Business Context and Reporting Period
Company: comScore, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
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 primarily through subscription-based products (Media Metrix, Marketing Solutions) and project-based services. In May 2008, the company acquired M:Metrics, Inc. to expand mobile marketing intelligence capabilities.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2009 |
Three Months Ended June 30, 2008 |
Six Months Ended June 30, 2009 |
Six Months Ended June 30, 2008 |
|---|---|---|---|---|
| Revenues | $31,374 | $28,750 | $61,998 | $55,120 |
| Net Income | $1,185 | $1,710 | $1,462 | $4,241 |
| Diluted EPS | $0.04 | $0.06 | $0.05 | $0.14 |
| Operating Cash Flow | N/A | N/A | $11,459 | $24,489 |
| Cash & Equivalents (Balance Sheet) | $31,064 (as of June 30, 2009) | |||
| Total Investments | $50,382 (as of June 30, 2009) | |||
| Total Debt | $499 (Capital lease obligations, current) |
Note: Operating cash flow is reported for the six-month period only in the provided text.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 9.1% ($2.6 million) for the quarter and 12.5% ($6.9 million) for the six months ended June 30, 2009, compared to the prior year periods. Growth was driven by increased sales to existing customers and international expansion, despite a decline in revenues from new U.S. customers.
- Profitability Decline: Net income decreased 30.7% for the quarter and 65.5% for the six months compared to the prior year. This was primarily due to higher operating expenses and a significant increase in the effective tax rate.
- Expense Increases:
- Cost of Revenues: Increased 23.4% (quarter) and 32.7% (six months) due to higher panel recruitment, data/bandwidth costs, and expanded workforce.
- Selling & Marketing: Increased 8.5% (quarter) and 12.8% (six months), driven by stock-based compensation and headcount growth.
- R&D: Increased 24.5% (quarter) and 27.2% (six months) due to new product development and headcount.
- Amortization: Amortization of intangible assets increased significantly (168% for the quarter) due to the M:Metrics acquisition in 2008.
- Tax Provision: The effective tax rate rose to 54.79% (quarter) and 64.15% (six months) in 2009, compared to 46.45% and 42.70% in 2008. This increase was largely due to stock compensation tax deduction shortfalls where the stock price at vesting was lower than the grant date fair value.
Guidance, Outlook, Risks, and Unusual Items
- Economic Outlook: Management notes that the global financial crisis and economic downturn have caused some customers to delay or reduce renewals and new purchases. However, the company continued to add net new customers and maintained a subscription renewal rate of over 90% (revenue basis) in the quarter.
- Investment Liquidity Risk: The company holds approximately $2.9 million in auction rate securities that are currently illiquid due to failed auctions. These were classified as long-term investments. While no further impairment was recorded in the first half of 2009, the company remains uncertain regarding the timeline for liquidity restoration.
- Stock-Based Compensation: The company is increasing its use of equity compensation. Unrecognized compensation expense related to non-vested awards was approximately $20.8 million as of June 30, 2009.
- Forward-Looking Statements: The filing contains standard cautionary notes that actual results may differ materially from expectations due to risks including economic conditions, competition, and the ability to maintain panel size.
Key Facts for Investor Verification
- Liquidity of Investments: Verify the status of the $2.9 million in illiquid auction rate securities and any potential future impairment charges if credit ratings of issuers or insurers deteriorate.
- Customer Concentration: The top 10 customers accounted for over 30% of total revenues for the six months ended June 30, 2009. Microsoft Corporation alone accounted for approximately 12% of revenues.
- Tax Rate Volatility: Monitor the effective tax rate, which is highly sensitive to stock price fluctuations at the time of restricted stock vesting, potentially causing significant volatility in net income.
- Subscription Renewals: Track the renewal rates of subscription-based products (86% of revenue) as a leading indicator of future revenue stability amidst economic uncertainty.
- International Growth: Assess the sustainability of international revenue growth (15% of total revenue for the six months), which is subject to foreign currency exchange risks and local market conditions.