available
through the Internet using a standard browser. Media Metrix
customers can also run customized reports and refine their
analyses using an intuitive interface available on our Web site.
Our Marketing Solutions products are available either through
the Internet or by using standard software applications such as
Microsoft Excel, Microsoft PowerPoint or SPSS analytical
software. Our customers do not need to install additional
hardware or complex software to access and use our products.
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Strategy
Our objective is to be the leading provider of global digital
marketing intelligence products. We plan to pursue our objective
through internal initiatives and, potentially, through
acquisitions and other investments. The principal elements of
our strategy are to:
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Deepen relationships with current
customers. We intend to work closely with our
customers to enable them to continuously enhance the value they
obtain from our digital marketing intelligence platform. Many of
our customers are Fortune 2000 companies that deploy
multiple marketing initiatives, and we believe many of our
customers would benefit from more extensive use of our product
offerings to gain additional insights into their key digital
initiatives. We will work to develop and expand our customer
relationships to increase our customers use of our digital
marketing intelligence platform.
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Grow our customer base. As the digital media,
commerce, marketing and communications sectors continue to grow,
we believe the demand for digital marketing intelligence
products will increase. To meet this increase in market demand,
we intend to invest in sales, marketing and account management
initiatives in an effort to expand our customer base. We intend
to offer both general and industry-specific digital marketing
products that deliver value to a wide range of potential
customers in current and new industry verticals.
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Expand our digital marketing intelligence
platform. We expect to continue to increase our
product offerings through our digital marketing intelligence
platform. As digital markets become more complex, we believe
that companies will require new information and insights to
measure, understand and evaluate their digital business
initiatives. We intend to develop new applications that leverage
our digital marketing intelligence platform to be able to
provide the most timely and relevant information to our
customers.
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Address emerging digital media. The extension
of digital media and communications to include new formats such
as content for mobile phones, VoIP, IP television, and next
generation gaming consoles creates new opportunities to measure
and analyze emerging digital media. We intend to extend our
digital marketing platform to capture, measure and analyze user
activity in these emerging digital media and communications
formats. To this end, we acquired M:Metrics in May 2008.
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Extend technology leadership. We believe that
the scalability and functionality of our database and
computational infrastructure provide us with a competitive
advantage in the digital media intelligence market. Accordingly,
we intend to continue to invest in research and development to
extend our technology leadership. We intend to continue to
enhance our technology platform to improve scalability,
performance and cost effectiveness and to expand our product
offerings.
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Build brand awareness through media
exposure. Our digital media, commerce and
marketing information are frequently cited by media outlets. In
addition, we proactively provide them with data and insights
that we believe may be relevant to their news reports and
articles. We believe that media coverage increases awareness and
credibility of the comScore and Media Metrix brands and
supplements our marketing efforts. We intend to continue to work
with media outlets, including news distributors, newspapers,
magazines, television networks, radio stations and online
publishers, to increase their use of comScore data in content
that discusses digital sector activity.
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Grow internationally. While we are currently
in the early stages of providing customers with international
services, we believe that a significant opportunity exists to
provide our product offerings to multi-national and
international companies. Approximately half of the existing
comScore Internet user panel resides
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outside of the United States. We plan to expand our sales and
marketing and account management presence outside the
U.S. as we provide a broader array of digital marketing
intelligence products that are tailored to local country markets
as well as the global marketplace. In furtherance of that
effort, in July 2006, we launched World Metrix, a product that
measures global digital media usage. World Metrix is based on a
sample of online users from countries that comprise
approximately 95% of the global Internet population. In November
2009, we also completed our acquisition of Certifica, a leading
analyst of Internet traffic measurement in Latin America.
Founded in 2000, Certifica has won the endorsement of the IAB in
several Latin American countries to publish cross site
statistics on Internet usage. Based in Santiago, Chile,
Certifica has offices throughout Latin America, including
Mexico, Brazil, Argentina, Colombia and Peru. This acquisition
is expected to strengthen our presence in the region and enable
us to offer hybrid measurement as part of our Media Metrix 360
initiative using the same
state-of-the-art
measurement technologies we use elsewhere in the world.
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Our
Product Offerings
We deliver our digital marketing intelligence through our
comScore Media Metrix product family and through our comScore
Marketing Solutions and mobile audience measurement products.
comScore
Media Metrix
Media Metrix provides its subscribers, consisting primarily of
publishers, marketers, advertising agencies and advertising
networks, with intelligence on digital media usage and a
measurement of the size, behavior and characteristics of the
audiences for Web sites and advertising networks among home,
work and university Internet populations. Media Metrix also
provides insights into the effectiveness of online advertising.
Media Metrix data can be used to accurately identify and target
key online audiences, evaluate the effectiveness of digital
marketing and commerce initiatives, support the selling of
online advertising by publishers, and to identify and exploit
relative competitive standing. The vast majority of our Media
Metrix subscribers access selected reports and analyses through
the MyMetrix user interface on our Web site.
Our flagship product, Media Metrix, details the online activity
and site visitation behavior of Internet users, including use of
instant messaging,
e-mail, and
other digital applications. Beginning in summer 2009, Media
Metrix was made available on the Media Metrix 360 Unified
Digital Measurement platform, which combines panel measurement
of people and audience demographics with a full and accurate
representation of the consumption of a sites media. Our
customers subscribe to ongoing access to our digital marketing
intelligence reports and analyses, including:
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comprehensive reports detailing online behavior for home, work
and university audiences;
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demographic characteristics of visitors to Web sites and
properties;
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buying power metrics that profile Web site audiences based on
their online buying behavior;
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detailed measurement and reporting of online behavior for 37
countries and over 100 U.S. local markets;
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measurement of key ethnic segments, including the online
Hispanic population; and
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reach and frequency metrics for online advertising campaigns
that show the percent of a target audience reached and the
frequency of exposure to advertising messages.
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In addition to our core offering, customers can subscribe to the
following additional products in the Media Metrix product family:
Plan Metrix. Plan Metrix is a product that
combines the continuously and passively observed Internet
behavior provided by Media Metrix with comprehensive attitude,
lifestyle and product usage data collected through online
surveys of our U.S. Internet user panel. Plan Metrix
provides advertising agencies, advertisers and publishers with
multiple views of Web site audiences including their online
behavior, demographics, lifestyles, attitudes, technology
product ownership, product purchases and offline media usage.
These data are used in the design and evaluation of online
marketing campaigns. For example, an online auto retailer could
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use Plan Metrix to help understand which Web sites a prospective
automobile purchaser is most likely to visit prior to making a
purchase decision.
World Metrix. We provide insights into
worldwide Internet activity through our World Metrix product,
which delivers aggregate information about the behavior of
online users on a global basis, for approximately 30 individual
countries and for regional aggregations such as Latin America,
Europe and Asia Pacific. For example, a content publisher can
understand its market share of the global Internet audience
using our World Metrix product.
Video Metrix. Video Metrix provides insights
into the viewing of streaming video by U.S. Internet users.
The product measures a wide range of video players and formats,
including Windows Media, Flash, RealMedia and QuickTime. Video
Metrix offers site-level measurement and audience ratings by
demographics and
time-of-day
to assist agencies, advertisers and publishers in designing and
implementing media plans that include streaming video. For
example, an advertiser that is seeking to maximize the exposure
of its streaming video ads to its target audience could use
Video Metrix to help understand on which sites and at what times
of the day its target audience is viewing the most streaming
video.
Ad Metrix. Available through the Media Metrix
client interface, Ad Metrix provides advertisers, agencies and
publishers with a variety of online advertising metrics relating
to impressions, or advertisements on a Web site that reach a
target audience. Ad Metrix helps customers determine the
impressions delivered by advertising campaigns across Web sites
and online properties, including how many visitors are reached
with advertisements and how often. In addition, Ad Metrix allows
customers to determine the demographic profile of the
advertising audience at a particular site, as well as how the
volume of impressions changes over time on that site. The Ad
Metrix data are consistent with offline media planning metrics
such as GRPs, or gross rating points, which measure the percent
of a target audience that is reached with an advertisement
weighted by the number of exposures. For example, an advertiser
might use Ad Metrix to plan the online portion of an advertising
campaign for a sports product on sites that have previously
successfully delivered advertising impressions to a target
demographic audience. A publisher might use Ad Metrix data to
measure its share of advertising impressions relative to
competitive publishers. Ad Metrix was launched in the third
quarter of 2007.
Segment Metrix. Segment Metrix is a product
that enables media owners, agencies and advertisers to track,
analyze and report Internet activity on their most important
consumer groups. Segment Metrix provides the flexibility to
integrate behavioral, geographic, demographic and proprietary,
client-defined segments with our comScore panel. Agencies and
advertisers can use Segment Metrix to gain better insights into
how to reach important target customers and advertisers and can
use the product to better integrate offline marketing
segmentation schemes with our online panel to allow them to
track, analyze and report online behavior on a segmented basis.
Segment Metrix was launched in the third quarter of 2007.
comScore Marketer. comScore Marketer is an
interactive search intelligence service that enables search
marketers and Web site operators to benchmark their performance
versus that of their competitors and optimize their search
marketing efforts. comScore Marketer helps enhance search
strategy by delivering insight into paid and organic search
results, including an analysis of searcher demographics and
online behavior. For example, customers can use comScore
Marketer to create more efficient and cost-effective search
campaigns, identify better-performing search terms and analyze
their competitors search marketing strategies.
MobiLens. MobiLens provides our customers with
market-wide metrics on mobile subscribers, mobile handset
adoption and use, and mobile media consumption in the
U.S. and certain major markets in Europe. MobiLens provides
monthly market projections detailing mobile media consumption,
the demographic profiles of mobile subscribers, and granular
technology profiles of every handset in active use in the
U.S. and supported European markets.
M:Metrics Mobile Metrix. Mobile Metrix
measures the actual behavior of the most active segment of
mobile media consumers so customers can evaluate audience
demographics, brand reach, frequency and duration of usage.
Mobile Metrix continuously captures detailed information on
mobile user behavior via on-device meters with an opt-in panel
of smartphone owners and delivers it monthly via an intuitive
Web query.
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Ad Metrix Mobile. Ad Metrix Mobile tracks
mobile display advertising in the U.S. and UK to provide
clients with insight into which brands are advertising with
which publishers on the mobile Web.
Some examples of Media Metrix digital marketing intelligence
measurements and their customer uses are described in the
following table.
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Digital Marketing Intelligence Measurement
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Examples of Customer Uses
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Site Traffic & Usage Intensity
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rank Web sites based on online usage metrics such as unique
visitors, page views or minutes of use
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drill-down to standard or customer-defined site subsets such as
channels or
sub-channels
(such as Yahoo! Finance and Yahoo! Sports)
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analyze statistics over time such as trends in site visitors
within demographic segments
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assess which Web site audiences are growing or declining, which
sites are most attractive to particular demographic segments or
which sites or digital applications have the highest level of
usage
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identify the source of traffic to a particular Web site or
channel within a site
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Quantitative Consumer Information
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profile site users based on life-stage or offline behavior such
as panelist-reported TV usage, car ownership, health conditions
or offline purchases
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efficiently identify and target a particular user segment (e.g.,
people who say they are likely to buy a car in the next six
months)
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quantify the audience overlap between different consumer
segments or Web sites to identify the number of unique visitors
reached
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Online Buying Power
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quantify the propensity of a particular Web sites audience
to purchase certain categories of products (e.g., consumer
electronics) online
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Competitive Intelligence
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compare the standings of Web sites within particular content
categories, such as finance or health information
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quantify audience size relative to competitors, including share
of usage within a category and usage trends across competitors
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track major competitors, quantify their growth, and identify
initiatives to promote growth and market share
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Reach and Frequency
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identify and quantify the size of audiences reached by
individual Web sites and determine how often they reach those
audiences
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assist with the planning of online advertising campaigns that
need to achieve specific reach or frequency objectives against a
targeted audience across multiple Web sites
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design the most cost-effective media plans that can achieve
campaign objectives for reach and frequency
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comScore
Marketing Solutions
comScore Marketing Solutions products use our global database,
computational infrastructure and our staff of experienced
analytical personnel to help customers design more effective
marketing strategies that increase sales, reduce costs, deepen
customer relationships and ultimately enhance a customers
competitive position. We offer solutions tailored for specific
industry verticals, including the automotive, consumer packaged
goods, entertainment, financial services, media, pharmaceutical,
retail, technology, telecommunications and travel sectors. Many
of our Marketing Solutions products are delivered to subscribers
on a recurring schedule such as monthly or quarterly. In some
cases, we provide customized reports and analyses that combine
our expertise with other proprietary information to address a
specific customer need.
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The core information products offered by comScore Marketing
Solutions include:
Market Share Reports. These reports track a
companys share of market as measured by industry-specific
performance metrics. The metrics of choice vary by industry
vertical, including as examples: share of online credit card
spending for credit card issuers; share of online travel
spending for travel companies; or share of subscribers for ISPs.
In each case, market share reports provide an ongoing
measurement of competitive performance and insight into the
factors driving changes in market share.
Competitive Benchmark Reports. These reports
allow customers to compare themselves to competitors using
various industry-specific metrics. For example, retailers may
look at metrics such as the rate of conversion of site visitors
to buyers, average order size or rate of repeat purchases among
existing customers. Banks may focus on the percentage of bank
customers using online bill payment services, or compare the
effectiveness of customer acquisition programs as reflected by
the percentage of leads they acquire that ultimately sign up for
an online account. In each case, a customer may define and
obtain
best-of-category
metrics and use them as a benchmark to monitor its business
performance over time.
Loyalty and Retention Analysis. These analyses
provide an understanding of the extent to which consumers are
also engaged with competitors, and identify loyalty drivers to
assist customers in capturing a higher share of the
consumers wallet. For example, a travel company might
quantify the potential business lost when consumers visit its
site, do not complete a purchase but then visit a competing site
to book a travel reservation. Retention or churn analyses
quantify consumer losses to competitors and the key drivers of
such losses. For example, a narrowband Internet service provider
may track the rate of attrition among its customer base,
identify which competitors are capturing those lost customers,
and analyze the characteristics of the lost customers in order
to gain insight into ways to improve retention.
Customer Satisfaction Reports. These reports
are based on panelist responses to survey questionnaires that
ascertain the degree of satisfaction with various products or
services offered to consumers. This information is often
integrated with the online usage information that we collect
from our panelists in order to identify which digital media
usage activities affect customer satisfaction. For instance, a
sports portal may use these reports to determine which features,
such as participating in fantasy sports leagues or viewing
streaming video clips, affect customer satisfaction and loyalty
the most.
qSearch. This product is a monthly scorecard
of the search market that provides a comparison of search
activity across portals and major search engines. It helps
identify the reach of a search engine, the loyalty of its user
base, the frequency of search queries, and the effectiveness of
sponsored links displayed on search result pages in driving
referrals to advertiser sites. qSearch is used by major search
engines and advertising agencies in planning search campaigns.
In August 2007 we released qSearch 2.0 with new features
designed to improve its accuracy, consistency and
comprehensiveness.
Ad Effx Campaign Essentials (formerly Campaign
Metrix). This product provides detailed
information about specific online advertising campaigns. These
reports, available through a Web-based interface, describe for
each advertising image, or creative within an
advertising campaign, the size and demographic composition of
the audience exposed to that particular advertisement, the
average number of impressions delivered and other details
regarding ad formats and ad sizes used in the campaign. An
advertiser, agency or publisher could use Ad Effx Campaign
Essentials to gain insight into the effectiveness of an online
advertising campaign by examining the number of unique users
exposed to the campaign, the number of times on average that a
unique user was exposed to the campaign and whether the campaign
reached the targeted audience demographic.
Ad Effx Brand Lift and Action Lift (formerly Brand
Metrix). Ad Effx Brand Lift provides reports
showing the test compared to control effectiveness of a campaign
using survey-based metrics that we collect from our Ad Recruit
technology. For example, a Brand Lift report would illustrate
the changes in brand awareness, intent and attitudes that were
driven by an advertising campaign. Ad Effx Action Lift measures
the lift in the advertisers site visitation and the lift
in searching for the brands trademark. Each report can be
customized to the advertisers needs and typically delivered in
PowerPoint, Excel and SPSS data files, often with a return on
investment analysis.
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Ad Effx Online Lift and Offline Lift. These
services provide an understanding of the effectiveness of
particular advertising campaigns by measuring the online and
offline behavior of a target group of comScore
panelists, following their exposure to a particular
advertisement, and comparing their behavior to that of a
control group of comScore panelists who were not
exposed to such advertisements. These services allow a marketer
to understand the impact of their advertising campaign and to
estimate the return on their investment in online marketing.
Survey-Based Products. These products leverage
our ability to administer surveys to our panel members to obtain
valuable information that can be seamlessly integrated with
online behavioral data to provide our clients with additional
insights into the drivers of consumer behavior.
Customers
As of December 31, 2009, we had 1,273 customers, including
82 Fortune 500 customers. Our customers include:
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eighteen of the top twenty online properties, based on total
unique visitors, as ranked by our Media Metrix database for the
month of February 2010, including Microsoft, Yahoo!, AOL and
Google;
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nine of the top ten U.S. Internet service providers, based
on publically released data;
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nine of the top ten investment banks, based on global investment
banking fees revenues as of September 2009, as ranked by Thomson
Reuters/Freeman & Co.;
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45 of the top 50 creative, media and digital agencies, based on
Ad Age;
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six of the top seven consumer banks, based on total
U.S. deposits as of June 30, 2009, as ranked by the
FDIC;
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all of the top four wireless carriers, based on CTIA as of
December 31, 2009;
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nine of the top ten pharmaceutical companies, based on 2008
worldwide sales, as ranked by Biodollars.com Top 25 Pharma
Companies Report;
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nine of the top ten credit card issuers, based on total credit
card outstandings as of June 30, 2009, as ranked by the
Nilson Report; and
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nine of the top ten consumer package goods companies, based on
the 2009 Fortune 500 list.
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One of our customers, Microsoft Corporation, accounted for 12%,
12% and 13% of our revenues in the years ended December 31,
2009, 2008 and 2007, respectively.
Selling
and Marketing
We sell the majority of our products through a direct sales
force. Sales of the comScore Media Metrix product suite to new
clients are managed by sales representatives assigned
specifically to new business development. A separate group of
account managers within our sales organization is assigned to
manage, renew and increase sales to existing Media Metrix
customers. The comScore Marketing Solutions sales organization
is organized vertically by industry with account executives
dedicated to selling into the automotive, consumer packaged
goods, entertainment, financial services, media, pharmaceutical,
retail, technology, telecommunications and travel sectors and
other industries. Marketing Solutions account executives are
tasked with both identifying and generating new business in
specific verticals as well as servicing existing customers. Our
sales and account representatives receive a base salary and are
eligible for bonuses or commissions based on performance.
Our marketing communications staff is primarily focused on
leveraging the use of comScore data and insights by the media
and maximizing the number of times that comScore is cited as a
source of information. We believe that the use of our data by
general and industry-specific media outlets increases
recognition of the comScore brand name and serves to help
validate the value of the analyses and products we provide. In
order to accomplish this goal, we seek to maintain relationships
with key news distributors, publications, TV networks, reporters
and other media
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outlets. We believe that the media views us as a highly
recognized and credible resource for digital marketing
intelligence. For example, between January 1, 2009 and
December 31, 2009, comScore data were cited more than
113,000 times by third-party media outlets, an average of over
311 citations per day. Moreover, we are regularly cited by
well-known news distributors, publications and TV networks such
as the Associated Press, Reuters, Bloomberg, CNBC, The New York
Times and The Wall Street Journal. We also target various
industry conferences and tradeshows as part of our marketing
efforts. These events are typically focused on a particular
industry, allowing us to demonstrate to industry participants
the value of our products to businesses in that industry.
Panel and
Methodology
The foundation of our digital marketing intelligence platform is
data collected from our comScore panel, which includes
approximately two million persons worldwide, whose online
behavior we have explicit permission to measure on a continuous,
passive basis. We believe that our panel is one of the largest
global panels of its kind, delivering a multi-faceted view of
digital media usage and transactional activity as well as
selected offline activity. By applying advanced statistical
methodologies to our panel data, we project the behavior of the
total online population.
We recruit our panel through a variety of online recruitment
programs that have been tested and refined since our inception
to ensure a diverse sample that sufficiently represents the
broader global Internet population. In addition, in the United
States we enlist a
sub-sample
of panelists through various offline recruiting methods.
Participants in the comScore research panel receive a package of
benefits that is designed to appeal to a broad variety of user
categories. Examples of such benefits include, as of December
2009, free security applications such as encrypted file
protection; free general purpose applications such as
screensavers and games; sweepstakes; cash payments; points that
may be redeemed for prizes; and planting a tree in the name of
all new panelists through our Trees for Knowledge
program. Participants data and privacy are protected by
defined privacy policies that safeguard personally-identifiable
information. This combination of recruiting methods allows us to
maintain a panel large enough to provide statistically
representative samples in most demographic segments.
We continuously determine the size, demographics and other
characteristics of the online population using enumeration
surveys of tens of thousands of persons annually, whereby
respondents are asked a variety of questions about their
Internet use, as well as demographic and other descriptive
questions about themselves and their households. The sample of
participants in each enumeration survey is selected using a
random recruiting methodology. The result is an
up-to-date
picture of the population to which the comScore sample is then
projected. We use the results from the enumeration surveys to
weight and statistically project the panel data to ensure that
the projected data reflect the characteristics of the Internet
population.
In addition, our Unified Digital Measurement solution combines
panel measurement of people and audience demographics with a
full and accurate representation of the consumption of a
sites media, which is accomplished by site owners
including comScore beacons or reporting pixels on
all of their site content. Census measurement using web beacons
reports every server call that the site owner would register
from all locations and devices, allows for full representation
of these audiences and devices, and fully reconciles Media
Metrix site audience measurement with publishers internal server
logs or web analytics metrics.
The move to census measurement has also been extended to mobile
under the auspices of the GSM Association (GSMA), the trade body
for mobile operators, and their Mobile Media Metrics
(MMM) initiative to deliver a comprehensive and granular
view of the mobile internet. GSMA MMM was pioneered and launched
by us in the UK. The mobile network operators provide
irreversibly anonymized census-level data for mobile internet
usage. Demographic data, collected with consent from a
representative sample of mobile users, is ascribed onto the
unique persistent identification number for each anonymous user
in the census data. Wi-Fi traffic, not seen in the mobile
network traffic, can be captured in server-side logs of media
owners and ad networks by beaconing with our Media Metrix 360
products.
Privacy
We believe that a key factor differentiating our digital
marketing intelligence is our ability to track and analyze
online usage behavior using the data collected from our panel.
Since the founding of our company, we have
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endeavored to undertake such data collection and analysis
responsibly and only with consumer permission. Participation in
our research panel is voluntary. Our policies require that
participants consent to our privacy and data security practices
before our software collects information on the users
online activity. In addition, we provide panelists with multiple
opportunities and methods to remove themselves from our panel.
We limit the type of information that we collect by identifying
and filtering certain personal information from the data
collected. The collected data is secured using multiple layers
of physical and digital security mechanisms. Moreover, we
maintain a strict policy of not sharing comScore panelists
personally identifiable information with our customers. We
believe that these actions and policies are consistent with the
AICPA/CICA WebTrust criteria for online privacy.
Technology
and Infrastructure
We have developed a proprietary system for the measurement of
the activity of our global online panel. This system is
continuously refined and developed to address the changing
digital media landscape and to meet new customer business needs.
The system is comprised of hundreds of servers that operate
using software built on Microsoft and other technologies. Our
technology infrastructure is operated in two third-party Tier-1
co-location facilities (one in Virginia and the other in
Illinois). Our systems have multiple redundancies and are
structured to ensure the continuation of business operations in
the event of network failure or if one of our data centers has
been rendered inoperable. As of December 31, 2009, our
technology team (excluding employees devoted to research and
development) was comprised of 199 full-time employees (or
full-time equivalents) working in four different geographic
locations, who design, develop, maintain and operate our entire
technology infrastructure. In addition, we have established a
relationship with a third party firm for software development in
an economically beneficial locale as a means to augment our
technology efforts for discrete projects.
Our development efforts have spanned all aspects of our
business. We have developed a data capture system that operates
across our panelists computers in almost 200 countries and
is used for the real-time capture of consumer Internet behavior.
We have built a large scale, efficient and proprietary system
for processing massive amounts of data. Typically our systems
handle and process data in excess of 190 billion input
records per month. Despite the scale of processing required,
these data are generally available on a daily basis for our
business use. We have also developed a highly efficient and
scalable system for the extraction and tabulation of all online
activities of our panelists. Likewise, we have created a highly
scalable data warehousing environment that allows ready access
and analysis of the data we collect. This system, based on
Sybase IQ, was awarded the 2001, 2003 and 2005 Grand Prize for
the largest Microsoft-based decision support warehouse by the
Winter Corporation. In December 2006, we were recognized as a
2007 Technology Pioneer by the World Economic Forum. We believe
our scalable and highly cost-effective systems and processing
methods provide us with a significant competitive advantage.
Our customers access our digital marketing intelligence product
offerings through a variety of methods including MyMetrix, our
proprietary, Web-based analysis and reporting system, which for
the full year ended December 31, 2009, was used by over
20,000 active, unique users to produce more than
9.0 million reports as compared to 19,000 active, unique
users in 2008.
Research
and Development
Our research and development efforts focus on the enhancement of
our existing products and the development of new products to
meet our customers digital marketing intelligence needs
across a broad range of industries and applications. Because of
the rapidly growing and evolving use of the Internet and other
digital media for commerce, content, advertising and
communications, these efforts are critical to satisfying our
customers demand for relevant digital marketing
intelligence. As of December 31, 2009, we had
approximately147 full-time employees (or full-time
equivalents) working on research and development activities
(excluding employees on our technology team cited under
Technology and Infrastructure above). In addition,
we involve management and operations personnel in our research
and development efforts. In 2009, 2008 and 2007 we spent
$17.8 million, $14.8 million and $11.4 million,
respectively, on research and development.
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Intellectual
Property
We rely on a combination of patent, trademark, copyright and
trade secret laws in the United States and other jurisdictions
together with confidentiality procedures and contractual
provisions to protect our proprietary technology and our brand.
We seek patent protection on inventions that we consider
important to the development of our business. We control access
to our proprietary technology and enter into confidentiality and
invention assignment agreements with our employees and
consultants and confidentiality agreements with other third
parties.
Our success depends in part on our ability to develop patentable
products and obtain, maintain and enforce patent and trade
secret protection for our products, including successfully
defending these patents against any third-party challenges, both
in the United States and in other countries. We may be able to
protect our technologies from unauthorized use by third parties
to the extent that we own or have licensed valid and enforceable
patents or trade secrets that cover them. However, the degree of
future protection of our proprietary rights is uncertain because
legal means afford only limited protection and may not
adequately protect our rights or permit us to gain or keep our
competitive advantage.
Currently, we own three U.S. patents. U.S. patent
7,181,412 was filed March 22, 2000 and covers, among other
things, techniques for collecting consumer data.
U.S. patent 7,260,837 was filed February 5, 2003 and
covers various techniques, such as techniques for collecting
data relating to a users usage of a computing device,
techniques for identifying a user of a computing device, and
techniques for monitoring the performance of a network server,
and U.S. patent 7,493,655 was filed February 5, 2003
and covers, among other things, techniques for placing user
identification in header of data packets usable in user
demographic reporting and collecting usage data. Under current
U.S. law, the statutory term for a patent is 20 years
from its earliest effective filing date. Accordingly,
U.S. patent 7,181,412; 7,260,837; and 7,493,655 are
expected to expire on March 22, 2020. However, various
circumstances, such as the provisions under U.S. patent law
for patent term adjustment and patent term extension, may extend
the duration of any of these patents. Similarly, various
circumstances may shorten the duration of any of these patents,
such as a change in U.S. law or a need or decision on our
part to terminally disclaim a portion of the statutory term of
any of these patents.
We also currently have twenty-seven U.S. and foreign patent
applications pending, and we intend to file, or request that our
licensors file, additional patent applications for patents
covering our products. However, patents may not be issued for
any pending or future pending patent applications owned by or
licensed to us, and claims allowed under any issued patent or
future issued patent owned or licensed by us may not be valid or
sufficiently broad to protect our technologies. Any issued
patents owned by or licensed to us now or in the future may be
challenged, invalidated, held unenforceable or circumvented, and
the rights under such patents may not provide us with the
expected benefits. In addition, competitors may design around
our technology or develop competing technologies. Intellectual
property rights may also be unavailable or limited in some
foreign countries, which could make it easier for competitors to
capture or increase their market share with respect to related
technologies. Although we are not currently involved in any
legal proceedings related to intellectual property, we could
incur substantial costs to defend ourselves in suits brought
against us or in suits in which we may assert our patent rights
against others. An unfavorable outcome in any such litigation
could have a material adverse effect on our business and results
of operations.
In addition to patent and trade secret protection, we also rely
on several trademarks and service marks to protect our
intellectual property assets. We are the owner of numerous
trademarks and service marks and have applied for registration
of our trademarks and service marks in the United States and in
certain other countries to establish and protect our brand names
as part of our intellectual property strategy. Some of our
registered marks include comScore, Media Metrix and MyMetrix.
Our intellectual property policy is to protect our products,
technology and processes by asserting our intellectual property
rights where we believe it is appropriate and prudent. Any
pending or future pending patent applications owned by or
licensed to us (in the United States or abroad) may not be
allowed or may in the future be challenged, invalidated, held
unenforceable or circumvented, and the rights under such patents
may not provide us with competitive advantages. Any significant
impairment of our intellectual property rights could harm our
business or our ability to compete. Protecting our intellectual
property rights is costly and time consuming. Any
14
increase in the unauthorized use of our intellectual property
could make it more expensive to do business and harm our
operating results.
There is always the risk that third parties may claim that we
are infringing upon their intellectual property rights and, if
successful in proving such claims, we could be prevented from
selling our products.
For additional, important information related to our
intellectual property, please review the information set forth
in Part I, Item 1A of this Annual Report on
Form 10-K,
Risk Factors Risks Related to Our Business and
Our Technologies.
Competition
The market for digital marketing intelligence is highly
competitive and evolving rapidly. We compete primarily with
providers of digital marketing intelligence and related
analytical products and services. We also compete with providers
of marketing services and solutions, with survey providers, as
well as with internal solutions developed by customers and
potential customers. Our principal competitors include:
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large and small companies that provide data and analysis of
consumers online behavior, including Compete Inc., Google,
Inc., Hitwise Pty. Ltd, Quantcast, Visual Measures and
Nielsen/Nielsen Online;
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online advertising companies that provide measurement of online
ad effectiveness, including aQuantive, Inc., Google/DoubleClick
Inc., ValueClick, Inc. and WPP Group plc;
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companies that provide audience ratings for TV, radio and other
media that have extended or may extend their current services,
particularly in certain international markets, to the
measurement of digital media, including Arbitron Inc., Nielsen
Media Research, Inc. and Taylor Nelson Sofres (owned by WPP
Group plc);
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analytical services companies that provide customers with
detailed information of behavior on their own Web sites,
including Omniture (owned by Adobe), Coremetrics, Visual
Sciences and WebTrends Corporation;
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full-service market research firms and survey providers that may
measure online behavior and attitudes, including Harris
Interactive Inc., Ipsos Group, Synnovate, GFK, Kantar and The
Nielsen Company;
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companies that provide behavioral, attitudinal and qualitative
advertising effectiveness, including Dynamic Logic, Inc.,
Insight Express, LLC and Marketing Evolution Inc.; and
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specialty information providers for certain industries that we
serve, including IMS Health Incorporated (healthcare) and
Nielsen Mobile, Inc. (telecommunications).
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Some of our current competitors have longer operating histories,
relationships with more customers and substantially greater
resources than we do. As a result, these competitors may be able
to devote more resources to marketing and promotional campaigns,
panel retention and development techniques or technology and
systems development than we can. In addition, some of our
competitors may be able to adopt more aggressive pricing
policies. Furthermore, large software companies, Internet
portals and database management companies may enter the market
or enhance their current offerings, either by developing
competing services or by acquiring our competitors, and could
leverage their significant resources and pre-existing
relationships with our current and potential customers.
We believe the principal competitive factors in our markets
include the following:
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the ability to provide actual and perceived high-quality,
accurate and reliable data regarding Internet and other digital
media audience behavior and activity in a timely manner,
including the ability to maintain a large and statistically
representative sample panel;
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the ability to adapt product offerings to emerging digital media
technologies and standards;
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the breadth and depth of products and their flexibility and ease
of use;
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the availability of data across various industry verticals and
geographic areas and expertise across these verticals and in
these geographic areas;
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the ability to offer survey-based information combined with
digital media usage, eCommerce data and other online information
collected from panelists;
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the ability to offer high-quality analytical services based on
Internet and other digital media audience measurement
information;
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the ability to offer products that meet the changing needs of
customers and provide high-quality service; and
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the prices that are charged for products based on the perceived
value delivered.
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We believe that we compete favorably with our competitors on the
basis of these factors. However, if we are unable to compete
successfully against our current and future competitors, we may
not be able to acquire and retain customers, and we may
consequently experience a decline in revenues, reduced operating
margins, loss of market share and diminished value from our
products.
Government
Regulation
Although we do not believe that significant existing laws or
government regulations adversely impact us, our business could
be affected by different interpretations or applications of
existing laws or regulations, future laws or regulations, or
actions by domestic or foreign regulatory agencies. For example,
privacy concerns could lead to legislative, judicial and
regulatory limitations on our ability to collect maintain and
use information about Internet users in the United States and
abroad. Various state legislatures have enacted legislation
designed to protect Internet users privacy, for example by
prohibiting spyware. In recent years, similar legislation has
been proposed in other states and at the federal level and has
been enacted in foreign countries, most notably by the European
Union, which adopted a privacy directive regulating the
collection of personally identifiable information online and the
use of cookies. These laws and regulations, if drafted or
interpreted broadly, could be deemed to apply to the technology
we use, and could restrict our information collection methods or
decrease the amount and utility of the information that we would
be permitted to collect. In addition, our ability to conduct
business in certain foreign jurisdictions, including China, is
restricted by the laws, regulations and agency actions of those
jurisdictions. The costs of compliance with, and the other
burdens imposed by, these and other laws or regulatory actions
may prevent us from selling our products or increase the costs
associated with selling our products, and may affect our ability
to invest in or jointly develop products in the United States
and in foreign jurisdictions. In addition, failure to comply
with these and other laws and regulations may result in, among
other things, administrative enforcement actions and fines,
class action lawsuits and civil and criminal liability. State
attorneys general, governmental and nongovernmental entities and
private persons may bring legal actions asserting that our
methods of collecting, using and distributing Web site visitor
information are illegal or improper, which could require us to
spend significant time and resources defending these claims. For
example, some companies that collect, use and distribute Web
site visitor information have been the subject of governmental
investigations and
class-action
lawsuits. Any such regulatory or civil action that is brought
against us, even if unsuccessful, may distract our
managements attention, divert our resources, negatively
affect our public image or reputation among our panelists and
customers and harm our business. The impact of any of these
current or future laws or regulations could make it more
difficult or expensive to attract or maintain panelists,
particularly in affected jurisdictions, and could adversely
affect our business and results of operations.
Additionally, laws and regulations that apply to communications
and commerce over the Internet are becoming more prevalent. In
particular, the growth and development of the market for
eCommerce has prompted calls for more stringent tax, consumer
protection and privacy laws in the United States and abroad that
may impose additional burdens on companies conducting business
online. The adoption, modification or interpretation of laws or
regulations relating to the Internet or our customers
digital operations could negatively affect the businesses of our
customers and reduce their demand for our products. For
additional, important information related to government
regulation of our business, please review the information set
forth in Part I, Item 1A of this Annual Report on
Form 10K, Risk Factors Risks Related to
Our Business and Our Technologies.
16
Executive
Officers of the Registrant
The following table sets forth the names and ages of our current
executive officers:
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Name
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Age
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Position
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Magid M. Abraham, Ph.D.
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51
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President, Chief Executive Officer and Director
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Gian M. Fulgoni
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Executive Chairman of the Board of Directors
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Kenneth J. Tarpey
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57
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Chief Financial Officer
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Gregory T. Dale
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40
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Chief Operating Officer
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Christiana L. Lin
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40
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EVP, General Counsel and Chief Privacy Officer
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Magid M. Abraham, Ph.D. one of our co-founders, has
served as our President, Chief Executive Officer and as a
Director since September 1999. In 1995, Dr. Abraham founded
Paragren Technologies, Inc., which specialized in delivering
large scale Customer Relationship Marketing systems for
strategic and target marketing, and served as its Chief
Executive Officer from 1995 to 1999. Prior to founding Paragren,
Dr. Abraham was employed by Information Resources, Inc.
from 1985 until 1995, where he was President and Chief Operating
Officer from 1993 to 1994 and later Vice Chairman of the Board
of Directors from 1994 until 1995. Since January 2008,
Dr. Abraham has also been a member of the board of
directors of Milo.com, a startup company. In 2008,
Mr. Abraham was inducted into the Entrepreneur Hall of Fame
and was named an Ernst & Young Entrepreneur of the
Year in the Washington DC area. Dr. Abraham received the
Paul Green Award in 1996 and the William F. ODell Award in
2000 from the American Marketing Association for a 1995 article
that he co-authored in the Journal of Marketing Research. He
received a Ph.D. in Operations Research and an M.B.A. from MIT.
He also holds an Engineering degree from the École
Polytechnique in France.
Gian M. Fulgoni, one of our co-founders, has served as
our Executive Chairman of the Board of Directors since September
1999. Prior to co-founding comScore, Mr. Fulgoni was
employed by Information Resources, Inc., where he served as
President from 1981 to 1989, Chief Executive Officer from 1986
to 1998 and Chairman of the Board of Directors from 1991 until
1995. Mr. Fulgoni has served on the board of directors of
PetMed Express, Inc. since 2002 and previously served from
August 1999 through November 2000. Mr. Fulgoni has also
served on the board of directors of Inxpo, an Illinois-based
provider of virtual events, since July 2005 and the Advertising
Research Foundation, an industry research organization, since
2008. He also served on the board of directors of Platinum
Technology, Inc. from 1990 to 1999, U.S. Robotics, Inc.
from 1991 to 1994, and Yesmail.com, Inc. from 1999 to 2000. In
1991 and again in 2004, Mr. Fulgoni was named an Illinois
Entrepreneur of the Year, the only person to have twice received
the honor. In 1992, he received the Wall Street Transcript Award
for outstanding contributions as Chief Executive Officer of
Information Resources, Inc. in enhancing the overall value of
that company to the benefit of its shareholders. In 2008,
Mr. Fulgoni was inducted into the Chicago Entrepreneur Hall
of Fame and was named an Ernst & Young Entrepreneur of
the Year. Educated in the United Kingdom, Mr. Fulgoni holds
an M.A. in Marketing from the University of Lancaster and a
B.Sc. in Physics from the University of Manchester.
Kenneth J. Tarpey has served as our Chief Financial
Officer since April 20, 2009. Prior to joining comScore,
Mr. Tarpey was Executive Vice President, Chief Financial
Officer and Chief Operating Officer of Objectvideo, Inc., a
Reston, Virginia-based provider of video surveillance software,
from 2003 until April 2009. From 2002 until 2003,
Mr. Tarpey was Senior Vice President, Chief Financial
Officer and Treasurer of Ai Metrix, Inc., a Herndon,
Virginia-based provider of network optimization software. From
1997 until 2001, Mr. Tarpey was Executive Vice President
and Chief Financial Officer of Proxicom, a NASDAQ-listed
Internet business consulting and development company.
Mr. Tarpey holds an M.B.A. from Babson College and a B.A.
from College of the Holy Cross.
Gregory T. Dale has served as our Chief Operating Officer
since August 2009. Prior to that, he served as our Vice
President, Product Management from September 1999 until October
2000 and as our Chief Technology Officer from October 2000 until
August 2009. Prior to joining us, he served as Vice President of
Client Service at Paragren Technologies, Inc., a company that
specialized in enterprise relationship marketing. He holds a
B.S. in Industrial Management from Purdue University.
Christiana L. Lin has served as our EVP, General Counsel
and Chief Privacy Officer since August 2009. Prior to that, she
served as our Deputy General Counsel from February 2001 until
March 2003, as our Corporate Counsel and Chief Privacy Officer
from March 2003 until January 2006 and as our General Counsel
and Chief Privacy
17
Officer from January 2006 until August 2009. Ms. Lin holds
a J.D. from the Georgetown University Law Center and a B.A. in
Political Science from Yale University.
Employees
As of December 31, 2009, we had 593 employees. None of
our employees are represented by a labor union. We have
experienced no work stoppages and believe that our employee
relations are good.
Geographic
Areas
Our primary geographic markets are the United States, Canada,
the United Kingdom, Latin America/Chile and Japan. For
information with respect to our geographic markets, see
Note 16 to our Consolidated Financial Statements in
Part II, Item 8 of this Annual Report on
Form 10-K.
Available
Information
We make our periodic and current reports available, free of
charge, on our website as soon as reasonably practicable after
such material is electronically filed with the Securities and
Exchange Commission. Our website address is
www.comscore.com and such reports are filed under
SEC Filings on the Investor Relations portion of our
website. Further, a copy of this annual report as well as our
other periodic and current reports may be obtained from the SEC,
located at the SECs public reference room at
100 F Street, NE, Washington, D.C. 20549.
Information on the operation of the Public Reference Room can be
obtained by calling the SEC at
1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding our
filings at www.sec.gov.
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
Conditions
and changes in the national and global economic environment may
adversely affect our business and financial
results.
Adverse economic conditions in markets in which we operate can
harm our business. If the economies of the United States and
other countries continue to experience prolonged uncertainty,
customers may delay or reduce their purchases of digital
marketing intelligence products and services. Recently, economic
conditions in the countries in which we operate and sell
products have become and remained increasingly negative, and
global financial markets have experienced severe volatility
stemming from a multitude of factors, including adverse credit
conditions impacted by the subprime-mortgage crisis, slower
economic activity, concerns about inflation and deflation,
decreased consumer confidence, increased unemployment, reduced
corporate profits and capital spending, adverse business
conditions, liquidity concerns and other factors. Economic
growth in the U.S. and in many other countries slowed in
the fourth quarter of 2007, remained slow throughout 2008 and
2009, and may continue to stagnate during 2010 in the
U.S. and internationally. During challenging economic
times, and in tight credit markets, many customers have and may
continue to delay or reduce spending. Additionally, some of our
customers may be unable to fully pay for purchases or may
discontinue their businesses, resulting in the incurrence of
uncollectible receivables for us. This could result in
reductions in our sales, longer sales cycles, difficulties in
collection of accounts receivable, slower adoption of new
technologies and increased price competition. This downturn may
also impact our available resources for financing new and
existing operations. If global economic and market conditions,
or economic conditions in the United States or other key markets
deteriorate, we may experience a material and adverse impact on
our business, results of operations and financial condition.
18
During the year ended December 31, 2009, our renewal rates
for our subscription-based products remained reasonably
consistent throughout the year on a dollar-basis. However, we
experienced declines in project revenues and renewal rates of
smaller customers during 2009. If this trend continues in 2010
and beyond, these declines may negatively impact our business.
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%, 83% and 79% of
our revenues in 2009, 2008 and 2007, 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 assure 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 the current economic downturn.
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:
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our ability to increase sales to existing customers and attract
new customers;
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our failure to accurately estimate or control costs
including those incurred as a result of acquisitions,
investments and other business development initiatives;
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our revenue recognition policies related to the timing of
contract renewals, delivery of products and duration of
contracts and the corresponding timing of revenue recognition;
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the mix of subscription-based versus project-based revenues;
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changes in our customers subscription renewal behaviors
and spending on projects;
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our ability to estimate revenues and cash flows associated with
business operations acquired by us;
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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;
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the potential loss of significant customers;
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the effect of revenues generated from significant one-time
projects or the loss of such projects;
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the impact of our decision to discontinue certain products;
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the amount and timing of capital expenditures and operating
costs related to the maintenance and expansion of our operations
and infrastructure;
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the timing and success of new product introductions by us or our
competitors;
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variations in the demand for our products and the implementation
cycles of our products by our customers;
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changes in our pricing and discounting policies or those of our
competitors;
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service outages, other technical difficulties or security
breaches;
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limitations relating to the capacity of our networks, systems
and processes;
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maintaining appropriate staffing levels and capabilities
relative to projected growth, or retaining key personnel as a
result of the integration of recent acquisitions;
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adverse judgments or settlements in legal disputes;
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the cost and timing of organizational restructuring, in
particular in international jurisdictions;
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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;
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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;
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the timing of any additional reversal of our deferred tax
valuation allowance;
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adoption of new accounting pronouncements; and
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general economic, industry and market conditions and those
conditions specific to Internet usage and online businesses.
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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.
If we
are not able to maintain panels of sufficient size and scope, or
if the costs of maintaining our panels materially increase, our
business would be harmed.
We believe that the quality, size and scope of our Internet and
Mobile media user panels are critical to our business. There can
be no assurance, however, that we will be able to maintain
panels of sufficient size and scope to provide the quality of
marketing intelligence that our customers demand from our
products. If we fail to maintain a panel of sufficient size and
scope including coverage of international markets,
customers might decline to purchase our products or renew their
subscriptions, our reputation could be damaged and our business
could be materially and adversely affected. We expect that our
panel costs may increase and may comprise a greater portion of
our cost of revenues in the future. The costs associated with
maintaining and improving the quality, size and scope of our
panel are dependent on many factors, many of which are beyond
our control, including the participation rate of potential panel
members, the turnover among existing panel members and
requirements for active participation of panel members, such as
completing survey questionnaires. Concerns over the potential
unauthorized disclosure of personal information or the
classification of our software as spyware or
adware may cause existing panel members to uninstall
our software or may discourage potential panel members from
installing our software. To the extent we experience greater
turnover, or churn, in our panel than we have historically
experienced, these costs would increase more rapidly. We also
have terminated and may in the future terminate relationships
with service providers whose practices we believe may not comply
with our privacy policies, and have removed and may in the
future remove panel members obtained through such service
providers. Such actions may
20
result in increased costs for recruiting additional panel
members. In addition, publishing content on the Internet and
purchasing advertising space on Web sites may become more
expensive or restrictive in the future, which could decrease the
availability and increase the cost of advertising the incentives
we offer to panel members. To the extent that such additional
expenses are not accompanied by increased revenues, our
operating margins would be reduced and our financial results
would be adversely affected.
Our
business may be harmed if we change our methodologies or the
scope of information we collect.
We have in the past and may in the future change our
methodologies or the scope of information we collect. Such
changes may result from identified deficiencies in current
methodologies, development of more advanced methodologies,
changes in our business plans or expressed or perceived needs of
our customers or potential customers. Any such changes or
perceived changes, or our inability to accurately or adequately
communicate to our customers and the media such changes and the
potential implications of such changes on the data we have
published or will publish in the future, may result in customer
dissatisfaction, particularly if certain information is no
longer collected or information collected in future periods is
not comparable with information collected in prior periods. For
example, in 2009, we adopted new methodology that would
integrate server-based web beacon information with our existing
panel-based data. In 2009, we also acquired and entered into a
strategic alliance with web analytics companies in order to
enhance the scope of our server-based web beacon information. As
a result, some of our existing customers or customers of
acquired entities may become dissatisfied as a result of changes
in our methodology and decide not to continue purchasing their
subscriptions or may decide to discontinue providing us with
their web beacon or other server-side information. Additionally,
we expect that we will need to further integrate new
capabilities with our existing methodologies if we develop or
acquire additional products or lines of business in the future.
The resulting future changes to our methodologies, the
information we collect, or the strategy we implement to collect
and analyze information, such as the movement away from pure
panel-centric measurement to a hybrid of panel- and site-centric
measurement, may cause additional customer dissatisfaction and
result in loss of customers.
Difficulties
entering into arrangements with website owners, wireless
communications operators and other entities supporting server-
and census-based methodologies may negatively affect our
methodologies and harm our business.
We believe that our methodologies are enhanced by the ability to
collect information using server-based web beacon information
and other census-level approaches. There can be no assurance,
however, that we will be able to maintain relationships with a
sufficient number and scope of websites in order to provide the
quality of marketing intelligence that our customers demand from
our products. If we fail to continue to expand the scope of our
server-based data collection approaches, customers might decline
to purchase our products or renew their subscriptions, our
reputation could be damaged and our business could be adversely
affected.
Material
defects or errors in our data collection and analysis systems
could damage our reputation, result in significant costs to us
and impair our ability to sell our products.
Our data collection and analysis systems are complex and may
contain material defects or errors. In addition, the large
amount of data that we collect may cause errors in our data
collection and analysis systems. Any defect in our panelist data
collection software, network systems, statistical projections or
other methodologies could result in:
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loss of customers;
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damage to our brand;
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lost or delayed market acceptance and sales of our products;
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interruptions in the availability of our products;
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the incurrence of substantial costs to correct any material
defect or error;
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sales credits, refunds or liability to our customers;
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diversion of development resources; and
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increased warranty and insurance costs.
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Any material defect or error in our data collection systems
could adversely affect our reputation and operating results.
We may
lose customers or be liable to certain customers if we provide
poor service or if our products do not comply with our customer
agreements.
Errors in our systems resulting from the large amount of data
that we collect, store and manage could cause the information
that we collect to be incomplete or to contain inaccuracies that
our customers regard as significant. The failure or inability of
our systems, networks and processes to adequately handle the
data in a high quality and consistent manner could result in the
loss of customers. In addition, we may be liable to certain of
our customers for damages they may incur resulting from these
events, such as loss of business, loss of future revenues,
breach of contract or loss of goodwill to their business.
Our insurance policies may not cover any claim against us for
loss of data, inaccuracies in data or other indirect or
consequential damages and defending a lawsuit, regardless of its
merit, could be costly and divert managements attention.
Adequate insurance coverage may not be available in the future
on acceptable terms, or at all. Any such developments could
adversely affect our business and results of operations.
Concern
over spyware and privacy, including any violations of privacy
laws, perceived misuse of personal information, or failure to
adhere to the privacy commitments that we make, could cause
public relations problems and could impair our ability to
recruit panelists or maintain panels of sufficient size and
scope, which in turn could adversely affect our ability to
provide our products.
Any perception of our practices as an invasion of privacy,
whether legal or illegal, may subject us to public criticism.
Existing and future privacy laws and increasing sensitivity of
consumers to unauthorized disclosures and the collection or use
of personal information and online usage information may create
negative public reaction related to our business practices. The
U.S. Congress and various media sources have expressed
concern over the collection of online usage information from
cable providers and telecommunications operators to facilitate
targeted Internet advertising, and the collection of online
behavioral data generally. A similar concern has been raised by
regulatory agencies in the United Kingdom. In addition,
U.S. and European lawmakers and regulators have expressed
concern over the use of third party cookies or web beacons to
understand Internet usage. Such criticisms may have a chilling
effect on businesses that collect or use online usage
information generally or substantially increase the cost of
maintaining a business that collects or uses online usage
information. Additionally, public concern has grown regarding
certain kinds of downloadable software known as
spyware and adware. These concerns might
cause users to refrain from downloading software from the
Internet, including our proprietary technology, which could make
it difficult to recruit additional panelists or maintain a panel
of sufficient size and scope to provide meaningful marketing
intelligence. In response to spyware and adware concerns,
numerous programs are available, many of which are available for
free, that claim to identify and remove spyware and adware from
users computers. Some of these anti-spyware programs have
in the past identified, and may in the future identify, our
software as spyware or as a potential spyware application. We
actively seek to prevent the inclusion of our software on lists
of spyware applications or potential spyware applications, to
apply best industry practices for obtaining appropriate consent
from panelists and protecting the privacy and confidentiality of
our panelist data and to comply with existing privacy laws.
However, to the extent that we are not successful, and
anti-spyware programs classify our software as spyware or as a
potential spyware application, or third party service providers
fail to comply with our privacy or data security requirements,
our brand may be harmed and users may refrain from downloading
these programs or may uninstall our software. Any resulting
reputational harm, potential claims asserted against us or
decrease in the size or scope of our panel could reduce the
demand for our products, increase the cost of recruiting
panelists and adversely affect our ability to provide our
products to our customers. Any of these effects could harm our
business.
22
Any
unauthorized disclosure or theft of private information we
gather could harm our business.
Unauthorized disclosure of personally identifiable information
regarding Web site visitors, whether through breach of our
secure network by an unauthorized party, employee theft or
misuse, or otherwise, could harm our business. If there were an
inadvertent disclosure of personally identifiable information,
or client confidential information, or if a third party were to
gain unauthorized access to the personally identifiable or
client confidential information we possess, our operations could
be seriously disrupted and we could be subject to claims or
litigation arising from damages suffered by panel members or
pursuant to the agreements with our customers. In addition, we
could incur significant costs in complying with the multitude of
state, federal and foreign laws regarding the unauthorized
disclosure of personal information. Finally, any perceived or
actual unauthorized disclosure of the information we collect
could harm our reputation, substantially impair our ability to
attract and retain panelists and have an adverse impact on our
business.
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
the public may contain or be perceived to contain inaccuracies.
These projections may be viewed as an important measure for the
success of certain businesses, especially those businesses with
a large online presence. Any inaccuracy or perceived inaccuracy
in the data reported by us about such businesses may potentially
affect the market perception of such businesses and result in
claims or litigation around the accuracy of our data, or the
appropriateness of our methodology, may encourage aggressive
action on the part of our competitors, and could harm our brand.
Any dissatisfaction by our customers or the media with our
digital marketing intelligence, measurement or data collection
and statistical projection methodologies, whether as a result of
inaccuracies, perceived inaccuracies, or otherwise, could have
an adverse effect on our ability to retain existing customers
and attract new customers and could harm our brand.
Additionally, we could be contractually required to pay damages,
which could be substantial, to certain of our customers if the
information we provide to them is found to be inaccurate. Any
liability that we incur or any harm to our brand that we suffer
because of actual or perceived irregularities or inaccuracies in
the data we deliver to our customers could harm our business.
The
market for digital marketing intelligence is at an early stage
of development, and if it does not develop, or develops more
slowly than expected, our business will be harmed.
The market for digital marketing intelligence products is at a
relatively early stage of development, and it is uncertain
whether these products will achieve high levels of demand and
increased market acceptance. Our success will depend to a
substantial extent on the willingness of companies to increase
their use of such products and to continue use of such products
on a long-term basis. Factors that may affect market acceptance
include:
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the reliability of digital marketing intelligence products;
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public concern regarding privacy and data security;
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decisions of our customers and potential customers to develop
digital marketing intelligence capabilities internally rather
than purchasing such products from third-party suppliers like us;
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decisions by industry associations in the United States or in
other countries that result in association-directed awards, on
behalf of their members, of digital measurement contracts to one
or a limited number of competitive vendors;
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the ability to maintain high levels of customer
satisfaction; and
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the rate of growth in eCommerce, online advertising and digital
media.
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The market for our products may not develop further, or may
develop more slowly than we expect or may even contract, all of
which could adversely affect our business and operating results.
23
Because
our long-term success depends, in part, on our ability to expand
the sales of our products to customers located outside of the
United States, our business will become increasingly susceptible
to risks associated with international operations.
During 2009, we acquired a company with a substantial presence
in multiple Latin American countries. Despite this acquisition,
we otherwise have limited experience operating in markets
outside of the United States. Our inexperience in operating our
business outside of the United States may increase the risk that
the international expansion efforts we have begun to undertake
will not be successful. In addition, conducting international
operations subjects us to new risks that we have not generally
faced in the United States. These risks include:
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recruitment and maintenance of a sufficiently large and
representative panel both globally and in certain countries;
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expanding the adoption of our server- or census-based web beacon
data collection in international countries;
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different customer needs and buying behavior than we are
accustomed to in the United States;
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difficulties and expenses associated with tailoring our products
to local markets, including their translation into foreign
languages;
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difficulties in staffing and managing international
operations including complex and costly hiring,
disciplinary, and termination requirements;
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longer accounts receivable payment cycles and difficulties in
collecting accounts receivable;
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potentially adverse tax consequences, including the complexities
of foreign value-added taxes and restrictions on the
repatriation of earnings;
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reduced or varied protection for intellectual property rights in
some countries;
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the burdens of complying with a wide variety of foreign laws and
regulations;
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fluctuations in currency exchange rates;
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increased accounting and reporting burdens and
complexities; and
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political, social and economic instability abroad, terrorist
attacks and security concerns.
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Additionally, operating in international markets requires
significant management attention and financial resources. We
cannot be certain that the investments and additional resources
required to establish and maintain operations in other countries
will hold their value or produce desired levels of revenues or
profitability. We cannot be certain that we will be able to
maintain and increase the size of the Internet user panel that
we currently have in various countries, that we will be able to
recruit a representative sample for our audience measurement
products, or that we will be able to enter into arrangements
with a sufficient number of website owners to allow us to
collect server-based information for inclusion in our digital
marketing intelligence products. In addition, there can be no
assurance that Internet usage and eCommerce will continue to
grow in international markets. In addition, governmental
authorities in various countries have different views regarding
regulatory oversight of the Internet. For example, the Chinese
government has taken steps in the past to restrict the content
available to Internet users in China.
The impact of any one or more of these risks could negatively
affect or delay our plans to expand our international business
and, consequently, our future operating results.
If the
Internet advertising and eCommerce markets develop more slowly
than we expect, our business will suffer.
Our future success will depend on continued growth in the use of
the Internet as an advertising medium, a continued increase in
eCommerce spending and the proliferation of the Internet as a
platform for a wide variety of consumer activities. These
markets are evolving rapidly, and it is not certain that their
current growth trends will continue.
24
The adoption of Internet advertising, particularly by
advertisers that have historically relied on traditional offline
media, requires the acceptance of new approaches to conducting
business and a willingness to invest in such new approaches in
light of a difficult economic environment. Advertisers may
perceive Internet advertising to be less effective than
traditional advertising for marketing their products. They may
also be unwilling to pay premium rates for online advertising
that is targeted at specific segments of users based on their
demographic profile or Internet behavior. The online advertising
and eCommerce markets may also be adversely affected by privacy
issues relating to such targeted advertising, including that
which makes use of personalized information, or online
behavioral information. Furthermore, online merchants may not be
able to establish online commerce models that are cost effective
and may not learn how to effectively compete with other Web
sites or offline merchants. In addition, consumers may not
continue to shift their spending on goods and services from
offline outlets to the Internet. As a result, growth in the use
of the Internet for eCommerce may not continue at a rapid rate,
or the Internet may not be adopted as a medium of commerce by a
broad base of customers or companies worldwide. Moreover, the
adoption of advertising through mobile media may slow as a
result of uncertain economic conditions or other factors.
Because of the foregoing factors, among others, the market for
Internet advertising and eCommerce, including commerce through
mobile media, may not continue to grow at significant rates. If
these markets do not continue to develop, or if they develop
more slowly than expected, our business will suffer.
Our
growth depends upon our ability to retain existing large
customers and add new large customers; however, to the extent we
are not successful in doing so, our ability to maintain
profitability and positive cash flow may be
impaired.
Our success depends in part on our ability to sell our products
to large customers and on the renewal of the subscriptions of
those customers in subsequent years. For the years ended
December 31, 2009, 2008 and 2007, we derived over 29%, 30%
and 37%, respectively, of our total revenues from our top 10
customers. Uncertain economic conditions or other factors, such
as the failure or consolidation of large financial institutions,
may cause certain large customers to terminate or reduce their
subscriptions. The loss of any one or more of those customers
could decrease our revenues and harm our current and future
operating results. The addition of new large customers or
increases in sales to existing large customers may require
particularly long implementation periods and other costs, which
may adversely affect our profitability. To compete effectively,
we have in the past been, and may in the future be, forced to
offer significant discounts to maintain existing customers or
acquire other large customers. In addition, we may be forced to
reduce or withdraw from our relationships with certain existing
customers or refrain from acquiring certain new customers in
order to acquire or maintain relationships with important large
customers. As a result, new large customers or increased usage
of our products by large customers may cause our profits to
decline and our ability to sell our products to other customers
could be adversely affected.
We derive a significant portion of our revenues from a single
customer, Microsoft Corporation. For the years ended
December 31, 2009, 2008 and 2007, we derived approximately
12%, 12% and 13%, respectively, of our total revenues from
Microsoft. If Microsoft were to cease or substantially reduce
its use of our products, our revenues and earnings might decline.
As our
international operations grow, changes in foreign currencies
could have an increased effect on our operating
results.
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 be immaterial at this time and do not currently
engage in any transactions that hedge foreign currency exchange
rate risk. As we grow our international operations, our exposure
to foreign currency risk could become more significant.
During 2009, the value of the U.S. Dollar fluctuated but
generally depreciated against the British Pound, the Euro, the
Canadian Dollar and other local currencies of international
customers. As the U.S. Dollar appreciates relative to the
local currencies of our international customers, the cost to the
customer for of our products and projects correspondingly
increase and could result in reductions in sales or renewals,
longer sales cycles, difficulties in collection of accounts
receivable and increased price competition, any of which could
adversely affect our
25
operating results. Likewise, as the U.S. Dollar
appreciates, our contracts denominated in foreign currencies
also result in reduced revenues.
If we
fail to respond to technological developments, our products may
become obsolete or less competitive.
Our future success will depend in part on our ability to modify
or enhance our products to meet customer needs, to add
functionality and to address technological advancements. For
example, if certain handheld devices become the primary mode of
receiving content and conducting transactions on the Internet,
and we are unable to adapt to collect information from such
devices, then we would not be able to report on online activity.
To remain competitive, we will need to develop new products that
address these evolving technologies and standards across the
universe of digital media including television,
Internet and mobile usage. However, we may be unsuccessful in
identifying new product opportunities or in developing or
marketing new products in a timely or cost-effective manner. In
addition, our product innovations may not achieve the market
penetration or price levels necessary for profitability. If we
are unable to develop enhancements to, and new features for, our
existing methodologies or products or if we are unable to
develop new products that keep pace with rapid technological
developments or changing industry standards, our products may
become obsolete, less marketable and less competitive, and our
business will be harmed.
The
market for digital marketing intelligence is highly competitive,
and if we cannot compete effectively, our revenues will decline
and our business will be harmed.
The market for digital marketing intelligence is highly
competitive and is evolving rapidly. We compete primarily with
providers of digital media intelligence and related analytical
products and services. We also compete with providers of
marketing services and solutions, with full-service survey
providers and with internal solutions developed by customers and
potential customers. Our principal competitors include:
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large and small companies that provide data and analysis of
consumers online behavior, including Compete Inc., Google,
Inc., Hitwise Pty. Ltd, Quantcast, Visual Measures and
Nielsen/Nielsen Online;
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online advertising companies that provide measurement of online
ad effectiveness, including aQuantive, Inc., Google/DoubleClick
Inc., ValueClick, Inc. and WPP Group plc;
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companies that provide audience ratings for TV, radio and other
media that have extended or may extend their current services,
particularly in certain international markets, to the
measurement of digital media, including Arbitron Inc., Nielsen
Media Research, Inc. and Taylor Nelson Sofres (owned by WPP
Group plc);
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analytical services companies that provide customers with
detailed information of behavior on their own Web sites,
including Omniture, Inc. (owned by Adobe), Coremetrics, Visual
Sciences and WebTrends Corporation;
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full-service market research firms and survey providers that may
measure online behavior and attitudes, including Harris
Interactive Inc., Ipsos Group, Synnovate, GFK, Kantar and The
Nielsen Company;
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companies that provide behavioral, attitudinal and qualitative
advertising effectiveness, including Dynamic Logic, Inc.,
Insight Express, LLC and Marketing Evolution Inc.; and
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specialty information providers for certain industries that we
serve, including IMS Health Incorporated (healthcare) and
Nielsen Mobile, Inc. (telecommunications).
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Some of our current competitors have longer operating histories,
access to larger customer bases and substantially greater
resources than we do. As a result, these competitors may be able
to devote greater resources to marketing and promotional
campaigns, panel retention, panel development or development of
systems and technologies than we can. In addition, some of our
competitors may adopt more aggressive pricing policies or have
started to provide some services at no cost. Furthermore, large
software companies, Internet portals and database management
companies may enter our market or enhance their current
offerings, either by developing competing services or by
acquiring our competitors, and could leverage their significant
resources and pre-existing relationships with our current and
potential customers.
26
If we are unable to compete successfully against our current and
future competitors, we may not be able to retain and acquire
customers, and we may consequently experience a decline in
revenues, reduced operating margins, loss of market share and
diminished value from our products.
We may
encounter difficulties managing our growth and costs, which
could adversely affect our results of operations.
We have experienced significant growth over the past several
years. We have substantially expanded our overall business,
customer base, headcount, data collection and processing
infrastructure and operating procedures as our business has
grown through both organic growth and acquisitions. We increased
our total number of full time employees to 593 employees as
of December 31, 2009 from 176 employees as of
December 31, 2003. As a result of downward adjustments to
compensation and reductions in our workforce made during 2009,
however, we may encounter decreased employee morale and
increased employee turnover. In addition, given the current
economic environment, we may need to further realign or reduce
certain portions of our workforce in order to meet our strategic
objectives. Such actions may expose us to disruption by
dissatisfied employees or employee-related claims, including
without limitation, claims by terminated employees that believe
they are owed more compensation than we believe these employees
are due under our compensation and benefit plans. In addition,
during this same period, we made substantial investments in our
network infrastructure operations as a result of our growth and
the growth of our panel, and we have also undertaken certain
strategic acquisitions. We believe that we will need to continue
to effectively manage and expand our organization, operations
and facilities in order to accommodate potential future growth
or acquisitions and to successfully integrate acquired
businesses. If we continue to grow, either organically or
through acquired businesses, our current systems and facilities
may not be adequate. Our need to effectively manage our
operations and cost structure requires that we continue to
assess and improve our operational, financial and management
controls, reporting systems and procedures. If we are not able
to efficiently and effectively manage our cost structure, our
business may be impaired.
Failure
to effectively expand our sales and marketing capabilities could
harm our ability to increase our customer base and achieve
broader market acceptance of our products.
Increasing our customer base and achieving broader market
acceptance of our products will depend to a significant extent
on our ability to expand our sales and marketing operations. We
expect to continue to rely on our direct sales force to obtain
new customers. We may expand or enhance our direct sales force
both domestically and internationally. We believe that there is
significant competition for direct sales personnel with the
sales skills and technical knowledge that we require. Our
ability to achieve significant growth in revenues in the future
will depend, in large part, on our success in recruiting,
training and retaining sufficient numbers of direct sales
personnel, and our ability to cross train our existing
salesforce with the salesforces of acquired businesses so that
the sales personnel have the necessary information and ability
to sell or develop sales prospects for both our products and the
products of recently-acquired companies. In general, new hires
require significant training and substantial experience before
becoming productive. Our recent hires and planned hires may not
become as productive as we require, and we may be unable to hire
or retain sufficient numbers of qualified individuals in the
future in the markets where we currently operate or where we
seek to conduct business. Our business will be seriously harmed
if the efforts to expand our sales and marketing capabilities
are not successful or if they do not generate a sufficient
increase in revenues.
If we
fail to develop our brand, our business may
suffer.
We believe that building and maintaining awareness of comScore
and our portfolio of products in a cost-effective manner is
critical to achieving widespread acceptance of our current and
future products and is an important element in attracting new
customers. We will also need to carefully manage the brands used
by recently-acquired businesses as we integrate such businesses
into our own. We rely on our relationships with the media and
the exposure we receive from numerous citations of our data by
media outlets to build brand awareness and credibility among our
customers and the marketplace. Furthermore, we believe that
brand recognition will become more important for us as
competition in our market increases. Our brands success
will depend on the effectiveness of our marketing efforts and on
our ability to provide reliable and valuable products to our
customers at competitive prices. Our brand marketing activities
may not yield increased revenues, and even if they do, any
increased revenues
27
may not offset the expenses we incur in attempting to build our
brand. If we fail to successfully market our brand, we may fail
to attract new customers, retain existing customers or attract
media coverage to the extent necessary to realize a sufficient
return on our brand-building efforts, and our business and
results of operations could suffer.
We
have a limited operating history and may not be able to achieve
financial or operational success.
We were incorporated in 1999 and introduced our first syndicated
Internet audience measurement product in 2000. Many of our other
products were first introduced during the past few years.
Accordingly, we are still in the early stages of development and
have only a limited operating history upon which our business
can be evaluated. You should evaluate our likelihood of
financial and operational success in light of the risks,
uncertainties, expenses, delays and difficulties associated with
an early-stage business in an evolving market, some of which may
be beyond our control, including:
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our ability to successfully manage any growth we may achieve in
the future;
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the risks associated with operating a business in international
markets, including Asia, Europe and Latin America; and
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our ability to successfully integrate acquired businesses,
technologies or services.
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We
have a history of significant net losses, may incur significant
net losses in the future and may not maintain
profitability.
Although we achieved net income in the 2009, 2008 and 2007
fiscal years of $4.0 million, $25.2 million and
$19.3 million, respectively, we cannot assure you that we
will continue to sustain or increase profitability in the
future. As of December 31, 2009, we had an accumulated
deficit of $51.7 million. Because a large portion of our
costs are fixed, we may not be able to reduce or maintain our
expenses in response to any decrease in our revenues, which
would adversely affect our operating results. In addition, we
expect operating expenses to increase as we implement certain
growth initiatives, which include, among other things, the
development of new products, expansion of our infrastructure,
plans for international expansion and general and administrative
expenses associated with being a public company. If our revenues
do not increase to offset these expected increases in costs and
operating expenses, our operating results would be materially
and adversely affected. You should not consider our revenue
growth in recent periods as indicative of our future
performance, as our operating results for future periods are
subject to numerous uncertainties.
We
have limited experience with respect to our pricing model, and
if the fees we charge for our products are unacceptable to our
customers, our revenues and operating results will be
harmed.
We have limited experience in determining the fees for our
products that our existing and potential customers will find
acceptable. The majority of our customers purchase
specifically-tailored subscription packages that are priced in
the aggregate. Due to the level of customization of such
subscription packages, the pricing of contracts or individual
product components of such packages may not be readily
comparable across customers or periods. Existing and potential
customers may have difficulty assessing the value of our
products and services when comparing it to competing products
and services. As the market for our products matures, or as new
competitors introduce new products or services that compete with
ours, we may be unable to renew our agreements with existing
customers or attract new customers with the fees we have
historically charged. As a result, it is possible that future
competitive dynamics in our market as well as global economic
pressures may require us to reduce our fees, which could have an
adverse effect on our revenues, profitability and operating
results.
If we
are unable to sell additional products to our existing customers
or attract new customers, our revenue growth will be adversely
affected.
To increase our revenues, we believe we must sell additional
products to existing customers, including existing customers of
acquired businesses, and regularly add new customers. If our
existing and prospective customers do not perceive our products
to be of sufficient value and quality, we may not be able to
increase sales to existing customers and attract new customers,
and our operating results will be adversely affected.
28
We
depend on third parties for data that is critical to our
business, and our business could suffer if we cannot continue to
obtain data from these suppliers.
We rely on third-party data sources for information regarding
certain digital activities such as television viewing and mobile
usage, as well as for information about offline activities of
and demographic information regarding our panelists. The
availability and accuracy of these data is important to the
continuation and development of our cross-media products,
-products that use server- or census-based information as part
of the research methodology, and products that link online and
offline activity. If this information is not available to us at
commercially reasonable terms, or is found to be inaccurate, it
could harm our reputation, business and financial performance.
System
failures or delays in the operation of our computer and
communications systems may harm our business.
Our success depends on the efficient and uninterrupted operation
of our computer and communications systems and the third-party
data centers we use. Our ability to collect and report accurate
data may be interrupted by a number of factors, including our
inability to access the Internet, the failure of our network or
software systems, computer viruses, security breaches or
variability in user traffic on customer Web sites. A failure of
our network or data gathering procedures could impede the
processing of data, cause the corruption or loss of data or
prevent the timely delivery of our products.
In the future, we may need to expand our network and systems at
a more rapid pace than we have in the past. Our network or
systems may not be capable of meeting the demand for increased
capacity, or we may incur additional unanticipated expenses to
accommodate these capacity demands. In addition, we may lose
valuable data, be unable to obtain or provide data on a timely
basis or our network may temporarily shut down if we fail to
adequately expand or maintain our network capabilities to meet
future requirements. Any lapse in our ability to collect or
transmit data may decrease the value of our products and prevent
us from providing the data requested by our customers. Any
disruption in our network processing or loss of Internet user
data may damage our reputation and result in the loss of
customers, and our business and results of operations could be
adversely affected.
We
rely on a small number of third-party service providers to host
and deliver our products, and any interruptions or delays in
services from these third parties could impair the delivery of
our products and harm our business.
We host our products and serve all of our customers from two
third-party data center facilities located in Virginia and
Illinois. While we operate our equipment inside these
facilities, we do not control the operation of either of these
facilities, and, depending on service level requirements, we may
not continue to operate or maintain redundant data center
facilities for all of our products or for all of our data, which
could increase our vulnerability. These facilities are
vulnerable to damage or interruption from earthquakes,
hurricanes, floods, fires, power loss, telecommunications
failures and similar events. They are also subject to break-ins,
computer viruses, sabotage, intentional acts of vandalism and
other misconduct. A natural disaster or an act of terrorism, a
decision to close the facilities without adequate notice or
other unanticipated problems could result in lengthy
interruptions in availability of our products. We may also
encounter capacity limitations at our third-party data centers.
Additionally, our data center facility agreements are of limited
durations, and our data center facilities have no obligation to
renew their agreements with us on commercially reasonable terms,
if at all. Our agreement for our data center facility located in
Virginia expires in October 2010, if not renewed, and our
agreement for our data center facility located in Illinois
expires in July 2010, if not renewed. Although we are not
substantially dependent on either data center facility because
of planned redundancies, and although we currently are able to
migrate to alternative data centers, such a migration may result
in an interruption or delay in service. If we are unable to
renew our agreements with the owners of the facilities on
commercially reasonable terms, or if we migrate to a new data
center, we may experience delays in delivering our products
until an agreement with another data center facility can be
arranged or the migration to a new facility is completed.
Further, we depend on access to the Internet through third-party
bandwidth providers to operate our business. If we lose the
services of one or more of our bandwidth providers for any
reason, we could experience disruption in the
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delivery of our products or be required to retain the services
of a replacement bandwidth provider. It may be difficult for us
to replace any lost bandwidth on commercially reasonable terms,
or at all, due to the large amount of bandwidth our operations
require.
Our operations also rely heavily on the availability of
electrical power and cooling capacity, which are also supplied
by third-party providers. If we or the third-party data center
operators that we use to deliver our products were to experience
a major power outage or if the cost of electrical power
increases significantly, our operations and profitability would
be harmed. If we or the third-party data centers that we use
were to experience a major power outage, we would have to rely
on back-up
generators, which may not function properly, and their supply
may be inadequate. Such a power outage could result in the
disruption of our business. Additionally, if our current
facilities fail to have sufficient cooling capacity or
availability of electrical power, we would need to find
alternative facilities.
Any errors, defects, disruptions or other performance problems
with our products caused by third parties could harm our
reputation and may damage our business. Interruptions in the
availability of our products may reduce our revenues due to
increased turnaround time to complete projects, cause us to
issue credits to customers, cause customers to terminate their
subscription and project agreements or adversely affect our
renewal rates. Our business would be harmed if our customers or
potential customers believe our products are unreliable.
The
success of our business depends in large part on our ability to
protect and enforce our intellectual property
rights.
We rely on a combination of patent, copyright, service mark,
trademark and trade secret laws, as well as confidentiality
procedures and contractual restrictions, to establish and
protect our proprietary rights, all of which provide only
limited protection. While we have filed a number of patent
applications and own three issued patents, we cannot assure you
that any additional patents will be issued with respect to any
of our pending or future patent applications, nor can we assure
you that any patent issued to us will provide adequate
protection, or that any patents issued to us will not be
challenged, invalidated, circumvented, or held to be
unenforceable in actions against alleged infringers. Also, we
cannot assure you that any future trademark or service mark
registrations will be issued with respect to pending or future
applications or that any of our registered trademarks and
service marks will be enforceable or provide adequate protection
of our proprietary rights. Furthermore, adequate (or any)
patent, trademark, service mark, copyright and trade secret
protection may not be available in every country in which our
services are available.
We endeavor to enter into agreements with our employees and
contractors and with parties with whom we do business in order
to limit access to and disclosure of our proprietary
information. We cannot be certain that the steps we have taken
will prevent unauthorized use of our technology or the reverse
engineering of our technology. Moreover, third parties might
independently develop technologies that are competitive to ours
or that infringe upon our intellectual property. In addition,
the legal standards relating to the validity, enforceability and
scope of protection of intellectual property rights in
Internet-related industries are uncertain and still evolving,
both in the United States and in other countries. The protection
of our intellectual property rights may depend on our legal
actions against any infringers being successful. We cannot be
sure any such actions will be successful.
An
assertion from a third party that we are infringing its
intellectual property, whether such assertions are valid or not,
could subject us to costly and time-consuming litigation or
expensive licenses.
The Internet, mobile media, software and technology industries
are characterized by the existence of a large number of patents,
copyrights, trademarks and trade secrets and by frequent
litigation based on allegations of infringement or other
violations of intellectual property rights, domestically or
internationally. As we grow and face increasing competition, the
probability that one or more third parties will make
intellectual property rights claims against us increases. In
such cases, our technologies may be found to infringe on the
intellectual property rights of others. Additionally, many of
our subscription agreements may require us to indemnify our
customers for third-party intellectual property infringement
claims, which would increase our costs if we have to defend such
claims and may require that we pay damages and provide
alternative services if there were an adverse ruling in any such
claims. Intellectual property claims could harm our
relationships with our customers, deter future customers from
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subscribing to our products or expose us to litigation. Even if
we are not a party to any litigation between a customer and a
third party, an adverse outcome in any such litigation could
make it more difficult for us to defend against intellectual
property claims by the third party in any subsequent litigation
in which we are a named party. Any of these results could
adversely affect our brand, business and results of operations.
One of our competitors has filed patent infringement lawsuits
against others, demonstrating this partys propensity for
patent litigation. It is possible that this third party, or some
other third party, may bring an action against us, and thus
cause us to incur the substantial costs and risks of litigation.
Any intellectual property rights claim against us or our
customers, with or without merit, could be time-consuming and
expensive to litigate or settle and could divert management
resources and attention. An adverse determination also could
prevent us from offering our products to our customers and may
require that we procure or develop substitute products that do
not infringe on other parties rights.
With respect to any intellectual property rights claim against
us or our customers, we may have to pay damages or stop using
technology found to be in violation of a third partys
rights. We may have to seek a license for the technology, which
may not be available on reasonable terms or at all, may
significantly increase our operating expenses or may
significantly restrict our business activities in one or more
respects. We may also be required to develop alternative
non-infringing technology, which could require significant
effort and expense. Any of these outcomes could adversely affect
our business and results of operations.
Domestic
or foreign laws, regulations or enforcement actions may limit
our ability to collect and use information about Internet users
or restrict or prohibit our product offerings, causing a
decrease in the value of our products and an adverse impact on
the sales of our products.
Our business could be adversely impacted by existing or future
laws or regulations of, or actions by, domestic or foreign
regulatory agencies. For example, privacy concerns could lead to
legislative, judicial and regulatory limitations on our ability
to collect maintain and use information about Internet users in
the United States and abroad. Various state legislatures have
enacted legislation designed to protect Internet users
privacy, for example by prohibiting spyware. In recent years,
similar legislation has been proposed in other states and at the
federal level and has been enacted in foreign countries, most
notably by the European Union, which adopted a privacy directive
regulating the collection of personally identifiable information
online. Recently, the U.S. Congress and regulators have
expressed concern over the collection of Internet usage
information as part of a larger initiative to regulate online
behavioral advertising. A similar concern has been raised by
regulatory agencies in the United Kingdom. In addition,
U.S. and European lawmakers and regulators have expressed
concern over the use of third party cookies or web beacons to
understand Internet usage. These laws and regulations, if
drafted or interpreted broadly, could be deemed to apply to the
technology we use, and could restrict our information collection
methods, and the collection methods of third parties from whom
we may obtain data, or decrease the amount and utility of the
information that we would be permitted to collect. Even if such
laws and regulations are not enacted, lawmakers and regulators
may publicly call into question the collection and use of
Internet or mobile usage data and may affect vendors and
customers willingness to do business with us. In addition,
our ability to conduct business in certain foreign
jurisdictions, including China, is restricted by the laws,
regulations and agency actions of those jurisdictions. The costs
of compliance with, and the other burdens imposed by, these and
other laws or regulatory actions may prevent us from selling our
products or increase the costs associated with selling our
products, and may affect our ability to invest in or jointly
develop products in the United States and in foreign
jurisdictions.
In addition, failure to comply with these and other laws and
regulations may result in, among other things, administrative
enforcement actions and fines, class action lawsuits and civil
and criminal liability. State attorneys general, governmental
and non-governmental entities and private persons may bring
legal actions asserting that our methods of collecting, using
and distributing Web site visitor information are illegal or
improper, which could require us to spend significant time and
resources defending these claims. For example, some companies
that collect, use and distribute Web site visitor information
have been the subject of governmental investigations and
class-action
lawsuits. Any such regulatory or civil action that is brought
against us, even if unsuccessful, may distract our
managements attention, divert our resources, negatively
affect our public image or reputation among our panelists and
customers and harm our business.
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The impact of any of these current or future laws or regulations
could make it more difficult or expensive to attract or maintain
panelists, particularly in affected jurisdictions, and could
adversely affect our business and results of operations.
Laws
related to the regulation of the Internet could adversely affect
our business.
Laws and regulations that apply to communications and commerce
over the Internet are becoming more prevalent. In particular,
the growth and development of the market for eCommerce has
prompted calls for more stringent tax, consumer protection and
privacy laws in the United States and abroad that may impose
additional burdens on companies conducting business online. The
adoption, modification or interpretation of laws or regulations
relating to the Internet or our customers digital
operations could negatively affect the businesses of our
customers and reduce their demand for our products. Even if such
laws and regulations are not enacted, lawmakers and regulators
may publicly call into question the collection and use of
Internet or mobile usage data and may affect vendors and
customers willingness to do business with us.
If we
fail to respond to evolving industry standards, our products may
become obsolete or less competitive.
The market for our products is characterized by rapid
technological advances, changes in customer requirements,
changes in protocols and evolving industry standards. For
example, industry associations such as the Advertising Research
Foundation, the Council of American Survey Research
Organizations, the Internet Advertising Bureau, or IAB, and the
Media Ratings Council have independently initiated efforts to
either review online market research methodologies or to develop
minimum standards for online market research. In September 2007,
we began a full audit to obtain accreditation by the Media
Ratings Council. Any standards adopted by U.S or internationally
based industry associations may lead to costly changes to our
procedures and methodologies. As a result, the cost of
developing our digital marketing intelligence products could
increase. If we do not adhere to standards prescribed by the IAB
or other industry associations, our customers could choose to
purchase products from competing companies that meet such
standards. Furthermore, industry associations based in countries
outside of the United States often endorse certain vendors or
methodologies. If our methodologies fail to receive an
endorsement from an important industry association located in a
foreign country, advertising agencies, media companies and
advertisers in that country may not purchase our products. As a
result, our efforts to further expand internationally could be
adversely affected.
The
success of our business depends on the continued growth of the
Internet as a medium for commerce, content, advertising and
communications.
Expansion in the sales of our products depends on the continued
acceptance of the Internet as a platform for commerce, content,
advertising and communications. The use of the Internet as a
medium for commerce, content, advertising and communications
could be adversely impacted by delays in the development or
adoption of new standards and protocols to handle increased
demands of Internet activity, security, reliability, cost,
ease-of-use,
accessibility and
quality-of-service.
The performance of the Internet and its acceptance as a medium
for commerce, content commerce, content, advertising and
communications has been harmed by viruses, worms, and similar
malicious programs, and the Internet has experienced a variety
of outages and other delays as a result of damage to portions of
its infrastructure. If for any reason the Internet does not
remain a medium for widespread commerce, content, advertising
and communications, the demand for our products would be
significantly reduced, which would harm our business.
We
rely on our management team and may need additional personnel to
grow our business; the loss of one or more key employees or the
inability to attract and retain qualified personnel could harm
our business.
Our success and future growth depends to a significant degree on
the skills and continued services of our management team,
including our founders, Magid M. Abraham, Ph.D. and Gian M.
Fulgoni. Our future success also depends on our ability to
retain, attract and motivate highly skilled technical,
managerial, marketing and customer service personnel, including
members of our management team. All of our employees work for us
on an at-will
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basis. We plan to hire additional personnel in all areas of our
business, particularly for our sales, marketing and technology
development areas, both domestically and internationally, which
will likely increase our recruiting and hiring costs.
Competition for these types of personnel is intense,
particularly in the Internet and software industries. As a
result, we may be unable to successfully attract or retain
qualified personnel. Our inability to retain and attract the
necessary personnel could adversely affect our business.
We may
expand through investments in, acquisitions of, or the
development of new products with assistance from other
companies, any of which may not be successful and may divert our
managements attention.
In mid-2008, we closed our acquisition of M:Metrics and have
integrated this business into our own. Additionally, in November
2009, we acquired the Certifica group of companies located in
Latin America. We also expect to continue to evaluate and enter
into discussions regarding a wide array of potential strategic
transactions, including acquiring complementary products,
technologies or businesses. We also may enter into relationships
with other businesses in order to expand our product offerings,
which could involve preferred or exclusive licenses, discount
pricing or investments in other company, or to expand our sales
capabilities. These transactions could be material to our
financial condition and results of operations. Although these
transactions may provide additional benefits, they may not be
profitable immediately or in the long term. Negotiating any such
transactions could be time-consuming, difficult and expensive,
and our ability to close these transactions may be subject to
regulatory or other approvals and other conditions which are
beyond our control. Consequently, we can make no assurances that
any such transactions, if undertaken and announced, would be
completed.
An acquisition, investment or business relationship may result
in unforeseen operating difficulties and expenditures. In
particular, we may encounter difficulties assimilating or
integrating the businesses, technologies, products, personnel or
operations of the acquired companies, particularly if the key
personnel of the acquired company choose not to be employed by
us, and we may have difficulty retaining the customers of any
acquired business due to changes in management and ownership.
Acquisitions may also disrupt our ongoing business, divert our
resources and require significant management attention that
would otherwise be available for ongoing development of our
business. Moreover, we cannot assure you that the anticipated
benefits of any acquisition, investment or business relationship
would be realized or that we would not be exposed to unknown
liabilities. In connection with any such transaction, we may:
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encounter difficulties retaining key employees of the acquired
company or integrating diverse business cultures;
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issue additional equity securities that would dilute the common
stock held by existing stockholders;
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incur large charges or substantial liabilities;
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become subject to adverse tax consequences, substantial
depreciation or deferred compensation charges;
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use cash that we may need in the future to operate our business;
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enter new geographic markets that subject us to different laws
and regulations that may have an adverse impact on our business;
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experience difficulties effectively utilizing acquired
assets; and
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incur debt on terms unfavorable to us or that we are unable to
repay.
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The impact of any one or more of these factors could adversely
affect our business or results of operations or cause the price
of our common stock to decline substantially.
Future acquisitions or dispositions could also result in
dilutive issuances of our equity securities, the incurrence of
debt, contingent liabilities, amortization expenses, or
write-offs of goodwill, any of which could harm our financial
condition. Also, the anticipated benefit of many of our
acquisitions may not materialize.
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Changes
and instability in the national and global political
environments may adversely affect our business and financial
results.
Recent turmoil in the political environment in many parts of the
world, including terrorist activities, military actions, and
increases in energy costs due to instability in oil-producing
regions may continue to put pressure on global economic
conditions. If global economic and market conditions, or
economic conditions in the United States or other key markets
deteriorate, we may experience material impacts on our business,
operating results, and financial condition.
Changes
in, or interpretations of, accounting rules and regulations,
could result in unfavorable accounting charges or cause us to
change our compensation policies.
Accounting methods and policies, including policies governing
revenue recognition, expenses and accounting for stock options
are continually subject to review, interpretation, and guidance
from relevant accounting authorities, including the Financial
Accounting Standards Board, or FASB, and the SEC. Changes to, or
interpretations of, accounting methods or policies in the future
may require us to reclassify, restate or otherwise change or
revise our financial statements, including those contained in
Part II, Item 8 of our Annual Report on
Form 10-K.
Investors
could lose confidence in our financial reports, and our business
and stock price may be adversely affected, if our internal
control over financial reporting is found by management or by
our independent registered public accounting firm to not be
adequate or if we disclose significant existing or potential
deficiencies or material weaknesses in those
controls.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us
to include a report on our internal control over financial
reporting in our Annual Report on
Form 10-K.
That report includes managements assessment of the
effectiveness of our internal control over financial reporting
as of the end the fiscal year. Additionally, our independent
registered public accounting firm is required to issue a report
on their evaluation of the operating effectiveness of our
internal control over financial reporting.
We continue to evaluate our existing internal controls against
the standards adopted by the Public Company Accounting Oversight
Board, or PCAOB. During the course of our ongoing evaluation of
our internal controls, we have in the past identified, and may
in the future identify, areas requiring improvement, and may
have to design enhanced processes and controls to address issues
identified through this review. Remedying any significant
deficiencies or material weaknesses that we or our independent
registered public accounting firm may identify could require us
to incur significant costs and expend significant time and
management resources. We cannot assure you that any of the
measures we may implement to remedy any such deficiencies will
effectively mitigate or remedy such deficiencies. Further, if we
are not able to complete the assessment under Section 404
in a timely manner or to remedy any identified material
weaknesses, we and our independent registered public accounting
firm would be unable to conclude that our internal control over
financial reporting is effective at the required reporting
deadlines. If our internal control over financial reporting is
found by management or by our independent registered public
accountant to not be adequate or if we disclose significant
existing or potential deficiencies or material weaknesses in
those controls, investors could lose confidence in our financial
reports, we could be subject to sanctions or investigations by
The NASDAQ Global Market, the Securities and Exchange Commission
or other regulatory authorities and our stock price could be
adversely affected.
A determination that there is a significant deficiency or
material weakness in the effectiveness of our internal control
over financial reporting could also reduce our ability to obtain
financing or could increase the cost of any financing we obtain
and require additional expenditures to comply with applicable
requirements.
Our
net operating loss carryforwards may expire unutilized or
underutilized, which could prevent us from offsetting future
taxable income.
We have previously experienced changes in control
that have triggered the limitations of Section 382 of the
Internal Revenue Code on a portion of our net operating loss
carryforwards. As a result, we may be limited in the amount of
net operating loss carryforwards that we can use in the future
to offset taxable income for U.S. Federal income tax
purposes.
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As of December 31, 2009, we estimate our federal and state
net operating loss carryforwards for tax purposes are
approximately $52.9 million and $39.7 million,
respectively. These net operating loss carryforwards will begin
to expire in 2023 for federal income tax reporting purposes and
in 2014 for state income tax reporting purposes.
In addition, at December 31, 2009 we estimate our aggregate
net operating loss carryforwards for tax purposes related to our
foreign subsidiaries are $14.0 million, which will begin to
expire in 2014.
We periodically assess the likelihood that we will be able to
recover our deferred tax assets, principally net operating loss
carryforwards. We consider all available evidence, both positive
and negative, including historical levels of income,
expectations and risks associated with estimates of future
taxable income and ongoing prudent and feasible tax planning
strategies. As a result of this analysis of all available
evidence, both positive and negative, the total valuation
allowance against our deferred tax assets increased by $719,000
during the year ended December 31, 2009, primarily due to
current year losses.
As of December 31, 2009, we had a valuation allowance of
$3.6 million against certain deferred tax assets. The
valuation allowance relates to the acquired deferred tax assets
of the M:Metrics UK subsidiary, the deferred tax asset related
to the value of our auction rate securities, and the deferred
tax assets of the foreign subsidiaries that are in their
start-up
phases, including China, Germany, Hong Kong and certain
Certifica entities. Depending on our actual results in the
future, there may be sufficient positive evidence to support the
conclusion that all or a portion of our remaining valuation
allowance should be further reduced. To the extent we determine
that all or a portion of our valuation allowance is no longer
necessary, we expect to recognize an income tax benefit in the
period such determination is made for the reversal of the
valuation allowance. If we determine that, based on the weight
of available evidence, it is more-likely-than-not that some
portion, or all, of the deferred tax assets will not be
realized, we expect to recognize income tax expense in the
period such determination is made for the increase in the
valuation allowance. These events could have a material impact
on our reported results of operations.
We may
require additional capital to support business growth, and this
capital may not be available on acceptable terms or at
all.
We intend to continue to make investments to support our
business growth and may require additional funds to respond to
business challenges, including the need to develop new products
or enhance our existing products, enhance our operating
infrastructure and acquire complementary businesses and
technologies.
Accordingly, we may need to engage in equity or debt financings
to secure additional funds. If we raise additional funds through
further issuances of equity or convertible debt securities, our
existing stockholders could suffer significant dilution, and any
new equity securities we issue could have rights, preferences
and privileges superior to those of holders of our common stock.
Any debt financing secured by us in the future could include
restrictive covenants relating to our capital raising activities
and other financial and operational matters, which may make it
more difficult for us to obtain additional capital and to pursue
business opportunities, including potential acquisitions. In
addition, we may not be able to obtain additional financing on
terms favorable to us or at all. If we are unable to obtain
adequate financing or financing on terms satisfactory to us when
we require it, our ability to continue to support our business
growth and to respond to business challenges could be
significantly limited. In addition, the terms of any additional
equity or debt issuances may adversely affect the value and
price of our common stock.
Due to the prevailing global economic conditions that largely
began in 2008 and continued throughout 2009, many businesses do
not have access to the capital markets on acceptable terms. In
addition, as a result of this global credit market crisis,
conditions for acquisition activities have become very difficult
as tight global credit conditions have adversely affected the
ability of potential buyers to finance acquisitions. Although
these conditions have not immediately affected our current
plans, these adverse conditions are not likely to improve
significantly in the near future and could have a negative
impact on our ability to execute on future strategic activities.
We
face the risk of a decrease in our cash balances and losses in
our investment portfolio.
We hold a large balance of cash, cash equivalents and short-term
investments. The ability to achieve our investment objectives is
affected by many factors, some of which are beyond our control.
We rely on third-party
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money managers to manage the majority of our investment
portfolio in a risk-controlled framework. Our cash is invested
in high-quality fixed-income securities and is affected by
changes in interest rates. Interest rates are highly sensitive
to many factors, including governmental monetary policies and
domestic and international economic and political conditions.
The outlook for our investment income is dependent on the future
direction of interest rates and the amount of cash flows from
operations that are available for investment. Any significant
decline in our investment income or the value of our investments
as a result of falling interest rates, deterioration in the
credit of the securities in which we have invested, decreased
liquidity in the market for these investments, or general market
conditions, could have an adverse effect on our net income and
cash position.
Our investment strategy attempts to manage interest rate risk
and limit credit risk. By policy, we only invest in what we view
as very high quality debt securities, and our largest holdings
are short-term U.S. Government securities. We do not hold
any
sub-prime
mortgages or structured investment vehicles. We do not invest in
below investment-grade securities.
We
have invested some of our assets in auction rate securities,
which are subject to risks that may cause losses and affect the
liquidity of those investments.
As of December 31, 2009, our principal sources of liquidity
consisted of cash, cash equivalents and short-term investments
of $88.1 million. As of December 31, 2009, we held
$2.8 million in long-term investments consisting of four
separate auction rate securities with a par value of
$4.3 million. In prior years, we invested in these auction
rate securities for short periods of time as part of our
investment policy. However, uncertainties in the credit markets
have prevented us and other investors in recent periods from
liquidating some holdings of auction rate securities. As there
were no auctions for these securities in 2009, we may incur
additional losses.
Risks
Related to the Securities Market and Ownership of our Common
Stock
We
cannot assure you that a market will continue to develop or
exist for our common stock or what the market price of our
common stock will be.
Prior to our initial public offering, which was completed on
July 2, 2007, there was no public trading market for our
common stock, and we cannot assure you that one will continue to
develop or be sustained. If a market does not continue to
develop or is not sustained, it may be difficult for you to sell
your shares of common stock at an attractive price or at all. We
cannot predict the prices at which our common stock will trade.
The
trading price of our common stock may be subject to significant
fluctuations and volatility, and our new stockholders may be
unable to resell their shares at a profit.
The stock markets, in general, and the markets for technology
stocks in particular, have experienced high levels of
volatility. The market for technology stocks has been extremely
volatile and frequently reaches levels that bear no relationship
to the past or present operating performance of those companies.
These broad market fluctuations may adversely affect the trading
price of our common stock. In addition, the trading price of our
common stock has been subject to significant fluctuations and
may continue to fluctuate or decline.
The price of our common stock in the market may be higher or
lower than the price you pay, depending on many factors, some of
which are beyond our control and may not be related to our
operating performance. It is possible that, in future quarters,
our operating results may be below the expectations of analysts
or investors. As a result of these and other factors, the price
of our common stock may decline, possibly materially. These
fluctuations could cause you to lose all or part of your
investment in our common stock. Factors that could cause
fluctuations in the trading price of our common stock include
the following:
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price and volume fluctuations in the overall stock market from
time to time;
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volatility in the market price and trading volume of technology
companies and of companies in our industry;
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actual or anticipated changes or fluctuations in our operating
results;
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actual or anticipated changes in expectations regarding our
performance by investors or securities analysts;
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the failure of securities analysts to cover our common stock
after this offering or changes in financial estimates by
analysts;
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actual or anticipated developments in our competitors
businesses or the competitive landscape;
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actual or perceived inaccuracies in, or dissatisfaction with,
information we provide to our customers or the media;
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litigation involving us, our industry or both;
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regulatory developments;
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privacy and security concerns, including public perception of
our practices as an invasion of privacy;
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general economic conditions and trends;
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major catastrophic events;
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sales of large blocks of our stock;
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the timing and success of new product introductions or upgrades
by us or our competitors;
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changes in our pricing policies or payment terms or those of our
competitors;
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concerns relating to the security of our network and systems;
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our ability to expand our operations, domestically and
internationally, and the amount and timing of expenditures
related to this expansion; or
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departures of key personnel.
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In the past, following periods of volatility in the market price
of a companys securities, securities class action
litigation has often been brought against that company. If our
stock price is volatile, we may become the target of securities
litigation, which could result in substantial costs and divert
our managements attention and resources from our business.
In addition, volatility, lack of positive performance in our
stock price or changes to our overall compensation program,
including our equity incentive program, may adversely affect our
ability to retain key employees.
If
securities or industry analysts do not publish research or
reports about our business or if they issue an adverse or
misleading opinion regarding our stock, our stock price and
trading volume could decline.
The trading market for our common stock will be influenced by
the research and reports that industry or securities analysts
publish about us or our business. If any of the analysts who
cover us issue an adverse or misleading opinion regarding our
stock, our stock price would likely decline. If one or more of
these analysts cease coverage of our company or fail to publish
reports on us regularly, we could lose visibility in the
financial markets, which in turn could cause our stock price or
trading volume to decline.
Future
sales of shares by existing stockholders could cause our stock
price to decline.
If our existing stockholders sell, or indicate an intention to
sell, substantial amounts of our common stock in the public
market, the trading price of our common stock could decline.
These sales could also make it more difficult for us to sell
equity or equity-related securities in the future at a time and
price that we deem appropriate.
Insiders
have substantial control over the outstanding shares of our
common stock, which could limit your ability to influence the
outcome of key transactions, including a change of
control.
Our directors, executive officers and each of our stockholders
who own greater than 5% of our outstanding common stock and
their affiliates, in the aggregate, together beneficially own a
substantial amount of the outstanding shares of our common
stock. As a result, these stockholders, if acting together, may
be able to influence or control matters requiring approval by
our stockholders, including the election of directors and the
37
approval of mergers, acquisitions or other extraordinary
transactions. They may have interests that differ from yours and
may vote in a way with which you disagree and which may be
adverse to your interests. This concentration of ownership may
have the effect of delaying, preventing or deterring a change of
control of our company, could deprive our stockholders of an
opportunity to receive a premium for their common stock as part
of a sale of our company and might affect the market price of
our common stock.
We
have incurred and will continue to incur increased costs and
demands upon management as a result of complying with the laws
and regulations affecting a public company, which could
adversely affect our operating results.
As a public company, we have incurred and will continue to incur
significant legal, accounting and other expenses that we did not
incur as a private company. In addition, the Sarbanes-Oxley Act
of 2002, as well as rules implemented by the Securities and
Exchange Commission and The NASDAQ Stock Market, requires
certain corporate governance practices for public companies. Our
management and other personnel devote a substantial amount of
time to public reporting requirements and corporate governance.
These rules and regulations have significantly increased our
legal and financial compliance costs and made some activities
more time-consuming and costly. We also have incurred additional
costs associated with our public company reporting requirements.
If these costs do not continue to be offset by increased
revenues and improved financial performance, our operating
results would be adversely affected. These rules and regulations
also make it more difficult and more expensive for us to obtain
director and officer liability insurance, and we may be required
to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar
coverage if these costs continue to rise. As a result, it may be
more difficult for us to attract and retain qualified people to
serve on our board of directors or as executive officers.
Provisions
in our certificate of incorporation and bylaws and under
Delaware law might discourage, delay or prevent a change of
control of our company or changes in our management and,
therefore, depress the trading price of our common
stock.
Our certificate of incorporation and bylaws contain provisions
that could depress the trading price of our common stock by
acting to discourage, delay or prevent a change of control of
our company or changes in our management that the stockholders
of our company may deem advantageous. These provisions:
|
|
|
|
|
provide for a classified board of directors so that not all
members of our board of directors are elected at one time;
|
|
|
|
authorize blank check preferred stock that our board
of directors could issue to increase the number of outstanding
shares to discourage a takeover attempt;
|
|
|
|
prohibit stockholder action by written consent, which means that
all stockholder actions must be taken at a meeting of our
stockholders;
|
|
|
|
prohibit stockholders from calling a special meeting of our
stockholders;
|
|
|
|
provide that the board of directors is expressly authorized to
make, alter or repeal our bylaws; and
|
|
|
|
provide for advance notice requirements for nominations for
elections to our board of directors or for proposing matters
that can be acted upon by stockholders at stockholder meetings.
|
Additionally, we are subject to Section 203 of the Delaware
General Corporation Law, which prohibits a Delaware corporation
from engaging in any of a broad range of business combinations
with any interested stockholder for a period of
three years following the date on which the stockholder became
an interested stockholder and which may discourage,
delay or prevent a change of control of our company.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
38
Our corporate headquarters and executive offices are located in
Reston, Virginia, where we occupy approximately
62,000 square feet of office space under a lease that
initially expires in 2018, although we have an option to extend
until up to 2028, subject to certain conditions. We also lease
space in various locations throughout the United States and
Latin America, as well as in Toronto, London and Japan for sales
and other personnel. If we require additional space, we believe
that we would be able to obtain such space on commercially
reasonable terms.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
From time to time, we are involved in various legal proceedings
arising from the normal course of business activities. 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.
|
|
ITEM 4.
|
(REMOVED
AND RESERVED)
|
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
PRICE
RANGE OF COMMON STOCK
Our common stock has been traded on the NASDAQ Global Market
under the symbol SCOR since our initial public
offering on June 27, 2007. The following table sets forth
the high and low sales prices of our common stock for each
period indicated and are as reported by NASDAQ.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
Fiscal Period
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
First Quarter
|
|
$
|
13.98
|
|
|
$
|
7.47
|
|
|
$
|
33.23
|
|
|
$
|
17.31
|
|
Second Quarter
|
|
$
|
15.51
|
|
|
$
|
9.85
|
|
|
$
|
29.10
|
|
|
$
|
17.77
|
|
Third Quarter
|
|
$
|
19.00
|
|
|
$
|
12.39
|
|
|
$
|
24.00
|
|
|
$
|
16.85
|
|
Fourth Quarter
|
|
$
|
19.58
|
|
|
$
|
14.32
|
|
|
$
|
18.06
|
|
|
$
|
6.63
|
|
HOLDERS
As of March 10, 2010 there were 589 stockholders of record
of our common stock, although we believe that there may be a
significantly larger number of beneficial owners of our common
stock. We derived the number of stockholders by reviewing the
listing of outstanding common stock recorded by our transfer
agent as of March 10, 2010.
39
STOCK
PERFORMANCE GRAPH
The graph set forth below compares the cumulative total
stockholder return on our common stock between June 27,
2007 (the date our common stock first commenced trading on the
NASDAQ Global Market) and December 31, 2009 to the
cumulative total returns of the NASDAQ Composite Index and
NASDAQ Computer Index over the same period. This graph assumes
the investment of $100 at the closing price of the markets on
June 27, 2007 in our common stock, the NASDAQ Composite
Index and the NASDAQ Computer Index, and assumes the
reinvestment of dividends, if any. We have never paid dividends
on our common stock and have no present plans to do so.
The comparisons shown in the graph below are based upon
historical data. We caution that the stock price performance
shown in the graph below is not necessarily indicative of, nor
is it intended to forecast, the potential future performance of
our common stock.
COMPARISON
OF CUMULATIVE TOTAL RETURN*
Among comScore, Inc., The NASDAQ Composite Index
and The NASDAQ Computer Index
|
|
|
* |
|
$100 invested upon market close of the NASDAQ Global Market on
June 27, 2007, our initial public offering date, including
reinvestment of dividends. |
The preceding Stock Performance Graph is not deemed filed with
the Securities and Exchange Commission and shall not be
incorporated by reference in any of our filings under the
Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, whether made before or after the date
hereof and irrespective of any general incorporation language in
any such filing.
40
DIVIDEND
POLICY
Since our inception, we have not declared or paid any cash
dividends. We currently expect to retain earnings for use in the
operation and expansion of our business and therefore do not
anticipate paying any cash dividends in the foreseeable future.
EQUITY
COMPENSATION PLANS
The information required by this item regarding equity
compensation plans is set forth in Part III, Item 12
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters of this Annual
Report on
Form 10-K.
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered
Sales of Equity Securities during the Three Months Ended
December 31, 2009
None.
Use of
Proceeds from Sale of Registered Equity Securities
On June 26, 2007, our Registration Statements on
Form S-1,
as amended (Reg. Nos.
333-131740
and
333-144071)
were declared effective in connection with the initial public
offering of our common stock, pursuant to which we registered an
aggregate of 6,095,000 shares of our common stock, of which
we sold 5,000,000 shares and certain selling stockholders
sold 1,095,000 shares, including the underwriters
over-allotment, at a price to the public of $16.50 per share. We
received net proceeds of approximately $73.1 million after
deducting discounts, commissions and related costs as well as
the net proceeds received by selling stockholders from the gross
proceeds.
The principal purposes of the offering were to create a public
market for our common stock and to facilitate our future access
to the public equity markets, as well as to obtain additional
capital. Except as discussed below, we currently have no
specific plans for the use of the remaining net proceeds of the
offering. We have and we anticipate that we will continue to use
the net proceeds from the offering for general corporate
purposes, which may include working capital, capital
expenditures, other corporate expenses and acquisitions of
complementary products, technologies or businesses. In addition,
we used approximately $13.1 million of the net proceeds for
capital expenditures related to computer hardware and equipment
as well as office improvements. We also used $45.9 million
for the acquisitions of M:Metrics, Inc and Certifica, Inc.
Pending the uses described above, we intend to invest the net
proceeds in a variety of short-term, interest-bearing,
investment grade securities. There has been no material change
in the planned use of proceeds from our initial public offering
from that described in the final prospectus filed by us with the
SEC pursuant to Rule 424(b) on June 28, 2007.
41
PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
During the three months ended December 31, 2009, we
repurchased the following shares of common stock in connection
with certain restricted stock and restricted stock unit awards
issued under our Equity Incentive Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
Number (or
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
Total
|
|
Dollar Value) of
|
|
|
|
|
|
|
Number of
|
|
Shares
|
|
|
|
|
|
|
Shares
|
|
(or Units)
|
|
|
|
|
|
|
(or Units)
|
|
that May
|
|
|
|
|
|
|
Purchased as
|
|
Yet Be
|
|
|
|
|
|
|
Part of Publicly
|
|
Purchased
|
|
|
Total Number of
|
|
|
|
Announced
|
|
Under the
|
|
|
Shares (or Units)
|
|
Average Price
|
|
Plans of
|
|
Plans or
|
|
|
Purchased(1)
|
|
Per Share (or Unit)
|
|
Programs
|
|
Programs
|
|
October 1 October 31, 2009
|
|
|
27,202
|
|
|
$
|
2.23
|
|
|
|
|
|
|
|
|
|
November 1 November 30, 2009
|
|
|
35,775
|
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
December 1 December 31, 2009
|
|
|
26,748
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
89,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The shares included in the table above were repurchased either
in connection with (i) our exercise of the repurchase right
afforded to us in connection with certain employee restricted
stock awards or (ii) the forfeiture of shares by an
employee as payment of the minimum statutory withholding taxes
due upon the vesting of certain employee restricted stock and
restricted stock unit awards. |
For the three months ended December 31, 2009, the shares
repurchased in connection with our exercise of the repurchase
right afforded to us upon the cessation of employment consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
Average Price
|
|
|
Shares Purchased
|
|
Per Share
|
|
October 1 October 31, 2009
|
|
|
23,624
|
|
|
$
|
0.00
|
|
November 1 November 30, 2009
|
|
|
33,063
|
|
|
$
|
0.00
|
|
December 1 December 31, 2009
|
|
|
25,918
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
82,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The shares we repurchased in connection with the payment of
minimum statutory withholding taxes due upon the vesting of
certain restricted stock and restricted stock unit awards were
repurchased at the then current fair market value of the shares.
For the three months ended December 31, 2009, these shares
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
Average Price
|
|
|
Shares Purchased
|
|
Per Share
|
|
October 1 October 31, 2009
|
|
|
3,578
|
|
|
$
|
16.96
|
|
November 1 November 30, 2009
|
|
|
2,712
|
|
|
$
|
15.97
|
|
December 1 December 31, 2009
|
|
|
830
|
|
|
$
|
16.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following selected consolidated financial data should be
read in conjunction with our consolidated financial statements
and the accompanying notes and Managements
Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this report. The selected
data in this section is not intended to replace the consolidated
financial statements.
The consolidated statements of operations data and the
consolidated statements of cash flows data for each of the three
years ended December 31, 2009, 2008 and 2007 as well as the
consolidated balance sheet data as of December 31, 2009 and
2008 are derived from and should be read together with our
audited consolidated financial statements and related notes
appearing in this report. The consolidated statements of
operations data and the consolidated statements of cash flows
data for the years ended December 31, 2006 and 2005 as well
as the consolidated balance sheet data as of December 31,
2007, 2006 and 2005 are derived from our audited consolidated
financial statements not included in this report. Our historical
results are not necessarily indicative of results to be expected
for future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
127,740
|
|
|
$
|
117,371
|
|
|
$
|
87,153
|
|
|
$
|
66,293
|
|
|
$
|
50,267
|
|
Cost of revenues(1)
|
|
|
38,730
|
|
|
|
34,562
|
|
|
|
23,858
|
|
|
|
20,560
|
|
|
|
18,218
|
|
Selling and marketing(1)
|
|
|
41,954
|
|
|
|
39,400
|
|
|
|
28,659
|
|
|
|
21,473
|
|
|
|
18,953
|
|
Research and development(1)
|
|
|
17,827
|
|
|
|
14,832
|
|
|
|
11,413
|
|
|
|
9,009
|
|
|
|
7,416
|
|
General and administrative(1)
|
|
|
18,232
|
|
|
|
16,785
|
|
|
|
11,599
|
|
|
|
8,293
|
|
|
|
7,089
|
|
Amortization
|
|
|
1,457
|
|
|
|
804
|
|
|
|
966
|
|
|
|
1,371
|
|
|
|
2,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
118,200
|
|
|
|
106,383
|
|
|
|
76,495
|
|
|
|
60,706
|
|
|
|
54,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
9,540
|
|
|
|
10,988
|
|
|
|
10,658
|
|
|
|
5,587
|
|
|
|
(3,846
|
)
|
Interest and other income (expense), net
|
|
|
410
|
|
|
|
1,863
|
|
|
|
2,627
|
|
|
|
231
|
|
|
|
(208
|
)
|
(Loss) gain from foreign currency
|
|
|
(132
|
)
|
|
|
(321
|
)
|
|
|
(296
|
)
|
|
|
125
|
|
|
|
(96
|
)
|
Gain on sale (impairment) of marketable securities
|
|
|
89
|
|
|
|
(2,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation of preferred stock warrant liabilities
|
|
|
|
|
|
|
|
|
|
|
(1,195
|
)
|
|
|
(224
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and cumulative effect of
change in accounting principle
|
|
|
9,907
|
|
|
|
10,291
|
|
|
|
11,794
|
|
|
|
5,719
|
|
|
|
(4,164
|
)
|
(Provision) benefit for income taxes
|
|
|
(5,938
|
)
|
|
|
14,895
|
|
|
|
7,522
|
|
|
|
(50
|
)
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before cumulative effect of change in
accounting principle
|
|
|
3,969
|
|
|
|
25,186
|
|
|
|
19,316
|
|
|
|
5,669
|
|
|
|
(3,982
|
)
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Net income (loss)
|
|
|
3,969
|
|
|
|
25,186
|
|
|
|
19,316
|
|
|
|
5,669
|
|
|
|
(4,422
|
)
|
Accretion of redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
(1,829
|
)
|
|
|
(3,179
|
)
|
|
|
(2,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
3,969
|
|
|
$
|
25,186
|
|
|
$
|
17,487
|
|
|
$
|
2,490
|
|
|
$
|
(7,060
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.13
|
|
|
$
|
0.88
|
|
|
$
|
0.99
|
|
|
$
|
|
|
|
$
|
(2.30
|
)
|
Diluted
|
|
$
|
0.13
|
|
|
$
|
0.83
|
|
|
$
|
0.88
|
|
|
$
|
|
|
|
$
|
(2.30
|
)
|
Weighted-average number of shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,014,085
|
|
|
|
28,691,216
|
|
|
|
16,139,365
|
|
|
|
3,847,213
|
|
|
|
3,130,194
|
|
Diluted
|
|
|
30,970,642
|
|
|
|
30,232,714
|
|
|
|
18,377,563
|
|
|
|
3,847,213
|
|
|
|
3,130,194
|
|
|
|
|
(1) |
|
Amortization of stock-based compensation is included in the
preceding line items as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
(In thousands)
|
|
Cost of revenues
|
|
$
|
1,186
|
|
|
$
|
861
|
|
|
$
|
279
|
|
|
$
|
12
|
|
|
$
|
|
|
Selling and marketing
|
|
|
4,617
|
|
|
|
2,611
|
|
|
|
1,009
|
|
|
|
82
|
|
|
|
|
|
Research and development
|
|
|
1,111
|
|
|
|
706
|
|
|
|
245
|
|
|
|
13
|
|
|
|
|
|
General and administrative
|
|
|
2,942
|
|
|
|
2,296
|
|
|
|
941
|
|
|
|
91
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
2005
|
|
|
(In thousands)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
88,117
|
|
|
$
|
71,461
|
|
|
$
|
96,817
|
|
|
$
|
16,032
|
|
|
|
|
|
|
$
|
9,174
|
|
Total current assets
|
|
|
136,407
|
|
|
|
116,583
|
|
|
|
123,444
|
|
|
|
31,493
|
|
|
|
|
|
|
|
20,792
|
|
Total assets
|
|
|
217,408
|
|
|
|
199,563
|
|
|
|
147,672
|
|
|
|
42,087
|
|
|
|
|
|
|
|
29,477
|
|
Total current liabilities
|
|
|
60,110
|
|
|
|
55,992
|
|
|
|
42,077
|
|
|
|
32,880
|
|
|
|
|
|
|
|
27,220
|
|
Equipment loan and capital lease obligations, long-term
|
|
|
674
|
|
|
|
|
|
|
|
977
|
|
|
|
2,261
|
|
|
|
|
|
|
|
1,283
|
|
Preferred stock warrant liabilities and common stock subject to
put
|
|
|
|
|
|
|
|
|
|
|
1,815
|
|
|
|
5,362
|
|
|
|
|
|
|
|
4,997
|
|
Redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,695
|
|
|
|
|
|
|
|
98,516
|
|
Stockholders equity (deficit)
|
|
|
147,939
|
|
|
|
134,880
|
|
|
|
102,622
|
|
|
|
(99,557
|
)
|
|
|
|
|
|
|
(102,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
(In thousands)
|
|
Consolidated Statement of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
25,031
|
|
|
$
|
32,989
|
|
|
$
|
21,211
|
|
|
$
|
10,905
|
|
|
$
|
4,253
|
|
Depreciation and amortization
|
|
|
8,001
|
|
|
|
5,775
|
|
|
|
4,730
|
|
|
|
4,259
|
|
|
|
5,123
|
|
Capital expenditures
|
|
|
6,472
|
|
|
|
14,252
|
|
|
|
3,635
|
|
|
|
2,314
|
|
|
|
1,071
|
|
44
Please see Critical Accounting Policies and
Estimates under Part II, Item 7 of this Annual
Report on
Form 10-K
for further discussion of key accounting changes which occurred
during the years covered in the above table. Additional
information regarding business combinations and dispositions for
the relevant periods above may be found in the notes
accompanying our consolidated financial statements included in
Part II, Item 8 of this Annual Report on
Form 10-K.
|
|
ITEM 7.
|
MANAGEMENTS
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
Part II Item 8 of this Annual Report on
Form 10-K.
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 Item 1A,
Risk Factors and elsewhere in this Annual Report on
Form 10-K.
See also Cautionary Statement Regarding Forward-Looking
Statements at the beginning of this
Form 10-K.
Overview
We provide a leading digital marketing intelligence platform
that helps our customers make better-informed business decisions
and implement more effective digital business strategies. Our
products and solutions offer our 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.
Our digital marketing intelligence platform is comprised of
proprietary databases and a computational infrastructure that
measures, analyzes and reports on digital activity. 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 a Unified Digital Measurement solution to
digital audience measurement. Unified Digital Measurement blends
panel and server methodologies into a solution that provides a
direct linkage and reconciliation between server and panel
measurement.
We deliver our digital marketing intelligence through our
comScore Media Metrix product family, through our comScore
Marketing Solutions products and, since May 2008, through our
M:Metrics products suite. Media Metrix delivers digital media
intelligence by providing an independent, third-party
measurement of the size, behavior and characteristics of Web
site and online advertising network audiences among home, work
and university Internet users as well as insight into the
effectiveness of online advertising. Our Marketing Solutions
products combine the proprietary information gathered from the
comScore panel with the vertical industry expertise of comScore
analysts to deliver digital marketing intelligence, including
the measurement of online advertising effectiveness, customized
for specific industries. We typically deliver our Media Metrix
products electronically in the form of weekly, monthly or
quarterly reports. Customers can access current and historical
Media Metrix data and analyze these data anytime online. Our
M:Metrics products suite connects mobile consumer behavior,
content merchandising, and device capabilities to provide
comprehensive mobile market intelligence. Customers can access
our M:Metrics data sets and reports anytime online. Our
Marketing Solutions products are typically delivered on a
monthly, quarterly or ad hoc basis through electronic reports
and analyses.
Our company was founded in August 1999. By 2000, we had
established a panel of Internet users and began delivering
digital marketing intelligence products that measured online
browsing and buying behavior to our first customers. We also
introduced netScore, our initial syndicated Internet audience
measurement product. We accelerated our introduction of new
products in 2003 with the launch of Plan Metrix (formerly AiM
2.0), qSearch, and the Campaign R/F (Reach and Frequency)
analysis system and product offerings that measure online
activity at
45
the local market level. By 2004, we had built a global panel of
approximately two million Internet users. In that year, in
cooperation with Arbitron, we launched a service that provides
ratings of online radio audiences. In 2005, we expanded our
presence in Europe by opening an office in London. In 2006, we
continued to expand our measurement capabilities with the launch
of World Metrix, a product that provides worldwide data on
digital media usage, and Video Metrix, our product that measures
the audience for streaming online video. In 2007, we completed
our initial public offering and we also launched ten new
products during that year, including Campaign Metrix, qSearch
2.0, Ad Metrix, Brand Metrix, Segment Metrix and comScore
Marketer. During 2008, we launched Ad Metrix-Advertiser View, a
tool for agencies and publishers designed to support their media
buying and selling activities and supply their competitive
intelligence needs, Plan Metrix, the second generation of our
media planning product, and Extended Web Measurement, which
allows the tracking of distributed web content across third
party sites, such as video, music, gaming applications, widgets
and social media. Beginning in Summer 2009, the panel
information has been complemented by comScore Media Metrix 360,
a Unified Digital Measurement solution to digital
audience measurement that blends panel and server methodologies
into an approach that provides a direct linkage and
reconciliation between server and panel measurement.
We have complemented our internal development initiatives with
select acquisitions. On June 6, 2002, we acquired certain
Media Metrix assets from Jupiter Media Metrix, Inc. Through this
acquisition, we acquired certain Internet audience measurement
services that report details of Web site usage and visitor
demographics. On July 28, 2004, we acquired the outstanding
stock of Denaro and Associates, Inc, otherwise known as Q2 Brand
Intelligence, Inc. or Q2, to improve our ability to provide our
customers more robust survey research integrated with our
underlying digital marketing intelligence platform. On
January 4, 2005, we acquired the assets and assumed certain
liabilities of SurveySite Inc., or SurveySite. Through this
acquisition, we acquired proprietary Internet-based
data-collection technologies and increased our customer
penetration and revenues in the survey business. On May 28,
2008, we acquired the outstanding stock of M:Metrics, Inc. to
expand our abilities to provide our customers a more robust
solution for the mobile medium. In the middle of November 2009,
we acquired Certifica, Inc., a leader in web measurement in
Latin America, as part of our global expansion. Certifica
maintains offices and sales resources in six Latin American
countries, which we hope will provide a platform to enhance our
business in that region.
Our total revenues have grown to $127.7 million during the
fiscal year ending December 31, 2009 from
$66.3 million during the fiscal year ended
December 31, 2006. By comparison, our total expenses from
operations have grown to $118.2 million from
$60.7 million over the same period. The growth in our
revenues was primarily the result of:
|
|
|
|
|
increased sales to existing customers, as a result of our
efforts to deepen our relationships with these clients 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;
|
|
|
|
the sales of new products to existing and new customers;
|
|
|
|
growth in sales outside of the U.S. as a result of entering
into new international markets
|
As of December 31, 2009, we had 1,273 customers, compared
to 706 as of December 31, 2006. We sell most of our
products through our direct sales force.
As a result of the recent global financial crisis in the credit
markets, softness in the housing markets, difficulties in the
financial services sector and continuing economic uncertainties,
the direction and relative strength of the U.S. and global
economies have become increasingly uncertain. During 2008 and
2009, we experienced a limited number of our current and
potential customers ceasing, delaying or reducing renewals of
existing subscriptions and purchases of new or additional
services and products presumably due to the current economic
downturn. Further, certain of our existing customers have exited
the market due to industry consolidation and bankruptcy in
connection with these challenging economic conditions. Despite
this economic downturn, we continued to add net new customers
during each quarter of 2009, and our existing customers renewed
their subscriptions at a rate of over 90% based on dollars
renewed in the year ended December 31, 2009. However, if
these adverse economic conditions continue or further
deteriorate, our operating results could be adversely affected.
46
Our
Revenues
We derive our revenues primarily from the fees that we charge
for subscription-based products and customized projects. We
define subscription-based revenues as revenues that we generate
from products that we deliver to a customer on a recurring
basis. We define project revenues as revenues that we generate
from customized projects that are performed for a specific
customer on a non-recurring basis. We market our
subscription-based products, customized projects and survey
services within the comScore Media Metrix product family,
comScore Marketing Solutions and through our mobile solutions.
A significant characteristic of our business model is our large
percentage of subscription-based contracts. Subscription-based
revenues accounted for 86% of total revenues in 2009, 83% of
total revenues in 2008 and 79% of total revenues in 2007.
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, 2009, our
international revenues were $19.7 million, an increase of
$3.2 million, or 19%, compared to 2008. International
revenues comprised approximately15%, 14% and 12% of our total
revenues for the fiscal years ended December 31, 2009, 2008
and 2007, respectively.
We anticipate that revenues from our U.S. customers will
continue to constitute the substantial majority of our revenues,
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 proportion of our subscription-based
revenues from our Media Metrix product family. Products within
the Media Metrix family include Media Metrix 360, Media Metrix
2.0, 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 at anytime.
We also generate subscription-based revenues from certain
reports and analyses provided through comScore Marketing
Solutions, if that work is procured by customers for at least a
nine month period and the customer enters into an agreement to
continue or extend the work. Through our Marketing Solutions
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
customers 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.
These data include responses and information collected from the
actual survey questionnaire and can also include behavioral
information that we passively collect from our panelists. If a
customer contractually commits to having a survey conducted on a
recurring basis, 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.
47
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 customers active online users and
contrasts their market share and loyalty with similar metrics
for a competitors 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.
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
accounting principles generally accepted in the U.S. The
preparation of these financial statements requires us to make
estimates, assumptions and judgments that affect the amounts
reported in our 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.
While our significant accounting policies are described in more
detail in the notes to our consolidated financial statements
included in Part II, Item 8 of this Annual Report on
Form 10-K,
we believe the following accounting policies to be the most
critical to the judgments and estimates used in the preparation
of our consolidated financial statements.
Revenue
Recognition
We recognize 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.
We generate revenues by providing access to our online database
or delivering information obtained from our 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 are provided, which generally ranges from three to
24 months.
We also generate revenues through survey services under
contracts ranging in term from two months to one year. Our
survey services consist of survey and questionnaire design with
subsequent data collection, analysis and reporting. We recognize
revenues 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 our arrangements contain multiple elements,
consisting of the various services we offer. Multiple element
arrangements typically consist of a subscription to our online
database combined with customized services. We have determined
that there is not objective and reliable evidence of fair value
for any of our services and, therefore, account for all elements
in multiple elements arrangements as a single unit of
accounting. Access to data under the subscription element is
generally provided shortly after the execution of the contract.
However, the initial delivery of customized services generally
occurs subsequent to contract execution. We recognize the entire
arrangement fee over the performance period of the last
deliverable. As a result, the total arrangement fee is
recognized on a straight-line basis over the period beginning
with the commencement of the last customized service delivered.
Generally, our 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 us with written notice of cancellation.
In the event that a customer cancels its contract, it is not
entitled to a refund for prior services, and it will be charged
for costs incurred plus services performed up to the
cancellation date.
48
Fair
Value Measurements
We adopted new guidance which establishes fair value
measurements and disclosures on January 1, 2008, with
respect to our financial assets and liabilities, and on
January 1, 2009, with respect to our nonfinancial assets
and liabilities that are recognized and disclosed at fair value
on a nonrecurring basis.
Fair value is an exit price representing the amount that would
be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants. 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. We prioritize the inputs
used in measuring fair value using the following hierarchy:
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 us to develop
our own assumptions.
This hierarchy requires the use of observable market data, when
available, and to minimize the use of unobservable inputs when
determining fair value. On a recurring basis, we measure our
marketable securities at fair value and determine the
appropriate classification level for each reporting period. This
determination requires significant judgments to be made by us.
Our investment instruments are classified within Level 1 or
Level 3 of the fair value hierarchy. Level 1
investment instruments are valued using quoted market prices.
Level 3 instruments are valued using valuation models,
primarily discounted cash flow analyses. The types of
instruments valued based on quoted market prices in active
markets include all U.S. government and agency securities.
Such instruments are generally classified within Level 1 of
the fair value hierarchy. The types of instruments valued based
on significant unobservable inputs include our illiquid auction
rate securities. Our illiquid auction rate securities are valued
using a model that takes into consideration the securities
coupon rate, the financial condition of the issuers and the bond
insurers, the expected date liquidity will be restored, as well
as an applied illiquidity discount. Such instruments are
classified within Level 3 of the fair value hierarchy.
Cash equivalents, investments, accounts receivable, accounts
payable, accrued expenses and capital lease obligations reported
in the consolidated balance sheets equal or approximate their
respective fair values.
As of April 1, 2009, the existing model for recognition and
measurement of impairment for debt securities was modified. The
two principal changes to the impairment model for debt
securities are as follows:
|
|
|
|
|
Recognition of an
other-than-temporary
impairment charge for debt securities in an unrealized loss
position or impaired is required if any of these conditions are
met: (1) we do not expect to recover the entire amortized
cost basis of the security, (2) we intend to sell the
security or (3) it is more likely than not that we will be
required to sell the security before it recovers its amortized
cost basis.
|
|
|
|
If the first condition above is met, but we do not intend to
sell and it is not more likely than not that we will be required
to sell the security before recovery of its amortized cost
basis, we are required to record the difference between the
securitys amortized cost basis and its recoverable amount
(representing the credit loss) in earnings and the difference
between the securitys recoverable amount and fair value in
other comprehensive income. If either the second or third
criteria are met, then we are required to recognize the entire
difference between the securitys amortized cost basis and
its fair value in earnings.
|
We concluded that our auction rate securities fall within the
second and third criteria above, and as a result, the
modification had no effect on our consolidated financial
statements as all previous impairments were deemed
other-than-temporary
and were recognized in earnings.
49
Goodwill
and Intangible Assets
We record goodwill and intangible assets when we acquire other
businesses. The allocation of the purchase price to intangible
assets and goodwill involves the extensive use of
managements estimates and assumptions, and the result of
the allocation process can have a significant impact on our
future operating results. We estimate the fair value of
identifiable intangible assets acquired using several different
valuation approaches, including relief from royalty method, and
income and market approaches. The relief from royalty method
assumes that if we did not own the intangible asset or
intellectual property, we would be willing to pay a royalty for
its use. We generally use the relief from royalty method for
estimating the value of acquired technology/methodology assets.
The income approach converts the anticipated economic benefits
that we assume will be realized from a given asset into value.
Under this approach, value is measured as the present worth of
anticipated future net cash flows generated by an asset. We
generally use the income approach to value customer relationship
assets and non-compete agreements. The market approach compares
the acquired asset to similar assets that have been sold. We
generally use the market approach to value trademarks and brand
assets.
Intangible assets with finite lives are amortized over their
useful lives while goodwill and indefinite lived assets are not
amortized, but rather are periodically tested for impairment. An
impairment review generally requires developing assumptions and
projections regarding our operating performance. We have
determined that all of our goodwill is associated with one
reporting unit as we do not operate separate lines of business
with respect to our services. Accordingly, on an annual basis we
perform the impairment assessment for goodwill at the enterprise
level by comparing the fair value of our 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. If our estimates or the related
assumptions change in the future, we may be required to record
impairment charges to reduce the carrying value of these assets,
which could be material. There were no impairment charges
recognized during the years ended December 31, 2009, 2008
or 2007.
Long-lived
assets
Our long-lived assets primarily consist of property and
equipment and intangible assets. We evaluate the recoverability
of our 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, we compare 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, we record an
impairment loss equal to the excess of the assets 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 we believe that the carrying values of our 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 years ended December 31, 2009, 2008
or 2007.
Allowance
for Doubtful Accounts
We manage credit risk on accounts receivable by performing
credit evaluations of our customers for existing customers
coming up for renewal as well as all prospective new customers,
by reviewing our accounts and contracts and by providing
appropriate allowances for uncollectible amounts. Allowances are
based on managements judgment, which considers historical
experience and specific knowledge of accounts that may not be
collectible. We make provisions based on our 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.
50
Income
Taxes
We account for income taxes using the asset and liability
method. We estimate our tax liability through calculations we
perform for the determination of our current tax liability,
together with assessing temporary differences resulting from the
different treatment of items for income tax and financial
reporting purposes. These differences result in deferred tax
assets and liabilities, which are recorded on our balance sheet.
We then assess the likelihood that deferred tax assets will be
recovered in future periods. In assessing the need for a
valuation allowance against the deferred tax assets, we consider
factors such as future reversals of existing taxable temporary
differences, taxable income in prior carryback years, if
carryback is permitted under the tax law, tax planning
strategies and future taxable income exclusive of reversing
temporary differences and carryforwards. In evaluating
projections of future taxable income, we consider our history of
profitability, the competitive environment, the overall outlook
for the online marketing industry and general economic
conditions. In addition, we consider the timeframe over which it
would take to utilize the deferred tax assets prior to their
expiration. To the extent we cannot conclude that it is more
likely than not that the benefit of such assets will be
realized, we establish a valuation allowance to adjust the
carrying value of such assets.
As of December 31, 2009, we estimate our federal and state
net operating loss carryforwards for tax purposes are
approximately $52.9 million and $39.7 million,
respectively. These net operating loss carryforwards will begin
to expire in 2023 for federal and in 2014 for state income tax
reporting purposes. In addition, at December 31, 2009, we
estimate our aggregate net operating loss carryforward for tax
purposes related to our foreign subsidiaries is
$14.0 million, which begins to expire in 2014.
As of December 31, 2009 and 2008, we recorded valuation
allowances against certain deferred tax assets of
$3.6 million and $2.8 million, respectively. At
December 31, 2009, the valuation allowance was primarily
related to the acquired deferred tax assets of our M:Metrics UK
subsidiary, the deferred tax asset related to the value of our
auction rate securities, and the deferred tax assets of the
foreign subsidiaries that are in their
start-up
phases, including China, Germany, Hong Kong and certain
Certifica subsidiaries. At December 31, 2008, the valuation
allowance was primarily related to the acquired deferred tax
assets of our M:Metrics UK subsidiary and the deferred tax asset
related to the value of our auction rate securities.
As of December 31, 2009, we concluded that it was not more
likely than not that a substantial portion of our deferred tax
assets in certain foreign jurisdictions would be realized and
that an increase in the valuation allowance was necessary. In
making that determination, we considered the losses incurred in
these foreign jurisdictions during 2009, the current overall
economic environment, and the uncertainty regarding the
profitability of acquired businesses. As a result, we recorded
an increase in the deferred tax asset valuation allowance of
approximately $719,000. As of December 31, 2008, we
concluded that it was more likely than not that a substantial
portion of our U.S. deferred tax assets and deferred tax
assets in certain foreign jurisdictions would be realized and
that a reduction of our valuation allowance was necessary. In
making that determination, we considered the profitability
achieved during 2008, the successful integration of M:Metrics
into the base business, and the continued maturity of the online
marketing industry, balanced against the current overall
economic environment. As a result, we recorded a reduction in
the deferred tax asset valuation allowance of approximately
$18.5 million.
The exercise of certain stock options and the vesting of certain
restricted stock awards during the years ended December 31,
2009 and 2008 generated income tax deductions equal to the
excess of the fair market value over the exercise price or grant
date fair value, as applicable. We 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
our current taxes payable. As such, we have not recorded a
deferred tax asset in the accompanying 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 the restricted stock
awards. If and when we utilize 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 year ended December 31, 2009, certain shares
related to restricted stock awards vested at times when our
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. However, as described above, we
have not yet recognized windfall tax benefits because these tax
benefits have not resulted in a reduction of current taxes
payable. Therefore, the impact of these shortfalls totaling
$785,000 has been
51
included in income tax expense for the year ended
December 31, 2009. Looking forward, we expect our income
tax provisions for future reporting periods will be impacted by
this stock compensation tax deduction shortfall. We cannot
predict the stock compensation shortfall impact because of
dependency upon future market price performance of our stock.
For uncertain tax positions, we use a more-likely-than not
recognition threshold based on the technical merits of the tax
position taken. Tax positions that meet the more-likely-than-not
recognition threshold are measured as 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. As of December 31, 2009 and 2008,
we had unrecognized tax benefits of $1.2 million and
$240,000, respectively, on a tax-effected basis. It is our
policy to recognize interest and penalties related to income tax
matters in income tax expense. As of December 31, 2009, the
amount of accrued interest and penalties on unrecognized tax
benefits is $489,000. As of December 31, 2008, the amount
of accrued interest expense on unrecognized tax benefits was not
material. We or one of our subsidiaries files income tax returns
in the U.S. Federal jurisdiction and various states and
foreign jurisdictions. For income tax returns filed by us, we
are no longer subject to U.S. Federal examinations by tax
authorities for years before 2006 or state and local tax
examinations by tax authorities for years before 2005, although
tax attribute carryforwards generated prior to these years may
still be adjusted upon examination by tax authorities.
Stock-Based
Compensation
We measure and recognize compensation expense for share-based
awards based on estimated fair value on the date of grant. We
estimate the fair value of our stock option awards on the date
of grant using the Black-Scholes option-pricing model. The
determination of fair value using the Black-Scholes model
requires a number of complex and subjective variables. Key
variables in the Black-Scholes option-pricing model include the
expected volatility of our common stock price, the expected term
of the award and the risk-free interest rate. In addition, we
are required to estimate forfeitures of unvested awards when
recognizing compensation expense.
If factors change and we employ different assumptions in future
periods, the compensation expense we record may differ
significantly from what we have previously recorded. Beginning
in 2007, we made use of restricted stock awards and reduced our
use of stock options as a form of stock-based compensation.
At December 31, 2009, total estimated unrecognized
compensation expense related to unvested stock-based awards
granted prior to that date was $17.9 million, which is
expected to be recognized over a weighted-average period of
1.74 years.
The actual amount of stock-based compensation expense we record
in any fiscal period will depend on a number of factors,
including the number of shares subject to restricted stock
and/or stock
options issued, the fair value of our common stock at the time
of issuance and the expected volatility of our stock price over
time. In addition, changes to our incentive compensation plan
that heavily favor stock-based compensation are expected to
cause stock-based compensation expense to increase in absolute
dollars.
Seasonality
Historically, a slightly higher percentage of our customers have
renewed their subscription products with us during the fourth
quarter.
52
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
30.3
|
|
|
|
29.4
|
|
|
|
27.4
|
|
Selling and marketing expenses
|
|
|
32.8
|
|
|
|
33.6
|
|
|
|
32.9
|
|
Research and development
|
|
|
14.0
|
|
|
|
12.6
|
|
|
|
13.1
|
|
General and administrative
|
|
|
14.3
|
|
|
|
14.3
|
|
|
|
13.3
|
|
Amortization
|
|
|
1.1
|
|
|
|
0.7
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
92.5
|
|
|
|
90.6
|
|
|
|
87.8
|
|
Income from operations
|
|
|
7.5
|
|
|
|
9.4
|
|
|
|
12.2
|
|
Interest income net
|
|
|
0.3
|
|
|
|
1.6
|
|
|
|
3.0
|
|
Loss from foreign currency
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
Gain on sale (impairment) of marketable securities
|
|
|
0.1
|
|
|
|
(1.9
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation of preferred stock warrant liabilities
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
7.8
|
|
|
|
8.8
|
|
|
|
13.5
|
|
(Provision) benefit for income taxes
|
|
|
(4.6
|
)
|
|
|
12.7
|
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
3.2
|
|
|
|
21.5
|
|
|
|
22.2
|
|
Accretion of redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
|
3.2
|
%
|
|
|
21.5
|
%
|
|
|
20.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008 and Year Ended December 31, 2008
Compared to Year Ended December 31, 2007
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
Percent Change
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
vs.
|
|
vs.
|
|
vs.
|
|
vs.
|
|
|
2009
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
(Dollars in thousands)
|
|
Revenues
|
|
$
|
127,740
|
|
|
$
|
117,371
|
|
|
$
|
87,153
|
|
|
$
|
10,369
|
|
|
$
|
30,218
|
|
|
|
8.8
|
%
|
|
|
34.7
|
%
|
Total revenues increased by approximately $10.4 million
during the year ended December 31, 2009 as compared to the
year ended December 31, 2008. This increase was primarily
due to sales to existing customers based in the
U.S. totaling $97.7 million during 2009, which was a
$12.4 million increase compared to 2008. During the same
period, revenues from new U.S. customers were
$10.3 million, a decrease of approximately
$5.3 million from 2008. Revenues from customers outside of
the U.S. totaled approximately $19.7 million, or
approximately 15% of total revenues, during the year ended
December 31, 2009, which was an increase of
$3.2 million compared to 2008. We attribute this increase
to our recent expansion efforts in Europe, Latin America, Asia
and Canada.
Our total customer base grew by a net increase of 107 customers
from 1,166 at December 31, 2008 to 1,273 at
December 31, 2009. There was continued revenue growth in
our subscription revenues, which increased by approximately
$12.4 million from $97.4 million during 2008 to
$109.8 million during 2009. However, our project-based
revenues, decreased by $2.1 million from $20.0 million
during 2008 to $17.9 million during 2009. We believe that
this decrease was attributable to the impact of general economic
conditions upon our customers budgets and
53
capacity for spending on market research, which may have had a
greater impact on our customers purchases of project-based
services than on our subscription services.
Total revenues increased by approximately $30.2 million
during the year ended December 31, 2008 as compared to the
year ended December 31, 2007. This increase was primarily
due to sales to existing customers based in the
U.S. totaling $85.3 million during 2008, which was a
$18.3 million increase compared to 2007. In addition,
revenues during the year ended December 31, 2008 from new
U.S. customers were $15.6 million, an increase of
approximately $5.6 million from 2007. Revenues from
customers outside of the U.S. totaled approximately
$16.5 million, or approximately 14% of total revenues,
during the year ended December 31, 2008, which was an
increase of $6.4 million from 2007. This increase was due
primarily to our ongoing expansion efforts in Europe and
continued growth in Canada. Revenues in 2008 also include the
impact of the M:Metrics acquisition, which was completed at the
end of May 2008.
During the year ended December 31, 2008, our total customer
base grew by a net increase of 271 customers from 895 at
December 31, 2007 to 1,166 customers at December 31,
2008. There was continued revenue growth in both our
subscription revenues, which increased by approximately
$28.6 million from $68.8 million during 2007 to
$97.4 million during 2008, and, to a lesser extent, our
project-based revenues, which increased by $1.6 million,
from $18.4 million during 2007 to $20.0 million during
2008.
We generally invoice customers on an annual, quarterly or
monthly basis, or at the completion of certain milestones, in
advance of revenues being recognized. Amounts that have been
invoiced are recorded in accounts receivable and any unearned
revenues are recorded in deferred revenues until the invoice has
been collected and the revenue recognized.
Operating
Expenses
Our operating expenses consist of cost of revenues, selling and
marketing expenses, research and development expenses, general
and administrative expenses and amortization expenses.
Included in our operating expenses are costs such as rent and
other facilities related costs, and depreciation expense. During
the year ended December 31, 2009, rent and other facilities
related costs, and depreciation expense increased by
approximately $1.1 million and $1.6 million,
respectively, compared to the year ended December 31, 2008.
The increases are due to new office facilities and capital
expenditures to support our infrastructure and position us for
future growth. The related increases were allocated to cost of
revenues, sales and marketing, research and development, and
general and administrative costs.
During the fourth quarter of 2009, we announced a restructuring
program and reduced our headcount by approximately forty-six
full-time positions. Included in operating expenses is a
$563,000 charge related to severance and other costs directly
related to the reduction of our workforce. In addition, included
in stock-based compensation expense for the year ended
December 31, 2009, was approximately $175,000 due to
restricted stock awards that were modified to accelerate vesting
as part of the restructuring plan. As of December 31, 2009,
we had approximately $148,000 in outstanding restructuring
liability consisting of employee severance that we expect to pay
during the first quarter of 2010.
Cost
of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
Percent Change
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
vs.
|
|
vs.
|
|
vs.
|
|
vs.
|
|
|
2009
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
(Dollars in thousands)
|
|
Cost of revenues
|
|
$
|
38,730
|
|
|
$
|
34,562
|
|
|
$
|
23,858
|
|
|
$
|
4,168
|
|
|
$
|
10,704
|
|
|
|
12.1
|
%
|
|
|
44.9
|
%
|
As a percentage of revenues
|
|
|
30.3
|
%
|
|
|
29.4
|
%
|
|
|
27.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
54
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 increased by approximately $4.2 million
during the year ended December 31, 2009 compared to the
year ended December 31, 2008. This increase was
attributable to a $1.3 million increase in panel
recruitment and retention and a $1.7 million increase in
data and bandwidth costs. The increase in bandwidth was due to
the growth in the panel in addition to the use of our new
beaconing technology. Also, due to the overall increase in rent
and depreciation costs, we incurred an increase of approximately
$1.2 million in the amount of these costs allocated to cost
of revenues for the year ended December 31, 2009. In
addition, depreciation expense was further increased by capital
expenditures to support the infrastructure that supports our
panel and customer products. Cost of revenues increased as a
percentage of revenues by less than one percentage point during
the year ended December 31, 2009 over 2008.
Cost of revenues increased by approximately $10.7 million
during the year ended December 31, 2008 compared to the
year ended December 31, 2007. This increase was due to a
$4.4 million increase in employee salaries, benefits, and
stock-based compensation costs associated with an expanded
workforce supporting a larger product and customer base and the
additional employee costs from our acquisition of M:Metrics as
compared to 2007. We experienced increases of approximately
$3.1 million in costs paid to outside service vendors and
incentives to our panel members related to the development of
our products during 2008 as compared to 2007. We also
experienced increases in panel, data and bandwidth costs of
$3.4 million to support our consumer panel during 2008 as
compared to 2007. Cost of revenues increased as a percentage of
revenues by two percentage points during the year ended
December 31, 2008 over 2007. We attribute this increase to
the increased costs associated with our acquisition of M:Metrics.
Selling
and Marketing Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
Percent Change
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
vs.
|
|
vs.
|
|
vs.
|
|
vs.
|
|
|
2009
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
(Dollars in thousands)
|
|
Selling and marketing expenses
|
|
$
|
41,954
|
|
|
$
|
39,400
|
|
|
$
|
28,659
|
|
|
$
|
2,554
|
|
|
$
|
10,741
|
|
|
|
6.5
|
%
|
|
|
37.5
|
%
|
As a percentage of revenues
|
|
|
32.8
|
%
|
|
|
33.6
|
%
|
|
|
32.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, product
management, 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 individuals
role. Commissions are paid to a salesperson and are expensed as
selling and marketing costs when a sales contract is executed by
both the customer and us. In the case of multi-year agreements,
one year of commissions is paid initially, with the remaining
amounts paid at the beginning of the succeeding years.
Selling and marketing expenses increased by $2.6 million
during the year ended December 31, 2009 compared to the
year ended December 31, 2008. This increase was due to a
$2.0 million increase in stock-based compensation due to
our increased use of equity compensation as part of our bonus
program, and, to a lesser degree, equity compensation issued in
exchange for reductions to regular cash compensation implemented
in 2009. Also, due to the overall increase in rent and
depreciation costs, we experienced a $732,000 increase in the
amount of these costs allocated to selling and marketing
expenses for the year ended December 31, 2009. Selling and
marketing expenses decreased as a percentage of revenues during
2009 as compared to 2008 due to revenue growth relative to
increases in selling and marketing expenses.
Selling and marketing expenses increased by $10.7 million
during the year ended December 31, 2008 as compared to the
year ended December 31, 2007. This increase was due to a
$6.1 million increase in employee salaries, benefits and
related costs associated with an increase in account management
personnel for our sales force,
55
the formation of our product management team, our expansion in
foreign markets, our acquisition of M:Metrics and an increase in
commission and bonus costs associated with increased revenues.
We also experienced a $1.6 million increase in stock-based
compensation as compared to 2007. Our selling and marketing
headcount totaled 261 employees as of December 31,
2008, an increase of 57 employees as compared to
December 31, 2007. In addition, we attribute the remaining
increase to increases in allocated overhead costs such as rent,
additional advertising and marketing costs and travel and
related costs to support our growing customer base. The
inclusion of the operations of M:Metrics beginning in May 2008
contributed to the increase in selling and marketing expenses
during the year ended December 31, 2008, however, a portion
of these costs are attributed to one-time integration costs
associated with employees that are not expected to continue
service or that have already been terminated. Selling and
marketing expenses as a percentage of revenues increased during
2008 as compared to 2007 principally due to the increased costs
associated with our acquisition of M:Metrics relative to the
revenue generated from M:Metrics for the period.
Research
and Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
Percent Change
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
vs.
|
|
vs.
|
|
vs.
|
|
vs.
|
|
|
2009
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
(Dollars in thousands)
|
|
Research and development
|
|
$
|
17,827
|
|
|
$
|
14,832
|
|
|
$
|
11,413
|
|
|
$
|
2,995
|
|
|
$
|
3,419
|
|
|
|
20.2
|
%
|
|
|
30.0
|
%
|
As a percentage of revenues
|
|
|
14.0
|
%
|
|
|
12.6
|
%
|
|
|
13.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 by $3.0 million
during the year ended December 31, 2009 as compared to the
year ended December 31, 2008. The increase was due to a
$1.6 million increase in employee salaries, benefits and
related costs associated with the increase in headcount of our
research and development personnel and our increased focus on
developing new products. We also incurred a $405,000 increase in
stock-based compensation due to our increased use of equity
compensation as part of our bonus program, and, to a lesser
degree, equity compensation issued in exchange for reductions to
regular cash compensation implemented in 2009., as well as our
increased headcount. In addition, we incurred an increase of
$564,000 in the amount of costs allocated to research and
development expenses due to the overall increase in rent and
depreciation costs and the increased size of our research and
development functions. We also experienced a $261,000 increase
in our systems and maintenance costs related to computer
hardware and software and a $137,000 increase in consulting fees.
Research and development expenses increased by $3.4 million
during the year ended December 31, 2008 as compared to the
year ended December 31, 2007. This increase was due to a
$3.4 million increase in employee salaries, benefits,
stock-based compensation and related costs associated with the
increase in headcount, our continued focus on developing new
products, as well as costs from our acquisition of M:Metrics in
May 2008. Research and development costs decreased slightly as a
percentage of revenues for the year ended December 31, 2008
as compared to the prior year period due to our growth in
revenues outpacing our investments in research and development.
General
and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
Percent Change
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
vs.
|
|
vs.
|
|
vs.
|
|
vs.
|
|
|
2009
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
(Dollars in thousands)
|
|
General and administrative
|
|
$
|
18,232
|
|
|
$
|
16,785
|
|
|
$
|
11,599
|
|
|
$
|
1,447
|
|
|
$
|
5,186
|
|
|
|
8.6
|
%
|
|
|
44.7
|
%
|
As a percentage of revenues
|
|
|
14.3
|
%
|
|
|
14.3
|
%
|
|
|
13.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
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
$1.4 million during the year ended December 31, 2009
as compared to the year ended December 31, 2008. The
increase was due to $685,000 for professional services such as
legal and tax services associated with our acquisition of
Certifica, Inc. In addition, stock-based compensation increased
$646,000 during the year ended December 31, 2009 as
compared to the prior year due to our increased use of equity
compensation as part of our bonus program, and, to a lesser
degree, equity compensation issued in exchange for reductions to
regular cash compensation implemented in 2009. We also
experienced a $312,000 increase in professional fees for tax and
legal services due to additional global tax planning strategies
resulting from our expanding international presence. We also
incurred an increase of $156,000 in the amount of costs
allocated to general and administrative expenses due to the
overall increase in rent and depreciation costs. These increases
were partially offset by a $250,000 decrease in employee
salaries, benefits and related costs resulting from salary and
benefits cost-containment programs that became effective during
2009 and a $195,000 decrease in bad debt expense due to our
improved collections process. General and administrative
expenses as a percentage of revenue during 2009 were consistent
with the prior year.
General and administrative expenses increased by
$5.2 million during the year ended December 31, 2008
as compared to the year ended December 31, 2007. The
increase was due to increased costs associated with our
additional obligations as a public company that did not apply
for all of 2007. Our professional fees associated with
Sarbanes-Oxley compliance requirements, other professional fees,
insurance costs, franchise taxes and board compensation
increased by approximately $1.3 million during the year
ended December 31, 2008, as compared to 2007. We also
experienced increases in employee salaries, benefits and related
costs of almost $1.4 million associated with our expanding
finance, legal and human capital departments as well as in
connection with our acquisition of M:Metrics during the year
ended December 31, 2008, as compared to 2007. In addition,
stock-based compensation increased $1.4 million during the
year ended December 31, 2008 as compared to the prior year.
General and administrative expenses also increased by
approximately $1.1 million during the year ended
December 31, 2008 as compared to 2007 due to our investment
to support further revenue growth, increases in allocated
overhead costs, such as rent, increased bad debt expense,
additional charitable contributions and other charges. General
and administrative expenses as a percentage of revenue increased
during 2008 as compared to 2007, due to the increased costs
associated with being a public company.
Amortization
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
Percent Change
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
vs.
|
|
vs.
|
|
vs.
|
|
vs.
|
|
|
2009
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
(Dollars in thousands)
|
|
Amortization expense
|
|
$
|
1,457
|
|
|
$
|
804
|
|
|
$
|
966
|
|
|
$
|
653
|
|
|
$
|
(162
|
)
|
|
|
81.2
|
%
|
|
|
(16.8
|
)%
|
As a percentage of revenues
|
|
|
1.1
|
%
|
|
|
0.7
|
%
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense consists of charges related to the
amortization of intangible assets associated with acquisitions.
Amortization expense increased $653,000 during the year ended
December 31, 2009 as compared to the year ended
December 31, 2008 due to additional amortization of
intangible assets that were acquired during the second quarter
of 2008 in connection with our acquisition of M:Metrics, and, to
a lesser degree, amortization from intangible assets acquired
during the fourth quarter of 2009 in connection with our
acquisition of Certifica.
Amortization expense decreased $162,000 during the year ended
December 31, 2008 as compared to the year ended
December 31, 2007 because certain intangible assets related
to previous acquisitions were fully amortized during 2008 and
2007 and were partially offset by additional amortization
expense related to our acquisition of M:Metrics in May 2008.
57
Interest
and Other Income, Net
Interest and other income, net, consists of interest income,
interest expense and gains or losses on disposals of fixed
assets.
Interest income consists of interest earned from investments,
such as short and long-term fixed income securities and auction
rate securities, and our cash and cash equivalent balances.
Interest expense is incurred due to capital leases pursuant to
several equipment loan and security agreements and a line of
credit that we have entered into in order to finance the lease
of various hardware and other equipment purchases. Our capital
lease obligations are secured by a senior security interest in
eligible equipment.
Interest income, net for the year ended December 31, 2009
was $410,000 as compared to $1.9 million for the year ended
December 31, 2008. The decrease of $1.5 million during
2009 was due to lower returns from our investments. Our cash,
cash equivalents and investments increased by $15.9 million
to $90.9 million at December 31, 2009 due to positive
operating cash flow.
Interest income, net for the year ended December 31, 2008
was $1.9 million as compared to $2.6 million for the
year ended December 31, 2007. The decrease of $727,000
during 2008 was due to lower interest rates earned on our
investments than those available in the prior year period and a
smaller average cash balance due to the use of cash in mid 2008
for the acquisition of M:Metrics. Our cash, cash equivalents and
investments decreased by $29.7 million to
$75.0 million at December 31, 2008 due to the
acquisition of M:Metrics and, to a lesser extent, losses on
investments.
Included in Interest and other income, net, were losses of
$109,000 and $50,000 for fixed asset disposals for the years
ended December 31, 2009 and 2008, respectively.
Loss
From Foreign Currency
Due to the weakening of the U.S. Dollar as compared to the
British Pound during the year ended December 31, 2009, we
recorded a loss of $132,000 as compared to a loss of $321,000
during the year ended December 31, 2008. Our foreign
currency transactions are recorded as a result of fluctuations
in the exchange rate between the U.S. dollar and the
Canadian dollar, Euro and British Pound.
Due to the increasing strength of the U.S. Dollar as
compared to the British Pound during the year ended
December 31, 2008, we recorded a loss of $321,000 as
compared to a loss of $296,000 during the year ended
December 31, 2007. Our foreign currency transactions are
recorded as a result of fluctuations in the exchange rate
between the U.S. dollar and the British Pound, Euro and
Canadian dollar.
Gain
on Sale (Impairment) of Marketable Securities
During the year ended December 31, 2009, we recognized a
gain of $89,000 from the sale of one auction rate security.
Impairment of marketable securities is comprised of unrealized
losses related to changes in the fair value of our investments
that have a decline that is considered
other-than-temporary.
During the year ended December 31, 2008, we recorded an
impairment charge of $2.2 million for our marketable
securities, which was due to the write down of our investments
in auction rate securities that we determined to have an
other-than-temporary
decline in value. There was no comparable charge in the prior
year. For more information on our investments in auction rate
securities, see Managements Discussion and Analysis
of Financial Condition and results of Operations
Liquidity and Capital Resources.
Provision
for Income Taxes
As of December 31, 2009, we had federal and state net
operating loss carryforwards for tax purposes of approximately
$52.9 million and $39.7 million, respectively, which
begin to expire in 2023 for federal and begin to expire in 2014
for state income tax reporting purposes. In the future, we
intend to utilize any carryforwards available to us to reduce
our tax payments. A portion of our net operating loss
carryforwards are subject to an annual limitation under
Section 382 of the Internal Revenue Code. We do not expect
that this limitation will
58
impact our ability to utilize all of our net operating losses
prior to their expiration. For the year ended December 31,
2009, the tax provision is comprised of U.S. income tax
expense of $703,000 related to our federal alternative minimum
tax and state tax liabilities, $139,000 of foreign income tax
expense, and deferred tax expense of approximately
$5.1 million related primarily to the utilization of net
operating losses during the year.
As of December 31, 2008, we had federal and state net
operating loss carryforwards for tax purposes of approximately
$74.2 million and $44.9 million, respectively, which
begin to expire in 2021 for federal and begin to expire in 2014
for state income tax reporting purposes. For the year ended
December 31, 2008, the tax provision is comprised of
U.S. income tax expense of $359,000, related to our federal
alternative minimum tax and state tax liabilities, $127,000 of
foreign income tax expense, and deferred tax expense of
approximately $5.0 million related primarily to the
utilization of net operating losses during the year, offset by a
reduction of our valuation allowance of $20.4 million.
As of December 31, 2007, we had federal and state net
operating loss carryforwards for tax purposes of approximately
$71.3 million and $48.1 million, respectively, which
begin to expire in 2020 for federal and begin to expire in 2010
for state income tax reporting purposes. For the year ended
December 31, 2007, the tax provision is comprised of
U.S. income tax expense of $208,000, related to our federal
alternative minimum tax and state tax liabilities, and $412,000
of foreign income tax expense which are offset by the partial
release of our valuation allowance of $8.1 million and a
decrease of $78,000 in the deferred tax liability associated
with a temporary difference related to certain acquired
intangible assets.
Liquidity
and Capital Resources
The following table summarizes our cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
Consolidated Cash Flow Data
|
|
2009
|
|
2008
|
|
2007
|
|
|
(In thousands)
|
|
Net cash provided by operating activities
|
|
$
|
25,031
|
|
|
$
|
32,989
|
|
|
$
|
21,277
|
|
Net cash provided by (used in) investing activities
|
|
|
8
|
|
|
|
(64,405
|
)
|
|
|
(30,371
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(1,715
|
)
|
|
|
(1,138
|
)
|
|
|
71,979
|
|
Effect of exchange rate changes on cash
|
|
|
663
|
|
|
|
(1,517
|
)
|
|
|
451
|
|
Net increase (decrease) in cash and equivalents
|
|
|
23,987
|
|
|
|
(34,071
|
)
|
|
|
63,336
|
|
Prior to our initial public offering, which closed on
July 2, 2007, we funded our operations and met our capital
expenditure requirements primarily with venture capital and
private equity funding.
On July 2, 2007, we completed our initial public offering
and issued 5,000,000 shares of our common stock and
received gross proceeds of $82.5 million. Net proceeds were
$73.1 million after deducting underwriting discounts and
commissions and offering costs.
Our principal uses of cash historically have consisted of
payroll and other operating expenses and payments related to the
investment in equipment primarily to support our consumer panel
and technical infrastructure required to support our customer
base, and cash paid for acquisitions. Since the beginning of
2006, we have purchased over $17.0 million in property and
equipment, exclusive of $9.7 million of property and
equipment funded through landlord allowances received in
connection with our Chicago, Reston, San Francisco and
Seattle office leases, made $5.7 million in principal
payments on capital lease obligations, and spent
$46.2 million as the cash component of consideration paid
for acquisitions.
As of December 31, 2009, our principal sources of liquidity
consisted of cash, cash equivalents and short-term investments
of $88.1 million, which represent cash generated from
operating activities and the remaining proceeds from our initial
public offering in July 2007. As of December 31, 2009, we
held $2.8 million in long-term investments consisting of
four separate auction rate securities. In prior years, we
invested in these auction rate securities for short periods of
time as part of our investment policy. However, uncertainties in
the credit markets have limited our ability to liquidate our
holdings of auction rate securities, as there have been no
auctions for these securities in 2009.
59
During the fourth quarter of 2009, we sold one auction rate
security, via a tender offer, and recorded a realized gain of
$89,000. The four remaining securities were valued using a
discounted cash flow model that takes into consideration the
financial condition of the issuers, the workout period, the
discount rate and other factors. Based on our current fair value
estimate, we recorded an unrealized gain of $429,000 as of
December 31, 2009. The unrealized gain is included in Other
comprehensive income within the balance sheet. We are uncertain
as to when the liquidity issues relating to these investments
will improve. Accordingly, we classified these securities as
long-term on our consolidated balance sheet. If the credit
ratings of the issuer, the bond insurers or the collateral
deteriorate further, we may further adjust the carrying value of
these investments
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 $25.0 million of net cash from
operating activities during the year ended December 31,
2009. Our cash flows from operations was driven by our positive
net income of $4.0 million, as adjusted for non-cash
charges such as depreciation, amortization, provision for bad
debts, stock-based compensation and bond premium amortization,
and non-cash deferred tax expense. In addition, we experienced a
$4.8 million increase over 2008 in amounts collected from
customers in advance of when we recognize revenues as a result
of our growing customer base. We also experienced, a
$4.5 million increase in accounts receivable due to the
timing of certain client renewal invoicing, increased sales to
new and existing clients during the current period offset by
strong collections of receivables. At the same time, our cash
flows from operations were negatively impacted due to a
$2.9 million decrease in accounts payable and accrued
expenses over 2008, which we attribute to the payment of accrued
bonuses from prior year and income tax payments.
We generated approximately $33.0 million of net cash from
operating activities during the year ended December 31,
2008. The significant components of cash flows from operations
were net income of $25.2 million, adjusted for
$13.6 million in non-cash depreciation, amortization,
provision for bad debts, stock-based compensation, and bond
premium amortization, $9.3 million in deferred rent,
$6.1 million increase in amounts collected from customers
in advance of when we recognize revenues as a result of our
growing customer base, $2.2 million in impairment of
marketable securities, and a $343,000 decrease in other current
and non-current assets, offset by a $15.4 million non-cash
deferred tax benefit, $6.6 million increase in accounts
receivable, and a $1.8 million decrease in accounts payable
and accrued expenses.
We generated approximately $21.3 million of net cash from
operating activities during the year ended December 31,
2007. The significant components of cash flows from operations
were net income of $19.3 million, adjusted for
$7.4 million in non-cash depreciation, amortization and
stock-based compensation expenses, $1.2 million in non-cash
revaluation of our preferred stock warrant liability, and a
$9.8 million increase in amounts collected from customers
in advance of when we recognize revenues as a result of our
growing customer base and a $1.1 million increase in
accounts payable and accrued expenses, offset by a
$9.2 million increase in accounts receivable,
$8.1 million non-cash deferred tax benefit and $231,000
increase in other current and non-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 generated $8,000 of net cash in investing activities during
the year ended December 31, 2009. We generated a net
$7.8 million from sale of investments. We used
$6.5 million to purchase property and equipment to maintain
and expand our technology and infrastructure. Of this amount,
$333,000 was funded through landlord
60
allowances received in connection with our Seattle office lease.
In addition, we used $1.3 million, net of cash acquired, to
purchase Certifica.
We used $64.4 million of net cash in investing activities
during the year ended December 31, 2008. We used
$44.6 million, net of cash acquired, to purchase M:Metrics.
In addition, $14.3 million was used to purchase property
and equipment to maintain and expand our technology and
infrastructure. Of this amount, $9.4 million was funded
through landlord allowances received in connection with our
Chicago, Reston and San Francisco office leases. We also
used a net $6.9 million to purchase investments. We removed
the restrictions associated with certain certificates of deposit
that served as collateral for letters of credit associated with
office leases, and the related $1.4 million was
reclassified to cash and cash equivalents.
We used $30.4 million of net cash in investing activities
during the year ended December 31, 2007, a net
$25.6 million of which was used to purchase investments,
$3.6 million of which was used to purchase property and
equipment to maintain and expand our technology and
infrastructure and $1.1 million used to purchase
certificates of deposit to collateralize letters of credit
associated with new office leases.
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 $1.7 million of cash during the year ended
December 31, 2009 for financing activities. This included
$1.6 million for shares repurchased by us 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 $1.1 million to make
payments on our capital lease obligations offset by $922,000 in
proceeds from the exercise of our common stock options and
warrants.
We used $1.1 million of cash during the year ended
December 31, 2008 for financing activities. This included
$1.3 million for shares repurchased by us 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 $900,000 to make payments on
our capital lease obligations offset by $1.0 million in
proceeds from the exercise of our common stock options and
warrants.
We generated $72.0 million of cash during the year ended
December 31, 2007 from financing activities. This included
$73.1 million in net proceeds, after deducting
underwriters commissions and offering costs, from the sale
and issuance of common stock in our initial public offering and
$972,000 in proceeds from the exercise of outstanding options
for common stock. We also made payments of $2.1 million on
our capital lease obligations during that period.
We do not have any special purpose entities, and other than
operating leases for office space, described below, we do not
engage in off-balance sheet financing arrangements.
61
Contractual
Obligations and Known Future Cash Requirements
Set forth below is information concerning our known contractual
obligations as of December 31, 2009 that are fixed and
determinable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
3-5
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Capital lease obligations
|
|
$
|
1,108
|
|
|
$
|
403
|
|
|
$
|
705
|
|
|
$
|
|
|
|
$
|
|
|
Operating lease obligations
|
|
|
43,122
|
|
|
|
5,744
|
|
|
|
10,398
|
|
|
|
9,280
|
|
|
|
17,700
|
|
Purchase price obligations
|
|
|
1,075
|
|
|
|
600
|
|
|
|
457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,287
|
|
|
$
|
6,747
|
|
|
$
|
11,560
|
|
|
$
|
9,280
|
|
|
$
|
17,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our principal lease commitments consist of obligations under
leases for office space and computer and telecommunications
equipment. In addition, we financed the purchase of some of our
computer equipment under a capital lease arrangement over a
period of 36 months. Our purchase obligations relate to
outstanding orders to purchase computer equipment and are
typically small; they do not materially impact our overall
liquidity. In connection with the Certifica acquisition, we are
obligated to make future payments to the sellers subject to
reductions for any claims against the sellers. In addition, due
to the uncertainty with respect to the timing of future cash
flows associated with our unrecognized tax benefits at
December 31, 2009, we are unable to make reasonably
reliable estimates of the period of cash settlement with the
respective taxing authorities. Therefore, $1.2 million of
unrecognized tax benefits (as more fully described in
Note 9 to the audited financial statements) have been
excluded from the contractual payment obligations table above.
In September 2009, we entered into a $4.5 million equipment
line of credit with Banc of America Leasing & Capital,
LLC to finance the purchase of new software, hardware and other
computer equipment as we expand our technology infrastructure in
support of our business growth. The initial utilization of this
credit facility was an equipment lease for approximately
$1.1 million bearing an interest rate of 5% per annum. The
base term for this lease is three years and includes a nominal
charge in the event of prepayment. The lease payment is
approximately $403,000 per annum. Assets acquired under the
equipment lease secure the obligations.
On March 31, 2009, we renewed a $5.0 revolving line of
credit with Bank of America, with an interest rate equal to BBA
LIBOR rate plus an applicable margin based upon certain
financial ratios. This line of credit includes no restrictive
financial covenants and expires May 31, 2010. We maintain
letters of credit in lieu of security deposits with respect to
certain office leases. During the year ended December 31,
2009, three letters of credit were reduced by approximately
$480,000. As of December 31, 2009, no amounts were borrowed
against the line of credit and $3.9 million of letters of
credit were outstanding, leaving $1.1 million available for
additional letters of credit or other borrowings. These letters
of credit may be reduced periodically provided we meet the
conditional criteria of each related lease agreement. In January
2010, one letter of credit was reduced by approximately $83,000
leaving $1.2 million available for additional letters of
credit or other borrowings.
Future
Capital Requirements
Our ability to generate cash is subject to our performance,
general economic conditions, industry trends and other factors.
To the extent that our existing cash, cash equivalents,
short-term investments and operating cash flow are insufficient
to fund our future activities and requirements, we may need to
raise additional funds through public or private equity or debt
financing. If we issue equity securities in order to raise
additional funds, substantial dilution to existing stockholders
may occur.
Recent
Accounting Pronouncements
Recent accounting pronouncements are detailed in Note 2 to
our Consolidated Financial Statements included in Part II,
Item 8 of this Annual Report on
Form 10-K.
62
Off-Balance
Sheet Arrangements
We had no off-balance sheet arrangements as of December 31,
2009 and 2008.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES 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. To date, most payments made under our contracts are
denominated in U.S. dollars and we have not experienced
material gains or losses as a result of transactions denominated
in foreign currencies. As of December 31, 2009, our cash
reserves were maintained in bank deposit accounts, treasury
bills, treasury notes, and auction rate securities totaling
$90.9 million. These securities, like all fixed income
instruments, are subject to interest rate risk and will decline
in value if market interest rates increase. We have the ability
to hold our fixed income investments until maturity and,
therefore, we would not expect to experience any material
adverse impact in income or cash flow.
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 be immaterial at this time. As such, we do not
currently engage in any transactions that hedge foreign currency
exchange rate risk. As we grow our international operations, our
exposure to foreign currency risk could become more significant.
Interest
Rate Sensitivity
As of December 31, 2009, our principal sources of liquidity
consisted of cash, cash equivalents and short-term investments
of $88.1 million. These amounts were invested in
certificates of deposit and U.S. treasury notes. 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. Declines in interest rates, however, will reduce future
investment income. If overall interest rates fell by 1% during
the year ended December 31, 2009, our interest income would
have declined approximately $326,000, assuming consistent
investment levels.
Auction
Rate Securities and Liquidity Risk
As of December 31, 2009, our principal sources of liquidity
consisted of cash, cash equivalents and short-term investments
of $88.1 million which represent cash generated from
operating activities and the remaining proceeds from our initial
public offering in July 2007. As of December 31, 2009, we
held $2.8 million in long-term investments consisting of
four separate auction rate securities. In prior years, we
invested in these auction rate securities for short periods of
time as part of our investment policy. However, uncertainties in
the credit markets have limited our ability to liquidate our
holdings of auction rate securities, as there have been no
auctions for these securities in 2009.
During the fourth quarter of 2009, we sold one auction rate
security, via a tender offer, and recorded a realized gain of
$89,000. The four remaining securities were valued using a
discounted cash flow model that takes into consideration the
financial condition of the issuers, the workout period, the
discount rate and other factors. Based on our current fair value
estimate, we recorded an unrealized gain of $429,000 as of
December 31, 2009. The unrealized gain is included in Other
comprehensive income within the balance sheet. We are uncertain
as to when the liquidity issues relating to these investments
will improve. Accordingly, we classified these securities as
long-term on our consolidated balance sheet. If the credit
ratings of the issuer, the bond insurers or the collateral
deteriorate further, we may further adjust the carrying value of
these investments.
63
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
comScore, Inc. consolidated financial statements
|
|
|
|
|
|
|
|
65
|
|
|
|
|
66
|
|
|
|
|
67
|
|
|
|
|
68
|
|
|
|
|
69
|
|
|
|
|
70
|
|
64
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of comScore, Inc.
We have audited the accompanying consolidated balance sheets of
comScore, Inc. (the Company) as of December 31, 2009 and
2008, and the related consolidated statements of operations,
stockholders equity (deficit), and cash flows for each of
the three years in the period ended December 31, 2009.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of comScore, Inc. at December 31, 2009
and 2008, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2009, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
comScore, Incs. internal control over financial reporting
as of December 31, 2009, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated March 12, 2010 expressed an unqualified
opinion thereon.
McLean, Virginia
March 12, 2010
65
COMSCORE,
INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
58,284
|
|
|
$
|
34,297
|
|
Short-term investments
|
|
|
29,833
|
|
|
|
37,164
|
|
Accounts receivable, net of allowances of $510 and $479,
respectively
|
|
|
34,922
|
|
|
|
29,947
|
|
Prepaid expenses and other current assets
|
|
|
2,324
|
|
|
|
1,871
|
|
Deferred tax asset
|
|
|
11,044
|
|
|
|
13,304
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
136,407
|
|
|
|
116,583
|
|
Long-term investments
|
|
|
2,809
|
|
|
|
3,497
|
|
Property and equipment, net
|
|
|
17,302
|
|
|
|
17,697
|
|
Other non-current assets
|
|
|
193
|
|
|
|
131
|
|
Long-term deferred tax asset
|
|
|
9,938
|
|
|
|
13,736
|
|
Intangible assets, net
|
|
|
8,745
|
|
|
|
8,805
|
|
Goodwill
|
|
|
42,014
|
|
|
|
39,114
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
217,408
|
|
|
$
|
199,563
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,009
|
|
|
$
|
1,755
|
|
Accrued expenses
|
|
|
8,370
|
|
|
|
9,432
|
|
Deferred revenues
|
|
|
48,140
|
|
|
|
42,779
|
|
Deferred rent
|
|
|
1,231
|
|
|
|
1,049
|
|
Capital lease obligations
|
|
|
360
|
|
|
|
977
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
60,110
|
|
|
|
55,992
|
|
Deferred rent, long-term
|
|
|
8,210
|
|
|
|
8,691
|
|
Capital lease obligations, long-term
|
|
|
674
|
|
|
|
|
|
Other long-term liabilities
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
69,469
|
|
|
|
64,683
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 5,000,000 shares
authorized at December 31, 2009 and 2008; no shares issued
or outstanding at December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share;
100,000,000 shares authorized at December 31, 2009 and
2008; 30,385,590 and 29,294,535 shares issued at
December 31, 2009 and 2008, respectively; 30,385,590 and
29,130,140 shares outstanding at December 31, 2009 and
2008, respectively
|
|
|
30
|
|
|
|
29
|
|
Treasury stock, 0 and 164,395 shares at cost at
December 31, 2009 and 2008, respectively
|
|
|
|
|
|
|
(1,265
|
)
|
Additional paid-in capital
|
|
|
199,270
|
|
|
|
192,612
|
|
Accumulated other comprehensive income (loss)
|
|
|
324
|
|
|
|
(842
|
)
|
Accumulated deficit
|
|
|
(51,685
|
)
|
|
|
(55,654
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
147,939
|
|
|
|
134,880
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
217,408
|
|
|
$
|
199,563
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
66
COMSCORE,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Revenues
|
|
$
|
127,740
|
|
|
$
|
117,371
|
|
|
$
|
87,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (excludes amortization of intangible assets
resulting from acquisitions shown below)(1)
|
|
|
38,730
|
|
|
|
34,562
|
|
|
|
23,858
|
|
Selling and marketing(1)
|
|
|
41,954
|
|
|
|
39,400
|
|
|
|
28,659
|
|
Research and development(1)
|
|
|
17,827
|
|
|
|
14,832
|
|
|
|
11,413
|
|
General and administrative(1)
|
|
|
18,232
|
|
|
|
16,785
|
|
|
|
11,599
|
|
Amortization of intangible assets resulting from acquisitions
|
|
|
1,457
|
|
|
|
804
|
|
|
|
966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
118,200
|
|
|
|
106,383
|
|
|
|
76,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
9,540
|
|
|
|
10,988
|
|
|
|
10,658
|
|
Interest income and other, net
|
|
|
410
|
|
|
|
1,863
|
|
|
|
2,627
|
|
Loss from foreign currency
|
|
|
(132
|
)
|
|
|
(321
|
)
|
|
|
(296
|
)
|
Gain from sale (impairment) of marketable securities
|
|
|
89
|
|
|
|
(2,239
|
)
|
|
|
|
|
Revaluation of preferred stock warrant liabilities
|
|
|
|
|
|
|
|
|
|
|
(1,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before (provision) benefit for income taxes
|
|
|
9,907
|
|
|
|
10,291
|
|
|
|
11,794
|
|
(Provision) benefit for income taxes
|
|
|
(5,938
|
)
|
|
|
14,895
|
|
|
|
7,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
3,969
|
|
|
|
25,186
|
|
|
|
19,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
(1,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
3,969
|
|
|
$
|
25,186
|
|
|
$
|
17,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.13
|
|
|
$
|
0.88
|
|
|
$
|
0.99
|
|
Diluted
|
|
$
|
0.13
|
|
|
$
|
0.83
|
|
|
$
|
0.88
|
|
Weighted-average number of shares used in per share
calculation common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,014,085
|
|
|
|
28,691,216
|
|
|
|
16,139,365
|
|
Diluted
|
|
|
30,970,642
|
|
|
|
30,232,714
|
|
|
|
18,377,563
|
|
Net income attributable to common stockholders per common share
subject to put:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
|
|
|
$
|
0.88
|
|
|
$
|
1.33
|
|
Diluted
|
|
$
|
|
|
|
$
|
0.83
|
|
|
$
|
1.21
|
|
Weighted-average number of shares used in per share
calculation common share subject to put:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
34,465
|
|
|
|
308,720
|
|
(1) Amortization of stock-based compensation is included in the
line items above as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
1,186
|
|
|
$
|
861
|
|
|
$
|
279
|
|
Selling and marketing
|
|
|
4,617
|
|
|
|
2,611
|
|
|
|
1,009
|
|
Research and development
|
|
|
1,111
|
|
|
|
706
|
|
|
|
245
|
|
General and administrative
|
|
|
2,942
|
|
|
|
2,296
|
|
|
|
941
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,969
|
|
|
$
|
25,186
|
|
|
$
|
19,316
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency cumulative translation adjustment
|
|
|
829
|
|
|
|
(1,132
|
)
|
|
|
258
|
|
Unrealized gain (loss) on marketable securities
|
|
|
337
|
|
|
|
289
|
|
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
5,135
|
|
|
$
|
24,343
|
|
|
$
|
19,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
67
COMSCORE,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Stockholders
|
|
|
|
Common Stock
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Stock
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
(Deficit)
|
|
|
|
(In thousands, except share data)
|
|
|
Balance at December 31, 2006
|
|
|
4,000,165
|
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(75
|
)
|
|
$
|
(99,486
|
)
|
|
$
|
(99,557
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,316
|
|
|
|
19,316
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258
|
|
|
|
|
|
|
|
258
|
|
Unrealized loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(182
|
)
|
|
|
|
|
|
|
(182
|
)
|
Exercise of common stock options
|
|
|
580,727
|
|
|
|
1
|
|
|
|
|
|
|
|
890
|
|
|
|
|
|
|
|
|
|
|
|
891
|
|
Exercise of common stock warrants, net
|
|
|
138,536
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
Issuance of restricted stock, net
|
|
|
771,783
|
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock in initial public
offering
|
|
|
5,000,000
|
|
|
|
5
|
|
|
|
|
|
|
|
73,111
|
|
|
|
|
|
|
|
|
|
|
|
73,116
|
|
Conversion of preferred stock to common stock
|
|
|
17,257,362
|
|
|
|
17
|
|
|
|
|
|
|
|
103,506
|
|
|
|
|
|
|
|
|
|
|
|
103,523
|
|
Reclassification of common stock subject to put to common stock
|
|
|
212,000
|
|
|
|
|
|
|
|
|
|
|
|
2,650
|
|
|
|
|
|
|
|
|
|
|
|
2,650
|
|
Amortization of stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,239
|
|
|
|
|
|
|
|
|
|
|
|
2,239
|
|
Preferred warrant liability reclassification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,200
|
|
|
|
|
|
|
|
|
|
|
|
2,200
|
|
Accretion of redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,190
|
)
|
|
|
|
|
|
|
(639
|
)
|
|
|
(1,829
|
)
|
Accretion of common stock subject to put
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72
|
)
|
|
|
|
|
|
|
(31
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
27,960,573
|
|
|
|
28
|
|
|
|
|
|
|
|
183,433
|
|
|
|
1
|
|
|
|
(80,840
|
)
|
|
|
102,622
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,186
|
|
|
|
25,186
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,132
|
)
|
|
|
|
|
|
|
(1,132
|
)
|
Unrealized gain on marketable securities net of tax effect of $68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
289
|
|
|
|
|
|
|
|
289
|
|
Exercise of common stock options
|
|
|
611,733
|
|
|
|
1
|
|
|
|
|
|
|
|
976
|
|
|
|
|
|
|
|
|
|
|
|
977
|
|
Exercise of common stock warrants, net
|
|
|
4,020
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
Issuance of restricted stock, net
|
|
|
465,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units vested
|
|
|
17,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock received for tax withholding
|
|
|
(64,326
|
)
|
|
|
|
|
|
|
(1,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,265
|
)
|
Reclassification of common stock subject to put to common stock
|
|
|
135,640
|
|
|
|
|
|
|
|
|
|
|
|
1,814
|
|
|
|
|
|
|
|
|
|
|
|
1,814
|
|
Amortization of stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,339
|
|
|
|
|
|
|
|
|
|
|
|
6,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
29,130,140
|
|
|
|
29
|
|
|
|
(1,265
|
)
|
|
|
192,612
|
|
|
|
(842
|
)
|
|
|
(55,654
|
)
|
|
|
134,880
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,969
|
|
|
|
3,969
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
829
|
|
|
|
|
|
|
|
829
|
|
Unrealized gain on marketable securities net of tax effect of $8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
337
|
|
|
|
|
|
|
|
337
|
|
Exercise of common stock options
|
|
|
420,583
|
|
|
|
|
|
|
|
|
|
|
|
922
|
|
|
|
|
|
|
|
|
|
|
|
922
|
|
Issuance of restricted stock, net
|
|
|
949,946
|
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units vested
|
|
|
27,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock received for tax withholding
|
|
|
(142,417
|
)
|
|
|
|
|
|
|
(1,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,573
|
)
|
Treasury stock retirement
|
|
|
|
|
|
|
|
|
|
|
2,838
|
|
|
|
(2,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,575
|
|
|
|
|
|
|
|
|
|
|
|
8,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
30,385,590
|
|
|
$
|
30
|
|
|
$
|
|
|
|
$
|
199,270
|
|
|
$
|
324
|
|
|
$
|
(51,685
|
)
|
|
$
|
147,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
68
COMSCORE,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,969
|
|
|
$
|
25,186
|
|
|
$
|
19,316
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,544
|
|
|
|
4,977
|
|
|
|
3,764
|
|
Amortization of intangible assets resulting from acquisitions
|
|
|
1,457
|
|
|
|
798
|
|
|
|
966
|
|
Provisions for bad debts
|
|
|
290
|
|
|
|
594
|
|
|
|
142
|
|
Stock-based compensation
|
|
|
9,849
|
|
|
|
6,482
|
|
|
|
2,474
|
|
Deferred tax provision (benefit)
|
|
|
5,096
|
|
|
|
(15,386
|
)
|
|
|
(8,142
|
)
|
Gain on sale (impairment) of marketable securities
|
|
|
(89
|
)
|
|
|
2,239
|
|
|
|
|
|
Amortization of deferred rent
|
|
|
(632
|
)
|
|
|
(126
|
)
|
|
|
|
|
Amortization of bond premium
|
|
|
610
|
|
|
|
730
|
|
|
|
66
|
|
Loss on asset disposal
|
|
|
139
|
|
|
|
50
|
|
|
|
|
|
Revaluation of preferred stock warrant liabilities
|
|
|
|
|
|
|
|
|
|
|
1,195
|
|
Amortization of deferred finance costs
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Changes in operating assets and liabilities, net of effect of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(4,491
|
)
|
|
|
(6,581
|
)
|
|
|
(9,186
|
)
|
Prepaid expenses and other current assets
|
|
|
83
|
|
|
|
229
|
|
|
|
(486
|
)
|
Other non-current assets
|
|
|
(55
|
)
|
|
|
114
|
|
|
|
255
|
|
Accounts payable, accrued expenses, and other liabilities
|
|
|
(2,908
|
)
|
|
|
(1,838
|
)
|
|
|
1,065
|
|
Deferred revenues
|
|
|
4,838
|
|
|
|
6,124
|
|
|
|
9,841
|
|
Deferred rent
|
|
|
331
|
|
|
|
9,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
25,031
|
|
|
|
32,989
|
|
|
|
21,277
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Recovery (payment) of restricted cash
|
|
|
|
|
|
|
1,385
|
|
|
|
(1,115
|
)
|
Purchase of investments
|
|
|
(50,197
|
)
|
|
|
(92,288
|
)
|
|
|
(56,475
|
)
|
Sale and maturity of investments
|
|
|
57,973
|
|
|
|
85,388
|
|
|
|
30,854
|
|
Purchase of property and equipment
|
|
|
(6,472
|
)
|
|
|
(14,252
|
)
|
|
|
(3,635
|
)
|
Acquisition of business, net of cash acquired
|
|
|
(1,296
|
)
|
|
|
(44,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
8
|
|
|
|
(64,405
|
)
|
|
|
(30,371
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of common stock options and warrants
|
|
|
922
|
|
|
|
1,027
|
|
|
|
972
|
|
Repurchase of common stock
|
|
|
(1,573
|
)
|
|
|
(1,265
|
)
|
|
|
|
|
Proceeds from the issuance of common stock, net of offering costs
|
|
|
|
|
|
|
|
|
|
|
73,116
|
|
Principal payments on capital lease obligations
|
|
|
(1,064
|
)
|
|
|
(900
|
)
|
|
|
(2,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(1,715
|
)
|
|
|
(1,138
|
)
|
|
|
71,979
|
|
Effect of exchange rate changes on cash
|
|
|
663
|
|
|
|
(1,517
|
)
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
23,987
|
|
|
|
(34,071
|
)
|
|
|
63,336
|
|
Cash and cash equivalents at beginning of year
|
|
|
34,297
|
|
|
|
68,368
|
|
|
|
5,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
58,284
|
|
|
$
|
34,297
|
|
|
$
|
68,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
63
|
|
|
$
|
122
|
|
|
$
|
302
|
|
Income tax paid
|
|
$
|
1,615
|
|
|
$
|
325
|
|
|
$
|
1
|
|
Supplemental noncash investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations incurred
|
|
$
|
1,121
|
|
|
$
|
|
|
|
$
|
|
|
Leasehold improvements acquired through lease incentives
|
|
$
|
333
|
|
|
$
|
9,397
|
|
|
$
|
|
|
Accretion of preferred stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,829
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
69
COMSCORE,
INC.
comScore, Inc. (the Company), a Delaware corporation
incorporated in August 1999, provides a digital marketing
intelligence platform that helps customers make better-informed
business decisions and implement more effective digital business
strategies. The Companys products and solutions offer
customers 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 Companys digital marketing intelligence platform is
comprised of proprietary databases and a computational
infrastructure that measures, analyzes and reports on digital
activity. The foundation of the platform is data collected from
a panel of approximately 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, the Company also
supplements panel information with Web site server metrics in
order to account for 100 percent of a Web sites
audience. 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.
On July 2, 2007, the Company completed its initial public
offering (the IPO) of common stock in which the
Company issued and sold 5,000,000 shares of its common
stock at an issuance price of $16.50 per share. In addition,
selling stockholders, including officers and directors of the
Company or entities affiliated therewith, sold an aggregate of
1,095,000 shares of common stock, which amount included the
exercise of the underwriters over-allotment option in the
IPO. The Company raised a total of $82,500,000 in gross proceeds
from the IPO, or approximately $73,116,000 in net proceeds after
deducting underwriting discounts and commissions of $5,775,000
and offering costs of $3,609,000. The Company did not receive
any proceeds from the sale of shares in the IPO by the selling
stockholders. Upon the closing of the IPO, all shares of
convertible preferred stock then outstanding automatically
converted into 17,257,362 shares of common stock, and all
preferred stock warrants converted into common stock warrants.
In connection with the IPO, the Companys Board of
Directors and stockholders approved a
1-for-5
reverse stock split of the then outstanding common stock and
convertible preferred stock effective June 21, 2007. All
share and per share amounts contained in these consolidated
financial statements have been retroactively adjusted to reflect
the reverse stock split.
On May 28, 2008, the Company acquired the outstanding stock
of M:Metrics, Inc., a provider of marketing and media
intelligence for the mobile medium in the United States and
internationally, to expand its abilities to provide its
customers a more robust solution for the mobile medium.
On November 11, 2009, the Company acquired the outstanding
stock of Certifica, Inc. (Certifica), a leader in
web measurement in Latin America. This acquisition expanded the
Companys presence in five countries in Latin America.
|
|
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.
70
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Within the consolidated statements of cash flows, $730,000 and
$66,000 have been reclassified from sales and maturities of
investments within investing activities to amortization of bond
premium within operating activities for the years ended
December 31, 2008 and 2007, respectively.
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, valuation of marketable securities,
recoverability of intangible assets, other long-lived assets and
goodwill, 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 adopted new guidance which establishes fair value
measurements and disclosures on January 1, 2008, with
respect to its financial assets and liabilities, and on
January 1, 2009, with respect to its nonfinancial assets
and liabilities that are recognized and disclosed at fair value
on a nonrecurring basis.
Fair value is an exit price, representing the amount that would
be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants. 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 three-tier 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.
This hierarchy requires the Company to use observable market
data, when available, and to minimize the use of unobservable
inputs when determining fair value. On a recurring basis, the
Company measures its investment instruments at fair value and
determines the appropriate classification level for each
reporting period. The Company is required to use significant
judgments to make this determination.
The Companys investment instruments are classified within
Level 1 or Level 3 of the fair value hierarchy.
Level 1 investment instruments are valued using quoted
market prices. Level 3 instruments are valued using
valuation models, primarily discounted cash flow analyses. The
types of instruments valued based on quoted market prices in
active markets include all U.S. government and agency
securities. Such instruments are generally classified within
Level 1 of the fair value hierarchy. The types of
instruments valued based on significant unobservable inputs
include certain illiquid auction rate securities. Such
instruments are classified within Level 3 of the fair value
hierarchy (see Note 4).
Cash equivalents, investments, accounts receivable, accounts
payable, accrued expenses and capital lease obligations reported
in the consolidated balance sheets equal or approximate their
respective fair values.
71
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 and certificates of deposit.
Investments, which consist principally of U.S. treasury
bills, U.S. treasury notes and auction rate securities, are
stated at fair value. These securities are accounted for as
available-for-sale
securities. Unrealized holding gains and losses for
available-for-sale
securities are excluded from earnings and reported as a net
amount in a separate component of stockholders equity
until realized. Realized gains and losses on
available-for-sale
securities are included in interest income. Interest and
dividends on securities classified as
available-for-sale
are included in interest income. The Company uses the specific
identification method to compute realized gains and losses on
its investments. During the year ended December 31, 2009,
the Company recorded an $89,000 realized gain from the sale of
one auction rate security. Realized gains and losses for the
years ended December 31, 2008 and 2007 were not material.
As of April 1, 2009, the Company modified its methodology
for recognition and measurement of impairment for debt
securities. The two principal changes to the impairment model
for debt securities are as follows:
|
|
|
|
|
An
other-than-temporary
impairment charge for debt securities in an unrealized loss
position or impaired is recognized if any of these conditions
are met: (1) the Company does not expect to recover the
entire amortized cost basis of the security, (2) the
Company intends to sell the security or (3) it is more
likely than not that the Company will be required to sell the
security before it recovers its amortized cost basis.
|
|
|
|
If the first condition above is met, but the Company does not
intend to sell and it is not more likely than not that the
Company will be required to sell the security before recovery of
its amortized cost basis, the Company records the difference
between the securitys amortized cost basis and its
recoverable amount (representing the credit loss) in earnings
and the difference between the securitys recoverable
amount and fair value in other comprehensive income. If either
the second or third criteria are met, then the Company
recognizes the entire difference between the securitys
amortized cost basis and its fair value in earnings.
|
The Company concluded that its auction rate securities fall
within the second and third criteria above. All previously
recorded impairments to auction rate securities were deemed
other-than-temporary
and were recognized in earnings.
In prior periods, the intent and ability of the Company to hold
the security until the market value recovered was a critical
factor in determining whether any declines in the fair value of
investments was
other-than-temporary.
Declines in value below cost for investments where it was
considered probable that all contractual terms of the investment
would be satisfied, due primarily to changes in market demand,
and not because of increased credit risk, and where the Company
intended and had the ability to hold the investment for a period
of time sufficient to allow a market recovery, were not assumed
to be
other-than-temporary.
Interest income on investments was $568,000, $2.0 million
and $2.9 million for the years ended December 31,
2009, 2008 and 2007, respectively.
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
managements judgment, which considers historical
experience and specific knowledge of accounts where
collectability 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.
72
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of activities in the allowance for
doubtful accounts for the fiscal years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Allowance for Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(479
|
)
|
|
$
|
(234
|
)
|
|
$
|
(188
|
)
|
Additions
|
|
|
(290
|
)
|
|
|
(602
|
)
|
|
|
(142
|
)
|
Reductions
|
|
|
259
|
|
|
|
357
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
(510
|
)
|
|
$
|
(479
|
)
|
|
$
|
(234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 on the Statement of
Operations in which the asset is deployed.
Goodwill
and Intangible Assets
Goodwill represents the excess of the purchase price over the
fair value of identifiable assets acquired and liabilities
assumed when other businesses are acquired. The allocation of
the purchase price to intangible assets and goodwill involves
the extensive use of managements 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 several different valuation approaches, including
the relief from royalty method and, income and market
approaches. The relief from royalty method assumes that if the
Company did not own the intangible asset or intellectual
property, it would be willing to pay a royalty for its use. The
Company generally uses the relief from royalty method for
estimating the value of acquired technology/methodology assets.
The income approach converts the anticipated economic benefits
that the Company assumes will be realized from a given asset
into value. Under this approach, value is measured as the
present value of anticipated future net cash flows generated by
an asset. The Company generally uses the income approach to
value customer relationship assets and non-compete agreements.
The market approach compares the acquired asset to similar
assets that have been sold. The Company generally uses the
market approach to value trademarks and brand assets.
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 Companys goodwill is associated with one 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 each of 2009, 2008 and 2007 and
determined that there was no impairment of goodwill.
73
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 7
|
Customer relationships
|
|
7
|
Panel
|
|
7
|
Intellectual property
|
|
10
|
Tradenames
|
|
2
|
Impairment
of Long-Lived Assets
The Companys long-lived assets primarily consist of
property and equipment and intangible assets. The Company
evaluates the recoverability of 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, the Company records an impairment loss equal to
the excess of the assets 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
years ended December 31, 2009, 2008 and 2007.
Lease
Accounting
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 in the accompanying consolidated balance
sheets. 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.
Foreign
Currency Translation
The functional currency of the Companys 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 Other comprehensive income.
The Company incurred foreign currency transaction losses of
$132,000, $321,000 and $296,000 for the years ended
December 31, 2009, 2008 and 2007, respectively. The losses
are the result of transactions denominated in currencies other
than the functional currency of the Companys foreign
subsidiaries.
74
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accumulated
Other Comprehensive Income (Loss)
The following summary sets forth the components of accumulated
other comprehensive income (loss), net of tax, in
stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Foreign currency translation loss
|
|
$
|
(120
|
)
|
|
$
|
(949
|
)
|
Unrealized gain on marketable securities
|
|
|
444
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss)
|
|
$
|
324
|
|
|
$
|
(842
|
)
|
|
|
|
|
|
|
|
|
|
Operating
Segment Information
The Company is managed and operated as one operating segment. A
single management team reports to the chief operating decision
maker who manages the entire business. The Company does not
operate any material separate lines of business or separate
business entities with respect to its services. The various
products that the Company offers are all related to analyzing
consumer behavior on the Internet and mobile devices. The same
data source is used regardless of the product delivered. The
Companys expenses are shared and are not allocated to
individual products. Accordingly, the Company does not
accumulate discrete financial information by product line and
does not have separately reportable segments.
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.
The Company generates revenues by providing access to the
Companys 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 are
provided, which generally ranges from three to 24 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. Revenues are
recognized on a straight-line basis over the estimated data
collection period once the survey or questionnaire has been
delivered. Any change in the estimated data collection period
results in an adjustment to revenues recognized in future
periods.
Certain of the Companys arrangements contain multiple
elements, consisting of the various services the Company offers.
Multiple element arrangements typically consist of a
subscription to the Companys online database combined with
customized services. The Company has determined that there is
not objective and reliable evidence of fair value for any of its
services and, therefore, accounts for all elements in multiple
element arrangements as a single unit of accounting. Access to
data under the subscription element is generally provided
shortly after the execution of the contract. However, the
initial delivery of customized services generally occurs
subsequent to contract execution. The Company recognizes the
entire arrangement fee over the performance period of the last
deliverable. As a result, the total arrangement fee is
recognized on a straight-line basis over the period beginning
with the commencement of the last customized service.
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,
75
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
Costs
of Revenues
Cost of revenues consists primarily of expenses related to the
operating network infrastructure and the recruitment,
maintenance and support of consumer panels. Expenses associated
with these areas include the salaries, stock-based compensation,
benefits and related expenses of network operations, survey
operations, custom analytics and technical support departments,
and are expensed as they are incurred. Cost of revenues also
includes data collection costs for the products and operational
costs associated with the Companys data centers, including
depreciation expense associated with computer equipment that
supports its panel and systems, and allocated overhead, which is
comprised of rent and depreciation expense generated by general
purpose equipment and software.
Selling
and Marketing
Selling and marketing expenses consist primarily of salaries,
stock-based compensation, benefits, commissions and bonuses paid
to the direct sales force and industry analysts, as well as
costs related to online and offline advertising, product
management, seminars, promotional materials, public relations,
other sales and marketing programs, and allocated overhead,
including rent and other facilities related costs, and
depreciation. All selling and marketing costs are expensed as
they are incurred.
Research
and Development
Research and development expenses include new product
development costs, consisting primarily of salaries, stock-based
compensation, benefits and related costs for personnel
associated with research and development activities, and
allocated overhead, including rent and other facilities related
costs, and depreciation.
General
and Administrative
General and administrative expenses consist primarily of
salaries, stock-based compensation, benefits and related
expenses for executive management, finance, accounting, human
capital, legal, information technology and other administrative
functions, as well as professional fees, overhead, including
allocated rent and other facilities related costs, and
depreciation and expenses incurred for other general corporate
purposes.
Concentration
of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash
equivalents, investments and accounts receivable. Cash
equivalents are held at financial institutions. Investments
consist of fixed income and auction rate securities (see
Note 4). With respect to accounts receivable, credit risk
is mitigated by the Companys ongoing credit evaluation of
its customers financial condition.
For the years ended December 31, 2009, 2008 and 2007, one
customer accounted for 12%, 12% and 13%, respectively, of total
revenues. As of December 31, 2009 and 2008, no one customer
accounted for more than 10% of accounts receivable.
76
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Advertising
Costs
All advertising costs are expensed as incurred. Advertising
expense, which is included in sales and marketing expense,
totaled $216,000, $298,000 and $371,000 for the years ended
December 31, 2009, 2008 and 2007, respectively.
Stock-Based
Compensation
The Company measures and recognizes compensation expense for
share-based awards based on the estimated fair value on the date
of grant. The Company estimates the fair value of each option
award on the date of the grant using the Black-Scholes
option-pricing model. This model is affected by the
Companys stock price as well as estimates regarding a
number of variables including expected stock price volatility
over the term of the award and projected employee stock option
exercise behaviors. The fair value of the restricted stock
awards is determined based on the quoted market price of the
Companys common stock on the grant date. For stock-based
awards subject to graded vesting, the Company has utilized the
straight-line ratable method for allocating compensation cost by
period. For the years ended December 31, 2009, 2008 and
2007, the Company recorded stock-based compensation expense of
$9.9 million, $6.5 million and $2.5 million,
respectively. Included in stock-based compensation expense for
the year ended December 31, 2009, was approximately
$656,000 due to accelerated vesting of approximately
59,000 shares of restricted stock. These restricted stock
awards were modified to accelerate vesting as part of a
restructuring plan that was implemented during the fourth
quarter of 2009 and other employee terminations that occurred
throughout the year. Also included within 2009 stock-based
compensation expense and liabilities was an accrual for
$1.7 million for compensation earned during the year. This
accrual will be settled with shares of restricted stock to be
granted in 2010. Included within 2008 stock-based compensation
expense and liabilities was an accrual for $369,000 for
compensation earned during the year. This accrual was settled
with shares of restricted stock issued during the first quarter
of 2009. Also included in 2008 stock-based compensation expense
was approximately $306,000 due to accelerated vesting for
certain terminated employees. Included within 2007 stock-based
compensation expense and liabilities was an accrual for $235,000
for compensation earned during the year. This accrual was
settled with shares of restricted stock issued during the first
quarter of 2008.
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
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 recognition 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
Companys policy is to recognize interest and penalties
related to income tax matters in income tax expense.
77
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Earnings
Per Share
Prior to April 2008, the Companys capital structure
included classes of common stock with different dividend rates.
Therefore, the Company applied the two-class method of
calculating earnings per share. In addition to the
Companys common stock, prior to April 2008, the Company
had Common Stock Subject to Put outstanding that was issued in
connection with certain acquisitions. However, the additional
contractual rights of such Common Stock Subject to Put lapsed
unexercised in April 2008, and such Common Stock Subject to Put
was reallocated as common stock following such time. Prior to
the lapse of the contractual rights, the Company calculated
earnings per share for its common stock and its Common Stock
Subject to Put using a method akin to the two-class method.
Undistributed earnings were allocated to holders of common stock
and Common Stock Subject to Put on a pro rata basis. Total
earnings allocated to each class of common stock were then
divided by the weighted-average number of shares outstanding for
each class of common stock to determine basic earnings per share.
In addition, the Companys series of convertible redeemable
preferred stock that were outstanding until their automatic
conversion upon the completion of the IPO on July 2, 2007
were considered participating securities as they were entitled
to an 8% noncumulative preferential dividend before any
dividends could be paid to common stockholders. The Company
included its participating preferred stock in the computation of
earnings per share using the two-class method .
The two-class computation method for each period allocates the
undistributed earnings or losses to each participating security
based on their respective rights to receive dividends. In
addition to undistributed earnings or losses, the accretion to
their redemption or put prices was also allocated to the Common
Stock Subject to Put and the convertible redeemable preferred
stock. Prior to conversion of the redeemable preferred stock, in
periods of undistributed losses, all losses were allocated to
common stock as the holders of Common Stock Subject to Put and
participating preferred stock were not required to fund losses
nor were their redemption or put prices reduced as a result of
losses incurred. In periods of undistributed income, income was
first allocated to the participating preferred stock for their
preferential dividend, $7.1 million per annum as of
July 2, 2007, the date of the conversion of the
Companys participating preferred stock upon the closing of
its IPO. Any undistributed earnings remaining were then
allocated to holders of common stock, Common Stock Subject to
Put and preferred stock (assuming conversion) on a pro rata
basis. The total earnings or losses allocated to each class of
common stock were then divided by the weighted-average number of
shares outstanding for each class of common stock to determine
basic earnings per share. Presentation of basic and diluted
earnings per share for securities other than common stock is not
required, therefore, earnings per share is only computed for the
Companys common stock.
Diluted earnings per share for common stock reflects the
potential dilution that could result 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. For
the period prior to conversion, diluted earnings per share does
not assume the conversion of the Companys convertible
preferred stock using the if-converted method as the result is
anti-dilutive. No potentially dilutive securities were
convertible or exercisable into shares of Common Stock Subject
to Put.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Stock options and restricted stock units
|
|
|
81,629
|
|
|
|
60,086
|
|
|
|
3,796
|
|
Common stock warrants
|
|
|
1,500
|
|
|
|
2,000
|
|
|
|
2,000
|
|
Convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
8,605,041
|
|
78
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the computation of basic and
diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share data)
|
|
|
Calculation of basic and diluted net income per
share two class method:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,969
|
|
|
$
|
25,186
|
|
|
$
|
19,316
|
|
Accretion of redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
(1,829
|
)
|
Accretion of common stock subject to put
|
|
|
|
|
|
|
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed earnings
|
|
|
3,969
|
|
|
|
25,186
|
|
|
|
17,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of undistributed earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
3,969
|
|
|
|
25,186
|
|
|
|
16,358
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
1,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allocated earnings
|
|
$
|
3,969
|
|
|
$
|
25,186
|
|
|
$
|
17,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.13
|
|
|
$
|
0.88
|
|
|
$
|
0.99
|
|
Diluted
|
|
$
|
0.13
|
|
|
$
|
0.83
|
|
|
$
|
0.88
|
|
Weighted-average shares outstanding-common stock, basic
|
|
|
30,014,085
|
|
|
|
28,691,216
|
|
|
|
16,139,365
|
|
Dilutive effect of
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
915,025
|
|
|
|
1,500,068
|
|
|
|
2,104,137
|
|
Unvested restricted stock units
|
|
|
32,930
|
|
|
|
22,337
|
|
|
|
19,870
|
|
Warrants to purchase common stock
|
|
|
8,602
|
|
|
|
19,093
|
|
|
|
114,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding-common stock, diluted
|
|
|
30,970,642
|
|
|
|
30,232,714
|
|
|
|
18,377,563
|
|
Net income attributable to common stockholders per common share
subject to put:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
|
|
|
$
|
0.88
|
|
|
$
|
1.33
|
|
Diluted
|
|
$
|
|
|
|
$
|
0.83
|
|
|
$
|
1.21
|
|
Weighted-average shares outstanding-common stock subject to put:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
34,465
|
|
|
|
308,720
|
|
Diluted
|
|
|
|
|
|
|
34,465
|
|
|
|
308,720
|
|
Recent
Pronouncements
In September 2009, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update
(ASU)
2009-13,
Multiple-Deliverable Revenue Arrangements (ASU
2009-13),
which amends the revenue guidance under Subtopic
605-25,
Multiple Element Arrangements. ASU
2009-13
addresses how to determine whether an arrangement involving
multiple deliverables contains more than one unit of accounting
and how arrangement consideration shall be measured and
allocated to the separate units of accounting in the
arrangement. ASU
2009-13 is
effective for periods beginning after December 15, 2010
with earlier adoption permitted. The Company is currently
evaluating the timing of its adoption of ASU
2009-13 and
the impact that ASU
2009-13 will
have on its consolidated financial statements.
79
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In June 2009, the FASB issued ASU
No. 2009-1,
The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162 (ASU
2009-1).
This standard establishes only two levels of U.S. GAAP,
authoritative and nonauthoritative. The FASB Accounting
Standards Codification (the Codification) will
become the source of authoritative, nongovernmental GAAP, except
for rules and interpretive releases of the SEC, which are
sources of authoritative GAAP for SEC registrants. All other
nongrandfathered, non-SEC accounting literature not included in
the Codification will become nonauthoritative. This standard is
effective for financial statements for interim or annual
reporting periods ending after September 15, 2009. The
Company began using the new guidelines and numbering system
prescribed by the Codification when referring to GAAP beginning
in the period ended September 30, 2009. As the Codification
was not intended to change or alter existing GAAP, the adoption
of ASU
2009-1 had
no impact on the Companys consolidated financial
statements.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised), Business Combinations
, which has since been included in the Codification as ASC
Topic 805 (ASC 805). ASC 805 is intended to improve
reporting by creating greater consistency in the accounting and
financial reporting of business combinations. ASC 805 requires
that the acquiring entity in a business combination recognize
all (and only) the assets and liabilities assumed in the
transaction, establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities
assumed, and requires the acquirer to disclose to investors and
other users all of the information that they need to evaluate
and understand the nature and financial effect of the business
combination. In addition, ASC 805 modifies the accounting for
transaction and restructuring costs. ASC 805 is effective for
business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period
beginning on or after December 15, 2008. After the
effective date of ASC 805, all changes to tax uncertainties and
deferred tax asset valuation allowances established in business
combination accounting should be recognized in accordance with
ASC 805, generally as an adjustment to income tax expense. For
the Companys prior acquisitions, the effects of changes to
deferred tax asset valuation allowances established in
acquisition accounting will be generally recognized directly as
an adjustment to income tax expense. The adoption of ASC 805 did
not have a material impact on the Companys consolidated
results of operation or financial position with respect to its
previous acquisitions. However, the acquisition of Certifica,
which occurred in the middle of November 2009, included $710,000
of transaction costs that were included in the Companys
consolidated statements of operations.
M:Metrics
On May 28, 2008, comScore completed its merger with
M:Metrics, a provider of marketing and media intelligence for
the mobile medium in the United States and internationally,
pursuant to the Agreement and Plan of Merger dated May 28,
2008, (the Merger). Pursuant to the Agreement and
Plan of Merger, the Company acquired all the outstanding common
stock of M:Metrics in a cash transaction for approximately
$46.0 million. The total purchase price of
$46.0 million is comprised of $44.3 million in cash
consideration, $1.2 million in expenses paid on behalf of
M:Metrics and estimated acquisition related transaction costs of
approximately $480,000. Acquisition-related transaction costs
include legal and accounting fees, and other external costs
directly related to the Merger. In connection with the Merger,
the Company exchanged the unvested options for M:Metrics common
stock for options for the purchase of 51,908 shares of
comScore common stock. In addition, $5.0 million of
comScore restricted common stock was reserved for issuance
pursuant to the Merger and $4.72 million was issued to
certain former M:Metrics employees that continued as employees
of comScore as of June 30, 2008. The estimated fair value
of these options and restricted stock is being recognized as
compensation expense for post merger services. The Company has
included the financial results of M:Metrics in its consolidated
financial statements since May 28, 2008, the date of
acquisition.
The Company believes the Merger with M:Metrics supports the
Companys long-term strategic direction and that the
demands in the digital marketing intelligence industry continue
to accelerate at a rapid pace as advertising
80
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
moves to new digital mediums. In evaluating the acquisition of
M:Metrics, the Company focused primarily on the businesss
revenues and customer base, the strategic fit of the
businesss product line with the Companys existing
product offerings, and opportunities for cost reductions and
other synergies, rather than on the businesss tangible or
intangible assets, such as its property and equipment. As a
result, the fair value of the acquired assets corresponds to a
relatively smaller portion of the acquisition price, with the
Company recording a substantial amount of goodwill associated
with the acquisition.
The Merger was accounted for under the purchase method of
accounting. Assets acquired and liabilities assumed were
recorded at their estimated fair values as of May 28, 2008.
Under the purchase method of accounting, the total purchase
price is allocated to M:Metrics net tangible and intangible
assets based on their estimated fair values as of May 28,
2008, the effective date of the Merger. The final purchase price
was allocated as follows (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,554
|
|
Accounts receivable
|
|
|
2,010
|
|
Prepaid expenses and other current assets
|
|
|
226
|
|
Property and equipment
|
|
|
464
|
|
Other long term assets
|
|
|
85
|
|
Deferred tax assets, net
|
|
|
2,692
|
|
Accounts payable
|
|
|
(865
|
)
|
Other accrued liabilities
|
|
|
(3,469
|
)
|
Deferred revenue
|
|
|
(5,473
|
)
|
Other long-term liabilities
|
|
|
(145
|
)
|
|
|
|
|
|
Net tangible liabilities to be acquired
|
|
|
(2,921
|
)
|
Definite-lived intangible assets acquired
|
|
|
10,160
|
|
Goodwill
|
|
|
38,781
|
|
|
|
|
|
|
Total estimated purchase price
|
|
$
|
46,020
|
|
|
|
|
|
|
Included in the final purchase price allocation were
$8.6 million of deferred tax assets and $3.6 million
of deferred tax liabilities initially offset by a full valuation
allowance of $5.0 million. In connection with the reduction
of the deferred tax asset valuation allowance recorded as of
December 31, 2008 (see Note 9), the Company recorded a
$3.7 million reduction in the valuation allowance recorded
for the acquired deferred tax assets of M:Metrics with a
corresponding reduction of goodwill. In connection with the
finalization of the purchase price allocation during the three
months ended June 30, 2009, the Company reduced the
acquired deferred tax assets by approximately $1.0 million
with an offsetting increase to goodwill (see Note 6).
Of the total purchase price, approximately $2.9 million has
been allocated to net tangible liabilities acquired, and
$10.2 million has been allocated to definite-lived
intangible assets acquired. Definite-lived intangible assets of
$10.2 million consist of the value assigned to M:Metrics
customer relationships of $3.2 million, intellectual
property of $2.6 million, developed and core technology of
$2.5 million and panel of $1.9 million. The useful
lives range from five to ten years (see Note 2). Goodwill
represents the excess of the purchase price of an acquired
business over the fair value of the net tangible and intangible
assets acquired. Goodwill is not deductible for tax purposes.
In connection with the purchase price allocation, the estimated
fair value of the deferred revenue assumed from M:Metrics in
connection with the Merger was determined utilizing a cost
build-up
approach. The cost
build-up
approach determines fair value by estimating the costs relating
to fulfilling the assumed contractual obligations plus a market
profit margin. The present value of the sum of the costs and
operating profit approximates the amount that the Company would
be required to pay a third party to assume the obligations. The
estimated costs to fulfill the obligation were based on the
historical direct costs related to providing the services.
The unaudited financial information provided below summarizes
the combined results of operations of comScore and M:Metrics on
a pro forma basis, as though the companies had been combined as
of the beginning of the periods presented. The pro forma
financial information is presented for informational purposes
only and does
81
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
not purport to be indicative of the Companys financial
position or results of operations, which would actually have
been obtained had such transaction been completed as of the date
or for the periods presented, or of the financial position or
results of operations that may be obtained in the future. The
pro forma financial information for all periods includes
adjustments to include amortization expense from acquired
intangibles, adjustments to interest income, the elimination of
depreciation from acquired internally developed software and
related tax effects.
The unaudited historical financial information of comScore for
the periods beginning after May 28, 2008 includes the
results of the consolidated companies. The unaudited pro forma
financial information for the year ended December 31, 2008
combines the historical results for comScore for the year ended
December 31, 2008 and the historical results for M:Metrics
for the five months ended May 28, 2008. The unaudited pro
forma financial information for the year ended December 31,
2007 combines the historical results for comScore for the year
ended December 31, 2007 and the historical results for M:
Metrics for the same period.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
|
(Unaudited)
|
|
|
(In thousands, except per share data)
|
|
Revenues
|
|
$
|
122,158
|
|
|
$
|
96,265
|
|
Net income
|
|
$
|
21,916
|
|
|
$
|
5,398
|
|
Basic income per share to common stockholders
|
|
$
|
0.76
|
|
|
$
|
0.33
|
|
Diluted income per share to common stockholders
|
|
$
|
0.72
|
|
|
$
|
0.29
|
|
Certifica
On November 11, 2009, comScore completed its acquisition of
Certifica, a leading analyst of Internet traffic measurement in
Latin America, pursuant to the Agreement and Plan of Acquisition
dated November 11, 2009, (the Acquisition).
Pursuant to the Agreement and Plan of Acquisition, the Company
acquired all of the outstanding common stock of Certifica in a
cash transaction.
The Acquisition was accounted for under the purchase method of
accounting. Assets acquired and liabilities assumed were
recorded at their estimated fair values as of the acquisition
date. Under the purchase method of accounting, the total
purchase price is allocated to Certificas net tangible and
intangible assets based on their estimated fair values as of the
effective date of the Acquisition.
The Acquisition resulted in goodwill of approximately
$1.9 million. This amount represents the residual amount of
the total purchase price after allocation to net assets and
indentifiable intangible assets acquired. Included in the total
net assets acquired was approximately $679,000 in liabilities
related to uncertain tax positions. The amount recorded for
goodwill supports the Companys intentions for the
acquisition of Certifica. The Company acquired Certifica to
strengthen its presence in the Latin America region and enable
the Company to offer hybrid measurement as part of its Media
Metrix 360 initiative using the same
state-of-the-art
measurement technologies the Company uses elsewhere in the world.
Definite-lived intangible assets of $1.2 million consist of
the value assigned to Certificas customer relationships,
trade name and its core technology of $946,000, $157,000 and
$51,000 respectively. The useful lives range from two to seven
years (see Note 2).
The Company is awaiting additional information about the assets
acquired and liabilities assumed that may result in an
adjustment to the preliminary purchase price.
|
|
4.
|
Investments
and Fair Value Measurements
|
As of December 31, 2009 and 2008, the Company had
$2.8 million and $2.9 million invested in auction rate
securities, respectively, all of which are classified as
long-term investments on its consolidated balance sheets.
82
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Auction rate securities are generally long-term debt instruments
that provide liquidity through a Dutch auction process that
resets the applicable interest rate at pre-determined calendar
intervals, generally every 28 days. This mechanism
typically allows existing investors to rollover their holdings
and to continue to own their respective securities or liquidate
their holdings by selling their securities at par value. These
securities often are insured against loss of principal and
interest by bond insurers. In prior years, the Company invested
in these securities for short periods of time as part of its
investment policy. However, since 2007, the uncertainties in the
credit markets have limited the ability of the Company to
liquidate its holdings of certain auction rate securities
because the amount of securities submitted for sale has exceeded
the amount of purchase orders. Accordingly, the Company
continues to hold these long-term securities and is due interest
at a higher rate than similar securities for which auctions have
cleared. The four remaining securities were valued using a
discounted cash flow model that takes into consideration the
financial condition of the issuers, the workout period, the
discount rate and other factors.
As of December 31, 2009, the Company held $2.8 million
in long-term investments consisting of four separate auction
rate securities with a par value of $4.3 million. During
the fourth quarter of 2009, the Company sold one auction rate
security with an adjusted cost basis of $481,000 for $570,000,
via a tender offer, and recorded a realized gain of $89,000.
Based on the Companys current fair value estimate, the
Company recorded an unrealized gain of $429,000 as of
December 31, 2009. The unrealized gain is included in Other
comprehensive income within the consolidated balance sheet.
As of December 31, 2008, the Company held $2.9 million
in long-term investments consisting of five separate auction
rate securities with a par value $5.1 million. The
estimated fair value of the auction rate securities was below
cost, or par value. During the year ended December 31,
2008, the length of time and the extent to which the auction
rate securities were valued below cost both increased
significantly. Further, the credit ratings of the issuers and
bond insurers had deteriorated. As a result, the Company
concluded that the unrealized losses on its auction rate
securities at December 31, 2008 represented an
other-than-temporary
impairment and recorded a charge of $2.2 million in
earnings.
The Company is unsure as to when the liquidity issues relating
to these investments will improve. Accordingly, the Company
classified these securities as non-current as of
December 31, 2009 and 2008. If the credit ratings of the
issuers, the bond insurers or the collateral deteriorate
further, the Company may further adjust the carrying value of