Business Context and Reporting Period
Company: comScore, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2010
Business Overview: comScore provides a digital marketing intelligence platform, offering insights into consumer behavior, online usage, and demographic characteristics via proprietary databases and a panel of over two million Internet users. The company expanded its capabilities through significant acquisitions in 2010, including Nexius (mobile network analysis) and Nedstat (web analytics), to solidify its position in mobile and unified digital measurement.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2010 |
Three Months Ended Sep 30, 2009 |
Nine Months Ended Sep 30, 2010 |
Nine Months Ended Sep 30, 2009 |
|---|---|---|---|---|
| Revenues | $45,703 | $31,916 | $123,802 | $93,915 |
| Net (Loss) Income | $(2,135) | $945 | $(1,083) | $2,406 |
| Net Cash from Operating Activities | N/A | N/A | $24,872 | $18,420 |
| Cash and Cash Equivalents | $36,233 | $44,976 | $36,233 | $44,976 |
| Total Assets | $257,713 | N/A | $257,713 | N/A |
| Total Liabilities | $94,956 | N/A | $94,956 | N/A |
| Goodwill | $81,939 | N/A | $81,939 | N/A |
Note: Operating cash flow is reported on a nine-month basis only in the source text.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 43.2% year-over-year for the quarter and 31.8% for the nine-month period. Growth was driven by organic sales to existing customers and significant contributions from acquisitions (Nexius and Nedstat), which added approximately $8.0 million in revenue for the quarter.
- Profitability Decline: The company reported a net loss of $2.1 million for the quarter, compared to a net income of $0.9 million in the prior year quarter. For the nine months, the company reported a net loss of $1.1 million versus net income of $2.4 million in the prior year. This shift was primarily due to increased operating expenses.
- Expense Increases:
- General and Administrative (G&A): Increased 134.4% for the quarter, driven by professional fees related to acquisitions ($0.8 million), stock-based compensation ($1.7 million increase), and severance payments ($0.8 million).
- Selling and Marketing: Increased 59.3% for the quarter due to higher headcount, bonuses, and travel expenses.
- Amortization: Increased 258.4% for the quarter due to the amortization of intangible assets from recent acquisitions.
- Balance Sheet Impact: Total assets increased to $257.7 million from $217.4 million at year-end 2009, largely due to the addition of goodwill ($81.9 million) and intangible assets ($52.7 million) from acquisitions. Cash and cash equivalents decreased by $22.1 million over the nine-month period, primarily due to $68.9 million used for acquisitions.
Guidance, Outlook, and Risks
- Management Commentary: Management attributes revenue growth to deepening relationships with existing customers and successful international expansion. However, they note that operating expenses have grown faster than revenues due to investments in infrastructure, personnel, and acquisition integration.
- Outlook: The company anticipates continued revenue growth from international markets and new product lines (mobile and video analytics). They expect operating expenses to increase as they implement growth initiatives.
- Risks and Contingencies:
- Acquisition Integration: Risks associated with assimilating Nexius and Nedstat, including retaining key personnel and integrating diverse business cultures.
- Liquidity of Investments: The company holds $2.6 million in auction rate securities classified as long-term due to market illiquidity. There is uncertainty regarding when these can be liquidated.
- Customer Concentration: Approximately 11% of revenues for the nine months ended September 30, 2010, were derived from a single customer, Microsoft Corporation.
- Regulatory and Privacy: Potential legislative or regulatory actions regarding privacy, data collection, and "spyware" classifications could impact the company's ability to recruit panelists and operate.
Investor Verification Checklist
- Acquisition Synergies: Verify the timeline and success of integrating Nexius and Nedstat to ensure projected revenue synergies are realized.
- Expense Trajectory: Monitor whether G&A and selling expenses stabilize as a percentage of revenue, given the significant year-over-year increases.
- Auction Rate Securities: Assess the fair value and liquidity risk of the $2.6 million holding in auction rate securities.
- Customer Renewal Rates: Confirm the 91% dollar-based renewal rate mentioned for the first three quarters of 2010 remains stable in the face of economic uncertainty.
- Stock-Based Compensation: Review the impact of the $11.9 million stock-based compensation expense for the nine months on future cash flow and dilution.