Business Context and Reporting Period
Company: comScore, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
Business Overview: comScore provides a digital marketing intelligence platform, offering insights into consumer behavior, online property usage, and demographic characteristics via proprietary databases and a panel of over two million Internet users. The company operates globally with significant revenue derived from subscription-based products and customized projects.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2010 |
Six Months Ended June 30, 2010 |
Six Months Ended June 30, 2009 |
|---|---|---|---|
| Revenues | $41,962 | $78,101 | $61,998 |
| Net Income | $825 | $1,054 | $1,462 |
| Operating Income | $1,783 | $3,085 | $3,750 |
| Operating Margin | 4.2% | 3.9% | 6.1% |
| Net Cash from Operating Activities | N/A | $20,692 | $11,688 |
| Cash and Cash Equivalents (Balance Sheet) | $81,327 | $81,327 | $31,064 |
| Total Assets | $235,308 | $235,308 | $217,408 |
| Total Liabilities | $81,746 | $81,746 | $69,469 |
Note: The filing does not provide a specific "debt" line item for long-term borrowings; liabilities are primarily composed of deferred revenues ($51.7M) and capital lease obligations ($6.2M total).
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 33.7% year-over-year for the quarter and 26.0% for the six-month period. Growth was driven by increased sales to existing customers, new customer acquisition, and contributions from recent acquisitions (ARSgroup and Certifica).
- Profitability Decline: Despite revenue growth, Net Income decreased 30.4% for the quarter and 28.0% for the six-month period compared to the prior year. Operating margins compressed from 8.0% to 4.2% (quarterly) and 6.1% to 3.9% (six-month).
- Expense Increases: General and Administrative (G&A) expenses surged 103.4% for the quarter and 68.7% for the six-month period. This was primarily due to a $1.2M increase in stock-based compensation (including market-based options) and higher professional fees related to acquisitions.
- Acquisition Impact: The company acquired ARSgroup in February 2010 and Certifica in November 2009. These acquisitions contributed approximately $6.6M to quarterly revenues but also added significant operating expenses and amortization costs.
- Foreign Currency: The company recorded a foreign currency loss of $129,000 for the six months ended June 30, 2010, compared to a gain of $19,000 in the prior year period.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management expects stock-based compensation expenses to increase in the third and fourth quarters of 2010 due to recent option grants and the acceleration of vesting on restricted stock awards. The company anticipates continued revenue growth from international expansion and new product introductions.
- Subsequent Event: On July 1, 2010, comScore acquired Nexius, Inc. for approximately $23.6 million (cash and stock). Nexius provides mobile carrier-grade network analysis products. This acquisition is not reflected in the June 30, 2010 financial results.
- Risks:
- Customer Concentration: Microsoft Corporation accounted for approximately 12% of total revenues for the six months ended June 30, 2010. The top 10 customers accounted for 33% of revenues.
- Liquidity of Investments: The company holds $2.8 million in auction rate securities classified as long-term investments. Due to credit market uncertainties, these securities have not auctioned since 2007, creating liquidity risk.
- Subscription Renewals: A significant portion of revenue (87%) is subscription-based. Economic downturns or customer dissatisfaction could lead to non-renewals.
- Privacy and Regulation: The company faces risks related to privacy laws, "spyware" classifications, and regulatory changes regarding data collection and cookies, particularly in Europe.
- Unusual Items: The effective tax rate for the six months ended June 30, 2010, was 66.1%, significantly higher than the statutory rate, due to stock compensation tax deduction shortfalls and state tax impacts from the ARS acquisition.
Key Facts for Investor Verification
- Stock-Based Compensation Acceleration: Verify the timing and magnitude of the accelerated vesting of restricted stock awards expected in Q3 and Q4 2010, which will impact future earnings.
- Acquisition Integration: Monitor the integration progress and revenue contribution of ARSgroup and the newly acquired Nexius to ensure they meet projected synergies.
- Auction Rate Securities: Assess the current fair value and liquidity status of the $2.8 million in auction rate securities, as further credit deterioration could require write-downs.
- Customer Concentration: Track the renewal status of Microsoft and other top 10 customers, given their significant impact on total revenue.
- International Growth: Evaluate the sustainability of international revenue growth (up 41% year-over-year for six months) amidst foreign currency fluctuations and regulatory changes.