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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,
2010
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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
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54-1955550
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(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 þ No o
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
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
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, 2010, the last business day of the
registrants most recently completed second fiscal quarter,
was approximately $364.8 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 11, 2011, there were
31,806,149 shares of the registrants common stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Specified portions of the registrants Proxy Statement with
respect to its 2011 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, 2010, 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, 2010
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 global digital marketing intelligence and
measurement 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. In 2010, we expanded our customer offerings
through our acquisitions of Nexius, Inc., or Nexius, in July and
Nedstat, B.V., or Nedstat in August. Nexius provides mobile
carrier-grade solutions that deliver network analysis focused on
the experience of wireless subscribers, as well as network
intelligence with respect to performance, capacity and
configuration analytics. Nedstat is a provider of web analytics
and video measurement solutions.
We deliver our digital marketing intelligence through our
comScore Media Metrix product suite our comScore Marketing
Solutions products, our comScore mobile solutions and our
comScore web analytics solutions. 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. As the online population has
grown and continues to grow, the Internet has and is
increasingly becoming a tool for research and commerce and for
distributing and consuming media. Advertisers have shifted more
of their marketing budgets to digital channels as consumers have
increasingly used the Internet to research and make purchases
and to consume digital media. 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, or smart
phones, and digital tablets and
e-readers
allow users to access digital content such as games, music,
video and news on their mobile devices through a wireless
connection to the Internet. 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. Delivery of
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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. 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 traditional 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. We believe that there are several thousand 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 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 and social 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 site 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 evolution of Rich
Media Applications that leverage new and evolving technologies
contributes to the challenge of accurately measuring user
activity. For example, online publishers and advertisers have
started to use new techniques that
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allow Web applications to quickly make incremental updates
without having to refresh the entire Web page. Prior to the wide
adoption of Rich Media Application, marketers relied heavily on
page view statistics to plan and evaluate their online media
spending programs. With this new class of applications, 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
solely 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.
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 suite, our comScore Marketing Solutions
products , our comScore mobile solutions and our comScore web
analytics solutions. Media
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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 forty
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, instant
messaging and audio and video streaming. Our award-winning
database infrastructure currently captures billions of URL
records each week from our global Internet panel. We believe
that our efficient and scalable technology infrastructure allows
us to operate and expand our data collection infrastructure on a
cost-effective basis. 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
support of our Media Metrix 360 effort. 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
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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, our information on digital activity
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 and web analytics
products are available through the Internet using a standard
browser. Customers of these products 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 most of 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,
including many of the additional product offerings now available
as a result of recent acquisitions. 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 both through technology developed organically as well as
through strategic acquisitions and partnerships.
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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 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. Our World Metrix product, which measures global
digital media usage, samples online users from countries that
comprise approximately 95% of the global Internet population. We
have also completed acquisitions of Certifica in Latin America
and Nedstat in Europe in recent years, which we believe will
increase our global reach.
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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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Our
Product Offerings
We deliver our digital marketing intelligence through our
comScore Media Metrix product suite and through our comScore
Marketing Solutions, comScore mobile solutions and comScore web
analytics 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
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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 over
35 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 suite:
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
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
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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.
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.
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.
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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Digital Marketing Intelligence Measurement
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Examples of Customer Uses
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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 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.
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.
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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.
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.
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.
Xplore Mobile Network Analytics Products. Our
Xplore Mobile Network Analytics Products are mobile
carrier-grade solutions designed to deliver network analysis
focused on the experience of wireless subscribers, as well as
network intelligence with respect to performance, capacity and
configuration analytics. The Xplore product suite enables
network operators to enhance operational efficiencies and
prioritize capital expenditures based on customer demand in a
rapidly changing environment. Xplore products provide operators
with visibility over how the network impacts the customer
experience. Xplore allows a user to quickly extrapolate,
correlate, and render information from disparate point products
and data stores across the communications providers cross
functional organizations.
Web Analytics Products. Our web analytics
products and video measurement solutions help organizations
optimize customer experiences and maximize the return on digital
media investments. Because these products are highly
customizable, they allow marketers to collect, view and
distribute information tailored to their specific business
requirements. Our web analytics platform is designed to
integrate data from multiple
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sources including web, mobile and social media interactions as
well as CRM, call center and back-office systems.
Customers
As of December 31, 2010, we had 1,752 customers, including
82 Fortune 500 customers. Our customers include at least a
majority of each of:
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the top twenty online properties, based on total unique
visitors, including Microsoft, Yahoo!, AOL and Google;
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the top ten U.S. Internet service providers;
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the top ten investment banks, based on global investment banking
fees revenues;
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the top 50 creative, media and digital agencies, based on Ad Age;
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the top seven consumer banks, based on total U.S. deposits
as ranked by the FDIC;
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the top four wireless carriers, based on CTIA;
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the top ten pharmaceutical companies, based on worldwide sales;
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the top ten credit card issuers, based on total credit cards
outstanding; and
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the top ten consumer packaged goods companies, based on the 2010
Fortune 500 list.
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One of our customers, Microsoft Corporation, accounted for
approximately 11%, 12% and 12% of our revenues in the years
ended December 31, 2010, 2009 and 2008, respectively. No
other customer accounted for more than 10% of our revenues
during each of those periods.
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 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 outlets. We believe that the media views us as a
highly recognized and credible resource for digital marketing
intelligence. For example, we are regularly cited, on average
several hundreds of times a day, 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,
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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 included in 2010 and prior
periods, 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 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
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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,
2010, our technology team (excluding employees devoted to
research and development) was comprised of approximately
200 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 an
award-winning, highly scalable data warehousing environment that
allows ready access and analysis of the data we collect. 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 is
used by thousands of active, unique users to produce more than
several million reports each year.
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, 2010, we had approximately
150 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 2010, 2009 and 2008, we spent $26.4 million,
$17.8 million and $14.8 million, respectively, on
research and development.
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 five 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
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network server. 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.
U.S. patent 7,702,317 was filed April 27, 2006 and
covers various techniques for querying wireless network
offerings. U.S. patent 7,849,154 was filed June 27,
2005 and covers, among other things, the acquisition and
correlation of a wireless user profile with events occurring on
the users wireless device.
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 is expected to expire on
or about March 22, 2020. U.S. patents 7,260,837 and
7,493,655 are expected to expire on or about February 5,
2023. U.S. patent 7,702,317 is expected to expire on or
about April 27, 2026. U.S. patent 7,849,154 is
expected to expire on or about June 27, 2025. 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 forty-two 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 be declared
invalid or may not be 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 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
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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 Effective Measures,
Gemius, Compete Inc. (owned by WPP), Google, Inc., Hitwise
(owned by Experian), Quantcast, Visible Measures and Nielsen;
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online advertising companies that provide measurement of online
ad effectiveness, including DoubleClick (owned by Google),
Kantar (owned by WPP) and ValueClick;
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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, Nielsen and
Taylor Nelson Sofres (owned by WPP);
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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 (owned by IBM),
and WebTrends;
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full-service market research firms and survey providers that may
measure online behavior and attitudes, including Harris
Interactive, Ipsos, Synnovate, GFK, Kantar (owned by WPP) and
Nielsen;
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companies that provide behavioral, attitudinal and qualitative
advertising effectiveness, including Toluna/Nurago, Click
Forensics, Datrans Aperture, Ipsos OTX, Dynamic Logic,
Insight Express and Marketing Evolution; and
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specialty information providers for certain industries that we
serve, including IMS Health (healthcare) and Techtronix
(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
15
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.
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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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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Chief Financial Officer
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Gregory T. Dale
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Chief Operating Officer
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Christiana L. Lin
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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
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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. In
2008, Dr. Abraham was inducted into the Entrepreneur Hall
of Fame and was named an Ernst & Young Entrepreneur of
the Year in the Washington DC area. In 2009 he received the
AMAs Parlin Award, a preeminent national honor recognizing
one individual annually who has demonstrated outstanding
leadership and sustained impact on advancing the evolving
profession of marketing research over an extended period of
time. Dr. Abraham received the Paul Green Award and
the William F. ODell Award from the American Marketing
Association for an 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 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 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, 2010, we had approximately
920 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 13 to our Consolidated Financial Statements in
Part II, Item 8 of this Annual Report on
Form 10-K.
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Company
Information
We incorporated in August 1999 in Delaware. Our principal
offices are located at 11950 Democracy Drive, Suite 600,
Reston, Virginia 20190. Our telephone number is
(703) 438-2000.
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. Information contained on our Web site is not part of
this Annual Report on
Form 10-K
and is not incorporated in this Annual Report on
Form 10-K
by reference. 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
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 85%, 86% and 83% of
our revenues in 2010, 2009 and 2008, 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 economic downturns.
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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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the timing of contract renewals, delivery of products and
duration of contracts and the corresponding timing of revenue
recognition and as well as the effects of revenue derived from
recently-acquired companies;
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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 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 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, political, 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.
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.
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 make our data collection and
analysis systems more susceptible to defects or errors. The
companies that we recently acquired also rely on data collection
and analysis software and systems to service enterprise clients.
Any defect in our panelist data collection software, our census
collection systems, our enterprise focused software and systems,
network systems, statistical projections or other methodologies
could lead to consequences that impact operating results,
including:
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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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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
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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.
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, the methodologies of acquired companies, 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 refuse to participate, or participate only
in a limited fashion, and other 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. Such customers may elect to publicly air their
dissatisfaction with the methodological changes made by us,
thereby damaging our brand and harming our reputation.
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.
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,
mobile and cross-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 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
21
that such additional expenses are not accompanied by increased
revenues, our operating margins would be reduced and our
financial results would be adversely affected.
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.
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 2008, we closed our acquisition of M:Metrics and have
integrated this business into our own. In 2009, we acquired the
Certifica group of companies located in Latin America.
Additionally, in 2010, we acquired the ARSgroup, Nexius, Inc.
and Nedstat B.V. 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;
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encounter difficulties integrating the information and financial
reporting systems of acquired foreign businesses, particularly
those that operated under accounting principles other than those
generally accepted in the United States prior to the acquisition
by us; 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.
Following an acquisition of another business, we may also be
required to defer the recognition of revenue that we receive
from the sale of products that we acquired, or from the sale of
bundles products that include products that we acquired, if we
have not established vendor specific objective evidence, or
VSOE, for the undelivered elements in the arrangement. For
example, we currently have not established VSOE, for the
multiple-element arrangement deliverables involving products and
services related to our acquisition of Nexius and account for
all elements in these arrangements as a single unit of
accounting, recognizing the entire arrangement fee as revenue
over the service period of the last delivered element. If we are
unable to establish VSOE for these transactions or for
transactions related to other products and services in future
periods, we may be required to otherwise delay the recognition
of current and future revenue sources. This may result in
fluctuations in our operating results and may adversely affect
both revenues and operating margins in a given period or periods.
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.
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, and the European Commission has
issued directives requiring the regulation of cookies throughout
the European Union. Such actions 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
23
panelists and adversely affect our ability to provide our
products to our customers. Any of these effects could harm our
business.
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.
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.
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, and in 2010, we acquired a
company with a substantial presence in multiple European
countries, and a company with a growing clientele within the
Middle East. Despite this acquisition, we otherwise have had
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.
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
25
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, 2010, 2009 and 2008, we derived approximately
29%, 29% and 30% of our total revenues from our top 10
customers. Uncertain economic conditions or other factors, such
as the failure or consolidation of large client companies, or
internal reorganization or changes in focus, may cause certain
large customers to terminate or reduce their subscriptions.
Moreover, ARS and Nexius, both recently acquired companies, have
revenues highly concentrated in a few large customers. 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, 2010, 2009 and 2008, we derived approximately
11%, 12% and 12%, 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, and acquire
companies with established business in international regions,
our exposure to foreign currency risk could become more
significant.
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. In recent years,
economic conditions in the countries in which we operate and
sell products have been negative, and global financial markets
have experienced significant 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 and remained slow throughout 2008 and 2009.
Notwithstanding certain signs of recovery during 2010, economic
growth may continue to stagnate during 2011 in the U.S. and
internationally, particularly in view of recent economic turmoil
in Europe as well as political unrest in the Middle East. During
challenging economic times, and in tight credit markets, many
customers have and may continue to delay or reduce spending.
26
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.
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,
political unrest 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.
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 Effective Measures,
Gemius, Compete Inc. (owned by WPP), Google, Inc., Hitwise
(owned by Experian), Quantcast, Visible Measures and Nielsen;
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online advertising companies that provide measurement of online
ad effectiveness, including DoubleClick (owned by Google),
Kantar (owned by WPP) and ValueClick and WPP;
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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, Nielsen and
Taylor Nelson Sofres (owned by WPP);
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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 (owned by IBM),
and WebTrends;
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full-service market research firms and survey providers that may
measure online behavior and attitudes, including Harris
Interactive, Ipsos, Synnovate, GFK, Kantar (owned by WPP) and
Nielsen;
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companies that provide behavioral, attitudinal and qualitative
advertising effectiveness, including Toluna/Nurago, Click
Forensics, Datrans Aperture, Ipsos OTX, Dynamic Logic,
Insight Express and Marketing Evolution; and
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specialty information providers for certain industries that we
serve, including IMS Health (healthcare) and Techtronix
(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.
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 in the U.S. and internationally. 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 approximately 920 employees as of
December 31, 2010 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. Moreover, as a result of
acquisition integration initiatives, we may reduce the workforce
of an acquired company or reassign personnel. 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, or claims maintained
internationally in jurisdictions whose laws and procedures
differ from those in the United States. 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 sales
force with the sales forces 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
28
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 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 have generated profits in prior periods, we incurred
a net loss of $1.6 million for the year ended
December 31, 2010. As such we cannot assure you that we
will be able to achieve, sustain or increase profitability in
the future, particularly if we engage in additional acquisition
activity as we did in 2010. As of December 31, 2010, we had
an accumulated deficit of $53.3 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.
29
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 that our
existing and potential customers will find acceptable for our
products, the products of companies that we recently acquired,
and any potential products that are developed as a result of the
integration of our company with acquired companies. 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,
or we may have difficulty retaining existing customers, and our
operating results will be adversely affected.
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.
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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 April 2013, if not renewed, and our
agreement for our data center facility located in Illinois
expires in July 2011, 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.
We currently leverage a large content delivery network, or CDN,
to provide services that allow us to offer a more efficient
tagging solution for our Media Metrix 360 product offerings. If
that service faced unplanned outage or the service became
immediately unavailable, an alternate CDN provider or additional
capacity in our data centers would need to be established to
support the large volume of tag requests that we currently
manage which would either require additional investments in
equipment and facilities or a transition plan. This could
unexpectedly raise the costs and could contribute the delays or
losses in tag data that could affect the quality and reputation
of our Media Metrix 360 data products.
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 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.
31
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
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.
32
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 and more recently, restricting the use of cookies without
opt-in consent by the user. 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.
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.
33
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 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.
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.
34
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.
In future periods, we may upgrade our financial reporting
systems and to implement new information technology systems to
better manage our business, streamline our financial reporting
and enhance our existing internal controls. We may experience
difficulties if we transition to new or upgraded systems,
including loss of data and decreases in productivity as our
personnel become familiar with new systems. In addition, we
expect that our existing management information systems may
require modification and refinement as we grow and our business
needs change. Any modifications could prolong difficulties we
experience with systems transitions, and we may not always
employ the most efficient or effective systems for our purposes.
If upgrades cost more or take longer than we anticipate, our
operating results could be adversely affected. Moreover, if we
experience difficulties in implementing new or upgraded
information systems or experience system failures, or if we are
unable to successfully modify our management information systems
to respond to changes in our business needs, our ability to
timely and effectively process analyze and prepare financial
statements 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.
As of December 31, 2010, we estimate our federal and state
net operating loss carryforwards for tax purposes are
approximately $51.9 million and $37.3 million,
respectively. These net operating loss carryforwards will begin
to expire in 2022 for federal income tax reporting purposes and
in 2016 for state income tax reporting purposes.
35
In addition, at December 31, 2010 we estimate our aggregate
net operating loss carryforwards for tax purposes related to our
foreign subsidiaries are $27.5 million, which will begin to
expire in 2011.
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 decreased by
$2.5 million during year ended December 31, 2010,
primarily due to the release of our UK valuation allowance.
As of December 31, 2010, we had a valuation allowance of
$1.0 million against certain deferred tax assets. The
valuation allowance relates to the deferred tax assets of the
foreign subsidiaries that are in their
start-up
phases, including China, Spain, Singapore and certain Certifica
and Nedstat entities, and the deferred tax asset related to the
value of our auction rate securities. 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 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.
36
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, 2010, our principal sources of liquidity
consisted of $33.7 million in cash. As of December 31,
2010, 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 during the year ended
December 31, 2010, we may incur additional losses.
Risks
Related to the Securities Market and Ownership of our Common
Stock
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.
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 in 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.
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 or new issuances of
securities by us could cause our stock price to
decline.
If we or our existing stockholders sell, or indicate an
intention to sell, substantial amounts of our common stock or
other securities in the public market, the trading price of our
common stock could decline. Sales of substantial amounts of
shares of our common stock or other securities by us or our
existing stockholders could lower the market price of our common
stock and impair our ability to raise capital through the sale
of new securities in the future at a time and price that we deem
appropriate.
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 and the Dodd-Frank Wall Street Reform and Consumer
Protection Act, 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
38
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.
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 North
America, Latin America, Europe, 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. For a discussion of the significant
proceedings in which we are involved see Note 8 to our
consolidated financial statements.
39
|
|
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 in June 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 the NASDAQ Global Market.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
Fiscal Period
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
18.16
|
|
|
$
|
12.64
|
|
|
$
|
13.98
|
|
|
$
|
7.47
|
|
Second Quarter
|
|
$
|
18.86
|
|
|
$
|
14.80
|
|
|
$
|
15.51
|
|
|
$
|
9.85
|
|
Third Quarter
|
|
$
|
23.73
|
|
|
$
|
15.84
|
|
|
$
|
19.00
|
|
|
$
|
12.39
|
|
Fourth Quarter
|
|
$
|
24.47
|
|
|
$
|
20.40
|
|
|
$
|
19.58
|
|
|
$
|
14.32
|
|
HOLDERS
As of March 10, 2011 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, 2011.
40
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, 2010 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, the date our common stock first commenced
trading on the NASDAQ Global Market upon our initial public
offering, 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.
41
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, 2010
None.
Use of
Proceeds from Sale of Registered Equity Securities
Not applicable.
PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
During the three months ended December 31, 2010, 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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2010
|
|
|
14,428
|
|
|
$
|
12.20
|
|
|
|
|
|
|
|
|
|
November 1 November 30, 2010
|
|
|
25,712
|
|
|
$
|
19.56
|
|
|
|
|
|
|
|
|
|
December 1 December 31, 2010
|
|
|
9,616
|
|
|
$
|
7.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
49,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
42
For the three months ended December 31, 2010, 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, 2010
|
|
|
6,911
|
|
|
$
|
0.00
|
|
November 1 November 30, 2010
|
|
|
2,091
|
|
|
$
|
0.00
|
|
December 1 December 31, 2010
|
|
|
6,484
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2010, these shares
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Average Price
|
|
|
|
Shares Purchased
|
|
|
Per Share
|
|
|
October 1 October 31, 2010
|
|
|
7,517
|
|
|
$
|
23.41
|
|
November 1 November 30, 2010
|
|
|
23,621
|
|
|
$
|
21.29
|
|
December 1 December 31, 2010
|
|
|
3,132
|
|
|
$
|
22.34
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
34,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
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, 2010, 2009 and 2008 as well as the
consolidated balance sheet data as of December 31, 2010 and
2009 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, 2007 and 2006 as well
as the consolidated balance sheet data as of December 31,
2008, 2007 and 2006 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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
174,999
|
|
|
$
|
127,740
|
|
|
$
|
117,371
|
|
|
$
|
87,153
|
|
|
$
|
66,293
|
|
Cost of revenues(1)
|
|
|
51,953
|
|
|
|
38,730
|
|
|
|
34,562
|
|
|
|
23,858
|
|
|
|
20,560
|
|
Selling and marketing(1)
|
|
|
59,641
|
|
|
|
41,954
|
|
|
|
39,400
|
|
|
|
28,659
|
|
|
|
21,473
|
|
Research and development(1)
|
|
|
26,377
|
|
|
|
17,827
|
|
|
|
14,832
|
|
|
|
11,413
|
|
|
|
9,009
|
|
General and administrative(1)
|
|
|
33,953
|
|
|
|
18,232
|
|
|
|
16,785
|
|
|
|
11,599
|
|
|
|
8,293
|
|
Amortization
|
|
|
4,534
|
|
|
|
1,457
|
|
|
|
804
|
|
|
|
966
|
|
|
|
1,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
176,458
|
|
|
|
118,200
|
|
|
|
106,383
|
|
|
|
76,495
|
|
|
|
60,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(1,459
|
)
|
|
|
9,540
|
|
|
|
10,988
|
|
|
|
10,658
|
|
|
|
5,587
|
|
Interest and other income, net
|
|
|
53
|
|
|
|
410
|
|
|
|
1,863
|
|
|
|
2,627
|
|
|
|
231
|
|
(Loss) gain from foreign currency
|
|
|
(347
|
)
|
|
|
(132
|
)
|
|
|
(321
|
)
|
|
|
(296
|
)
|
|
|
125
|
|
Gain on sale (impairment) of marketable securities
|
|
|
|
|
|
|
89
|
|
|
|
(2,239
|
)
|
|
|
|
|
|
|
|
|
Revaluation of preferred stock warrant liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,195
|
)
|
|
|
(224
|
)
|
(Loss) income before income taxes
|
|
|
(1,753
|
)
|
|
|
9,907
|
|
|
|
10,291
|
|
|
|
11,794
|
|
|
|
5,719
|
|
Benefit (provision) for income taxes
|
|
|
177
|
|
|
|
(5,938
|
)
|
|
|
14,895
|
|
|
|
7,522
|
|
|
|
(50
|
)
|
Net (loss) income
|
|
|
(1,576
|
)
|
|
|
3,969
|
|
|
|
25,186
|
|
|
|
19,316
|
|
|
|
5,669
|
|
Accretion of redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,829
|
)
|
|
|
(3,179
|
)
|
Net (loss) income attributable to common stockholders
|
|
$
|
(1,576
|
)
|
|
$
|
3,969
|
|
|
$
|
25,186
|
|
|
$
|
17,487
|
|
|
$
|
2,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.05
|
)
|
|
$
|
0.13
|
|
|
$
|
0.88
|
|
|
$
|
0.99
|
|
|
$
|
|
|
Diluted
|
|
$
|
(0.05
|
)
|
|
$
|
0.13
|
|
|
$
|
0.83
|
|
|
$
|
0.88
|
|
|
$
|
|
|
Weighted-average number of shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
31,070,018
|
|
|
|
30,014,085
|
|
|
|
28,691,216
|
|
|
|
16,139,365
|
|
|
|
3,847,213
|
|
Diluted
|
|
|
31,070,018
|
|
|
|
30,970,642
|
|
|
|
30,232,714
|
|
|
|
18,377,563
|
|
|
|
3,847,213
|
|
44
|
|
|
(1) |
|
Amortization of stock-based compensation is included in the
preceding line items as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In thousands)
|
|
Cost of revenues
|
|
$
|
1,494
|
|
|
$
|
1,186
|
|
|
$
|
861
|
|
|
$
|
279
|
|
|
$
|
12
|
|
Selling and marketing
|
|
|
6,217
|
|
|
|
4,617
|
|
|
|
2,611
|
|
|
|
1,009
|
|
|
|
82
|
|
Research and development
|
|
|
1,868
|
|
|
|
1,111
|
|
|
|
706
|
|
|
|
245
|
|
|
|
13
|
|
General and administrative
|
|
|
8,195
|
|
|
|
2,942
|
|
|
|
2,296
|
|
|
|
941
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
33,736
|
|
|
$
|
88,117
|
|
|
$
|
71,461
|
|
|
$
|
96,817
|
|
|
$
|
16,032
|
|
|
|
|
|
Total current assets
|
|
|
103,097
|
|
|
|
136,419
|
|
|
|
116,583
|
|
|
|
123,444
|
|
|
|
31,493
|
|
|
|
|
|
Total assets
|
|
|
283,079
|
|
|
|
217,539
|
|
|
|
199,563
|
|
|
|
147,672
|
|
|
|
42,087
|
|
|
|
|
|
Total current liabilities
|
|
|
97,228
|
|
|
|
59,409
|
|
|
|
55,992
|
|
|
|
42,077
|
|
|
|
32,880
|
|
|
|
|
|
Equipment loan and capital lease obligations, long-term
|
|
|
7,959
|
|
|
|
674
|
|
|
|
|
|
|
|
977
|
|
|
|
2,261
|
|
|
|
|
|
Preferred stock warrant liabilities and common stock subject to
put
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,815
|
|
|
|
5,362
|
|
|
|
|
|
Redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,695
|
|
|
|
|
|
Stockholders equity (deficit)
|
|
|
165,832
|
|
|
|
147,939
|
|
|
|
134,880
|
|
|
|
102,622
|
|
|
|
(99,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Consolidated Statement of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
25,410
|
|
|
$
|
25,031
|
|
|
$
|
32,989
|
|
|
$
|
21,211
|
|
|
$
|
10,905
|
|
|
|
|
|
Depreciation and amortization
|
|
|
12,956
|
|
|
|
8,001
|
|
|
|
5,775
|
|
|
|
4,730
|
|
|
|
4,259
|
|
|
|
|
|
Capital expenditures
|
|
|
5,119
|
|
|
|
6,472
|
|
|
|
14,252
|
|
|
|
3,635
|
|
|
|
2,314
|
|
|
|
|
|
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.
45
Overview
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 suite, our comScore Marketing
Solutions products, our comScore mobile solutions and our
comScore web analytics solutions. 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 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
46
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. On February 10, 2010, we acquired
the outstanding stock of ARSgroup, Inc. to expand our ability to
provide our clients with actionable information to improve their
creative and strategic messaging targeted against specific
audiences. On July 1, 2010, we acquired the outstanding
stock of Nexius, Inc., or Nexius. Nexius is a provider of mobile
carrier-grade products that deliver network analysis focused on
the experience of wireless subscribers, as well as network
intelligence with respect to performance, capacity and
configuration analytics. On August 31, 2010, we acquired
the outstanding stock of Nedstat B.V., or Nedstat, a provider of
web analytics and innovative video measurement solutions based
out of Amsterdam, Netherlands.
Our total revenues have grown to $175.0 million during the
fiscal year ending December 31, 2010 from
$87.2 million during the fiscal year ended
December 31, 2007. By comparison, our total expenses from
operations have grown to $176.5 million from
$76.5 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 and from acquired businesses;
|
|
|
|
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, 2010, we had 1,752 customers, compared
to 895 as of December 31, 2007. We sell most of our
products through our direct sales force. Included in total
revenues for the year ending December 31, 2010 was
approximately $28.0 million related to operations that were
recently acquired during the year ended December 31, 2010
and the fourth quarter of 2009.
As a result of the economic events over the last several years,
such as, the global financial crisis in the credit markets,
softness in the housing markets, difficulties in the financial
services sector and political uncertainty in the Middle East,
the direction and relative strength of the U.S. and global
economies have become somewhat 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. We
continued to add net new customers during each quarter of 2010,
and our existing customers renewed their subscriptions at a rate
of over 90% based on dollars renewed in the year ended
December 31, 2010.
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 suite,
comScore Marketing Solutions, comScore mobile solutions and
comScore web analytics solutions.
A significant characteristic of our business model is our large
percentage of subscription-based contracts. Subscription-based
revenues accounted for 85% of total revenues in 2010, 86% of
total revenues in 2009 and 83% of total revenues in 2008.
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
47
products and deploying our direct sales force model in
additional international markets in the future. For the year
ended December 31, 2010, our international revenues were
$32.7 million, an increase of $13.0 million, or 66%,
compared to 2009. International revenues comprised
approximately19%, 15% and 14% of our total revenues for the
fiscal years ended December 31, 2010, 2009 and 2008,
respectively. Included in our international revenues for the
year ending December 31, 2010 was approximately
$9.7 million related to businesses that were acquired
during the year ended December 31, 2010 and the fourth
quarter of 2009.
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 suite. Products within
the Media Metrix suite include Media Metrix 360, Media Metrix,
Plan Metrix, World Metrix, Video Metrix and Ad Metrix. These
product offerings provide subscribers with intelligence on
digital media usage, audience characteristics, audience
demographics and online and offline purchasing behavior.
Customers who subscribe to our Media Metrix products are
provided with login IDs to our web site, have access to our
database and can generate reports 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.
On July 1, 2010, we completed our acquisition of Nexius,
Inc., resulting in additional revenue sources, including
software licenses, professional services (including
implementation, training and customized consulting services),
and maintenance and technical support contracts. Our
arrangements generally contain multiple elements, consisting of
the various service offerings. We recognize software license
arrangements that include significant modification and
customization of the software in accordance with Financial
Accounting Standards Board Accounting Standards Codification, or
ASC 985-605,
Software Recognition and
ASC 605-35,
Revenue Recognition-Construction-Type and Certain
Production-Type Contracts, typically using the completed
contract period method. We currently do not have vendor specific
objective evidence, or VSOE, for the multiple deliverables and
account for all elements in these arrangements as a single unit
of accounting, recognizing the entire arrangement fee as revenue
over the service period of the last delivered element. During
the period of performance, billings and costs (to the extent
they are recoverable) are accumulated on the balance sheet, but
no profit or income is recorded before user acceptance of the
software license. To the extent estimated costs are expected to
exceed revenue we accrue for costs immediately.
On August 31, 2010, we completed our acquisition of
Nedstat, resulting in additional revenue sources, including
software subscriptions, server calls, and professional services
(including training and consulting). Our
48
arrangements generally contain multiple elements, consisting of
the various service offerings, with revenue recognition
occurring ratably over the remaining subscription term after all
elements have commenced delivery.
Project
Revenues
We generate project revenues by providing customized information
reports to our customers on a nonrecurring basis through
comScore Marketing Solutions and Nedstat products. 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 consolidated financial statements and the
accompanying notes. We base our estimates on historical
experience and on various other assumptions that we believe to
be reasonable under the circumstances. Actual results may differ
from these estimates. 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 is 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 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 either subscriptions to
multiple online products solutions or a subscription to our
online database combined with customized services. We have
determined there is not objective and reliable evidence of fair
value for any of our services and, therefore, account 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 the commencement of the subscription
element. 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 deliverable.
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.
49
In connection with our acquisition of Nexius, Inc., we acquired
additional revenue sources, including software licenses,
professional services (including software customization
implementation, training and consulting services), and
maintenance and technical support contracts. Our arrangements
generally contain multiple elements, consisting of the various
service offerings. We recognize software license arrangements
that include significant modification and customization of the
software in accordance with
ASC 985-605,
Software Recognition and
ASC 605-35,
Revenue Recognition-Construction-Type and Certain
Production-Type Contracts, typically using the completed
contract method. We currently do not have VSOE for the multiple
deliverables and account for all elements in these arrangements
as a single unit of accounting, recognizing the entire
arrangement fee as revenue over the service period of the last
delivered element. During the period of performance, billings
and costs (to the extent they are recoverable) are accumulated
on the balance sheet, but no profit or income is recorded before
user acceptance of the software license. To the extent estimated
costs are expected to exceed revenue we accrue for costs
immediately.
Fair
Value Measurements
We evaluate the fair value of certain assets and liabilities
using the fair value hierarchy. 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, prepaid
expenses and other assets, accounts payable, accrued expenses,
deferred revenue, deferred rent and capital lease obligations
reported in the consolidated balance sheets equal or approximate
their respective fair values.
Assets and liabilities that are measured at fair value on a
non-recurring basis include intangible assets and goodwill. We
recognize these items at fair value when they are considered to
be impaired. During the years ended December 31, 2010, 2009
or 2008, there were no fair value adjustments for assets and
liabilities measured on a non-recurring basis.
Business
Combinations
We recognize all of the assets acquired, liabilities assumed,
contractual contingencies, and contingent consideration at their
fair value on the acquisition date. Acquisition-related costs
are recognized separately from
50
the acquisition and expensed as incurred. Generally,
restructuring costs incurred in periods subsequent to the
acquisition date are expensed when incurred. All subsequent
changes to a valuation allowance or uncertain tax position that
relate to the acquired company and existed at the acquisition
date that occur both within the measurement period and as a
result of facts and circumstances that existed at the
acquisition date are recognized as an adjustment to goodwill.
All other changes in valuation allowance are recognized as a
reduction or increase to income tax expense or as a direct
adjustment to additional paid-in capital as required. Acquired
in-process research and development is capitalized as an
intangible asset and amortized over its estimated useful life.
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 income 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, 2010, 2009
or 2008.
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 group, we record
an impairment loss equal to the excess of the asset groups
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,
2010, 2009 or 2008.
51
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.
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, 2010, we estimate our federal and state
net operating loss carryforwards for tax purposes are
approximately $51.9 million and $37.3 million,
respectively. These net operating loss carryforwards will begin
to expire in 2022 for federal income tax purposes and in 2016
for state income tax purposes. In addition, at December 31,
2010, we estimate our aggregate net operating loss carryforwards
for tax purposes related to our foreign subsidiaries is
$27.5 million, which begins to expire in 2011.
As of December 31, 2010 and 2009, we recorded valuation
allowances against certain deferred tax assets of
$1.0 million and $3.6 million, respectively. At
December 31, 2010, the valuation allowance was primarily
related to the deferred tax assets of the foreign subsidiaries
that are in their
start-up
phases, including China, Spain and Singapore, and certain
Certifica and Nedstat subsidiaries, and the deferred tax asset
related to the value of our auction rate securities. 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.
As of December 31, 2010, we have concluded that it was more
likely than not that a substantial portion of our UK deferred
tax assets will be realized and determined that it was
appropriate to release the entire valuation allowance of
$2.8 million in the fourth quarter of 2010. In making that
determination, we considered the profitability of the UK entity
achieved in 2010 and prior years, coupled with the timing of the
reversal of taxable temporary differences and the forecasted
profitability in future years. We also concluded that it was not
more likely than not that a substantial portion of our deferred
tax assets in certain other foreign jurisdictions would be
realized and that an increase to the valuation allowance was
necessary. In making that determination, we considered the
losses incurred in these foreign jurisdictions during 2010, the
current overall economic environment, and the uncertainty
regarding the profitability of certain foreign operations. As a
result, in the fourth quarter of 2010 we recorded an increase in
the deferred tax asset valuation allowance of approximately
$326,000.
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
52
business. As a result, we recorded an increase in the deferred
tax asset valuation allowance of approximately $719,000.
The exercise of certain stock options and the vesting of certain
restricted stock awards during the years ended December 31,
2010 and 2009 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. As of
December 31, 2010 and December 31, 2009, the
cumulative amount of net operating losses relating to such
option exercises and vesting events that have been included in
the gross net operating loss carryforwards above is
$16.6 million and $11.0 million respectively.
During the years ended December 31, 2010 and 2009, certain
stock options were exercised and 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 relevant windfall tax benefits have been
previously recognized. However, as described above, we have not
yet recognized these windfall tax benefits because the tax
benefits have not resulted in a reduction of current taxes
payable. Therefore, the impact of the shortfalls totaling
$944,000 and $785,000, respectively, have been included in
income tax expense for the years ended December 31, 2010
and 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, 2010, 2009 and
2008, we had unrecognized tax benefits of $2.4 million,
$1.2 million and $240 thousand, 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, 2010, the amount of accrued interest and
penalties on unrecognized tax benefits was $771,000. As of
December 31, 2009, the amount of accrued interest expense
on unrecognized tax benefits was $489,000. 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 2007 or state and local tax examinations by tax
authorities for years before 2006, although tax attribute
carryforwards generated prior to these years may still be
adjusted upon examination by tax authorities.
Stock-Based
Compensation
We estimate the fair value of share-based awards on the date of
grant. The fair value of stock options is determined using the
Black-Scholes option-pricing model. The fair value of
market-based stock options and restricted stock units is
determined using a Monte Carlo simulation embedded in a lattice
model. The fair value of restricted stock awards is based on the
closing price of our common stock on the date of grant. The
determination of the fair value of stock option awards and
restricted stock awards is based on a variety of factors
including, but not limited to, the our common stock price,
expected stock price volatility over the expected life of
awards, and actual and projected exercise behavior. Additionally
we estimate forfeitures for share-based awards at the dates of
grant based on historical experience, adjusted for future
expectation. The forfeiture estimate is revised as necessary if
actual forfeitures differ from these estimates.
We issue restricted stock awards whose restrictions lapse upon
either the passage of time (service vesting), achieving
performance targets, or some combination of these restrictions.
For those restricted stock awards with
53
only service conditions, we recognize compensation cost on a
straight-line basis over the explicit service period. For awards
with both performance and service conditions, we start
recognizing compensation cost over the remaining service period
when it is probable the performance condition will be met. Stock
awards that contain performance or market vesting conditions,
are excluded from diluted earning per share computations until
the contingency is met as of the end of that reporting period.
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, 2010, total estimated unrecognized
compensation expense related to unvested stock-based awards
granted prior to that date was $25.2 million, which is
expected to be recognized over a weighted-average period of
1.60 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.
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
29.7
|
|
|
|
30.3
|
|
|
|
29.4
|
|
Selling and marketing expenses
|
|
|
34.1
|
|
|
|
32.8
|
|
|
|
33.6
|
|
Research and development
|
|
|
15.0
|
|
|
|
14.0
|
|
|
|
12.6
|
|
General and administrative
|
|
|
19.4
|
|
|
|
14.3
|
|
|
|
14.3
|
|
Amortization
|
|
|
2.6
|
|
|
|
1.1
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
100.8
|
|
|
|
92.5
|
|
|
|
90.6
|
|
(Loss) income from operations
|
|
|
(0.8
|
)
|
|
|
7.5
|
|
|
|
9.4
|
|
Interest income net
|
|
|
|
|
|
|
0.3
|
|
|
|
1.6
|
|
Loss from foreign currency
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
Gain on sale (impairment) of marketable securities
|
|
|
|
|
|
|
0.1
|
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income tax (benefit) provision
|
|
|
(1.0
|
)
|
|
|
7.8
|
|
|
|
8.8
|
|
Income tax (benefit) provision
|
|
|
0.1
|
|
|
|
(4.6
|
)
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders
|
|
|
(0.9
|
)%
|
|
|
3.2
|
%
|
|
|
21.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
Year
Ended December 31, 2010 Compared to Year Ended
December 31, 2009 and Year Ended December 31, 2009
Compared to Year Ended December 31, 2008
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Year Ended December 31,
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues
|
|
$
|
174,999
|
|
|
$
|
127,740
|
|
|
$
|
117,371
|
|
|
$
|
47,259
|
|
|
$
|
10,369
|
|
|
|
37.0
|
%
|
|
|
8.8
|
%
|
Total revenues increased by approximately $47.3 million
during the year ended December 31, 2010 as compared to the
year ended December 31, 2009. The revenue growth was
substantially due to increased sales to our existing customer
base as a result of both organic growth and acquisitions. In
addition, our customer base continued to grow as compared to the
prior year. Our total customer base grew by a net increase of
479 customers from 1,273 at December 31, 2009 to 1,752 at
December 31, 2010. The increase in our customer base
included 238 related to businesses acquired in 2010. Included in
total revenues for the year ended December 31, 2010 was
approximately $28.0 million related to businesses that were
acquired during the year ended December 31, 2010 and the
fourth quarter of 2009.
Sales to existing customers totaled $154.1 million during
the year ended December 31, 2010 which was an increase of
$40.7 million over the prior year. We attribute
$21.6 million of this increase to continued growth in
comScore product suite sales and $19.1 million to the
businesses we acquired during 2010 and the fourth quarter of
2009. During the year ended December 31, 2010, revenues
from new customers were $20.8 million, an increase of
approximately $6.5 million from the prior year. We
attribute this increase to the businesses we acquired during
2010 and the fourth quarter of 2009.
Revenues from customers outside of the U.S. totaled
approximately $32.7 million, or approximately 19% of total
revenues, during the year ended December 31, 2010, which
was an increase of $13.0 million compared to the prior
year. The increase was due to ongoing international expansion
efforts that resulted in increases over 2009 of
$4.5 million for Latin America, $4.4 million for
Europe, $1.8 million for Canada, $1.4 million for
Middle East and Africa and $936,000 for Asia. Included within
total international revenues for the year ended
December 31, 2010 was approximately $9.7 million
related to the businesses that were acquired during the year
ended December 31, 2010 and during the fourth quarter of
2009.
There was continued revenue growth in our subscription revenues,
which increased by approximately $38.9 million from
$109.8 million during 2009 to $148.7 million during
2010. In addition, our project-based revenues increased by
$8.4 million from $17.9 million during 2009 to
$26.3 million during 2010.
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 acquired businesses in Latin America and Europe as well as
our continued 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 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.
55
We generally invoice customers on an annual, quarterly or
monthly basis, or at the completion of certain milestones.
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 depreciation and amortization of
long-lived assets.
Included in our operating expenses are costs such as rent and
other facilities related costs, and depreciation expense. During
the year ended December 31, 2010, rent and other facilities
related costs, and depreciation expense increased by
approximately $1.2 million and $1.9 million,
respectively, compared to the year ended December 31, 2009.
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 incurred during the fiscal year 2010 are largely
due to the facilities owned by the businesses we acquired during
the year ended December 31, 2010 and the fourth quarter of
2009. The increases incurred during fiscal year 2009 are due to
new office facilities and capital expenditures to support our
infrastructure as well as position us for future growth. The
related cost increases from these new facilities and capital
expenditures were allocated to cost of revenues, sales and
marketing, research and development, and general and
administrative costs.
Also included in our operating expenses for the year ended
December 31, 2010 was approximately $24.8 million of
general operating expenses related to the businesses that were
acquired during the year ended December 31, 2010 and during
the fourth quarter of 2009. These amounts are included in our
operating results as a component of cost of revenues, sales and
marketing expenses, research and development expenses and
general and administrative expenses. In addition, in conjunction
with acquisition related activities, we incurred approximately
$2.6 million of transaction related costs for the year
ended December 31, 2010. These amounts are included in our
operating results as a component of our general and
administrative expenses.
During the fourth quarter of 2009, we announced a restructuring
program and reduced our headcount by approximately forty-six
full-time positions. Included in 2009 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 of changes
associated with 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 liabilities consisting of employee
severance that was paid during the first quarter of 2010.
Cost
of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Cost of revenues
|
|
$
|
51,953
|
|
|
$
|
38,730
|
|
|
$
|
34,562
|
|
|
$
|
13,223
|
|
|
$
|
4,168
|
|
|
|
34.1
|
%
|
|
|
12.1
|
%
|
As a percentage of revenues
|
|
|
29.7
|
%
|
|
|
30.3
|
%
|
|
|
29.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 $13.2 million
during the year ended December 31, 2010 compared to the
year ended December 31, 2009. This increase was
attributable to an increase of $8.4 million in third party
services related to data collection, analysis and validation
activities applied as revenue increased. In addition,
56
data center and bandwidth costs increased $2.0 million due
to the use of our beaconing technology. The increase was also
due to a $1.1 million increase in employee salaries,
benefits and related costs, including bonus expense, associated
with increases in headcount from both new hires and employees
acquired in acquisitions. In addition, stock-based compensation
expense increased $308,000 during the year ended
December 31, 2010 as compared to the prior year, due to our
continued use of equity compensation as part of our compensation
program. Due to the overall increase in rent and depreciation
costs, we experienced a $1.6 million increase in the amount
of these costs allocated to cost of revenues for the year ended
December 31, 2010. These increases were offset by a
$411,000 decrease in panel development. Included within total
cost of revenues for the year ended December 31, 2010 was
approximately $6.4 million related to the businesses that
were acquired during the year ended December 31, 2010 and
during the fourth quarter of 2009. Cost of revenues decreased as
a percentage of revenues during the year ended December 31,
2010 as compared to the year ended December 31, 2009 due to
revenue growth relative to increases in cost of revenues
expenses.
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 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.
Selling
and Marketing Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
$
|
59,641
|
|
|
$
|
41,954
|
|
|
$
|
39,400
|
|
|
$
|
17,687
|
|
|
$
|
2,554
|
|
|
|
42.2
|
%
|
|
|
6.5
|
%
|
As a percentage of revenues
|
|
|
34.1
|
%
|
|
|
32.8
|
%
|
|
|
33.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses consist primarily of salaries,
benefits, commissions, bonuses, and stock-based compensation
paid to our direct sales force and industry analysts, as well as
costs related to online and offline advertising, 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 $17.7 million
during the year ended December 31, 2010 compared to the
year ended December 31, 2009. This increase was due to an
$8.7 million increase in employee salaries, benefits and
related costs from our ARSgroup, Nexius and Nedstat acquisitions
as well as due to increases in base comScore head count and
annual merit increases. We also experienced a $1.6 million
increase in bonus expense due to our 2010 bonus program, which
includes a cash component; our 2009 plan was entirely equity
based. Commission expense increased $1.3 million due to
higher sales volume in 2010 as compared to 2009. In addition, we
experienced a $2.0 million increase in travel expenses due
to our 2010 sales meeting as well as the increase in customers,
our internal headcount and the frequency of international
travel. This increase was also due to a $1.6 million
increase in stock-based compensation due to continued use of
equity compensation as part of our compensation program. Also,
due to the overall increase in rent and depreciation costs, we
experienced a $731,000 increase in the amount of these costs
allocated to selling and marketing expenses for the year ended
December 31, 2010. We also experienced a $725,000 increase
in third party related costs due to increased usage of third
party
57
resellers. Marketing and general office expenses increased
$682,000 due to an increase in events, conferences and due and
subscriptions related to our industry. Included within total
selling and marketing expenses for the year ended
December 31, 2010 was approximately $10.7 million
related to the businesses that were acquired during the year
ended December 31, 2010 and the fourth quarter of 2009.
Selling and marketing expenses increased as a percentage of
revenues during 2010 as compared to 2009 due to expansion of
sales and marketing activities in the U.S. and internationally.
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.
Research
and Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Research and development
|
|
$
|
26,377
|
|
|
$
|
17,827
|
|
|
$
|
14,832
|
|
|
$
|
8,550
|
|
|
$
|
2,995
|
|
|
|
48.0
|
%
|
|
|
20.2
|
%
|
As a percentage of revenues
|
|
|
15.0
|
%
|
|
|
14.0
|
%
|
|
|
12.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $8.6 million
during the year ended December 31, 2010 as compared to the
year ended December 31, 2009. This increase was due to a
$5.3 million increase in employee salaries, benefits and
related costs associated with the increase in headcount and our
continued focus on developing new products. The increase
included a $757,000 increase in stock-based compensation during
the year ended December 31, 2010 as compared to the prior
year, due to our continued use of equity compensation as part of
our compensation program. In addition, to support our
development of new products and the integration of acquired
businesses, we experienced increases of $998,000 and $579,000 in
our systems and maintenance costs related to computer hardware
and software and costs paid to outsourced service providers,
respectively. In addition, there was a $491,000 increased
allocation of overhead costs such as rent due to the increased
headcount and size of our research and development functions.
Travel expenses also increased $320,000 due to the integration
of the acquired businesses and increased international travel.
Approximately $3.7 million of research and development
expense for the year ended December 31, 2010 was related to
the businesses that were acquired during the year ended
December 31, 2010 and during the fourth quarter of 2009,
and the components of such are included in the foregoing
discussion.. Research and development costs increased as a
percentage of revenues for the year ended December 31, 2010
as compared to 2009 due to our investments in new product
initiatives relative to our growth in revenues.
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
58
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.
General
and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
33,953
|
|
|
$
|
18,232
|
|
|
$
|
16,785
|
|
|
$
|
15,721
|
|
|
$
|
1,447
|
|
|
|
86.2
|
%
|
|
|
8.6
|
%
|
As a percentage of revenues
|
|
|
19.4
|
%
|
|
|
14.3
|
%
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
$15.7 million during the year ended December 31, 2010
as compared to the year ended December 31, 2009. The
increase was due to a $5.3 million increase in stock-based
compensation during the year ended December 31, 2010 as
compared to the prior year. Of this increase, $3.6 million
was due to the market-based stock options granted to key
executives during the second quarter of 2010, and
$1.7 million was due to our continued use of equity
compensation as part of our compensation program. The increase
was also due to a $5.2 million increase in professional
fees and outside services, which includes $1.9 million for
professional services such as legal and tax services associated
with our acquisition related activities, $1.9 million for
other required accounting, legal and general consulting services
to meet the needs of our expanding business, $1.2 million
for non-capitalizable consulting services and internal software
implementation projects and $231,000 due to recruiting and
relocation related fees associated with expanding our general
and administrative departments to support the Companys
growth. In addition, employee salaries, benefits and related
costs increased $2.6 million due to ARSgroup, Nexius and
Nedstat acquisitions as well as comScore head count and annual
merit increases. We also experienced an increase in bonus
expense of $316,000 due to our 2010 bonus program which includes
a cash component; the 2009 plan was entirely equity based. In
addition, we incurred $862,000 in severance payments during the
year ended December 31, 2010. Also, due to increased
headcount and business acquisitions general facility and
overhead related expenses increased $216,000 during the year
ended December 31, 2010 as compared to the prior year.
Included within total general and administrative expenses for
the year ended December 31, 2010 was approximately
$4.0 million related to the businesses that were acquired
during the year ended December 31, 2010 and during the
fourth quarter of 2009. General and administrative expenses
increased as a percentage of revenues during 2010 as compared to
2009 due to increases in general and administrative expenses
relative to revenue growth.
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.
59
Amortization
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Amortization expense
|
|
$
|
4,534
|
|
|
$
|
1,457
|
|
|
$
|
804
|
|
|
$
|
3,077
|
|
|
$
|
653
|
|
|
|
211.2
|
%
|
|
|
81.2
|
%
|
As a percentage of revenues
|
|
|
2.6
|
%
|
|
|
1.1
|
%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense consists of charges related to the
amortization of intangible assets associated with acquisitions.
Amortization expense increased $3.1 million during the year
ended December 31, 2010 as compared to the year ended
December 31, 2009 due to additional amortization of
intangible assets that were acquired during 2010 and the fourth
quarter of 2009 in connection with our acquisitions of ARSgroup,
Nexius, Nedstat and Certifica.
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.
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, 2010
was $7,000 as compared to $501,000 for the year ended
December 31, 2009. The decrease of $494,000 during 2010 was
due to a $265,000 decrease in interest income as a result of
lower cash balances as a result of the acquisitions of ARSgroup,
Nexius and Nedstat during 2010. In addition, our interest
expense increased $229,000 due to our increased use of capital
leases during 2010. Our cash, cash equivalents and investments
decreased by $54.4 million to $36.6 million at
December 31, 2010 due to acquisition activities.
Interest income, net for the year ended December 31, 2009
was $501,000 as compared to $1.9 million for the year ended
December 31, 2008. The decrease of $1.4 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.
Included in Interest and other income, net, was a $109,000 loss
for fixed asset disposals for the year ended December 31,
2009.
Loss
From Foreign Currency
The functional currency of our foreign subsidiaries is the local
currency. All assets and liabilities are translated at the
current exchange rates as of the end of the period, and revenues
and expenses are translated at average rates in effect during
the period. The gain or loss resulting from the process of
translating the foreign currency financial statements into
U.S. dollars is included as a component of other
comprehensive (loss) income.
We recorded a transaction loss of $347,000 during the year ended
December 31, 2010 as compared to a transaction loss of
$132,000 during the year ended December 31, 2009 due to our
increased international presence in Europe and Latin America.
Our foreign currency transactions are recorded as a result of
fluctuations in the
60
exchange rate between the U.S. dollar and the British
Pound, Euro, and the functional currencies of our Latin America
entities.
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 transaction loss of $132,000 as compared to a
transaction 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.
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 years
ending December 31, 2010 and 2009. 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, 2010, we had federal and state net
operating loss carryforwards for tax purposes of approximately
$51.9 million and $37.3 million, respectively. These
net operating loss carryforwards begin to expire in 2022 for
federal income tax purposes and begin to expire in 2016 for
state income tax 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 impact
our ability to utilize all of our net operating losses prior to
their expiration. For the year ended December 31, 2010, the
tax provision is comprised of U.S. income tax expense of
$602,000 related to our federal alternative minimum tax and
state tax liabilities, $1.2 million of foreign income tax
expense, and deferred tax benefit of approximately
$1.9 million related primarily to the reduction of our
valuation allowance.
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 2021 for federal and begin to expire in 2014
for state income tax reporting purposes. 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.
61
Liquidity
and Capital Resources
The following table summarizes our cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Consolidated Cash Flow Data
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
25,410
|
|
|
$
|
25,031
|
|
|
$
|
32,989
|
|
Net cash (used in) provided by investing activities
|
|
|
(44,023
|
)
|
|
|
8
|
|
|
|
(64,405
|
)
|
Net cash used in financing activities
|
|
|
(6,083
|
)
|
|
|
(1,715
|
)
|
|
|
(1,138
|
)
|
Effect of exchange rate changes on cash
|
|
|
148
|
|
|
|
663
|
|
|
|
(1,517
|
)
|
Net (decrease) increase in cash and equivalents
|
|
|
(24,548
|
)
|
|
|
23,987
|
|
|
|
(34,071
|
)
|
Our principal uses of cash historically have consisted of cash
paid for business acquisitions, payroll and other operating
expenses and payments related to the investments in equipment
primarily to support our consumer panel and technical
infrastructure required to support our customer base. As of
December 31, 2010, our principal sources of liquidity
consisted of $33.7 million in cash, which represents cash
generated from operating activities. As of December 31,
2010, we held $2.8 million in long-term investments
consisting of four separate auction rate securities with an
original 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 limited our ability to liquidate our
holdings of auction rate securities, as there have been no
auctions for these securities in 2010 or 2009.
The four 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. During the year ended December 31, 2009 we
recorded a $429,000 unrealized gain related to these securities.
Based on our current fair value estimate as of December 31,
2010, we recorded an additional $10,000 unrealized gain. The net
unrealized gain of $439,000 is included in Accumulated other
comprehensive income within our Consolidated Balance Sheets
included in Part II, Item 8 of this Annual Report on
form 10-K.
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 Sheets
included in Part II, Item 8 of this Annual Report on
form 10-KQ.
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.
During the fourth quarter of 2009, we sold one auction rate
security, via a tender offer, and recorded a realized gain of
$89,000.
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 $25.4 million of net cash from
operating activities during the year ended December 31,
2010. Our cash flows from operations was driven by our net loss
of $1.6 million, as adjusted for $30.2 million in
non-cash charges such as depreciation, amortization, provision
for bad debts, stock-based compensation, deferred rent and bond
premium amortization, and a $1.9 million non-cash deferred
tax benefit. At the same time, our cash flows from operations
were negatively impacted by a $4.5 million increase in
prepaid expenses and other assets due to an increase in advanced
payments to vendors for annual maintenance agreements and
estimated quarterly income tax payments. This was partially
offset by a positive impact of $2.9 million due to an
increase in accounts payable and accrued expenses in 2010 due to
the timing of payments to vendors.
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
62
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.
Investing
Activities
Our primary regularly recurring investing activities have
consisted of purchases of computer network equipment to support
our Internet user panel and maintenance of our database,
furniture and equipment to support our operations, purchases and
sales of marketable securities, and payments related to the
acquisition of several companies. As our customer base continues
to expand, we expect purchases of technical infrastructure
equipment to grow in absolute dollars. The extent of these
investments will be affected by our ability to expand
relationships with existing customers, grow our customer base,
introduce new digital formats and increase our international
presence.
We used $44.0 million of cash during the year ended
December 31, 2010 for investing activities. We used
$68.9 million, net of cash acquired, to purchase ARSgroup,
Nexius and Nedstat. In addition, we used $5.1 million to
purchase property and equipment to maintain and expand our
technology and infrastructure. Of this amount $424,000 was
funded through landlord allowances received in connection with
our Toronto office lease. These cash outflows were offset by a
net $30.0 million generated from sale and maturity of
investments.
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 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 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 $6.1 million of cash during the year ended
December 31, 2010 for financing activities. This included
$5.5 million for shares repurchased by us pursuant to the
exercise by stock incentive plan participants of their right
63
to elect to use common stock to satisfy their tax withholding
obligations. In addition we used $1.7 million to make
payments on our capital lease obligations. These cash outflows
were offset by $989,000 in proceeds from the exercise of our
common stock options and warrants and a $128,000 excess tax
benefit from the exercise of stock options.
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 do not have any special purpose entities and we do not engage
in off-balance sheet financing arrangements.
Contractual
Obligations and Known Future Cash Requirements
Set forth below is information concerning our known contractual
obligations as of December 31, 2010 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
|
|
$
|
13,467
|
|
|
$
|
5,155
|
|
|
$
|
8,312
|
|
|
$
|
|
|
|
$
|
|
|
Operating lease obligations
|
|
|
41,750
|
|
|
|
6,618
|
|
|
|
11,086
|
|
|
|
10,433
|
|
|
|
13,613
|
|
Purchase price obligations
|
|
|
510
|
|
|
|
510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
55,727
|
|
|
$
|
12,283
|
|
|
$
|
19,398
|
|
|
$
|
10,433
|
|
|
$
|
13,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our principal lease commitments consist of obligations under
leases for office space, computer and telecommunications
equipment and automobiles. In addition, we financed the purchase
of some of our computer equipment and software under a capital
lease arrangement over a period of approximately 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 and Nedstat acquisitions, 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, 2010, we are
unable to make reasonably reliable estimates of the period of
cash settlement with the respective taxing authorities.
Therefore, $2.4 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 November 2010, we increased our lease financing arrangement
with Banc of America Leasing & Capital, LLC to
$15.0 million. This arrangement has been established to
allow us to finance the purchase of new software, hardware and
other computer equipment as we expand our technology
infrastructure in support of our business growth. During 2010
and 2009, we utilized approximately $9.6 million and
$1.1 million, respectively, of this line of credit to
finance computer equipment and software. These leases bear an
interest rate of approximately 5% per annum. The base terms for
these leases range from three years to three and half years and
include a nominal charge in the event of prepayment. The lease
payments total approximately $3.7 million per annum. Assets
acquired under the equipment lease secure the obligations.
In November 2010, we extended our $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, through February 28, 2011. On February 25,
2011, we further extended our $5.0 million revolving line
of credit with Bank of America through
64
May 31, 2011. This line of credit includes no restrictive
financial covenants. We maintain letters of credit in lieu of
security deposits with respect to certain office leases. During
the year ended December 31, 2010, five letters of credit
were reduced by approximately $646,000. As of December 31,
2010, no amounts were borrowed against the line of credit and
$3.3 million of letters of credit were outstanding, leaving
$1.7 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.
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.
Off-Balance
Sheet Arrangements
We had no off-balance sheet arrangements as of December 31,
2010 and 2009.
|
|
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, 2010, our cash
reserves were maintained in bank deposit accounts and auction
rate securities totaling $36.6 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, in markets such as
Latin American and Europe, 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, 2010, our principal sources of liquidity
consisted of $33.7 million of cash. The cash is 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, 2010, our interest income would have declined
approximately $28,000, assuming consistent investment levels.
65
Auction
Rate Securities and Liquidity Risk
As of December 31, 2010, our principal sources of liquidity
consisted of $33.7 million in cash which represents cash
generated from operations. As of December 31, 2010, 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 2010.
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 $439,000 as of
December 31, 2010. The unrealized gain is included in Other
comprehensive income within the consolidated 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.
66
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
comScore, Inc. consolidated financial statements
|
|
|
|
|
|
|
|
68
|
|
|
|
|
69
|
|
|
|
|
70
|
|
|
|
|
71
|
|
|
|
|
72
|
|
|
|
|
73
|
|
67
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, 2010 and
2009, and the related consolidated statements of operations and
comprehensive income, stockholders equity, and cash flows
for each of the three years in the period ended
December 31, 2010. 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, 2010
and 2009, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2010, 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, 2010, 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 15, 2011 expressed an unqualified
opinion thereon.
McLean, Virginia
March 15, 2011
68
COMSCORE,
INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
33,736
|
|
|
$
|
58,284
|
|
Short-term investments
|
|
|
|
|
|
|
29,833
|
|
Accounts receivable, net of allowances of $725 and $510,
respectively
|
|
|
54,269
|
|
|
|
34,922
|
|
Prepaid expenses and other current assets
|
|
|
8,391
|
|
|
|
2,324
|
|
Deferred tax asset
|
|
|
6,701
|
|
|
|
11,056
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
103,097
|
|
|
|
136,419
|
|
Long-term investments
|
|
|
2,819
|
|
|
|
2,809
|
|
Property and equipment, net
|
|
|
28,637
|
|
|
|
17,302
|
|
Other non-current assets
|
|
|
733
|
|
|
|
193
|
|
Deferred tax asset, long-term
|
|
|
11,316
|
|
|
|
10,057
|
|
Intangible assets, net
|
|
|
50,260
|
|
|
|
8,745
|
|
Goodwill
|
|
|
86,217
|
|
|
|
42,014
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
283,079
|
|
|
$
|
217,539
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,588
|
|
|
$
|
2,009
|
|
Accrued expenses
|
|
|
15,297
|
|
|
|
7,751
|
|
Deferred revenues
|
|
|
70,611
|
|
|
|
48,046
|
|
Deferred rent
|
|
|
941
|
|
|
|
1,231
|
|
Deferred tax liability
|
|
|
132
|
|
|
|
12
|
|
Capital lease obligations
|
|
|
4,659
|
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
97,228
|
|
|
|
59,409
|
|
Deferred rent, long-term
|
|
|
8,019
|
|
|
|
8,210
|
|
Deferred tax liability, long-term
|
|
|
744
|
|
|
|
119
|
|
Capital lease obligations, long-term
|
|
|
7,959
|
|
|
|
674
|
|
Other long-term liabilities
|
|
|
3,297
|
|
|
|
1,188
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
117,247
|
|
|
|
69,600
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 5,000,000 shares
authorized at December 31, 2010 and 2009; no shares issued
or outstanding at December 31, 2010 and 2009
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share;
100,000,000 shares authorized at December 31, 2010 and
2009; 31,523,559 and 30,385,590 shares issued and
outstanding at December 31, 2010 and 2009, respectively
|
|
|
32
|
|
|
|
30
|
|
Additional paid-in capital
|
|
|
216,895
|
|
|
|
199,270
|
|
Accumulated other comprehensive income
|
|
|
2,166
|
|
|
|
324
|
|
Accumulated deficit
|
|
|
(53,261
|
)
|
|
|
(51,685
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
165,832
|
|
|
|
147,939
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
283,079
|
|
|
$
|
217,539
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
69
COMSCORE,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Revenues
|
|
$
|
174,999
|
|
|
$
|
127,740
|
|
|
$
|
117,371
|
|
Cost of revenues (excludes amortization of intangible assets
resulting from acquisitions shown below)(1)
|
|
|
51,953
|
|
|
|
38,730
|
|
|
|
34,562
|
|
Selling and marketing(1)
|
|
|
59,641
|
|
|
|
41,954
|
|
|
|
39,400
|
|
Research and development(1)
|
|
|
26,377
|
|
|
|
17,827
|
|
|
|
14,832
|
|
General and administrative(1)
|
|
|
33,953
|
|
|
|
18,232
|
|
|
|
16,785
|
|
Amortization of intangible assets resulting from acquisitions
|
|
|
4,534
|
|
|
|
1,457
|
|
|
|
804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
176,458
|
|
|
|
118,200
|
|
|
|
106,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(1,459
|
)
|
|
|
9,540
|
|
|
|
10,988
|
|
Interest income and other, net
|
|
|
53
|
|
|
|
410
|
|
|
|
1,863
|
|
Loss from foreign currency
|
|
|
(347
|
)
|
|
|
(132
|
)
|
|
|
(321
|
)
|
Gain from sale (impairment) of marketable securities
|
|
|
|
|
|
|
89
|
|
|
|
(2,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income tax benefit (provision)
|
|
|
(1,753
|
)
|
|
|
9,907
|
|
|
|
10,291
|
|
Income tax benefit (provision)
|
|
|
177
|
|
|
|
(5,938
|
)
|
|
|
14,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(1,576
|
)
|
|
$
|
3,969
|
|
|
$
|
25,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.05
|
)
|
|
$
|
0.13
|
|
|
$
|
0.88
|
|
Diluted
|
|
$
|
(0.05
|
)
|
|
$
|
0.13
|
|
|
$
|
0.83
|
|
Weighted-average number of shares used in per share
calculation common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
31,070,018
|
|
|
|
30,014,085
|
|
|
|
28,691,216
|
|
Diluted
|
|
|
31,070,018
|
|
|
|
30,970,642
|
|
|
|
30,232,714
|
|
(1) Amortization of stock-based compensation is included in the
line items above as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
1,494
|
|
|
$
|
1,186
|
|
|
$
|
861
|
|
Selling and marketing
|
|
|
6,217
|
|
|
|
4,617
|
|
|
|
2,611
|
|
Research and development
|
|
|
1,868
|
|
|
|
1,111
|
|
|
|
706
|
|
General and administrative
|
|
|
8,195
|
|
|
|
2,942
|
|
|
|
2,296
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(1,576
|
)
|
|
$
|
3,969
|
|
|
$
|
25,186
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency cumulative translation adjustment
|
|
|
1,847
|
|
|
|
829
|
|
|
|
(1,132
|
)
|
Unrealized (loss) gain on marketable securities
|
|
|
(5
|
)
|
|
|
337
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
266
|
|
|
$
|
5,135
|
|
|
$
|
24,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
70
COMSCORE,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Stock
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Stockholders
|
|
|
Equity
|
|
|
|
(In thousands, except share data)
|
|
|
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
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,576
|
)
|
|
|
(1,576
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,847
|
|
|
|
|
|
|
|
1,847
|
|
Unrealized loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
Common stock issued in conjunction with acquisitions
|
|
|
216,115
|
|
|
|
|
|
|
|
|
|
|
|
3,651
|
|
|
|
|
|
|
|
|
|
|
|
3,651
|
|
Exercise of common stock options
|
|
|
308,118
|
|
|
|
|
|
|
|
|
|
|
|
988
|
|
|
|
|
|
|
|
|
|
|
|
988
|
|
Issuance of restricted stock, net
|
|
|
992,879
|
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units vested
|
|
|
88,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock received for tax withholding
|
|
|
(325,526
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(5,473
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,472
|
)
|
Restricted stock canceled
|
|
|
(142,176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefit from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
128
|
|
Amortization of stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,332
|
|
|
|
|
|
|
|
|
|
|
|
18,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
31,523,559
|
|
|
$
|
32
|
|
|
$
|
|
|
|
$
|
216,895
|
|
|
$
|
2,166
|
|
|
$
|
(53,261
|
)
|
|
$
|
165,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
71
COMSCORE,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(1,576
|
)
|
|
$
|
3,969
|
|
|
$
|
25,186
|
|
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
8,422
|
|
|
|
6,544
|
|
|
|
4,977
|
|
Amortization of intangible assets resulting from acquisitions
|
|
|
4,534
|
|
|
|
1,457
|
|
|
|
798
|
|
Provisions for bad debts
|
|
|
167
|
|
|
|
290
|
|
|
|
594
|
|
Stock-based compensation
|
|
|
17,773
|
|
|
|
9,849
|
|
|
|
6,482
|
|
Deferred tax (benefit) provision
|
|
|
(1,938
|
)
|
|
|
5,096
|
|
|
|
(15,386
|
)
|
Gain on sale (impairment) of marketable securities
|
|
|
|
|
|
|
(89
|
)
|
|
|
2,239
|
|
Amortization of deferred rent
|
|
|
(906
|
)
|
|
|
(632
|
)
|
|
|
(126
|
)
|
Amortization of bond premium
|
|
|
188
|
|
|
|
610
|
|
|
|
730
|
|
Loss on asset disposal
|
|
|
13
|
|
|
|
139
|
|
|
|
50
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(15,101
|
)
|
|
|
(4,491
|
)
|
|
|
(6,581
|
)
|
Prepaid expenses and other current assets
|
|
|
(4,492
|
)
|
|
|
28
|
|
|
|
343
|
|
Accounts payable, accrued expenses, and other liabilities
|
|
|
2,854
|
|
|
|
(2,908
|
)
|
|
|
(1,838
|
)
|
Deferred revenues
|
|
|
15,064
|
|
|
|
4,838
|
|
|
|
6,124
|
|
Deferred rent
|
|
|
408
|
|
|
|
331
|
|
|
|
9,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
25,410
|
|
|
|
25,031
|
|
|
|
32,989
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of business, net of cash acquired
|
|
|
(68,880
|
)
|
|
|
(1,296
|
)
|
|
|
(44,638
|
)
|
Purchase of investments
|
|
|
|
|
|
|
(50,197
|
)
|
|
|
(92,288
|
)
|
Sale and maturity of investments
|
|
|
29,976
|
|
|
|
57,973
|
|
|
|
85,388
|
|
Purchase of property and equipment
|
|
|
(5,119
|
)
|
|
|
(6,472
|
)
|
|
|
(14,252
|
)
|
Recovery of restricted cash
|
|
|
|
|
|
|
|
|
|
|
1,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(44,023
|
)
|
|
|
8
|
|
|
|
(64,405
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of common stock options and warrants
|
|
|
988
|
|
|
|
922
|
|
|
|
1,027
|
|
Repurchase of common stock
|
|
|
(5,472
|
)
|
|
|
(1,573
|
)
|
|
|
(1,265
|
)
|
Excess tax benefits from exercise of stock options
|
|
|
128
|
|
|
|
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(1,727
|
)
|
|
|
(1,064
|
)
|
|
|
(900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(6,083
|
)
|
|
|
(1,715
|
)
|
|
|
(1,138
|
)
|
Effect of exchange rate changes on cash
|
|
|
148
|
|
|
|
663
|
|
|
|
(1,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(24,548
|
)
|
|
|
23,987
|
|
|
|
(34,071
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
58,284
|
|
|
|
34,297
|
|
|
|
68,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
33,736
|
|
|
$
|
58,284
|
|
|
$
|
34,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
296
|
|
|
$
|
63
|
|
|
$
|
122
|
|
Net income tax paid
|
|
$
|
1,340
|
|
|
$
|
1,615
|
|
|
$
|
325
|
|
Supplemental noncash investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations incurred
|
|
$
|
12,309
|
|
|
$
|
1,121
|
|
|
$
|
|
|
Leasehold improvements acquired through lease incentives
|
|
$
|
424
|
|
|
$
|
333
|
|
|
$
|
9,397
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
72
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
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 more than two million Internet users worldwide who
have granted to the Company explicit permission to
confidentially measure their Internet usage patterns, online and
certain offline buying behavior and other activities. For
measuring and reporting online audiences, comScore also
supplements panel information with Web site server metrics. 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. 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. Also, with key
acquisitions, the Company has expanded its abilities to provide
its customers a more robust solution for the mobile medium as
well as expanded its abilities to provide its customers with
actionable information to improve their creative and strategic
messaging. Acquisitions have also enabled the Company to expand
its geographic sales coverage.
|
|
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.
Within the consolidated balance sheets for the year ended
December 31, 2009 $12,000 and $119,000 has been
reclassified from deferred tax asset and deferred tax asset,
long-term, respectively, to deferred tax liability and deferred
tax liability, long-term, respectively. Also within the
consolidated balance sheets $619,000 and $94,000 has been
reclassified from accrued expenses and deferred revenues,
respectively, to other long-term liabilities for the year ended
December 31, 2009. In addition, within the deferred tax
schedule (see Note 9) $2.5 million has been
reclassified from deferred tax assets to deferred tax
liabilities for the year ended December 31, 2009 to conform
with the current year presentation.
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.
73
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
Value Measurements
The Company evaluates the fair value of certain assets and
liabilities using the fair value hierarchy. 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 marketable securities 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, prepaid
expenses and other assets, accounts payable, accrued expenses,
deferred revenue, deferred rent and capital lease obligations
reported in the consolidated balance sheets equal or approximate
their respective fair values.
Assets and liabilities that are measured at fair value on a
non-recurring basis include fixed assets, intangible assets and
goodwill. The Company recognizes these items at fair value when
they are considered to be impaired. During the years ended
December 31, 2010 and 2009, there were no fair value
adjustments for assets and liabilities measured on a
non-recurring basis.
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. As of December 31, 2010 and 2009, the
Company had amounts in certain financial institutions that
exceed the FDIC insurance coverage.
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. Realized gains and losses for the years ended
December 31, 2010 and 2009 were not material.
Interest income on investments was $303,000, $568,000 and
$2.0 million for the years ended December 31, 2010,
2009 and 2008, respectively.
74
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
The following is a summary of activities in the allowance for
doubtful accounts for the fiscal years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Allowance for Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(510
|
)
|
|
$
|
(479
|
)
|
|
$
|
(234
|
)
|
Additions
|
|
|
(167
|
)
|
|
|
(290
|
)
|
|
|
(602
|
)
|
Reductions, (recoveries) and write-offs
|
|
|
(48
|
)
|
|
|
259
|
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
(725
|
)
|
|
$
|
(510
|
)
|
|
$
|
(479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Consolidated
Statement of Operations and Comprehensive Income in which the
asset is deployed.
Business
Combinations
The Company recognizes all of the assets acquired, liabilities
assumed, contractual contingencies, and contingent consideration
at their fair value on the acquisition date. Acquisition-related
costs are recognized separately from the acquisition and
expensed as incurred. Generally, restructuring costs incurred in
periods subsequent to the acquisition date are expensed when
incurred. All subsequent changes to a valuation allowance or
uncertain tax position that relate to the acquired company and
existed at the acquisition date that occur both within the
measurement period and as a result of facts and circumstances
that existed at the acquisition date are recognized as an
adjustment to goodwill. All other changes in the valuation
allowance are recognized as a reduction or increase to income
tax expense or as a direct adjustment to additional paid-in
capital as required. Acquired in-process research and
development is capitalized as an intangible asset and amortized
over its estimated useful life.
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
75
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 income approach to value trade names
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 2009 and determined that there was no
impairment of goodwill. The Company completed its annual
impairment analysis as of October 1st for each of
2010, 2009 and 2008 and determined that there was no impairment
of goodwill.
Intangible assets with finite lives are amortized using the
straight-line method over the following useful lives:
|
|
|
|
|
Useful
|
|
|
Lives
|
|
|
(Years)
|
|
Acquired methodologies/technology
|
|
3 to 10
|
Customer relationships
|
|
7 to 12
|
Panel
|
|
7
|
Intellectual property
|
|
10
|
Tradenames
|
|
2 to 10
|
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 group, the Company records an impairment loss equal
to the excess of the asset groups 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, 2010, 2009 and 2008.
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
76
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
improvements funded by landlord incentives or allowances are
recorded as leasehold improvement assets and a deferred rent
liability which is amortized as a reduction of rent expense over
the term of the lease.
The Company records capital leases as an asset and an obligation
at an amount equal to the present value of the minimum lease
payments as determined at the beginning of the lease term.
Amortization of capitalized leased assets is computed on a
straight-line basis over the term of the lease and is included
in depreciation and amortization expense in the Consolidated
Statements of Operations and Comprehensive Income.
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 Accumulated other comprehensive income.
The Company incurred foreign currency transaction losses of
$347,000, $132,000, and $321,000 for the years ended
December 31, 2010, 2009 and 2008, respectively. The losses
are the result of transactions denominated in currencies other
than the functional currency of the Companys foreign
subsidiaries.
Accumulated
Other Comprehensive Income
The following summary sets forth the components of accumulated
other comprehensive income, net of tax, in stockholders
equity:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Foreign currency translation gain (loss)
|
|
$
|
1,727
|
|
|
$
|
(120
|
)
|
Unrealized gain on marketable securities
|
|
|
439
|
|
|
|
444
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$
|
2,166
|
|
|
$
|
324
|
|
|
|
|
|
|
|
|
|
|
Operating
Segment Information
The Company has concluded that it has one operating segment
based on the fact that its Chief Executive Officer, who is also
its chief operating decision maker, continues to evaluate
performance and make operating decisions based on consolidated
financial data. Additionally, there are no managers who are held
accountable by the chief operating decision maker, or anyone
else, for an operating measure of profit or loss for any
operating unit below the consolidated unit level.
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 is
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
77
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
reporting. Revenues are recognized on a straight-line basis over
the estimated data collection period once the survey
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 either subscriptions to multiple online
product solutions or 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 there is not
objective and reliable evidence of fair value for any of its
services and, therefore, accounts 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 the commencement of the subscription element. 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 deliverable. The Company evaluates contemporaneous
arrangements to determine whether they should be combined or
treated separately under the relevant accounting literature.
Generally, contracts are non-refundable and non-cancelable. In
the event a portion of a contract is refundable, revenue
recognition is delayed until the refund provisions lapse. A
limited number of customers have the right to cancel their
contracts by providing a written notice of cancellation. In the
event that a customer cancels its contract, the customer is not
entitled to a refund for prior services, and will be charged for
costs incurred plus services performed up to the cancellation
date.
Advance payments are recorded as deferred revenues until
services are delivered or obligations are met and revenue can be
recognized. Deferred revenues represent the excess of amounts
invoiced over amounts recognized as revenues.
On July 1, 2010, the Company completed its acquisition of
Nexius, resulting in additional revenue sources, including
software licenses, professional services (including software
customization implementation, training and consulting services),
and maintenance and technical support contracts. The
Companys arrangements generally contain multiple elements,
consisting of the various service offerings. The Company
recognizes software license arrangements that include
significant modification and customization of the software in
accordance with Financial Accounting Standards Board Accounting
Standards Codification (ASC)
985-605,
Software Recognition and
ASC 605-35,
Revenue Recognition-Construction-Type and Certain
Production-Type Contracts, typically using the completed
contract method. The Company currently does not have vendor
specific objective evidence (VSOE) for the multiple
deliverables and accounts for all elements in these arrangements
as a single unit of accounting, recognizing the entire
arrangement fee as revenue over the service period of the last
delivered element. During the period of performance, billings
and costs (to the extent they are recoverable) are accumulated
on the balance sheet, but no profit or income is recorded before
user acceptance of the software license. To the extent estimated
costs are expected to exceed revenue the Company accrues for
costs immediately.
Revenues for the year ended December 31, 2010 included
$171.6 million for service arrangements and
$3.4 million for software arrangements.
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 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.
78
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
Deferred contract costs represents incremental direct costs paid
to a third party and the internal costs of employees directly
related to the delivery of an item that cannot be accounted for
separately from the undelivered items for certain of the
Companys significantly customized software sales or other
long-term in nature projects. These costs are recognized as cost
of revenues ratably over the same period that deferred revenue
is recognized as revenues. The Company analyzes the
recoverability of these costs each reporting period.
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, 2010, 2009 and 2008, one
customer accounted for approximately 11%, 12% and 12%,
respectively, of total revenues. As of December 31, 2010
and 2009, no one customer accounted for more than 10% of
accounts receivable.
Advertising
Costs
All advertising costs are expensed as incurred. Advertising
expense, which is included in sales and marketing expense,
totaled $220,000, $216,000 and $298,000 for the years ended
December 31, 2010, 2009 and 2008, respectively.
Stock-Based
Compensation
The Company estimates the fair value of share-based awards on
the date of grant. The fair value of stock options is determined
using the Black-Scholes option-pricing model. The fair value of
market-based stock options
79
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and restricted stock units is determined using a Monte Carlo
simulation embedded in a lattice model. The fair value of
restricted stock awards is based on the closing price of the
Companys common stock on the date of grant. The
determination of the fair value of the Companys stock
option awards and restricted stock awards is based on a variety
of factors including, but not limited to, the Companys
common stock price, expected stock price volatility over the
expected life of awards, and actual and projected exercise
behavior. Additionally, the Company has estimated forfeitures
for share-based awards at the dates of grant based on historical
experience, adjusted for future expectation. The forfeiture
estimate is revised as necessary if actual forfeitures differ
from these estimates.
The Company issues restricted stock awards where restrictions
lapse upon either the passage of time (service vesting),
achieving performance targets, or some combination of these
restrictions. For those restricted stock awards with only
service conditions, the Company recognizes compensation cost on
a straight-line basis over the explicit service period. For
awards with both performance and service conditions, the Company
starts recognizing compensation cost over the remaining service
period, when it is probable the performance condition will be
met. For stock awards that contain performance or market vesting
conditions, the Company excludes these awards from diluted
earnings per share computations until the contingency is met as
of the end of that reporting period.
Income
Taxes
Income taxes are accounted for using the asset and liability
method. Deferred income taxes are provided for temporary
differences in recognizing certain income, expense and credit
items for financial reporting purposes and tax reporting
purposes. Such deferred income taxes primarily relate to the
difference between the tax bases of assets and liabilities and
their financial reporting amounts. Deferred tax assets and
liabilities are measured by applying enacted statutory tax rates
applicable to the future years in which deferred tax assets or
liabilities are expected to be settled or realized.
The Company records a valuation allowance when it determines,
based on available positive and negative evidence, that it is
more likely than not that some portion or all of its deferred
tax assets will not be realized. The Company determines the
realizability of its deferred tax assets primarily based on
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.
The Company recognizes tax positions using a
more-likely-than-not threshold based on the technical merits of
the tax position taken. Tax positions that meet the
more-likely-than-not recognition threshold are measured at the
largest amount of tax benefits determined on a cumulative
probability basis, which are more likely than not to be realized
upon ultimate settlement in the financial statements. The
Companys policy is to recognize interest and penalties
related to income tax matters in income tax expense.
Earnings
Per Share
Basic net (loss) income per common share excludes dilution for
potential common stock issuances and is computed by dividing net
(loss) income by the weighted-average number of common shares
outstanding for the period. Diluted net (loss) income per common
share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were
exercised or converted into common stock.
80
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table provides a reconciliation of the numerators
and denominators used in computing basic and diluted net (loss)
income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share data)
|
|
|
Calculation of basic and diluted net income per share :
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(1,576
|
)
|
|
$
|
3,969
|
|
|
$
|
25,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.05
|
)
|
|
$
|
0.13
|
|
|
$
|
0.88
|
|
Diluted
|
|
$
|
(0.05
|
)
|
|
$
|
0.13
|
|
|
$
|
0.83
|
|
Weighted-average shares outstanding-common stock, basic
|
|
|
31,070,018
|
|
|
|
30,014,085
|
|
|
|
28,691,216
|
|
Dilutive effect of
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
|
|
|
|
915,025
|
|
|
|
1,500,068
|
|
Unvested restricted stock units
|
|
|
|
|
|
|
32,930
|
|
|
|
22,337
|
|
Warrants to purchase common stock
|
|
|
|
|
|
|
8,602
|
|
|
|
19,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding-common stock, diluted
|
|
|
31,070,018
|
|
|
|
30,970,642
|
|
|
|
30,232,714
|
|
The dilutive effect of stock options and restricted stock units
of 802,665, 81,629 and 60,086 were not included in the
computation of diluted net (loss) income per common share for
the years ended December 31, 2010, 2009 and 2008,
respectively, as their effect would be anti-dilutive. In
addition, the dilutive effect of the shares of common stock
warrants were not included in the computation of diluted net
(loss) income per common share for each of the years ended
December 31, 2009 and 2008, as their effect would be
anti-dilutive.
Recent
Pronouncements
In September 2009, the Financial Accounting Standards Board
(FASB) issued a new revenue accounting standards
update, Multiple-Deliverable Revenue Arrangements , which
amends the revenue guidance under the ASC Subtopic
605-25,
Multiple Element Arrangements . This update 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. This new
guidance will become effective for comScore on January 1,
2011. The Company is currently evaluating the impact that the
adoption of the new guidance will have on its consolidated
financial statements.
In January 2010, the FASB issued a new fair value accounting
standard update, Fair Value Measurements and Disclosures:
Improving Disclosures about Fair Value Measurements. This
update requires additional disclosures about (i) the
different classes of assets and liabilities measured at fair
value, (ii) the valuation techniques and inputs used,
(iii) the activity in Level 3 fair value measurements,
and (iv) the transfers between Levels 1, 2, and 3.
This update is effective for interim and annual reporting
periods beginning after December 15, 2009. The Company
adopted this guidance during the first quarter of 2010 and the
adoption of this guidance had no impact on its consolidated
results of operations and financial condition.
The Company uses its best estimates and assumptions as a part of
the purchase price allocation process to accurately value assets
acquired and liabilities assumed at the business combination
date, its estimates and assumptions are inherently uncertain and
subject to refinement. As a result, during the preliminary
purchase price
81
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
allocation period, which may be up to one year from the business
combination date, the Company records adjustments to the assets
acquired and liabilities assumed, with the corresponding offset
to goodwill. The Company records adjustments to assets acquired
or liabilities assumed subsequent to the purchase price
allocation period in its operating results in the period in
which the adjustments were determined. None of the goodwill is
deductible for tax purposes.
For the year ended December 31, 2010, approximately
$2.6 million of transaction related costs are included in
the Companys consolidated statements of operations as a
component of the Companys general and administrative
expenses.
Certifica
On November 11, 2009, the Company 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 resulted in goodwill of approximately
$1.9 million at the date of acquisition. 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 is consistent with
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 has finalized its purchase accounting for Certifica.
The Company has included the financial results of Certifica in
its consolidated financial statements beginning
November 11, 2009. Included in revenue for the year ended
December 31, 2010 was $2.9 million related to
Certifica.
ARSgroup
On February 19, 2010, the Company completed its acquisition
of ARSgroup (ARS), a leading technology-driven
market research firm that measures the persuasion of advertising
on TV and multi-media platforms, pursuant to the Agreement and
Plan of Acquisition dated February 10, 2010, (the ARS
Acquisition). Pursuant to the Agreement and Plan of
Acquisition, the Company acquired all of the outstanding common
stock of ARS in a cash transaction.
The ARS Acquisition resulted in goodwill of approximately
$8.1 million at the date of acquisition. This amount
represents the residual amount of the total purchase price of
$17.7 million after allocation to net assets and
indentifiable intangible assets acquired. The amount recorded
for goodwill is consistent with the Companys intentions
for the acquisition of ARS. The Company acquired ARS to provide
it with technology-driven market research capabilities for
measuring the effectiveness of advertising creative content. The
additional resources will allow the Company to create new
products and tools for designing and measuring more effective
advertising on TV, online, and cross media campaigns.
Definite-lived intangible assets of $9.5 million consist of
the value assigned to ARSs methodology and database,
customer relationships and trade name of $4.1 million,
$4.1 million and $1.3 million, respectively. The
useful lives range from two to ten years (see Note 2).
82
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
ARS made an Internal Revenue Code section 338(h)(10)
election with respect to the acquisition transaction. With such
an election, the Company has fair market value basis in the ARS
assets and liabilities for both income tax and financial
reporting purposes and no opening deferred tax balances. The
Company is in the process of evaluating other tax related items.
The Company has included the financial results of ARS in its
consolidated financial statements beginning February 19,
2010. Included in revenue for the year ended December 31,
2010 was$18.1 million related to ARS.
Nexius,
Inc.
On July 1, 2010, the Company completed its acquisition of
Nexius, a leading a provider of carrier-grade mobile network
analysis and intelligence solutions, pursuant to a Stock
Purchase Agreement dated July 1, 2010 (the Nexius
Acquisition).
The aggregate amount of the consideration paid by the Company
upon the closing of the transaction was $20.9 million, of
which approximately $3.0 million was paid in cash to
satisfy certain of Nexiuss existing debt obligations.
Following payment of transaction expenses, the remaining
estimated merger consideration of $15.3 million in cash and
an aggregate of 158,070 shares of the Companys common
stock valued at $2.6 million was paid to the Nexius
shareholders and holders of certain Nexius equity rights.
The Nexius Acquisition resulted in goodwill of approximately
$14.0 million at the date of acquisition. This amount
represents the residual amount of the total purchase price after
allocation to net assets and indentifiable intangible assets
acquired. The amount recorded for goodwill is consistent with
the Companys intentions for the acquisition of Nexius. The
Company acquired Nexius to solidify it as a leader in the mobile
category.
Definite-lived intangible assets of $17.1 million consist
of the value assigned to Nexiuss customer relationships,
core technology and trade name of $14.5 million,
$1.6 million and $1.0 million respectively. The useful
lives range from two to twelve years (see Note 2).
The Company is in the process of evaluating the opening balance
sheet liabilities and other tax related items and may continue
to adjust the preliminary purchase price allocation after
obtaining more information about asset valuations and
liabilities assumed. The Company has included the financial
results of Nexius in its consolidated financial statements
beginning July 1, 2010. Included in revenue for the year
ended December 31, 1010 was $3.4 million related to
Nexius.
83
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The preliminary purchase price is allocated as follows (in
thousands):
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4
|
|
Accounts receivable
|
|
|
484
|
|
Prepaid expenses and other current assets
|
|
|
57
|
|
Deferred tax asset
|
|
|
1,172
|
|
Property and equipment
|
|
|
290
|
|
Accounts payable
|
|
|
(1,375
|
)
|
Other accrued liabilities
|
|
|
(463
|
)
|
Deferred revenue
|
|
|
(3,395
|
)
|
Deferred tax liability, long-term
|
|
|
(6,195
|
)
|
Other long-term liabilities
|
|
|
(776
|
)
|
|
|
|
|
|
Net tangible liabilities acquired
|
|
|
(10,197
|
)
|
Definite-lived intangible assets acquired
|
|
|
17,050
|
|
Goodwill
|
|
|
14,035
|
|
|
|
|
|
|
Total estimated purchase price
|
|
$
|
20,888
|
|
|
|
|
|
|
In connection with the preliminary purchase price allocation,
the estimated fair value of the deferred revenue assumed from
Nexius in connection with the Nexius Acquisition was determined
utilizing a cost
build-up
approach. 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.
Nedstat
B.V.
On August 31, 2010, the Company completed its acquisition
of Nedstat, a leading provider of technology that helps web
sites, particularly publishers and video companies, analyze the
behavior of their users with powerful analytic tools, pursuant
to the Stock Purchase Agreement dated August 31, 2010 (the
Nedstat Acquisition).
The aggregate amount of the consideration paid by the Company
upon the closing of the transaction was approximately
$34.4 million in cash and an aggregate of
58,045 shares of the Companys common stock valued at
$1.1 million was issued to two key shareholders of Nedstat.
The Nedstat Acquisition resulted in goodwill of approximately
$21.0 million at the date of acquisition. This amount
represents the residual amount of the total purchase price after
allocation to net assets and indentifiable intangible assets
acquired. The amount recorded for goodwill is consistent with
the Companys intentions for the acquisition of Nedstat.
The Company acquired Nedstat to help transform the Company into
a broad based Digital Business Analytics company and
solidify its Unified Digital Measurement (UDM)
platform.
Definite-lived intangible assets of $18.7 million consist
of the value assigned to Nedstats customer relationships,
core technology and trade name of $15.3 million,
$1.9 million and $1.5 million, respectively. The
useful lives range from two to seven years (see Note 2).
The Company is in the process of evaluating the opening balance
sheet liabilities and other tax related items and may continue
to adjust the preliminary purchase price allocation after
obtaining more information about asset valuations and
liabilities assumed. The Company has included the financial
results of Nedstat in its consolidated financial statements
beginning September 1, 2010. Included in revenue for the
year ended December 31, 2010 was $3.6 million related
to Nedstat.
84
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The preliminary purchase price is allocated as follows (in
thousands):
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
622
|
|
Accounts receivable
|
|
|
2,708
|
|
Prepaid expenses and other current assets
|
|
|
177
|
|
Property and equipment
|
|
|
2,279
|
|
Other long term assets
|
|
|
224
|
|
Accounts payable
|
|
|
(890
|
)
|
Deferred revenue
|
|
|
(5,434
|
)
|
Deferred tax liability
|
|
|
(160
|
)
|
Deferred tax liability, long-term
|
|
|
(584
|
)
|
Other accrued liabilities
|
|
|
(3,137
|
)
|
|
|
|
|
|
Net tangible assets acquired
|
|
|
(4,195
|
)
|
Definite-lived intangible assets acquired
|
|
|
18,669
|
|
Goodwill
|
|
|
21,018
|
|
|
|
|
|
|
Total estimated purchase price
|
|
$
|
35,492
|
|
|
|
|
|
|
In connection with the preliminary purchase price allocation,
the estimated fair value of the deferred revenue assumed from
Nedstat in connection with the Nedstat Acquisition 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.
Pro
Forma Adjusted Summary
The results of Nexius and Nedstats operations have been
included in the Consolidated Financial Statements subsequent to
the acquisition dates.
The unaudited financial information provided below summarizes
the combined results of operations of the Company and Nexius and
Nedstat on a pro forma basis, as though the companies had been
combined as of the beginning of the periods presented. The
unaudited pro forma adjusted summary combines the historical
results for the Company for the periods presented with the
historical results for Nexius and Nedstat for those same
periods. The pro forma financial information is presented for
informational purposes only and does not purport to be
indicative of the Companys financial position or results
of operations, would actually have been had such transactions
been completed as of the beginning of the periods presented, or
of the financial position or results of operations that may be
obtained in the future.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
$
|
185,779
|
|
|
$
|
151,490
|
|
Net loss
|
|
$
|
(10,158
|
)
|
|
$
|
(5,622
|
)
|
Basic loss per share to common stockholders
|
|
$
|
(0.34
|
)
|
|
$
|
(0.20
|
)
|
Diluted loss per share to common stockholders
|
|
$
|
(0.34
|
)
|
|
$
|
(0.20
|
)
|
For pro forma adjusted summary purposes, the financial impacts
of Certifica and ARS were not included as they were not
significant individually or in the aggregate.
85
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Investments
and Fair Value Measurements
|
As of December 31, 2010 and December 31, 2009, the
Company had $2.8 million in long-term investments
consisting of four separate auction rate securities with a par
value of $4.3 million.
Auction rate securities are generally long-term debt instruments
that were intended to 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.
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, 2010 and December 31, 2009. If the credit
ratings of the issuers, the bond insurers or the collateral
deteriorate further, the Company may further adjust the carrying
value of these investments.
Marketable securities, including the fair value hierarchy, which
are classified as
available-for-sale,
are summarized below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Aggregate
|
|
|
Classification on Balance Sheet
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Short-Term
|
|
|
Long-Term
|
|
|
|
Cost
|
|
|
Gain (Loss)
|
|
|
Value
|
|
|
Investments
|
|
|
Investments
|
|
|
As of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities (Level 3)
|
|
|
2,380
|
|
|
|
439
|
|
|
|
2,819
|
|
|
|
|
|
|
|
2,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,380
|
|
|
$
|
439
|
|
|
$
|
2,819
|
|
|
$
|
|
|
|
$
|
2,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Aggregate
|
|
|
Classification on Balance Sheet
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Short-Term
|
|
|
Long-Term
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Value
|
|
|
Investments
|
|
|
Investments
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury notes (Level 1)
|
|
$
|
29,810
|
|
|
$
|
23
|
|
|
$
|
29,833
|
|
|
$
|
29,833
|
|
|
$
|
|
|
Auction rate securities (Level 3)
|
|