e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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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, 2007
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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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11465 Sunset Hills Road, Suite 200
Reston, Virginia 20190
(Address of Principal Executive
Offices)
(703) 438-2000
(Registrants Telephone
Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.001 per share
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The NASDAQ Stock Market LLC
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark 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
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Accelerated filer
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Non-accelerated
filer þ
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the registrants common stock
held by non-affiliates of the registrant on June 29, 2007, the
last business day of the registrants most recently
completed second fiscal quarter, was $201,906,360.55 (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 7, 2008, there were
28,263,367 shares of the registrants common stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Specified portions of the registrants Proxy Statement with
respect to its 2008 annual meeting of stockholders, anticipated
to be filed with the SEC no later than 120 days following the
registrants fiscal year ended December 31, 2007, 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, 2007
TABLE OF CONTENTS
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PART I
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2
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Item 1.
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Business
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2
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Item 1A.
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Risk Factors
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18
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Item 1B.
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Unresolved Staff Comments
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37
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Item 2.
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Properties
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37
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Item 3.
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Legal Proceedings
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37
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Item 4.
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Submission of Matters to a Vote of Security Holders
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37
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PART II
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38
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Item 5.
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Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
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38
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Item 6.
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Selected Consolidated Financial Data
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41
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Item 7.
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Managements Discussion and Analysis of Financial Condition
and Results of Operations
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43
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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61
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Item 8.
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Financial Statements and Supplementary Data
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63
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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97
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Item 9A(T).
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Controls and Procedures
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Item 9B.
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Other Information
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PART III
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Item 10.
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Directors, Executive Officers and Corporate Governance
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Item 11.
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Executive Compensation
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
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Item 13.
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Certain Relationships and Related Transactions, and Director
Independence
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Item 14.
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Principal Accounting Fees and Services
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PART IV
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Item 15.
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Exhibits, Financial Statement Schedules
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SIGNATURES
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101
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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 Operation 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 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.
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PART I
Overview
We provide a leading digital marketing intelligence platform
that helps our customers make better-informed business decisions
and implement more effective digital business strategies. Our
products and solutions offer our customers deep insights into
consumer behavior, including objective, detailed information
regarding usage of their online properties and those of their
competitors, coupled with information on consumer demographic
characteristics, attitudes, lifestyles and offline behavior.
Our digital marketing intelligence platform is comprised of
proprietary databases and a computational infrastructure that
measures, analyzes and reports on digital activity. The
foundation of our platform is data collected from our comScore
panel of more than 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.
We deliver our digital marketing intelligence through our
comScore Media Metrix product family and through our comScore
Marketing Solutions products. Media Metrix delivers digital
media intelligence by providing an independent, third-party
measurement of the size, behavior and characteristics of Web
site and online advertising network audiences among home, work
and university Internet users as well as insight into the
effectiveness of online advertising. Our Marketing Solutions
products combine the proprietary information gathered from the
comScore panel with the vertical industry expertise of comScore
analysts to deliver digital marketing intelligence, including
the measurement of online advertising effectiveness, customized
for specific industries. We typically deliver our Media Metrix
products electronically in the form of weekly, monthly or
quarterly reports. Customers can access current and historical
Media Metrix data and analyze these data anytime online. Our
Marketing Solutions products are typically delivered on a
monthly, quarterly or ad hoc basis through electronic reports
and analyses.
Industry
Background
Growth
of Digital Commerce, Content, Advertising and
Communications
The Internet is a global digital medium for commerce, content,
advertising and communications. According to IDC, the number of
global Internet users is projected to grow from approximately
1.1 billion in 2006 to over 1.7 billion in 2010. As
the online population continues to grow, the Internet is
increasingly becoming a tool for research and commerce and for
distributing and consuming media. According to IDC, the global
business-to-consumer
eCommerce market is projected to grow from $517 billion in
2006 to $1 trillion in 2010. According to Jupiter Research, 86%
of online users in the United States research offline purchases
using the Internet, making the Internet an important channel for
both online and offline merchants. Consumers are also using the
Internet to access an increasing amount of digital content
across media formats including video, music, text and games.
According to IDC, the domestic markets for online video and
music consumption are projected to reach over $1.7 billion
and over $3.3 billion, respectively, in 2010.
As consumers increasingly use the Internet to research and make
purchases and to consume digital media, advertisers are shifting
more of their marketing budgets to digital channels. According
to the Interactive Advertising Bureau and
PricewaterhouseCoopers, domestic online advertising spending,
including search advertising, grew to $16.8 billion in
2006, an increase of 34% over 2005. Despite the size and growth
of the digital marketing sector, the shift of traditional
advertising spending to the Internet has yet to match the rate
of consumption of online media. According to an October 2007
Forrester Research report titled U.S. Interactive
Marketing Forecast,
2007-2010,
interactive marketing represented only 8% of the total United
States advertising spending in 2007 despite consumers spending
29% of their available media time online. 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
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phones allow users to access digital content such as games,
music, video and news on their mobile devices through a wireless
connection to the Internet. According to IDC, the worldwide
number of shipments of converged mobile devices is projected to
grow from 81.3 million in 2006 to 312.3 million in
2011, representing compounded annual growth of 31% over that
period. Other digital communications technologies such as voice
over Internet protocol (VoIP) utilize the Internet network
infrastructure to enable efficient and cost-effective personal
communications such as chat and VoIP-based telephony. According
to Infonetics, the worldwide number of VoIP subscribers is
projected to grow from 46.5 million in 2006 to
171.6 million in 2010. Delivery of digital television
services over a network infrastructure using Internet Protocol,
or IPTV, has a number of advantages over conventional
television, including two-way communications, digital content
and features, and interactivity. According to Infonetics, the
worldwide number of IPTV subscribers is projected to grow from
9.2 million in 2006 to 65.1 million in 2010. 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
enables businesses to access a wealth of user information that
was virtually unavailable through offline audience measurement
and marketing intelligence techniques. Digital media provide
businesses with the opportunity to measure detailed user
activity, such as how users interact with Web page content; to
assess how users respond to online marketing, such as which
online ads users click on to pursue a transaction; and to
analyze how audiences and user behavior compare across various
Web sites. This type of detailed user data can be combined with
demographic, attitudinal and transactional information to
develop a deeper understanding of user behavior, attributes and
preferences. Unlike offline media such as television and radio,
which generally only allow for the passive measurement of
relative audience size, digital media enable businesses to
actively understand the link between digital content,
advertising and user behavior.
We believe that the growth in the online and digital media
markets for digital commerce, content, advertising and
communications creates an unprecedented opportunity for
businesses to acquire a deeper understanding of both their
customers and their competitive market position. Businesses can
use accurate, relevant and objective digital marketing
intelligence to develop and validate key strategies and improve
performance. For example, with a deep understanding of the size,
demographic composition and other characteristics of its
audience, an online content provider can better communicate the
value of its audience to potential advertisers. With detailed
metrics on the effectiveness of an online advertising campaign
and how that campaign influences online and offline purchasing
behavior, a business can refine its marketing initiatives. With
insight into market share and customer behavior and preferences,
a business can understand not only how its digital business is
performing relative to its competitors but also the drivers
behind such performance. Moreover, by using the appropriate
digital marketing intelligence, businesses can refine their
digital content, commerce, advertising and communications
initiatives to enhance the effectiveness and return on
investment of their marketing spending, enabling them to build
more successful businesses.
Challenges
in Providing Digital Marketing Intelligence
While the interactive and dynamic nature of digital markets
creates the opportunity for businesses to gain deep insights
into user behavior and competitive standing, there are a number
of issues unique to the Internet that make it challenging for
companies to provide digital marketing intelligence. Compared to
offline media such as television or radio, the markets for
digital media are significantly more fragmented, complex and
dynamic. As of January 2007, we believe that there were
approximately 13,600 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 gaming and email. Digital advertising also includes
multiple formats such as display, search, rich media and video.
Detailed user activity such as viewing, clicking or downloading
various components of a Web page across digital media or
interacting with
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various advertising formats creates a substantial amount of data
that must be captured on a continuous basis. The data must also
be cleansed for quality, relevancy and privacy protection and be
organized to enable companies to obtain relevant digital
marketing intelligence. This capture of audience data can prove
extremely challenging when it involves millions of Internet
users with varying demographic characteristics accessing tens of
thousands of Web sites across diverse geographies. In addition,
the ongoing development of digital media programming languages
and technologies contributes to the challenge of accurately
measuring user activity. For example, online publishers and
advertisers have recently started to use Asynchronous JavaScript
and XML, or AJAX, a development technique that allows Web
applications to quickly make incremental updates without having
to refresh the entire Web page. Prior to AJAX, marketers relied
heavily on page view statistics to plan and evaluate their
online media spending programs. With AJAX, we believe marketers
are beginning to question the definition of, and need for, page
views, and are seeking alternative metrics for measuring the
usage and effectiveness of online media. To maintain their
relevance, audience and media measurement technologies must keep
pace with the continued evolution and increasing complexity of
digital media.
Need for Accuracy and Reliability. Relevant
digital marketing intelligence requires access to accurate and
reliable global data that measure online user activity. Existing
data collection methodologies, including those that rely on
third party sources, surveys or panels, face significant
challenges and limitations. Survey or panel methodologies must
measure a sufficiently large and representative sample size of
Internet users to accurately capture data that is statistically
projectable to the broader Internet population. In addition, the
international composition of Internet audiences requires a
geographically dispersed sample to accurately capture global
digital activity. Digital marketing intelligence that depends on
third-party sources to obtain Internet audience usage data has
the potential to be biased, may be constrained by the data that
the third party is capable of capturing, and may be limited in
its application. For example, a solution that relies on data
supplied by an Internet service provider, or ISP, may show a
bias toward the demographic composition or other characteristics
of that ISPs users. We believe that a meaningful digital
media sourcing methodology must be based on data sourced from a
large, representative global sample of online users that can be
parsed, enhanced, mined and analyzed; must evolve rapidly and be
flexible to adapt to changing technologies; and must be able to
provide actionable digital marketing intelligence that can be
used to improve business decision-making.
Need for Third-Party Objectivity. We believe
that the availability of objective third-party data that measure
digital audience size, behavior, demographic and attitudinal
characteristics represents a key factor in the continued growth
of digital content, advertising and commerce. This is similar to
offline media markets, such as television and radio, whose
development was significantly enhanced by the introduction of
third-party audience measurement ratings that provided a basis
for the pricing of advertising in those media. As the buying and
selling of online advertising continues to grow, we believe that
companies on both sides of the advertising transaction will
increasingly seek third-party marketing intelligence to assess
the value and effectiveness of digital media. In addition, as
advertisers work with Web site publishers to target online
advertising campaigns to reach a specific demographic or
behavioral user profile, the need for objective audience and
user information, unbiased by either party to the transaction,
will become increasingly important.
Need for Competitive Information. In addition
to the scope, complexity and rapid evolution of online digital
media, the lack of data on competitors makes it difficult for
companies to gain a comprehensive view of user behavior beyond
their own digital businesses. While products and tools exist
that enable companies to understand user activity on their own
Web sites, these products are unable to provide a view of
digital audience activity on other Web sites or offline. In
order for publishers, marketers, merchants and service providers
to benefit from accurate and comprehensive digital marketing
intelligence they need to understand user activity on Web sites
across the Internet and how online consumer behavior translates
into offline actions.
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 more than two million Internet users. 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
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characteristics, attitudes, lifestyles and multi-channel buying
activity. We also provide industry-specific metrics to our
customers.
We deliver our digital marketing intelligence through our
comScore Media Metrix product family and through our comScore
Marketing Solutions products. Media Metrix provides intelligence
on digital media usage, including a measurement of the size,
behavior and characteristics of the audiences for individual Web
sites and advertising networks within the global home, work and
university Internet user populations as well as insight into the
effectiveness of online advertising. Our Marketing Solutions
products combine the proprietary information gathered from our
user panel with the vertical industry expertise of comScore
analysts to deliver digital marketing intelligence customized
for specific industries. Media Metrix and Marketing Solutions
products are typically delivered electronically in the form of
periodic reports, through customized analyses or are generally
available online via a user interface on the comScore Web site.
Key attributes of our platform include:
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Panel of global Internet users. Our ability to
provide digital marketing intelligence is based on information
continuously gathered from a broad cross-section of more than
two million Internet users worldwide who have granted us
explicit permission to confidentially measure their Internet
usage patterns, online and certain offline buying behavior and
other activities. Through our proprietary technology, we measure
detailed Internet audience activity across the spectrum of
digital content and marketing channels. Many comScore panelists
also participate in online survey research that captures and
integrates demographic, attitudinal, lifestyle and product
preference information with Internet behavior data. The global
nature of our Internet panel enables us to provide digital
marketing intelligence for over 30 individual countries. Our
global capability is valuable to companies based in
international markets as well as to multi-national companies
that want to better understand their global Internet audiences
and the effectiveness of their global digital business
initiatives.
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Scalable technology infrastructure. We
developed our databases and computational infrastructure to
support the growth in online activity among our global Internet
panel and the increasing complexity of digital content formats,
advertising channels and communication applications. The design
of our technology infrastructure is based on distributed
processing and data capture environments that allow for the
collection and organization of vast amounts of data on online
activity, including usage of proprietary networks such as AOL,
instant messaging and audio and video streaming. Our database
infrastructure currently captures approximately 182 million
Web pages and 4.5 billion URL records each week from our
global Internet panel, resulting in over 28 terabytes of data
collected by our platform each month. We believe that our
efficient and scalable technology infrastructure allows us to
operate and expand our data collection infrastructure on a
cost-effective basis. In recognition of the scale of our data
collection and warehousing technology, we have received multiple
awards, including the 2001, 2003 and 2005 Winter Corporation
Grand Prize for Database Size on a Windows NT Platform.
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Benefits of our platform include:
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Advanced digital marketing intelligence. We
use our proprietary technology to compile vast amounts of data
on Internet user activity and to organize the data into
discrete, measurable elements that can be used to provide
actionable insights to our customers. We believe that our
digital marketing intelligence platform enables companies to
gain a deeper understanding of their digital audiences, which
allows them to better assess and improve their company and
product-specific competitive position. Because our marketing
intelligence is based on a large sample of global Internet users
and can incorporate multi-channel transactional data, we are
able to provide companies with an enhanced understanding of
digital audience activity beyond their own Web sites and the
ability to better assess the link between digital marketing and
offline user activity. Digital content providers, marketers,
advertising agencies, merchants and service providers can use
the insights our platform provides to craft improved marketing
campaigns and strategies and to measure the effectiveness and
return on investment of their digital initiatives.
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Objective third-party resource for digital marketing
intelligence. We are an independent company that
is not affiliated with the digital businesses we measure and
analyze, allowing us to serve as an objective third-
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party provider of digital marketing intelligence. Because
businesses use our data to plan and evaluate the purchase and
sale of online advertising and to measure the effectiveness of
digital marketing, it is important that we provide unbiased
data, marketing intelligence, reports and analyses. We deploy
advanced statistical methodologies in building and maintaining
the comScore global Internet user panel and utilize proven data
capture, and computational practices in collecting,
statistically projecting, aggregating and analyzing information
regarding online user activity. We believe that our approach
ensures that the insights we provide are as objective as
possible and allows us to deliver products and services that are
of value to our customers in their key business decision-making.
We believe that the media industry views us as a highly
recognized and credible resource for digital marketing
intelligence. For example, between January 1, 2007 and
December 31, 2007, our information on digital activity was
cited more than 54,000 times by third-party media outlets, an
average of approximately 145 citations per day. Our data are
regularly cited by well-known media outlets such as the
Associated Press, Reuters, Bloomberg, CNBC, The New York Times
and The Wall Street Journal. Moreover, many of the leading Wall
Street investment banks also purchase and cite our data in their
published research reports prepared by financial analysts that
cover Internet businesses.
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Vertical industry expertise. We have developed
expertise across a variety of industries to provide digital
marketing intelligence specifically tailored to the needs of our
customers operating in specific industry sectors. We have
dedicated personnel to address the automotive, consumer packaged
goods, entertainment, financial services, media, pharmaceutical,
retail, technology, telecommunications and travel sectors. We
believe that companies across different industries have distinct
information and marketing intelligence needs related to
understanding their digital audiences and buyers, evaluating
marketing initiatives and understanding company or
product-specific competitive position. For example, a
pharmaceutical company may want to understand how online
research by consumers influences new prescriptions for a
particular drug, while a financial services company may want to
assess the effectiveness of its online advertising campaigns in
signing up new consumers and how this compares to the efforts of
its competitors. By working with companies in various industries
over the course of multiple years, we have developed
industry-specific applications of our data and our client
service representatives have developed industry-specific
knowledge and expertise that allow us to deliver relevant and
meaningful marketing insight to our customers.
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Ease of use and functionality. The comScore
digital marketing intelligence platform is designed to be easy
to use by our customers. Our Media Metrix products are available
through the Internet using a standard browser. Media Metrix
customers can also run customized reports and refine their
analyses using an intuitive interface available on our Web site.
Our Marketing Solutions products are available either through
the Internet or by using standard software applications such as
Microsoft Excel, Microsoft PowerPoint or SPSS analytical
software. Our customers do not need to install additional
hardware or complex software to access and use our products.
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Strategy
Our objective is to be the leading provider of global digital
marketing intelligence products. We plan to pursue our objective
through internal initiatives and, potentially, through
acquisitions and other investments. The principal elements of
our strategy are to:
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Deepen relationships with current
customers. We intend to work closely with our
customers to enable them to continuously enhance the value they
obtain from our digital marketing intelligence platform. Many of
our customers are Fortune 1000 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
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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. For example, in 2003 we were one of the first
companies to offer data, analysis and reports on the
fast-growing Internet search market.
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Address emerging digital media. The extension
of digital media and communications to include new formats such
as VoIP, IP television, content for mobile phones 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.
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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 is frequently cited by media outlets. In
addition, we proactively provide them with data and insights
that we believe may be relevant to their news reports and
articles. We believe that media coverage increases awareness and
credibility of the comScore and Media Metrix brands and
supplements our marketing efforts. We intend to continue to work
with media outlets, including news distributors, newspapers,
magazines, television networks, radio stations and online
publishers, to increase their use of comScore data in content
that discusses digital sector activity.
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Grow internationally. While we are currently
in the early stages of providing customers with international
services, we believe that a significant opportunity exists to
provide our product offerings to multi-national and
international companies. Approximately half of the existing
comScore Internet user panel resides outside of the United
States. In July 2006, we launched World Metrix, a product that
measures global digital media usage. World Metrix is based on a
sample of online users from countries that comprise
approximately 95% of the global Internet population. 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.
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Our
Product Offerings
We deliver our digital marketing intelligence through our
comScore Media Metrix product family and through our comScore
Marketing Solutions products.
comScore
Media Metrix
Media Metrix provides its subscribers, consisting primarily of
publishers, marketers, advertising agencies and advertising
networks, with intelligence on digital media usage and a
measurement of the size, behavior and characteristics of the
audiences for Web sites and advertising networks among home,
work and university Internet populations. Media Metrix also
provides insights into the effectiveness of online advertising.
Media Metrix data can be used to accurately identify and target
key online audiences, evaluate the effectiveness of digital
marketing and commerce initiatives, support the selling of
online advertising by publishers, and to identify and exploit
relative competitive standing. The vast majority of our Media
Metrix subscribers access selected reports and analyses through
the MyMetrix user interface on our Web site.
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Our flagship product, Media Metrix 2.0, details the online
activity and site visitation behavior of Internet users,
including use of proprietary networks such as AOL, instant
messaging, audio and video streaming, and other digital
applications. 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
30 countries and over 100 U.S. local markets;
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measurement of key ethnic segments, including the online
Hispanic population; and
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reach and frequency metrics for online advertising campaigns
that show the percent of a target audience reached and the
frequency of exposure to advertising messages.
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In addition to our core offering, customers can subscribe to the
following additional products in the Media Metrix product family:
Plan Metrix. Plan Metrix is a product that
combines the continuously and passively observed Internet
behavior provided by Media Metrix with comprehensive attitude,
lifestyle and product usage data collected through online
surveys of our U.S. Internet user panel. Plan Metrix
provides advertising agencies, advertisers and publishers with
multiple views of Web site audiences including their online
behavior, demographics, lifestyles, attitudes, technology
product ownership, product purchases and offline media usage.
These data are used in the design and evaluation of online
marketing campaigns. For example, an online auto retailer could
use Plan Metrix to help understand which Web sites a prospective
automobile purchaser is most likely to visit prior to making a
purchase decision.
World Metrix. We provide insights into
worldwide Internet activity through our World Metrix product,
which delivers aggregate information about the behavior of
online users on a global basis, for approximately 30 individual
countries and for regional aggregations such as Latin America,
Europe and Asia Pacific. For example, a content publisher can
understand its market share of the global Internet audience
using our World Metrix product.
Video Metrix. Video Metrix provides insights
into the viewing of streaming video by U.S. Internet users.
The product measures a wide range of video players and formats,
including Windows Media, Flash, RealMedia and QuickTime. Video
Metrix offers site-level measurement and audience ratings by
demographics and
time-of-day
to assist agencies, advertisers and publishers in designing and
implementing media plans that include streaming video. For
example, an advertiser that is seeking to maximize the exposure
of its streaming video ads to its target audience could use
Video Metrix to help understand on which sites and at what times
of the day its target audience is viewing the most streaming
video.
Ad Metrix. Available through the Media Metrix
client interface, Ad Metrix provides advertisers, agencies and
publishers with a variety of online advertising metrics relating
to impressions, or advertisements on a Web site that reach a
target audience. Ad Metrix helps customers determine the
impressions delivered by advertising campaigns across Web sites
and online properties, including how many visitors are reached
with advertisements and how often. In addition, Ad Metrix allows
customers to determine the demographic profile of the
advertising audience at a particular site, as well as how the
volume of impressions changes over time on that site. The Ad
Metrix data are consistent with offline media planning metrics
such as GRPs, or gross rating points, which measure the percent
of a target audience that is reached with an advertisement
weighted by the number of exposures. For example, an advertiser
might use Ad Metrix to plan the online portion of an advertising
campaign for a sports product on sites that have previously
successfully delivered advertising impressions to a target
demographic audience. A publisher might use Ad Metrix data to
measure its share of advertising impressions relative to
competitive publishers. Ad Metrix was launched in the third
quarter of 2007.
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Some examples of Media Metrix digital marketing intelligence
measurements and their customer uses are described in the
following table.
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Digital Marketing Intelligence Measurement
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Examples of Customer Uses
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Site Traffic & Usage Intensity
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rank Web sites based on online usage
metrics such as unique visitors, page views or minutes of use
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drill-down to standard or
customer-defined site subsets such as channels or sub-channels
(such as Yahoo! Finance and Yahoo! Sports)
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analyze statistics over time such as
trends in site visitors within demographic segments
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assess which Web site audiences are
growing or declining, which sites are most attractive to
particular demographic segments or which sites or digital
applications have the highest level of usage
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identify the source of traffic to a
particular Web site or channel within a site
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Quantitative Consumer Information
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profile site users based on life-stage
or offline behavior such as panelist-reported TV usage, car
ownership, health conditions or offline purchases
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efficiently identify and target a
particular user segment (e.g., people who say they are likely to
buy a car in the next six months)
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quantify the audience overlap between
different consumer segments or Web sites to identify the number
of unique visitors reached
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Online Buying Power
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quantify the propensity of a particular
Web sites audience to purchase certain categories of
products (e.g., consumer electronics) online
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Competitive Intelligence
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compare the standings of Web sites
within particular content categories, such as finance or health
information
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quantify audience size relative to
competitors, including share of usage within a category and
usage trends across competitors
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track major competitors, quantify their
growth, and identify initiatives to promote growth and market
share
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Reach and Frequency
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identify and quantify the size of
audiences reached by individual Web sites and determine how
often they reach those audiences
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assist with the planning of online
advertising campaigns that need to achieve specific reach or
frequency objectives against a targeted audience across multiple
Web sites
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design the most cost-effective media
plans that can achieve campaign objectives for reach and
frequency
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comScore
Marketing Solutions
comScore Marketing Solutions products use our global database,
computational infrastructure and our staff of experienced
analytical personnel to help customers design more effective
marketing strategies that increase sales, reduce costs, deepen
customer relationships and ultimately enhance a customers
competitive position. We offer
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solutions tailored for specific industry verticals, including
the automotive, consumer packaged goods, entertainment,
financial services, media, pharmaceutical, retail, technology,
telecommunications and travel sectors. Many of our Marketing
Solutions products are delivered to subscribers on a recurring
schedule such as monthly or quarterly. In some cases, we provide
customized reports and analyses that combine our expertise with
other proprietary information to address a specific customer
need.
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 identifies loyalty drivers to
assist customers in capturing a higher share of the
consumers wallet. For example, a travel company might
quantify the potential business lost when consumers visit its
site, do not complete a purchase but then visit a competing site
to book a travel reservation. Retention or churn analyses
quantify consumer losses to competitors and the key drivers of
such losses. For example, a narrowband Internet service provider
may track the rate of attrition among its customer base,
identify which competitors are capturing those lost customers,
and analyze the characteristics of the lost customers in order
to gain insight into ways to improve retention.
Customer Satisfaction Reports. These reports
are based on panelist responses to survey questionnaires that
ascertain the degree of satisfaction with various products or
services offered to consumers. This information is often
integrated with the online usage information that we collect
from our panelists in order to identify which digital media
usage activities affect customer satisfaction. For instance, a
sports portal may use these reports to determine which features,
such as participating in fantasy sports leagues or viewing
streaming video clips, affect customer satisfaction and loyalty
the most.
qSearch. This product is a monthly scorecard
of the search market that provides a comparison of search
activity across portals and major search engines. It helps
identify the reach of a search engine, the loyalty of its user
base, the frequency of search queries, and the effectiveness of
sponsored links displayed on search result pages in driving
referrals to advertiser sites. qSearch is used by major search
engines and advertising agencies in planning search campaigns.
In August 2007 we released qSearch 2.0 with new features
designed to improve its accuracy, consistency and
comprehensiveness.
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 Campaign Metrix 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. This product
was launched in the second quarter of 2007.
Internet Advertising Effectiveness
Studies. These studies provide an understanding
of the effectiveness of particular advertising campaigns by
measuring the online and offline behavior of a target
group of
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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. This type of a study allows 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.
Segment Metrix. Segment Metrix is a product
that enables media owners, agencies and advertisers to track,
analyze and report Internet activity on their most important
consumer groups. Segment Metrix provides the flexibility to
integrate behavioral, geographic, demographic and proprietary,
client-defined segments with our comScore panel. Agencies and
advertisers can use Segment Metrix to gain better insights into
how to reach important target customers and advertisers and can
use the product to better integrate offline marketing
segmentation schemes with our online panel to allow them to
track, analyze and report online behavior on a segmented basis.
Segment Metrix was launched in the third quarter of 2007.
comScore Marketer. comScore Marketer is an
interactive search intelligence service that enables search
marketers and Web site operators to benchmark their performance
versus that of their competitors and optimize their search
marketing efforts. comScore Marketer helps enhance search
strategy by delivering insight into paid and organic search
results, including an analysis of searcher demographics and
online behavior. For example, customers can use comScore
Marketer to create more efficient and cost-effective search
campaigns, identify better-performing search terms and analyze
their competitors search marketing strategies.
Customers
As of December 31, 2007, we had 895 customers, including
over 75 Fortune 500 customers. Our customers include:
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fifteen of the top twenty online properties, based on total
unique visitors, as ranked by our Media Metrix database for the
month of December 2006, including Microsoft, Yahoo!, AOL and
Google;
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ten of the top twenty U.S. Internet service providers,
based on the number of subscribers as of the third quarter of
2006, as ranked by ISP Planet;
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ten of the top eleven investment banks, based on 2006 revenues,
as ranked by Dealogic;
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97 advertising and media buying agencies;
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five of the top seven consumer banks, based on consolidated
assets as of March 31, 2007, as ranked by the Federal
Reserve System, National Information Center;
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four of the top five cable companies, based on total subscribers
in the first quarter of 2007, as reported by Leichtman Research
Group;
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seven of the top ten pharmaceutical companies, based on 2005
worldwide sales, as ranked by IMS Health; and
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seven of the top eight credit card issuers, based on total
credit cards outstanding in 2006, as ranked by the 2006 Nilson
Report.
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One of our customers, Microsoft Corporation, accounted for 13%,
12% and 14% of our revenues in the years ended December 31,
2007, 2006 and 2005, respectively.
Selling
and Marketing
We sell the majority of our products through a direct sales
force. Sales of the comScore Media Metrix product suite to new
clients are managed by sales representatives assigned
specifically to new business development. A separate group of
account managers within our sales organization is assigned to
manage, renew and increase sales to
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existing Media Metrix customers. The comScore Marketing
Solutions sales organization is organized vertically by industry
with account executives dedicated to selling into the
automotive, consumer packaged goods, entertainment, financial
services, media, pharmaceutical, retail, technology,
telecommunications and travel sectors and other industries.
Marketing Solutions account executives are tasked with both
identifying and generating new business in specific verticals as
well as servicing existing customers. Our sales and account
representatives receive a base salary and are eligible for
bonuses or commissions based on performance. We have established
a sales force dedicated to selling comScore Marketer, which was
launched in the fourth quarter of 2007.
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, between January 1, 2007 and
December 31, 2007, comScore data were cited more than
54,000 times by third-party media outlets, an average of over
145 citations per day. Moreover, we are regularly cited by
well-known news distributors, publications and TV networks such
as the Associated Press, Reuters, Bloomberg, CNBC, The New York
Times and The Wall Street Journal. We also target various
industry conferences and tradeshows as part of our marketing
efforts. These events are typically focused on a particular
industry, allowing us to demonstrate to industry participants
the value of our products to businesses in that industry.
Panel and
Methodology
The foundation of our digital marketing intelligence platform is
data collected from our comScore panel, which includes more than
two million persons worldwide whose online behavior we have
explicit permission to measure on a continuous, passive basis.
We believe that our panel is one of the largest global panels of
its kind, delivering a multi-faceted view of digital media usage
and transactional activity as well as selected offline activity.
By applying advanced statistical methodologies to our panel
data, we project the behavior of the total online population.
We recruit our panel through a variety of online recruitment
programs that have been tested and refined since our inception
to ensure a diverse sample that sufficiently represents the
broader global Internet population. In addition, in the United
States we enlist a
sub-sample
of panelists through various offline recruiting methods.
Participants in the comScore research panel receive a package of
benefits that is designed to appeal to a broad variety of user
categories. Examples of such benefits include, as of December
2007, free security applications such as encrypted file
protection, encrypted network disk storage locations for user
backups; free general purpose applications such as screensavers
and games; sweepstakes; cash payments; and points that may be
redeemed for prizes. 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.
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
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security practices before our software collects information on
the users online activity. In addition, we provide
panelists with multiple opportunities and methods to remove
themselves from our panel. We limit the type of information that
we collect by identifying and filtering certain personal
information from the data collected. The collected data is
secured using multiple layers of physical and digital security
mechanisms. Moreover, we maintain a strict policy of not sharing
comScore panelists personally identifiable information
with our customers. We believe that these actions and policies
are consistent with the AICPA/CICA WebTrust criteria for online
privacy.
Technology
and Infrastructure
We have developed a proprietary system for the measurement of
the activity of our global online panel. This system is
continuously refined and developed to address the changing
digital media landscape and to meet new customer business needs.
The system is comprised of hundreds of servers that operate
using software built on Microsoft and other technologies. Our
technology infrastructure is operated in two third-party Tier-1
co-location facilities (one in Virginia and the other in
Illinois). Our systems have multiple redundancies and are
structured to ensure the continuation of business operations in
the event of network failure or if one of our data centers has
been rendered inoperable. As of December 31, 2007, our
technology team (excluding employees devoted to research and
development) was comprised of over 162 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 10 billion input
records per month. Despite the scale of processing required,
these data are generally available on a daily basis for our
business use. We have also developed a highly efficient and
scalable system for the extraction and tabulation of all online
activities of our panelists. Likewise, we have created a highly
scalable data warehousing environment that allows ready access
and analysis of the data we collect. This system, based on
Sybase IQ, was awarded the 2001, 2003 and 2005 Grand Prize for
the largest Microsoft-based decision support warehouse by the
Winter Corporation. In December 2006, we were recognized as a
2007 Technology Pioneer by the World Economic Forum. We believe
our scalable and highly cost-effective systems and processing
methods provide us with a significant competitive advantage.
Our customers access our digital marketing intelligence product
offerings through a variety of methods including MyMetrix, our
proprietary, Web-based analysis and reporting system, which for
the full year ended December 31, 2007 was used by over
70,000 users to produce more than 3.4 million reports.
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, 2007, we had approximately
100 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 2006 and 2005 we spent $9.0 million and
$7.4 million, respectively, on research and development.
During 2007, we spent $11.4 million 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
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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 two U.S. patents. U.S. patent
7,181,412 was filed March 22, 2000 and covers, among other
things, techniques for collecting consumer data.
U.S. patent 7,260,837 was filed February 5, 2003 and
covers various techniques, such as techniques for collecting
data relating to a users usage of a computing device,
techniques for identifying a user of a computing device, and
techniques for monitoring the performance of a network server.
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
March 22, 2020, and U.S. patent 7,260,837 is expected
to expire on February 5, 2023. However, various
circumstances, such as the provisions under U.S. patent law
for patent term adjustment and patent term extension, may extend
the duration of any of these patents. Similarly, various
circumstances may shorten the duration of any of these patents,
such as a change in U.S. law or a need or decision on our
part to terminally disclaim a portion of the statutory term of
any of these patents.
We also currently have eighteen U.S. and foreign patent
applications pending, and we intend to file, or request that our
licensors file, additional patent applications for patents
covering our products. However, patents may not be issued for
any pending or future pending patent applications owned by or
licensed to us, and claims allowed under any issued patent or
future issued patent owned or licensed by us may not be valid or
sufficiently broad to protect our technologies. Any issued
patents owned by or licensed to us now or in the future may be
challenged, invalidated, held unenforceable or circumvented, and
the rights under such patents may not provide us with the
expected benefits. In addition, competitors may design around
our technology or develop competing technologies. Intellectual
property rights may also be unavailable or limited in some
foreign countries, which could make it easier for competitors to
capture or increase their market share with respect to related
technologies. Although we are not currently involved in any
legal proceedings related to intellectual property, we could
incur substantial costs to defend ourselves in suits brought
against us or in suits in which we may assert our patent rights
against others. An unfavorable outcome in any such litigation
could have a material adverse effect on our business and results
of operations.
In addition to patent and trade secret protection, we also rely
on several trademarks and service marks to protect our
intellectual property assets. We are the owner of numerous
trademarks and service marks and have applied for registration
of our trademarks and service marks in the United States and in
certain other countries to establish and protect our brand names
as part of our intellectual property strategy. Some of our
registered marks include comScore, Media Metrix and MyMetrix.
Our intellectual property policy is to protect our products,
technology and processes by asserting our intellectual property
rights where we believe it is appropriate and prudent. Any
pending or future pending patent applications owned by or
licensed to us (in the United States or abroad) may not be
allowed or may in the future be challenged, invalidated, held
unenforceable or circumvented, and the rights under such patents
may not provide us with competitive advantages. Any significant
impairment of our intellectual property rights could harm our
business or our ability to compete. Protecting our intellectual
property rights is costly and time consuming. Any 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.
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Competition
The market for digital marketing intelligence is highly
competitive and evolving rapidly. We compete primarily with
providers of digital marketing intelligence and related
analytical products and services. We also compete with providers
of marketing services and solutions, with survey providers, as
well as with internal solutions developed by customers and
potential customers. Our principal competitors include:
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large and small companies that provide data and analysis of
consumers online behavior, including Compete Inc., Hitwise
Pty. Ltd, Quantcast and Nielsen/NetRatings;
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online advertising companies that provide measurement of online
ad effectiveness, including aQuantive, Inc., DoubleClick Inc.,
ValueClick Inc., and WPP Group plc;
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companies that provide audience ratings for TV, radio and other
media that have extended or may extend their current services,
particularly in certain international markets, to the
measurement of digital media, including Arbitron Inc., Nielsen
Media Research, Inc. and Taylor Nelson Sofres plc;
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analytical services companies that provide customers with
detailed information of behavior on their own Web sites,
including Omniture, Inc., Visual Sciences and WebTrends
Corporation;
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full-service market research firms and survey providers that may
measure online behavior and attitudes, including Harris
Interactive Inc., Ipsos Group, Taylor Nelson Sofres plc and The
Nielsen Company; and
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specialty information providers for certain industries that we
serve, including IMS Health Incorporated (healthcare) and
Telephia (telecommunications).
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Some of our current competitors have longer operating histories,
relationships with more customers and substantially greater
resources than we do. As a result, these competitors may be able
to devote more resources to marketing and promotional campaigns,
panel retention and development techniques or technology and
systems development than we can. In addition, some of our
competitors may be able to adopt more aggressive pricing
policies. Furthermore, large software companies, Internet
portals and database management companies may enter the market
or enhance their current offerings, either by developing
competing services or by acquiring our competitors, and could
leverage their significant resources and pre-existing
relationships with our current and potential customers.
We believe the principal competitive factors in our markets
include the following:
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the ability to provide actual and perceived high-quality,
accurate and reliable data regarding Internet and other digital
media audience behavior and activity in a timely manner,
including the ability to maintain a large and statistically
representative sample panel;
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the ability to adapt product offerings to emerging digital media
technologies and standards;
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the breadth and depth of products and their flexibility and ease
of use;
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the availability of data across various industry verticals and
geographic areas and expertise across these verticals and in
these geographic areas;
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the ability to offer survey-based information combined with
digital media usage, eCommerce data and other online information
collected from panelists;
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the ability to offer high-quality analytical services based on
Internet and other digital media audience measurement
information;
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the ability to offer products that meet the changing needs of
customers and provide high-quality service; and
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the prices that are charged for products based on the perceived
value delivered.
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We believe that we compete favorably with our competitors on the
basis of these factors. However, if we are unable to compete
successfully against our current and future competitors, we may
not be able to acquire and retain customers, and we may
consequently experience a decline in revenues, reduced operating
margins, loss of market share and diminished value from our
products.
15
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. 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 Risk Factors Risks Related to Our
Business and Our Technologies.
Executive
Officers of the Registrant
Magid M. Abraham, Ph.D., one of our co-founders, has
served as President, Chief Executive Officer and Director since
September 1999. In 1995, Dr. Abraham founded Paragren
Technologies, Inc., which specialized in delivering large scale
Customer Relationship Marketing systems for strategic and target
marketing, and served as its Chief Executive Officer from 1995
to 1999. Prior to founding Paragren, Dr. Abraham was
employed by Information Resources, Inc. from 1985 until 1995,
where he was President and Chief Operating Officer from 1993 to
1994 and later Vice Chairman of the Board of Directors from 1994
until 1995. Since May 2006, Dr. Abraham has also been a
member of the board of directors of ES3, LLC, a storage and
logistics services company. Dr. Abraham received the Paul
Green Award in 1996 and the William F. ODell Award in 2000
from the American Marketing Association for a 1995 article that
he co-authored in the Journal of Marketing Research. He received
a Ph.D. in Operations Research and an M.B.A. from MIT. He also
holds an Engineering degree from the École Polytechnique in
France.
Gian M. Fulgoni, one of our co-founders, has served as
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
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and previously served from August 1999 through November 2000.
Mr. Fulgoni also serves on the board of directors of INXPO,
LLC, an Illinois-based provider of virtual events, since July
2005. 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.
Mr. Fulgoni has twice been named an Illinois Entrepreneur
of the Year. 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. 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.
John M. Green has served as Chief Financial Officer since
May 2006. Prior to joining comScore, Mr. Green served as
the Chief Financial Officer and U.S. Services Business
Leader for BioReliance, a subsidiary of Invitrogen Corporation,
from 2004 to March 2006. Prior to joining BioReliance,
Mr. Green served as the General Manager, Business
Integrations at Invitrogen from September 2003 to April 2004.
From March 2001 through August 2003, Mr. Green served as
the Chief Financial Officer for InforMax, and as its Chief
Operating Officer from October 2001 until the sale of InforMax
and integration into Invitrogen in August 2003. Prior to 2001,
Mr. Green held several financial and operating management
roles, including serving as Executive Vice President of
Operations at HMSHost Corporation, Senior Vice President of
Finance and Corporate Controller at Marriott International
Incorporated and Director of Business Planning and Director of
Finance, Central Europe, at PepsiCo, Inc. Mr. Green
received an M.Sc. in Economics from The London School of
Economics and a B.A. in Political Science/International
Relations from Tufts University.
Gregory T. Dale has served as Chief Technology Officer
since October 2000. Prior to that, he served as Vice President,
Product Management starting in September 1999. 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 General Counsel and Chief
Privacy Officer since January 2006. Prior to that, she served as
our Corporate Counsel and Chief Privacy Officer starting in
March 2003. Prior to that, she served as our Deputy General
Counsel starting in February 2001. 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, 2007, we had 452 employees. None of
our employees is 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 and Japan. For information with respect to
our geographic markets, see Note 16 to our Consolidated
Financial Statements in Part II, Item 8 of this Annual
Report on
Form 10-K.
Available
Information
We make our periodic and current reports available, free of
charge, on our website as soon as practicable after such
material is electronically filed with the Securities and
Exchange Commission. Our website address is www.comscore.com
and such reports are filed under SEC Filings on
the Investor Relations portion of our website. Further, a copy
of this annual report as well as our other periodic and current
reports may be obtained from the SEC, located at the SECs
public reference room at 100 F Street, NE,
Washington, D.C. 20549. Information on the operation of the
Public Reference Room can be obtained by calling the SEC at
1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding our
filings at www.sec.gov.
17
An investment in our common stock involves a substantial risk
of loss. You should carefully consider these risk factors,
together with all of the 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 all or part of your
investment.
Risks
Related to Our Business and Our Technologies
If we
are not able to maintain a panel of sufficient size and scope,
or if the costs of maintaining our panel materially increase,
our business would be harmed.
We believe that the quality, size and scope of our Internet user
panel are critical to our business. There can be no assurance,
however, that we will be able to maintain a panel 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, 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 that such additional expenses are not accompanied by
increased revenues, our operating margins would be reduced and
our financial results would be adversely affected.
Our
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;
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our revenue recognition policies related to the timing of
contract renewals, delivery of products and duration of
contracts and the corresponding timing of revenue recognition;
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the mix of subscription-based versus project-based revenues;
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the impact on our contract renewal rates, in particular for our
subscription-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;
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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;
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adverse judgments or settlements in legal disputes;
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the timing of costs related to the development or acquisition of
technologies, services or businesses to support our existing
customer base and potential growth opportunities;
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the timing of any additional reversal of our deferred tax
valuation allowance; and
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general economic, industry and market conditions and those
conditions specific to Internet usage and online businesses.
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We believe that our quarterly revenues and results of operations
on a
year-over-year
and sequential
quarter-over-quarter
basis may vary significantly in the future and that
period-to-period
comparisons of our operating results may not be meaningful. You
should not rely on the results of prior quarters as an
indication of future performance.
Material
defects or errors in our data collection and analysis systems
could damage our reputation, result in significant costs to us
and impair our ability to sell our products.
Our data collection and analysis systems are complex and may
contain material defects or errors. In addition, the large
amount of data that we collect may cause errors in our data
collection and analysis systems. Any defect in our panelist data
collection software, network systems, statistical projections or
other methodologies could result in:
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loss of customers;
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damage to our brand;
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lost or delayed market acceptance and sales of our products;
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interruptions in the availability of our products;
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the incurrence of substantial costs to correct any material
defect or error;
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sales credits, refunds or liability to our customers;
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diversion of development resources; and
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increased warranty and insurance costs.
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Any material defect or error in our data collection systems
could adversely affect our reputation and operating results.
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
19
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, 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.
Our
business may be harmed if we change our methodologies or the
scope of information we collect.
We have in the past and may in the future change our
methodologies or the scope of information we collect. Such
changes may result from identified deficiencies in current
methodologies, development of more advanced methodologies,
changes in our business plans or expressed or perceived needs of
our customers or potential customers. Any such changes or
perceived changes, or our inability to accurately or adequately
communicate to our customers and the media such changes and the
potential implications of such changes on the data we have
published or will publish in the future, may result in customer
dissatisfaction, particularly if certain information is no
longer collected or information collected in future periods is
not comparable with information collected in prior periods. For
example, in 2002, we integrated our existing methodologies with
those of Jupiter Media Metrix, which we had recently acquired.
As part of this process, we discontinued reporting certain
metrics. Some customers were dissatisfied and either terminated
their subscriptions or failed to renew their subscriptions
because of these changes. Future changes to our methodologies or
the information we collect may cause similar customer
dissatisfaction and result in loss of customers.
We may
lose customers or be liable to certain customers if we provide
poor service or if our products do not comply with our customer
agreements.
Errors in our systems resulting from the large amount of data
that we collect, store and manage could cause the information
that we collect to be incomplete or to contain inaccuracies that
our customers regard as significant. The failure or inability of
our systems, networks and processes to adequately handle the
data in a high quality and consistent manner could result in the
loss of customers. In addition, we may be liable to certain of
our customers for damages they may incur resulting from these
events, such as loss of business, loss of future revenues,
breach of contract or loss of goodwill to their business.
Our insurance policies may not cover any claim against us for
loss of data, inaccuracies in data or other indirect or
consequential damages and defending a lawsuit, regardless of its
merit, could be costly and divert managements attention.
Adequate insurance coverage may not be available in the future
on acceptable terms, or at all. Any such developments could
adversely affect our business and results of operations.
Concern
over spyware and privacy, including any violations of privacy
laws or perceived misuse of personal information, could cause
public relations problems and could impair our ability to
recruit panelists or maintain a panel 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 use of personal
information may create negative public reaction related to our
business practices. Public concern has increased recently
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
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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, that new anti-spyware programs classify our software
as spyware or as a potential spyware application, or that third
party service providers fail to comply with our privacy or data
security requirements, our brand may be harmed and users may
refrain from downloading these programs or may uninstall our
software. Any resulting reputational harm, potential claims
asserted against us or decrease in the size or scope of our
panel could reduce the demand for our products, increase the
cost of recruiting panelists and adversely affect our ability to
provide our products to our customers. Any of these effects
could harm our business.
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 if a third party were to gain unauthorized access to the
personally identifiable 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. For example, California law
requires companies that maintain data on California residents to
inform individuals of any security breaches that result in their
personal information being stolen. 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. 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, either of which could
adversely affect our business and operating results.
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,
21
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 and Europe; and
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our ability to successfully integrate acquired businesses,
technologies or services.
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We
have a history of significant net losses, may incur significant
net losses in the future and may not maintain
profitability.
Although we achieved net income in 2007 and 2006 of
$19.3 million and $5.7 million, respectively, we have
incurred significant losses in prior periods, including net
losses of $4.4 million and $3.2 million in 2005 and
2004, respectively. We cannot assure you that we will continue
to sustain or increase profitability in the future. As of
December 31, 2007, we had an accumulated deficit of
$80.8 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.
The
market for digital marketing intelligence is highly competitive,
and if we cannot compete effectively, our revenues will decline
and our business will be harmed.
The market for digital marketing intelligence is highly
competitive and is evolving rapidly. We compete primarily with
providers of digital media intelligence and related analytical
products and services. We also compete with providers of
marketing services and solutions, with full-service survey
providers and with internal solutions developed by customers and
potential customers. Our principal competitors include:
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large and small companies that provide data and analysis of
consumers online behavior, including Compete Inc., Hitwise
Pty. Ltd , Quantcast and Nielsen/NetRatings;
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online advertising companies that provide measurement of online
ad effectiveness, including aQuantive, Inc., DoubleClick Inc.,
ValueClick, Inc. and WPP Group plc;
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companies that provide audience ratings for TV, radio and other
media that have extended or may extend their current services,
particularly in certain international markets, to the
measurement of digital media, including Arbitron Inc., Nielsen
Media Research, Inc. and Taylor Nelson Sofres plc;
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analytical services companies that provide customers with
detailed information of behavior on their own Web sites,
including Omniture, Inc., Visual Sciences and WebTrends
Corporation;
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full-service market research firms and survey providers that may
measure online behavior and attitudes, including Harris
Interactive Inc., Ipsos Group, Taylor Nelson Sofres plc and The
Nielsen Company; and
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specialty information providers for certain industries that we
serve, including IMS Health Incorporated (healthcare) and
Telephia, Inc. (telecommunications).
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Some of our current competitors have longer operating histories,
access to larger customer bases and substantially greater
resources than we do. As a result, these competitors may be able
to devote greater resources to marketing and promotional
campaigns, panel retention, panel development or development of
systems and technologies than we can. In addition, some of our
competitors may adopt more aggressive pricing policies.
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,
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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, which could
adversely affect our results of operations.
We have experienced significant growth in recent periods. We
have substantially expanded our overall business, customer base,
headcount, data collection and processing infrastructure and
operating procedures as our business has grown. We increased our
total number of full time employees to 452 employees as of
December 31, 2007 from 176 employees as of
December 31, 2003, and we expect to continue to expand our
workforce to meet our strategic objectives. In addition, during
this same period, we made substantial investments in our network
infrastructure operations as a result of our growth. We believe
that we will need to continue to effectively manage and expand
our organization, operations and facilities in order to
accommodate our expected future growth. If we continue to grow,
our current systems and facilities may not be adequate. Our need
to effectively manage our operations and growth 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 growth, our
business may be impaired.
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. 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. Because of the foregoing factors, among others, the
market for Internet advertising and eCommerce 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 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, 2007, 2006 and 2005, we derived over 37%, 39%
and 41%, respectively, of our total revenues from our top 10
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
23
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, 2007, 2006 and 2005, we derived approximately
13%, 12% and 14%, 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.
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 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.
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 plan to continue to expand 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. In general, new hires require significant training
and substantial experience before becoming productive. Our
recent hires and planned hires may not become as productive as
we require, and we may be unable to hire or retain sufficient
numbers of qualified individuals in the future in the markets
where we currently operate or where we seek to conduct business.
Our business will be seriously harmed if the efforts to expand
our sales and marketing capabilities are not successful or if
they do not generate a sufficient increase in revenues.
We
have limited experience with respect to our pricing model, and
if the prices 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 prices for our
products that our existing and potential customers will find
acceptable. 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 at the prices we have
historically charged. As a result, it is possible that future
competitive dynamics in our market may require us to reduce our
prices, which could have an adverse effect on our revenues,
profitability and operating results.
24
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 79%, 75% and 70% of
our revenues in 2007, 2006 and 2005, respectively. However, 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 you that current subscriptions will
be renewed at the same or higher price levels, 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
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. We have
limited historical data with respect to rates of customer
subscription renewals, so we cannot accurately predict 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
prices or functionality of our products, the prices or
functionality of products offered by our competitors, mergers
and acquisitions affecting our customer base or reductions in
our customers spending levels.
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 and regularly add new customers.
If our existing and prospective customers do not perceive our
products to be of sufficient value and quality, we may not be
able to increase sales to existing customers and attract new
customers, and our operating results will be adversely affected.
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 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
products that link online activity to offline purchases. 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.
25
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 on October, 2010, if not renewed, and our
agreement for our data center facility located in Illinois
expires on July, 2009, if not renewed. Although we are not
substantially dependent on either data center facility because
of planned redundancies, and although we currently are able to
migrate to alternative data centers, such a migration may result
in an interruption or delay in service. If we are unable to
renew our agreements with the owners of the facilities on
commercially reasonable terms, or if we migrate to a new data
center, we may experience delays in delivering our products
until an agreement with another data center facility can be
arranged or the migration to a new facility is completed.
Further, we depend on access to the Internet through third-party
bandwidth providers to operate our business. If we lose the
services of one or more of our bandwidth providers for any
reason, we could experience disruption in the 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.
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.
We have very 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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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;
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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 or that we will be able
to recruit a representative sample for our audience measurement
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 recently
taken steps 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 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, online publishers and advertisers have recently started
to use Asynchronous JavaScript and XML, or AJAX, a development
technique that allows Web applications to quickly make
incremental updates without having to refresh the entire Web
page. AJAX may make page views a less useful metric for
measuring the usage and effectiveness of online media. If our
products are not effective at addressing evolving customer needs
that result from increased AJAX usage, our business may be
harmed. Similarly, technological advances in the handheld device
industry may lead to changes in our customers
requirements. 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 our
software 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. 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 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.
27
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 two 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, 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.
28
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. 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. 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.
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. On April 19,
2007, we received a letter from the IAB, citing discrepancies
between our audience measurement data, those of our competitors
and those provided by the server logs of IABs member
organizations. In its letter, the IAB asked us to submit to an
independent audit and accreditation process of our audience
measurement systems and processes. In September 2007, we began a
full audit to obtain accreditation by the Media Ratings Council.
Any standards adopted
29
by the IAB or similar organizations 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.
Conditions
and changes in the national and global economic and political
environments may adversely affect our business and financial
results.
Adverse economic conditions in markets in which we operate can
harm our business. If economic growth in the United States and
other countries is slowed, customers may delay or reduce their
purchases of digital marketing intelligence products and
services. These effects could result in reductions in sales of
our products, longer sales cycles, slower adoption of our
products and increased price competition. Weakness in the
consumer market could negatively affect the cash flow of our
customers who could, in turn, reduce their purchases of our
products and services. Specific economic trends or softness in
digital marketing intelligence or advertising spending could
have a direct impact on our business. Any of these events would
likely harm our business, operating results and financial
condition.
Recent turmoil in the political environment in many parts of the
world, including terrorist activities and military actions, the
continuing tension in and surrounding Iraq, 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.
We
rely on our management team and need additional personnel to
grow our business, and 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.
30
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.
Our business strategy may include 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 companies.
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; 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.
Changes
in, or interpretations of, accounting rules and regulations,
including recent rules and regulations regarding expensing of
stock options, 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 this Annual Report on
Form 10-K.
On December 16, 2004, the FASB issued
SFAS No. 123R (revised 2004), Share-Based
Payment, which is a revision of SFAS No. 123,
Accounting for Stock-Based Compensation
(SFAS No. 123R). SFAS No. 123R
supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and amends SFAS No. 95,
Statement of Cash Flows. Generally, the approach in
SFAS No. 123R is similar to the approach described in
SFAS No. 123. However, SFAS No. 123R
requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the income
statement based on their fair values. We were required to adopt
SFAS No. 123R on January 1, 2006, and have
adopted it as of that date.
As permitted by SFAS No. 123, we accounted for
share-based payments to employees through December 31, 2005
using APB Opinion No. 25s intrinsic value method and,
as such, generally recognized no compensation cost
31
for employee stock options. Accordingly, the adoption of
SFAS No. 123Rs fair value method has had a
significant impact on the presentation of our results of
operations, although it has not impacted our overall financial
position. The long-term impact of adoption of
SFAS No. 123R cannot be predicted at this time because
it will depend on levels of share-based payments granted in the
future and the assumptions for the variables which impact the
computation of the fair value of any such grants.
Historically, we have used stock options as part of our
compensation programs to motivate and retain existing employees
and to attract new employees. Because we are now required to
expense stock options, we may choose to reduce our reliance on
stock options as part of our compensation packages. If we reduce
our use of stock options, it may be more difficult for us to
retain and attract qualified employees. If we do not reduce our
use of stock options, our expenses in future periods may
increase. Beginning in 2007, we issued restricted stock awards
and restricted stock units, and we expect to reduce our use of
stock options as a form of stock-based compensation, but we
cannot be certain whether or how our stock-based compensation
policy will change in the future.
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
for each year beginning with the year ending December 31,
2008. That report must include managements assessment of
the effectiveness of our internal control over financial
reporting as of the end of that and each subsequent fiscal year.
Additionally, our independent registered public accounting firm
will be required to issue a report on managements
assessment of our internal control over financial reporting and
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. In addition,
we cannot assure you that we will be able to complete the work
necessary for our management to issue its management report in a
timely manner, or that we will be able to complete any work
required for our management to be able to conclude that our
internal control over financial reporting is operating
effectively. 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 as of
December 31, 2008. If our internal control over financial
reporting is found by management or by our independent
registered public accountant to not be adequate or if we
disclose significant existing or potential deficiencies or
material weaknesses in those controls, investors could lose
confidence in our financial reports, we could be subject to
sanctions or investigations by The NASDAQ Global Market, the
Securities and Exchange Commission or other regulatory
authorities and our stock price could be adversely affected.
A determination that there is a significant deficiency or
material weakness in the effectiveness of our internal control
over financial reporting could also reduce our ability to obtain
financing or could increase the cost of any financing we obtain
and require additional expenditures to comply with applicable
requirements.
Our
net operating loss carryforwards may expire unutilized or
underutilized, which could prevent us from offsetting future
taxable income.
We have experienced changes in control that have
triggered the limitations of Section 382 of the Internal
Revenue Code on our net operating loss carryforwards. As a
result, we may be limited in the portion of net operating loss
carryforwards that we can use in the future to offset taxable
income for U.S. Federal income tax purposes.
32
As of December 31, 2007, we had both federal and state net
operating loss carryforwards for tax purposes of approximately
$67.8 million and $48.1 million, respectively. These
net operating loss carryforwards begin to expire in 2020 for
federal income tax reporting purposes and begin to expire in
2010 for state income tax reporting purposes.
In addition, at December 31, 2007 we had aggregate net
operating loss carryforwards for tax purposes related to our
foreign subsidiaries of $561,000, which begin to expire in 2010.
In the years ended December 31, 2006 and 2007, deferred tax
assets, before valuation allowance, decreased approximately
$2.4 million and $4.4 million, respectively, due to
our use of net operating loss carryforwards to offset taxable
income.
As of December 31, 2007, we had a valuation allowance of
$21.3 million against certain deferred tax assets, which
consisted principally of net operating loss carryforwards. We
have continued to evaluate our valuation allowance position on a
regular basis. After weighing both the positive and negative
evidence, management believed that it was more likely than not
that a portion of its deferred tax assets will be realized.
Therefore, during 2007, we recognized a deferred tax asset of
approximately $8.1 million based on our projected pre-tax income
for 2008. If we determine that future reversals of our valuation
allowance are appropriate, it may have a material impact on our
results of operations.
During 2008, it is expected that the deferred tax asset
recognized in 2007 will decrease each quarter as the net
deferred tax asset is utilized. Therefore, we expect that we
will have a normalized effective tax rate in the
interim periods in 2008 for GAAP reporting purposes, with no tax
impact on operating and free cashflow. On a quarterly basis
throughout 2008, we will re-evaluate the realizability of our
deferred tax assets for any material events. We will also
consider the impact of full-year 2008 operating results,
additional evidence concerning the predictability of our revenue
streams and forecasts of future income.
We periodically assess the likelihood that we will be able to
recover our deferred tax assets. 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 profits. As a result of this analysis of all available
evidence, both positive and negative, we concluded that a full
valuation allowance against deferred tax assets should be
applied as of December 31, 2006. 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 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 will recognize an income tax benefit in the period
such determination is made for the reversal of the valuation
allowance. Once the valuation allowance is eliminated or
reduced, its reversal will no longer be available to offset our
current tax provision. 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.
33
We
face the risk of a decrease in our cash balances and losses in
our investment portfolio.
Investment income has become a more substantial component of our
net income. 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.
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, 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 and high-quality,
well-collateralized asset-backed securities. We do not hold any
sub-prime mortgages or structured investment vehicles. We do not
invest in below investment-grade securities.
Our investments in adjustable rate securities are subject
to risks which may cause losses and affect the liquidity of
these investments.
As of December 31, 2007, our principal sources of liquidity
consisted of cash, cash equivalents and short-term investments
of $96.8 million. As of December 31, 2007 we held
$7.9 million in long-term investments consisting of
$4.9 million in auction rate securities and
$3.0 million in other long-term fixed income securities. We
generally invest in these securities for short periods of time
as part of our investment policy. Auctions for some of these
adjustable rate securities have failed, and there is no
assurance that auctions on the remaining adjustable rate
securities in our investment portfolio will succeed in the
future. An auction failure means that the parties wishing to
sell their securities could not do so. As a result, our ability
to liquidate and fully recover the carrying value of our
adjustable rate securities in the near term may be limited or
not exist. These developments have resulted in the
classification of some or all of these securities as long-term
investments in our consolidated financial statements.
The recent uncertainties in the credit markets have prevented us
and other investors from liquidating holdings of auction rate
securities in recent auctions for these securities because the
amount of securities submitted for sale has exceeded the amount
of purchase orders. Accordingly, we still hold these long-term
securities and are due interest at a higher rate than similar
securities for which auctions have cleared. None of these
investments are mortgage backed securities or collateralized
debt obligations. As of December 31, 2007, these
investments were fully backed by AAA rated bonds and were
insured against loss of principal and interest by bond insurers
whose AAA ratings are under review. These securities were valued
using a discounted cash flow model that takes into consideration
the financial condition of the issuers and the bond insurers as
well as the expected date liquidity will be restored. If the
credit ratings of the issuer, the bond insurers or the
collateral continues to deteriorate, we may further adjust the
carrying value of these investments. We are uncertain as to when
the liquidity issues relating to these investments will improve.
Accordingly, we classified these securities as long-term as of
December 31, 2007. If the issuers of these adjustable rate
securities are unable to successfully close future auctions and
their credit ratings deteriorate, we may in the future be
required to record an impairment charge on these investments. We
may be required to wait until market stability is restored for
these instruments or until the final maturity of the underlying
notes (up to 30 years) to recover our investment.
Subsequent to December 31, 2007, we sold auction rate
securities with a total par value of $23.1 million on the
scheduled auction dates and reinvested the proceeds in treasury
bills. As the credit markets continue to decline, we have
experienced additional illiquidity in $2.4 million in par
value of auction rate securities. In addition, subsequent to
December 31, 2007, one of the bond insurers backing one of
the investments was downgraded by the credit agencies from AAA
to A3/AA and the resulting bond was also downgraded to A3/AA.
34
Risks
Related to the Securities Market and Ownership of our Common
Stock
We
cannot assure you that a market will continue to develop or
exist for our common stock or what the market price of our
common stock will be.
Prior to our initial public offering, which was completed on
July 2, 2007, there was no public trading market for our
common stock, and we cannot assure you that one will continue to
develop or be sustained. If a market does not continue to
develop or is not sustained, it may be difficult for you to sell
your shares of common stock at an attractive price or at all. We
cannot predict the prices at which our common stock will trade.
The
trading price of our common stock may be subject to significant
fluctuations and volatility, and our new stockholders may be
unable to resell their shares at a profit.
The stock markets, in general, and the markets for technology
stocks in particular, have experienced high levels of
volatility. The market for technology stocks has been extremely
volatile and frequently reaches levels that bear no relationship
to the past or present operating performance of those companies.
These broad market fluctuations may adversely affect the trading
price of our common stock. In addition, the trading price of our
common stock has been subject to significant fluctuations and
may continue to fluctuate or decline.
The price of our common stock in the market may be higher or
lower than the price you pay, depending on many factors, some of
which are beyond our control and may not be related to our
operating performance. It is possible that, in future quarters,
our operating results may be below the expectations of analysts
or investors. As a result of these and other factors, the price
of our common stock may decline, possibly materially. These
fluctuations could cause you to lose all or part of your
investment in our common stock. Factors that could cause
fluctuations in the trading price of our common stock include
the following:
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price and volume fluctuations in the overall stock market from
time to time;
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volatility in the market price and trading volume of technology
companies and of companies in our industry;
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actual or anticipated changes or fluctuations in our operating
results;
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actual or anticipated changes in expectations regarding our
performance by investors or securities analysts;
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the failure of securities analysts to cover our common stock
after this offering or changes in financial estimates by
analysts;
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actual or anticipated developments in our competitors
businesses or the competitive landscape;
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actual or perceived inaccuracies in, or dissatisfaction with,
information we provide to our customers or the media;
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litigation involving us, our industry or both;
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regulatory developments;
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privacy and security concerns, including public perception of
our practices as an invasion of privacy;
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general economic conditions and trends;
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major catastrophic events;
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sales of large blocks of our stock;
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the timing and success of new product introductions or upgrades
by us or our competitors;
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changes in our pricing policies or payment terms or those of our
competitors;
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concerns relating to the security of our network and systems;
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our ability to expand our operations, domestically and
internationally, and the amount and timing of expenditures
related to this expansion; or
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departures of key personnel.
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35
In the past, following periods of volatility in the market price
of a companys securities, securities class action
litigation has often been brought against that company. If our
stock price is volatile, we may become the target of securities
litigation, which could result in substantial costs and divert
our managements attention and resources from our business.
In addition, volatility, lack of positive performance in our
stock price or changes to our overall compensation program,
including our equity incentive program, may adversely affect our
ability to retain key employees.
If
securities or industry analysts do not publish research or
reports about our business, or if they issue an adverse or
misleading opinion regarding our stock, our stock price and
trading volume could decline.
The trading market for our common stock will be influenced by
the research and reports that industry or securities analysts
publish about us or our business. If any of the analysts who
cover us issue an adverse or misleading opinion regarding our
stock, our stock price would likely decline. If one or more of
these analysts cease coverage of our company or fail to publish
reports on us regularly, we could lose visibility in the
financial markets, which in turn could cause our stock price or
trading volume to decline.
Future
sales of shares by existing stockholders could cause our stock
price to decline.
If our existing stockholders sell, or indicate an intention to
sell, substantial amounts of our common stock in the public
market, the trading price of our common stock could decline.
These sales could also make it more difficult for us to sell
equity or equity-related securities in the future at a time and
price that we deem appropriate.
Insiders
have substantial control over the outstanding shares of our
common stock, which could limit your ability to influence the
outcome of key transactions, including a change of
control.
Our directors, executive officers and each of our stockholders
who own greater than 5% of our outstanding common stock and
their affiliates, in the aggregate, together beneficially own a
majority of the outstanding shares of our common stock. As a
result, these stockholders, if acting together, would be able to
influence or control matters requiring approval by our
stockholders, including the election of directors and the
approval of mergers, acquisitions or other extraordinary
transactions. They may have interests that differ from yours and
may vote in a way with which you disagree and which may be
adverse to your interests. This concentration of ownership may
have the effect of delaying, preventing or deterring a change of
control of our company, could deprive our stockholders of an
opportunity to receive a premium for their common stock as part
of a sale of our company and might affect the market price of
our common stock.
We
have incurred and will continue to incur increased costs and
demands upon management as a result of complying with the laws
and regulations affecting a public company, which could
adversely affect our operating results.
As a public company, we have incurred and will continue to incur
significant legal, accounting and other expenses that we did not
incur as a private company. In addition, the Sarbanes-Oxley Act
of 2002, as well as rules implemented by the Securities and
Exchange Commission and The NASDAQ Stock Market, requires
certain corporate governance practices for public companies. Our
management and other personnel devote a substantial amount of
time to public reporting requirements and corporate governance.
These rules and regulations have significantly increased our
legal and financial compliance costs and made some activities
more time-consuming and costly. We also have incurred additional
costs associated with our public company reporting requirements.
If these costs do not continue to be offset by increased
revenues and improved financial performance, our operating
results would be adversely affected. These rules and regulations
also make it more difficult and more expensive for us to obtain
director and officer liability insurance, and we may be required
to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar
coverage if these costs continue to rise. As a result, it may be
more difficult for us to attract and retain qualified people to
serve on our board of directors or as executive officers.
36
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:
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provide for a classified board of directors so that not all
members of our board of directors are elected at one time;
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authorize blank check preferred stock that our board
of directors could issue to increase the number of outstanding
shares to discourage a takeover attempt;
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prohibit stockholder action by written consent, which means that
all stockholder actions must be taken at a meeting of our
stockholders;
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prohibit stockholders from calling a special meeting of our
stockholders;
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provide that the board of directors is expressly authorized to
make, alter or repeal our bylaws; and
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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.
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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.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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Not applicable.
Our corporate headquarters and executive offices are located in
Reston, Virginia, where we occupy approximately
34,000 square feet of office space under a lease that
expires in June 2008. In December 2007, we entered into a lease
with a new landlord for approximately 62,000 square feet of
new office space for our corporate headquarters, which will
continue to be located in Reston, Virginia. We expect to move
our corporate headquarters in June 2008. We also lease space in
various locations throughout the United States and in Toronto,
London and Japan for sales and other personnel. If we require
additional space, we believe that we would be able to obtain
such space on commercially reasonable terms.
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ITEM 3.
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LEGAL
PROCEEDINGS
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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.
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ITEM 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of security holders during
the quarter ended December 31, 2007.
37
PART II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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PRICE
RANGE OF COMMON STOCK
Our common stock has been traded on the NASDAQ Global Market
under the symbol SCOR since our initial public
offering on June 27, 2007. The following table sets forth
the high and low sales prices of our common stock for each
period indicated and are as reported by NASDAQ.
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2007
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High
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Low
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Second Quarter (beginning June 27, 2007)
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$
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26.27
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$
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19.70
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Third Quarter
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$
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31.65
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$
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20.62
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Fourth Quarter
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$
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42.00
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$
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26.39
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As of March 4, 2008, there were 703 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 December 31, 2007.
38
STOCK
PERFORMANCE GRAPH
The graph set forth below compares the cumulative total
stockholder return on our common stock between our initial
public offering on June 27, 2007 and December 31,
2007, versus the cumulative total return of the NASDAQ Composite
Index and NASDAQ Computer Index over the same period. This graph
assumes the investment of $100 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
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$100 invested upon market close of the NASDAQ Global Market on
June 27, 2007, our initial public offering date, including
reinvestment of dividends. Fiscal year ending December 31,
2007. |
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 of after the date
hereof and irrespective of any general incorporation language in
any such filing.
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.
39
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, 2007
None.
Use of
Proceeds from Sale of Registered Equity Securities
On June 26, 2007, our Registration Statements on
Form S-1,
as amended (Reg. Nos.
333-131740
and
333-144071)
were declared effective in connection with the initial public
offering of our common stock, pursuant to which we registered an
aggregate of 6,095,000 shares of our common stock, of which
we sold 5,000,000 shares and certain selling stockholders
sold 1,095,000 shares, including the underwriters
over-allotment, at a price to the public of $16.50 per share.
The offering closed on July 2, 2007, and, as a result, we
received net proceeds of approximately $73.1 million (after
underwriters discounts and commissions of approximately
$5.8 million and additional offering-related costs of
approximately $3.6 million), and the selling stockholders
received net proceeds of approximately $16.8 million (after
underwriters discounts and commissions of approximately
$1.3 million). The managing underwriter of the offering was
Credit Suisse Securities (USA) LLC.
No payments for such expenses were made directly or indirectly
to (i) any of our officers or directors or their
associates, (ii) any persons owning 10% or more of any
class of our equity securities, or (iii) any of our
affiliates. We did not receive any proceeds from the sale of
shares in the initial public offering by the selling
stockholders.
The principal purposes of the offering were to create a public
market for our common stock and to facilitate our future access
to the public equity markets, as well as to obtain additional
capital. Except as discussed below, we currently have no
specific plans for the use of a significant portion of the net
proceeds of the offering. However, we anticipate that we will
use the net proceeds from the offering for general corporate
purposes, which may include working capital, capital
expenditures, other corporate expenses and acquisitions of
complementary products, technologies or businesses. We expect to
use approximately $4 million of the net proceeds for
capital expenditures related to computer hardware and equipment
as well as office improvements. We currently have no agreements
or commitments with respect to acquisitions of complementary
products, technologies or businesses. The timing and amount of
our actual expenditures will be based on many factors, including
cash flows from operations and the anticipated growth of our
business.
Pending the uses described above, we intend to invest the net
proceeds in a variety of short-term, interest-bearing,
investment grade securities. There has been no material change
in the planned use of proceeds from our initial public offering
from that described in the final prospectus filed by us with the
SEC pursuant to Rule 424(b) on June 28, 2007.
PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
None during the fourth quarter of 2007.
40
|
|
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, 2007, 2006 and 2005 as well as the
consolidated balance sheet data as of December 31, 2007 and
2006 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, 2004 and 2003 as well
as the consolidated balance sheet data as of December 31,
2005, 2004 and 2003 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
87,153
|
|
|
$
|
66,293
|
|
|
$
|
50,267
|
|
|
$
|
34,894
|
|
|
$
|
23,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues(1)
|
|
|
23,858
|
|
|
|
20,560
|
|
|
|
18,218
|
|
|
|
13,153
|
|
|
|
15,671
|
|
Selling and marketing(1)
|
|
|
28,659
|
|
|
|
21,473
|
|
|
|
18,953
|
|
|
|
13,890
|
|
|
|
11,677
|
|
Research and development(1)
|
|
|
11,413
|
|
|
|
9,009
|
|
|
|
7,416
|
|
|
|
5,493
|
|
|
|
5,444
|
|
General and administrative(1)
|
|
|
11,599
|
|
|
|
8,293
|
|
|
|
7,089
|
|
|
|
4,982
|
|
|
|
4,124
|
|
Amortization
|
|
|
966
|
|
|
|
1,371
|
|
|
|
2,437
|
|
|
|
356
|
|
|
|
772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
76,495
|
|
|
|
60,706
|
|
|
|
54,113
|
|
|
|
37,874
|
|
|
|
37,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
10,658
|
|
|
|
5,587
|
|
|
|
(3,846
|
)
|
|
|
(2,980
|
)
|
|
|
(14,333
|
)
|
Interest (expense) income, net
|
|
|
2,627
|
|
|
|
231
|
|
|
|
(208
|
)
|
|
|
(246
|
)
|
|
|
(595
|
)
|
(Loss) gain from foreign currency
|
|
|
(296
|
)
|
|
|
125
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
Revaluation of preferred stock warrant liabilities
|
|
|
(1,195
|
)
|
|
|
(224
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes and cumulative effect of
change in accounting principle
|
|
|
11,794
|
|
|
|
5,719
|
|
|
|
(4,164
|
)
|
|
|
(3,226
|
)
|
|
|
(14,928
|
)
|
Benefit (provision) for income taxes
|
|
|
7,522
|
|
|
|
(50
|
)
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before cumulative effect of change in
accounting principle
|
|
|
19,316
|
|
|
|
5,669
|
|
|
|
(3,982
|
)
|
|
|
(3,226
|
)
|
|
|
(14,928
|
)
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
19,316
|
|
|
|
5,669
|
|
|
|
(4,422
|
)
|
|
|
(3,226
|
)
|
|
|
(14,928
|
)
|
Accretion of redeemable preferred stock
|
|
|
(1,829
|
)
|
|
|
(3,179
|
)
|
|
|
(2,638
|
)
|
|
|
(2,141
|
)
|
|
|
(3,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
17,487
|
|
|
$
|
2,490
|
|
|
$
|
(7,060
|
)
|
|
$
|
(5,367
|
)
|
|
$
|
(18,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.99
|
|
|
$
|
|
|
|
$
|
(2.30
|
)
|
|
$
|
(1.88
|
)
|
|
$
|
(6.96
|
)
|
Diluted
|
|
$
|
0.88
|
|
|
$
|
|
|
|
$
|
(2.30
|
)
|
|
$
|
(1.88
|
)
|
|
$
|
(6.96
|
)
|
Weighted-average number of shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,139,365
|
|
|
|
3,847,213
|
|
|
|
3,130,194
|
|
|
|
2,871,713
|
|
|
|
2,690,288
|
|
Diluted
|
|
|
18,377,563
|
|
|
|
3,847,213
|
|
|
|
3,130,194
|
|
|
|
2,871,713
|
|
|
|
2,690,288
|
|
41
|
|
|
(1) |
|
Amortization of stock-based compensation is included in the
preceding line items as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Cost of revenues
|
|
$
|
279
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Selling and marketing
|
|
|
1,009
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
245
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
941
|
|
|
|
91
|
|
|
|
3
|
|
|
|
14
|
|
|
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
96,817
|
|
|
$
|
16,032
|
|
|
$
|
9,174
|
|
|
$
|
8,404
|
|
|
$
|
9,557
|
|
Total current assets
|
|
|
123,444
|
|
|
|
31,493
|
|
|
|
20,792
|
|
|
|
15,678
|
|
|
|
15,482
|
|
Total assets
|
|
|
147,672
|
|
|
|
42,087
|
|
|
|
29,477
|
|
|
|
23,618
|
|
|
|
22,154
|
|
Total current liabilities
|
|
|
42,077
|
|
|
|
32,880
|
|
|
|
27,220
|
|
|
|
18,591
|
|
|
|
15,515
|
|
Equipment loan and capital lease obligations, long-term
|
|
|
977
|
|
|
|
2,261
|
|
|
|
1,283
|
|
|
|
1,438
|
|
|
|
2,421
|
|
Preferred stock warrant liabilities and common stock subject to
put
|
|
|
1,815
|
|
|
|
5,362
|
|
|
|
4,997
|
|
|
|
(2,141
|
)
|
|
|
349
|
|
Redeemable preferred stock
|
|
|
|
|
|
|
101,695
|
|
|
|
98,516
|
|
|
|
95,878
|
|
|
|
93,737
|
|
Stockholders equity (deficit)
|
|
|
102,622
|
|
|
|
(99,557
|
)
|
|
|
(102,294
|
)
|
|
|
(95,230
|
)
|
|
|
(89,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Consolidated Statement of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
21,211
|
|
|
$
|
10,905
|
|
|
$
|
4,253
|
|
|
$
|
1,907
|
|
|
$
|
(3,912
|
)
|
Depreciation and amortization
|
|
|
4,730
|
|
|
|
4,259
|
|
|
|
5,123
|
|
|
|
2,745
|
|
|
|
6,604
|
|
Capital expenditures
|
|
|
3,635
|
|
|
|
2,314
|
|
|
|
1,071
|
|
|
|
1,208
|
|
|
|
726
|
|
Please see Critical Accounting Policies and
Estimates under 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 elsewhere in
this Annual Report on
Form 10-K.
42
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
|
The following discussion and analysis of our financial
condition and results of operations should be read in
conjunction with our consolidated financial statements and the
related notes to those statements included elsewhere in
Part II Item 8 of this Annual Report on
Form 10-K.
In addition to historical financial information, the following
discussion and analysis contains forward-looking statements that
involve risks, uncertainties and assumptions. Our actual results
and timing of selected events may differ materially from those
anticipated in these forward-looking statements as a result of
many factors, including those discussed under Item 1A,
Risk Factors and elsewhere in this Annual Report on
Form 10-K.
See also Cautionary Statement Regarding Forward-Looking
Statements at the beginning of this
Form 10-K.
Overview
We provide a leading digital marketing intelligence platform
that helps our customers make better-informed business decisions
and implement more effective digital business strategies. Our
products and solutions offer our customers deep insights into
consumer behavior, including objective, detailed information
regarding usage of their online properties and those of their
competitors, coupled with information on consumer demographic
characteristics, attitudes, lifestyles and offline behavior.
Our digital marketing intelligence platform is comprised of
proprietary databases and a computational infrastructure that
measures, analyzes and reports on digital activity. The
foundation of our platform is data collected from our comScore
panel of more than 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.
We deliver our digital marketing intelligence through our
comScore Media Metrix product family and through our comScore
Marketing Solutions products. Media Metrix delivers digital
media intelligence by providing an independent, third-party
measurement of the size, behavior and characteristics of Web
site and online advertising network audiences among home, work
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.
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, 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 over
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, resulting in the sale and issuance by us of
5,000,000 shares of our common stock. We also launched 10
new products including Campaign Metrix, qSearch 2.0, Ad Metrix,
Segment Metrix and comScore Marketer.
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
43
underlying digital marketing intelligence platform. The total
cost of the acquisition was approximately $3.3 million,
consisting of cash and shares of our common stock. 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. The total cost
of the acquisition was approximately $3.6 million,
consisting of cash and shares of our common stock. For the
ninety-day
period beginning January 1, 2008, the former shareholders
of SurveySite (or their transferees) have the right to sell
135,635 shares of our common stock back to us for an
aggregate price of approximately $1.8 million, or $13.35
per share.
Our total revenues have grown to $87.2 million during the
fiscal year ending December 31, 2007 from
$15.4 million during the fiscal year ended January 31,
2003. By comparison, our total expenses from operations have
grown to $76.5 million from $35.2 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;
|
|
|
|
increases in the prices of our products and services;
|
|
|
|
the sales of new products to existing and new customers; and
|
|
|
|
growth in sales outside of the U.S. as a result of entering
into new international markets.
|
As of December 31, 2007, we had 895 customers, compared to
334 as of January 31, 2003. We sell most of our products
through our direct sales force. We established an inside sales
force dedicated to selling comScore Marketer, which was launched
in the fourth quarter of 2007.
Our
Revenues
We derive our revenues primarily from the fees that we charge
for subscription-based products and customized projects. We
define subscription-based revenues as revenues that we generate
from products that we deliver to a customer on a recurring
basis. We define project revenues as revenues that we generate
from customized projects that are performed for a specific
customer on a non-recurring basis. We market our
subscription-based products, customized projects and survey
services within the comScore Media Metrix product family and
through comScore Marketing Solutions.
A significant characteristic of our business model is our large
percentage of subscription-based contracts. Subscription-based
revenues accounted for 78% of our total revenues in 2004 and
decreased to 70% of total revenues in 2005 primarily due to the
acquisition of SurveySite. Subscription-based revenues increased
to 75% of total revenues in 2006 and to 79% of total revenues
during the year ended December 31, 2007.
Many of our customers who initially purchased a customized
project have subsequently purchased one of our
subscription-based products. Similarly, many of our
subscription-based customers have subsequently purchased
additional customized projects.
Historically, we have generated most of our revenues from the
sale and delivery of our products to companies and organizations
located within the United States. We intend to expand our
international revenues by selling our products and deploying our
direct sales force model in additional international markets in
the future. For the year ended December 31, 2007, our
international revenues were $10.1 million, an increase of
$4.4 million, or 76%, over 2006. International revenues
comprised approximately 7%, 9% and 12% of our total revenues for
the fiscal years ended December 31, 2005 and 2006 and,
2007, respectively.
We anticipate that revenues from our U.S. customers will
continue to constitute the substantial majority of our revenues,
but we expect that revenues from customers outside of the
U.S. will increase as a percentage of total revenues as we
build greater international recognition of our brand and expand
our sales operations globally.
44
Subscription
Revenues
We generate a significant proportion of our subscription-based
revenues from our Media Metrix product family. Products within
the Media Metrix family include Media Metrix 2.0, Plan Metrix,
World Metrix and Video Metrix. Additionally, we recently
launched Ad Metrix in the third quarter of 2007. 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.
Project
Revenues
We generate project revenues by providing customized information
reports to our customers on a nonrecurring basis through
comScore Marketing Solutions. For example, a customer in the
media industry might request a custom report that profiles the
behavior of the customers active online users and
contrasts their market share and loyalty with similar metrics
for a competitors online user base. If this customer
continues to request the report beyond an initial project term
of at least nine months and enters into an agreement to purchase
the report on a recurring basis, we begin to classify these
future revenues as subscription-based.
In the second quarter of 2007, we launched Campaign Metrix, a
suite of products that enables our customers to measure their
return on investment from their investment in digital marketing
campaigns and that we believe will help their revenue growth.
Project revenues from Campaign Metrix will be generated when a
customer accesses or downloads a report through our Web site.
Pricing for our Campaign Metrix product is presently based on
the scope of the information provided in the report generated by
the customer.
Critical
Accounting Policies and Estimates
Our discussion and analysis of our financial condition and
results of operations are based on our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the U.S. The
preparation of these financial statements requires us to make
estimates, assumptions and judgments that affect the amounts
reported in our financial statements and the accompanying notes.
We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the
circumstances. Actual results may differ from these estimates.
While our significant accounting policies are described in more
detail in the notes to our consolidated financial statements
included in 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.
45
Revenue
Recognition
We recognize revenues in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 104, Revenue
Recognition (SAB 104). SAB 104 requires that four
basic criteria must be met prior to revenue recognition:
(i) persuasive evidence of an arrangement exists,
(ii) delivery has occurred or the services have been
rendered, (iii) the fee is fixed or determinable, and
(iv) collection of the resulting receivable is reasonably
assured.
We generate revenues by providing access to our online database
or delivering information obtained from our database, usually in
the form of periodic reports. Revenues are typically recognized
on a straight-line basis over the period in which access to data
or reports are provided, which generally ranges from three to
24 months.
We also generate revenues through survey services under
contracts ranging in term from two months to one year. Our
survey services consist of survey and questionnaire design with
subsequent data collection, analysis and reporting. We recognize
revenues on a straight-line basis over the estimated data
collection period once the survey or questionnaire design has
been delivered. Any change in the estimated data collection
period results in an adjustment to revenues recognized in future
periods.
Certain of our arrangements contain multiple elements,
consisting of the various services we offer. Multiple element
arrangements typically consist of a subscription to our online
database combined with customized services. These arrangements
are accounted for in accordance with Emerging Issues Task Force
(EITF) Issue
No. 00-21,
Revenue Arrangements with Multiple Deliverables. We have
determined that there is not objective and reliable evidence of
fair value for any of our services and, therefore, account for
all elements in multiple elements arrangements as a single unit
of accounting. Access to data under the subscription element is
generally provided shortly after the execution of the contract.
However, the initial delivery of customized services generally
occurs subsequent to contract execution. We recognize the entire
arrangement fee over the performance period of the last
deliverable. As a result, the total arrangement fee is
recognized on a straight-line basis over the period beginning
with the commencement of the last customized service delivered.
Generally, our contracts are non-refundable and non-cancelable.
In the event a portion of a contract is refundable, revenue
recognition is delayed until the refund provisions lapse. A
limited number of customers have the right to cancel their
contracts by providing us with written notice of cancellation.
In the event that a customer cancels its contract, it is not
entitled to a refund for prior services, and it will be charged
for costs incurred plus services performed up to the
cancellation date.
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.
Goodwill
and Intangible Assets
We record goodwill and intangible assets when we acquire other
businesses. The allocation of acquisition costs 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 the replacement cost, income and
market approaches. The replacement cost approach is based on
determining the discrete cost of replacing or reproducing a
specific asset. We generally use the replacement cost approach
for estimating the value of acquired technology/methodology
assets. The income approach converts the anticipated economic
benefits that we assume will be realized from a given asset into
value. Under this approach, value is measured as the present
worth of anticipated future net cash flows generated by an
asset. We generally use the income approach to value customer
relationship assets and non-compete agreements. The market
approach compares the acquired asset to similar assets that have
been sold. We generally use the market approach to value
trademarks and brand assets.
Under Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets
(SFAS 142), 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. In accordance with
46
SFAS 142, 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 required under SFAS 142 at the enterprise level by
comparing the fair value of a reporting unit, based on estimated
future cash flow, 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 derived
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.
Long-lived
assets
Our long-lived assets primarily consist of property and
equipment and intangible assets. In accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived 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. If the undiscounted future cash flows are less than the
carrying amount of the asset, we record an impairment loss equal
to the excess of the assets carrying amount over its fair
value. The fair value is determined based on valuation
techniques such as a comparison to fair values of similar assets
or using a discounted cash flow analysis. Substantially all of
our long-lived assets are located in the United States. 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, 2007, 2006, or 2005.
Allowance
for Doubtful Accounts
We manage credit risk on accounts receivable by performing
credit evaluations of our customers on a selective basis, 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 liability method in
accordance with SFAS No. 109, Accounting for Income
Taxes. 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 net deferred tax asset, 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. To the extent that 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 net carrying value of such assets.
As of December 31, 2007, we had both federal and state net
operating loss carryforwards for tax purposes of approximately
$67.8 million and $48.1 million, respectively. These
net operating loss carryforwards begin to expire in 2020 for
federal and begin to expire in 2010 for state income tax
reporting purposes. In addition, at December 31, 2007 we
had an aggregate net operating loss carryforward for tax
purposes related to our foreign subsidiaries of $561,000 which
begin to expire in 2010.
As of December 31, 2007 and 2006, we had valuation
allowances of $21.3 million and $33.7 million,
respectively, against certain deferred tax assets, which
consisted principally of net operating loss carryforwards. As
47
of December 31, 2006, we believed that, based on a number
of factors, the available objective evidence created sufficient
uncertainty regarding the realizability of the deferred tax
assets such that a full valuation allowance was required. As of
December 31, 2007, we concluded that it is more likely than
not that a portion of our deferred tax assets will be utilized
in subsequent years and that a reduction in the deferred tax
asset valuation allowance was necessary. In determining the
amount of deferred tax assets to recognize, we considered the
history of our profitability, the history of our industry, the
overall amount of the deferred tax assets and the timeframe over
which it would take to utilize the deferred tax assets prior to
their expiration. Given the relatively limited history of our
profitability and the fact that the online marketing industry is
a young and developing industry, we concluded that it was
appropriate to consider future taxable income (exclusive of
reversing temporary differences and carryforwards) for a limited
period of one year in the future. As a result, we reversed a
portion of our valuation allowance and recognized a net deferred
tax asset of $8.1 million. The net deferred tax asset
recognized as of December 31, 2007 represents the
anticipated utilization of a portion of our deferred tax assets
in 2008. The partial reversal of the valuation allowance, and
any future reversal, affects net income only; there is no impact
on operating or free cash flow. Operating or free cash flow is
only impacted when net operating losses are actually utilized
against taxable income to save cash taxes. As a result of the
valuation allowance reversal, we expect that we will have a
normalized effective tax rate in the interim periods
in 2008. If we determine that future reversals of our valuation
allowance are appropriate, it may have a material impact on our
results of operations.
The exercise of stock options during 2007 generated an income
tax deduction equal to the excess of the fair market value over
the exercise price. In accordance with SFAS No. 123R,
Share Based Compensation (SFAS No. 123R), we will
not recognize a deferred tax asset with respect to the excess
stock compensation deductions until those deductions actually
reduce our income tax liability. As such, we have not recorded a
deferred tax asset related to the net operating losses resulting
from the exercise of these stock options in the accompanying
financial statements. At such time as we utilize these net
operating losses to reduce income tax payable, the tax benefit
will be recorded as an increase in additional paid in capital.
In June 2006, the FASB issued FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income Taxes, an
interpretation of SFAS No. 109. This interpretation
clarifies the accounting for income taxes by prescribing that a
company should use a more-likely-than-not recognition threshold
based on the technical merits of the tax position taken. Tax
provisions that meet the more-likely-than-not recognition
threshold should be measured as the largest amount of tax
benefits, determined on a cumulative probability basis, which is
more likely than not to be realized upon ultimate settlement in
the financial statements. FIN 48 also provides guidance on
derecognition, classification, interest and penalties,
accounting for interim periods, disclosure and transition, and
explicitly excludes income taxes from the scope of
SFAS No. 5, Accounting for Contingencies. FIN 48
is effective for fiscal years beginning after December 15,
2006, and was adopted by us on January 1, 2007. As of the
adoption date of FIN 48 on January 1, 2007, we did not
have any material gross unrecognized tax benefits. As of
December 31, 2007, we had unrecognized tax benefits of
$71,000 on a tax effected basis. 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, state and local tax examinations by tax
authorities for years before 2003, although carryforward tax
attributes that were generated prior to 2003 may still be
adjusted upon examination by tax authorities if they either have
been or will be utilized. It is our policy to recognize interest
and penalties related to income tax matters in income tax
expense.
Stock-Based
Compensation
Through December 31, 2005, as permitted by
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123), we applied the intrinsic value
method for accounting for stock-based compensation as set forth
in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25). For
purposes of the pro forma disclosures required under
SFAS 123, we used the minimum-value method to estimate the
fair value of our stock-based awards. On January 1, 2006,
we adopted SFAS No. 123R, Under SFAS 123R, a
non-public company that previously used the minimum value method
for pro forma disclosure purposes is required to adopt the
standard using the prospective method. Under the prospective
method, all awards granted, modified or settled after the date
of adoption are accounted for using the measurement, recognition
and attribution provisions of SFAS 123R. As a result,
stock-based awards granted prior to the date of adoption of
SFAS 123R will continue to be accounted for
48
under APB 25 with no recognition of stock-based compensation in
future periods, unless such awards are modified or settled.
Subsequent to the adoption of SFAS 123R, we estimate the
fair value of our stock-based awards on the date of grant using
the Black-Scholes option-pricing model. The determination of
fair value using the Black-Scholes model requires a number of
complex and subjective variables. One key input into the model
is the fair value of our common stock on the date of grant.
Prior to our initial public offering, our board of directors
estimated the fair value of our common stock for the purpose of
determining stock-based compensation expense. Our board utilized
valuation methodologies commonly used in the valuation of
private company equity securities for purposes of estimating the
fair value of our common stock.
Other key variables in the Black-Scholes option-pricing model
include the expected volatility of our common stock price, the
expected term of the award and the risk-free interest rate. In
addition, under SFAS 123R, we are required to estimate
forfeitures of unvested awards when recognizing compensation
expense. If factors change and we employ different assumptions
in the application of SFAS 123R in future periods, the
compensation expense we record may differ significantly from
what we have previously recorded.
At December 31, 2007, total estimated unrecognized
compensation expense related to unvested stock-based awards
granted prior to that date was $10.6 million, which is
expected to be recognized over a weighted-average period of
2.07 years.
We expect stock-based compensation expense to increase in
absolute dollars as a result of the adoption of SFAS 123R
as options that were granted at the beginning of 2006 and beyond
vest. Beginning in 2007, we made use of restricted stock awards
and reduced our use of stock options as a form of stock-based
compensation. 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 the stock
awards issued, the fair value of our common stock at the time of
issuance, the expected forfeiture rate and the expected
volatility of our stock price over time.
Estimation
of Fair Value of Warrants
On July 1, 2005, we adopted FASB Staff Position
150-5
(FSP 150-5).
Certain of our outstanding warrants to purchase shares of our
stock were subject to the requirements in
FSP 150-5,
which required us to classify these warrants as current
liabilities and to adjust the value of these warrants to their
fair value at the end of each reporting period. We estimated the
fair value of these warrants at the respective dates using the
Black-Scholes option valuation model, based on the estimated
market value of the underlying stock at the valuation
measurement date, the contractual term of the warrant, risk-free
interest rates and expected dividends on and expected volatility
of the price of the underlying stock. These estimates,
especially the market value of the underlying redeemable
convertible preferred stock and the expected volatility, are
highly judgmental. Upon the closing of our initial public
offering on July 2, 2007, these liabilities were
reclassified to stockholders equity (deficit).
Seasonality
Historically, a slightly higher percentage of our customers have
renewed their subscription products with us toward the end of
the fourth quarter.
49
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
27.4
|
|
|
|
31.0
|
|
|
|
36.2
|
|
Selling and marketing expenses
|
|
|
32.9
|
|
|
|
32.4
|
|
|
|
37.7
|
|
Research and development
|
|
|
13.1
|
|
|
|
13.6
|
|
|
|
14.8
|
|
General and administrative
|
|
|
13.3
|
|
|
|
12.5
|
|
|
|
14.1
|
|
Amortization
|
|
|
1.1
|
|
|
|
2.1
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
87.8
|
|
|
|
91.6
|
|
|
|
107.6
|
|
Income (loss) from operations
|
|
|
12.2
|
|
|
|
8.4
|
|
|
|
(7.6
|
)
|
Interest income (expense) net
|
|
|
3.0
|
|
|
|
0.3
|
|
|
|
(0.4
|
)
|
(Loss) gain from foreign currency
|
|
|
(0.3
|
)
|
|
|
0.2
|
|
|
|
(0.2
|
)
|
Revaluation of preferred stock warrant liabilities
|
|
|
(1.4
|
)
|
|
|
(0.3
|
)
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and cumulative effect of
change in accounting principle
|
|
|
13.5
|
|
|
|
8.6
|
|
|
|
(8.2
|
)
|
Benefit (provision) for income taxes
|
|
|
8.7
|
|
|
|
|
|
|
|
0.4
|
|
Net income (loss) before cumulative effect of change in
accounting principle
|
|
|
22.2
|
|
|
|
8.6
|
|
|
|
(7.8
|
)
|
Cumulative effect of change in accounting principle
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
22.2
|
|
|
|
8.6
|
|
|
|
(8.7
|
)
|
Accretion of redeemable preferred stock
|
|
|
(2.1
|
)
|
|
|
(4.8
|
)
|
|
|
(5.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
|
20.1
|
%
|
|
|
3.8
|
%
|
|
|
(13.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2007 Compared to Year Ended
December 31, 2006 and Year Ended December 31, 2006
Compared to Year Ended December 31, 2005
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
Vs.
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues
|
|
$
|
87,153
|
|
|
$
|
66,293
|
|
|
$
|
50,267
|
|
|
$
|
20,860
|
|
|
$
|
16,026
|
|
|
|
31.5
|
%
|
|
|
31.9
|
%
|
Total revenues increased by approximately $20.9 million
during the year ended December 31, 2007 as compared to the
year ended December 31, 2006. This increase was primarily
due to increased sales to existing customers based in the
U.S. totaling $67.1 million during the year ended
December 31, 2007, which was $14.2 million higher than
in the same period in 2006. In addition, revenues during the
year ended December 31, 2007 from new U.S. customers
were $10.0 million, an increase of approximately
$2.3 million as compared to the year ended
December 31, 2006. Revenues from customers outside of the
U.S. totaled approximately $10.1 million, or
approximately 12% of total revenues, during the year ended
December 31, 2007, which was an increase of
$4.4 million as compared to the year ended
December 31, 2006. This increase was due primarily to our
ongoing expansion efforts in Europe and continued growth in
Canada.
During the year ended December 31, 2007, our total customer
base grew by a net increase of 189 customers from 706 at
December 31, 2006 to 895 customers at December 31,
2007. Within this total customer count, we added
50
a net of 218 new subscription-based customers in 2007, resulting
in a total of 813 subscription-based customers at year-end 2007.
There was continued revenue growth in both our subscription
revenues, which increased by approximately $18.9 million
from $49.9 million during the year ended December 31,
2006 to $68.8 million during the year ended
December 31, 2007, and, to a lesser extent, our
project-based revenues, which increased by $2.0 million
from $16.4 million during the year ended December 31,
2006 to $18.4 million during the year ended
December 31, 2007.
Total revenues increased by approximately $16.0 million for
the year ended December 31, 2006 as compared to the year
ended December 31, 2005. This increase was primarily due to
increased sales to existing customers based in the
U.S. totaling $52.9 million in 2006, or
$12.5 million higher than in 2005. In addition, revenues in
2006 from new U.S. customers were $7.7 million, an
increase of $1.2 million compared to 2005. Revenues from
customers outside of the U.S. totaled approximately
$5.7 million, or approximately 9% of total revenues, in
2006, representing an increase of $2.3 million compared to
2005. This increase in 2006 was due primarily to our ongoing
expansion efforts in Europe, which included the opening of an
office in London in the first half of 2005, plus continued
growth in Canada. We also experienced revenue growth due to
general increases in our price levels in 2006 as compared to
2005.
Our total customer base grew during this period from 565 as of
December 31, 2005 to 706 as of December 31, 2006.
There was continued revenue growth in both our subscription
revenues, which increased by approximately $14.6 million
from 2005 to 2006, and our project-based revenues, which
increased by $1.4 million from 2005 to 2006.
We generally invoice customers on an annual, quarterly or
monthly basis, or at the completion of certain milestones, in
advance of revenues being recognized. Amounts that have been
invoiced are recorded in accounts receivable and any unearned
revenues are recorded in deferred revenues until the invoice has
been collected and the revenue recognized.
Cost
of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Cost of revenues
|
|
$
|
23,858
|
|
|
$
|
20,560
|
|
|
$
|
18,218
|
|
|
$
|
3,298
|
|
|
$
|
2,342
|
|
|
|
16.0
|
%
|
|
|
12.9
|
%
|
As a percentage of revenues
|
|
|
27.4
|
%
|
|
|
31.0
|
%
|
|
|
36.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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, and allocated overhead.
Cost of revenues increased by approximately $3.3 million
during the year ended December 31, 2007 as compared to the
year ended December 31, 2006. This increase was primarily
due to a $1.9 million increase in employee salaries,
benefits, and stock compensation costs associated with an
expanded workforce supporting a larger product and customer
base. We experienced an increase of $700,000 in depreciation
expense related to prior purchases of network infrastructure
equipment and an increase of $200,000 in data center costs to
support our consumer panel and the relocation of our data
centers. Cost of revenues declined as a percentage of revenues
by 3.6 percentage points during the year ended
December 31, 2007 over the same period in 2006. This
decrease was primarily due to the increase in revenues as
described above and a moderation of the increase in costs to
build and maintain our panel. In addition, the headcount and
costs associated with our technology staff grew at a lower rate
than our growth in revenues.
Cost of revenues increased in 2006 as compared to 2005,
primarily due to increased costs associated with supporting our
consumer panel and data centers. Our panel costs increased in
large part due to increased recruiting
51
costs per panelist reflecting the impact of higher growth in
online advertising and advertising rates. Our data center costs
increased as a result of the relocation in 2006 of our Illinois
data center to a new service provider and increased utility
costs at our Virginia data center. Cost of revenues declined as
a percentage of revenues over the same periods primarily due to
the increases in revenues as described above and a moderation of
the increases in costs to build and maintain our panel. The
decline in cost of revenues as a percentage of revenues was
offset in part by increases in bandwidth and data costs, which
grew 9%. The headcount and costs associated with our technology
staff grew at a lower rate than our growth in revenues.
We expect cost of revenues to increase in absolute dollar
amounts as we seek to grow our business but vary as a percentage
of revenues depending on whether we benefit from investments in
our panel and network infrastructure.
Selling
and Marketing Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Selling and marketing expenses
|
|
$
|
28,659
|
|
|
$
|
21,473
|
|
|
$
|
18,953
|
|
|
$
|
7,186
|
|
|
$
|
2,520
|
|
|
|
33.5
|
%
|
|
|
13.3
|
%
|
As a percentage of revenues
|
|
|
32.9
|
%
|
|
|
32.4
|
%
|
|
|
37.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses consist primarily of salaries,
benefits, commissions, bonuses, and stock 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,
including rent and depreciation. 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 $7.2 million
during the year ended December 31, 2007 as compared to the
year ended December 31, 2006. This increase was primarily
due to a $4.4 million increase in employee salaries,
benefits and related costs associated with an increase in
account management personnel for our sales force, the formation
of our product management team, our expansion in foreign markets
and an increase in commission costs associated with increased
revenues. We also experienced a $900,000 increase in non-cash
stock-based compensation as compared to 2006. Our selling and
marketing headcount totaled 204 employees as of
December 31, 2007, an increase of 40 employees as
compared to December 31, 2006. In addition, we experienced
increases in consulting costs related to the development and
launch of new products, recruiting and relocation fees
associated with the hiring of additional personnel and
advertising costs. Selling and marketing expenses as a
percentage of revenues increased in 2007 also due primarily to
the opening of a new sales office in Tokyo, Japan, our first
commercial presence in Asia. Additionally, the recruitment of
additional sales force lags behind revenue productivity as the
incremental sales force is integrated into our business and
gains a better understanding of our products and territories.
Selling and marketing expenses increased in 2006 as compared to
2005 in absolute dollars, primarily due to increased employee
salaries and benefits and related costs resulting from
additional account management personnel in our sales force, plus
an increase in commission costs associated with increased
revenues. Our selling and marketing headcount increased from
133 employees as of December 31, 2005 to
157 employees as of December 31, 2006. In addition,
the expansion of our European office in London and increased
marketing efforts in Europe contributed to our increase in
selling and marketing expenses and headcount in 2006. The
decrease in selling and marketing expenses as a percentage of
revenues during this period reflected the increased productivity
of our direct sales force and an increase in revenues.
We expect selling and marketing expenses to increase in absolute
dollar amounts as we continue to grow our selling and marketing
efforts but to vary in future periods as a percentage of
revenues depending on whether we
52
benefit from increased productivity in our sales force and from
increased revenues resulting in part from our ongoing marketing
initiatives
Research
and Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Research and development
|
|
$
|
11,413
|
|
|
$
|
9,009
|
|
|
$
|
7,416
|
|
|
$
|
2,404
|
|
|
$
|
1,593
|
|
|
|
26.7
|
%
|
|
|
21.5
|
%
|
As a percentage of revenues
|
|
|
13.1
|
%
|
|
|
13.6
|
%
|
|
|
14.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses include new product
development costs, consisting primarily of salaries, benefits,
stock compensation and related costs for personnel associated
with research and development activities, fess pair to third
parties to develop new products and allocated overhead,
including rent and depreciation.
Research and development expenses increased by $2.4 million
during the year ended December 31, 2007 as compared to the
year ended December 31, 2006. This increase was primarily
due to a $1.9 million increase in employee salaries,
benefits, stock compensation and related costs associated with
the increase in headcount and our continued focus on developing
new products, such as Campaign Metrix, Ad Metrix and Segment
Metrix, comScore Marketer and the launch of qSearch 2.0, which
is a second generation monthly scorecard of the search market.
We also experienced an increase in costs paid to outsourced
service providers to support our development of new products.
Research and development costs decreased slightly as a
percentage of revenues for the year ended December 31, 2007
as compared to the prior year period primarily due to our growth
in revenues outpacing our investments in research and
development.
Research and development expenses increased in 2006 as compared
to 2005 primarily due to increased headcount and our continued
focus on developing new products, such as World Metrix, Video
Metrix, Campaign Metrix and Ad Metrix. Research and development
costs decreased slightly as a percentage of revenues, primarily
due to our growth in revenues.
We expect research and development expenses to increase in
absolute dollar amounts as we continue to enhance and expand our
product offerings. As a result of the size and diversity of our
panel and our historical investment in our technology
infrastructure, we expect that we will be able to develop new
products with moderate increases in research and development
spending as compared to our growth in revenues.
General
and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
General and administrative
|
|
$
|
11,599
|
|
|
$
|
8,293
|
|
|
$
|
7,089
|
|
|
$
|
3,306
|
|
|
$
|
1,204
|
|
|
|
39.9
|
%
|
|
|
17.0
|
%
|
As a percentage of revenues
|
|
|
13.3
|
%
|
|
|
12.5
|
%
|
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses consist primarily of
salaries, benefits, stock compensation, 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 depreciation, and expenses incurred for other general
corporate purposes.
General and administrative expenses increased by
$3.3 million during the year ended December 31, 2007
as compared to the year ended December 31, 2006. This
increase was primarily due to increased costs associated with
being a public company. Our professional fees, insurance costs
and board compensation increased by approximately $921,000
during the year ended December 31, 2007 as compared to the
same period in 2006. We also experienced increases in employee
salaries, benefits and related costs of almost $500,000
associated with our
53
expanding finance, legal and human capital departments. In
addition, non-cash stock-based compensation increased $850,000
as compared to the prior year. During the fourth quarter of
2007, we also recorded $390,000 in professional fees associated
with our withdrawn follow-on offering. General and
administrative expenses also increased to a lesser extent due to
our investment to support further revenue growth. General and
administrative expenses as a percentage of revenue increased in
2007 primarily due to the increased costs associated with being
a public company and the professional fees associated with our
withdrawn follow-on offering.
General and administrative expenses increased in 2006 as
compared to 2005, primarily due to increased professional fees
and expanding our finance department. As a percentage of
revenues, general and administrative expenses decreased in 2006
as compared to 2005, due primarily to our growth in revenues.
We expect general and administrative expenses to increase on an
absolute basis in future annual periods as we incur increased
costs associated with being a public company. Operating as a
public company will present additional management and reporting
requirements that will significantly increase our
directors and officers liability insurance premiums
and professional fees such as audit and outside legal counsel
support both in absolute dollars and as a percentage of revenues.
Amortization
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
vs.
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Amortization expense
|
|
$
|
966
|
|
|
$
|
1,371
|
|
|
$
|
2,437
|
|
|
$
|
(405
|
)
|
|
$
|
(1,066
|
)
|
|
|
(29.5
|
)%
|
|
|
(43.7
|
)%
|
As a percentage of revenues.
|
|
|
1.1
|
%
|
|
|
2.1
|
%
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense consists of charges related to the
amortization of intangible assets associated with past
acquisitions.
Amortization expense decreased $405,000 during the year ended
December 31, 2007 as compared to the year ended
December 31, 2006 because certain intangible assets related
to previous acquisitions were fully amortized during 2007 and
2006.
Amortization expense decreased during fiscal year 2006 over 2005
because certain intangible assets related to previous
acquisitions were fully amortized as of that period.
Absent additional acquisitions, we expect amortization expense
to continue to decline as the remaining amount of intangible
assets related to previous acquisitions is amortized.
Interest
Income, Net
Interest income consists primarily of interest earned from
investments, such as 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, 2007
was $2.6 million as compared to $231,000 for the year ended
December 31, 2006. The increase of $2.4 million during
2007 reflects the net effect of interest income that we earned
on our cash and investment balances offset by the interest
expense associated with the capital leases that we had in place
in each period. Our cash, cash equivalents and investments
increased by $88.7 million to $104.7 million from
$16.0 million during the year ended December 31, 2007
primarily due to the net proceeds from our initial public
offering of $73.1 million. We also continued to reduce the
outstanding balance on our outstanding capital lease obligations.
Interest income (expense), net was $231,000 in 2006 and
$(208,000) in 2005. The year-to-year change to 2006 from 2005
primarily reflects the net effect of interest income that we
earned on our cash and investment balances offset by the
interest expense associated with the capital leases that we had
in place in each year. We reported net
54
interest income in 2006 due to a $6.9 million increase in
our cash and investments balance. We also continued to reduce
the outstanding balance on our outstanding capital lease
obligations.
|
|
(Loss)
|
Gain
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 income.
Primarily due to the strength of the Canadian dollar, during the
year ended December 31, 2007, we recorded a loss of
$296,000 as compared to a gain of $125,000 during the year ended
December 31, 2006. 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.
We recorded a gain of $125,000 in 2006 as a result of
fluctuations in the exchange rate between the U.S. dollar
and the Canadian dollar, Euro and British Pound. Our loss on
foreign currency transactions in 2005 was $96,000.
Provision
for Income Taxes
As of December 31, 2007, the Company had both federal and
state net operating loss carryforwards for tax purposes of
approximately $67.8 million and $48.1 million,
respectively, which begin to expire in 2020 for federal and
begin to expire in 2010 for state income tax reporting purposes.
In the future, we intend to utilize any carryforwards available
to us to reduce our tax payments. Approximately
$13.3 million of our net operating loss carryforwards are
subject to annual limitations under Section 382 of the
Internal Revenue Code based on changes in percentage of our
ownership. We do not expect that this limitation will impact our
ability to utilize all of our net operating losses prior to
their expiration. During the year ended December 31, 2007,
we recorded an income tax benefit of $7.5 million due
primarily to the partial release of our valuation allowance
compared to a provision of $50,000 in the same period in 2006.
For the year ended December 31, 2007, the tax provision is
comprised of US income tax expense of $208,000, reflecting our
alternative minimum tax, and $412,000 of foreign income tax
expense offset by the partial release of our valuation allowance
of $8.1 million and a decrease of $78,000 in the deferred
tax liability associated with a temporary difference related to
certain acquired intangible assets.
In 2006 we had an income tax expense of $50,000 reflecting a
payment of alternative minimum tax (AMT) partly offset by a
decrease in the deferred tax liability. This compares to an
income tax benefit of $182,000 in 2005 related to a deferred tax
liability of $356,000 associated with a temporary difference
related to certain acquired intangible assets of SurveySite.
55
Quarterly
Results of Operations
The following tables set forth selected unaudited quarterly
consolidated statement of operations data for each of the
quarters indicated. The consolidated financial statements for
each of these quarters have been prepared on the same basis as
the audited consolidated financial statements included in
Item 8 of this Annual Report on
Form 10-K
and, in the opinion of management, include all adjustments
necessary for the fair presentation of the consolidated results
of operations for these periods. You should read this
information together with our consolidated financial statements
and related notes included elsewhere in this
Form 10-K.
These quarterly operating results are not necessarily indicative
of the results for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Dec. 31,
|
|
|
Sep. 30,
|
|
|
Jun. 30,
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
|
Sep. 30,
|
|
|
Jun. 30,
|
|
|
Mar. 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
$
|
25,274
|
|
|
$
|
22,389
|
|
|
$
|
20,809
|
|
|
$
|
18,681
|
|
|
$
|
18,237
|
|
|
$
|
16,165
|
|
|
$
|
16,906
|
|
|
$
|
14,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues(1)
|
|
|
6,528
|
|
|
|
5,942
|
|
|
|
6,000
|
|
|
|
5,388
|
|
|
|
5,230
|
|
|
|
4,977
|
|
|
|
5,205
|
|
|
|
5,148
|
|
Selling and marketing(1)
|
|
|
8,135
|
|
|
|
7,390
|
|
|
|
6,683
|
|
|
|
6,451
|
|
|
|
5,634
|
|
|
|
5,171
|
|
|
|
5,323
|
|
|
|
5,345
|
|
Research and development(1)
|
|
|
3,026
|
|
|
|
3,018
|
|
|
|
2,813
|
|
|
|
2,556
|
|
|
|
2,341
|
|
|
|
2,273
|
|
|
|
2,258
|
|
|
|
2,137
|
|
General and administrative(1)
|
|
|
3,605
|
|
|
|
3,059
|
|
|
|
2,428
|
|
|
|
2,507
|
|
|
|
2,302
|
|
|
|
1,897
|
|
|
|
2,176
|
|
|
|
1,918
|
|
Amortization
|
|
|
169
|
|
|
|
211
|
|
|
|
293
|
|
|
|
293
|
|
|
|
334
|
|
|
|
333
|
|
|
|
333
|
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
21,463
|
|
|
|
19,620
|
|
|
|
18,217
|
|
|
|
17,195
|
|
|
|
15,841
|
|
|
|
14,651
|
|
|
|
15,295
|
|
|
|
14,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
3,811
|
|
|
|
2,769
|
|
|
|
2,592
|
|
|
|
1,486
|
|
|
|
2,396
|
|
|
|
1,514
|
|
|
|
1,611
|
|
|
|
66
|
|
Interest income, net
|
|
|
1,206
|
|
|
|
1,180
|
|
|
|
144
|
|
|
|
97
|
|
|
|
113
|
|
|
|
84
|
|
|
|
23
|
|
|
|
11
|
|
Gain (loss) from foreign currency
|
|
|
25
|
|
|
|
(111
|
)
|
|
|
(202
|
)
|
|
|
(8
|
)
|
|
|
149
|
|
|
|
3
|
|
|
|
(33
|
)
|
|
|
6
|
|
Revaluation of preferred stock warrant liabilities
|
|
|
|
|
|
|
82
|
|
|
|
(1,288
|
)
|
|
|
11
|
|
|
|
(9
|
)
|
|
|
(6
|
)
|
|
|
(211
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
5,042
|
|
|
|
3,920
|
|
|
|
1,246
|
|
|
|
1,586
|
|
|
|
2,649
|
|
|
|
1,595
|
|
|
|
1,390
|
|
|
|
85
|
|
Benefit (provision for) income taxes
|
|
|
7,703
|
|
|
|
(129
|
)
|
|
|
(6
|
)
|
|
|
46
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
12,745
|
|
|
|
3,791
|
|
|
|
1,240
|
|
|
|
1,540
|
|
|
|
2,599
|
|
|
|
1,595
|
|
|
|
1,390
|
|
|
|
85
|
|
Accretion of redeemable preferred stock
|
|
|
|
|
|
|
(21
|
)
|
|
|
(923
|
)
|
|
|
(885
|
)
|
|
|
(848
|
)
|
|
|
(812
|
)
|
|
|
(777
|
)
|
|
|
(742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
12,745
|
|
|
$
|
3,770
|
|
|
$
|
317
|
|
|
$
|
655
|
|
|
$
|
1,751
|
|
|
$
|
783
|
|
|
$
|
613
|
|
|
$
|
(657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) |
|
Amortization of stock-based compensation is included in the
preceding line items as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Dec. 31,
|
|
|
Sep. 30,
|
|
|
Jun. 30,
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
|
Sep. 30,
|
|
|
Jun. 30,
|
|
|
Mar. 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
Cost of revenues
|
|
$
|
134
|
|
|
$
|
76
|
|
|
$
|
60
|
|
|
$
|
9
|
|
|
$
|
6
|
|
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
|
|
Selling and marketing
|
|
|
500
|
|
|
|
298
|
|
|
|
172
|
|
|
|
39
|
|
|
|
27
|
|
|
|
23
|
|
|
|
26
|
|
|
|
6
|
|
Research and development
|
|
|
117
|
|
|
|
67
|
|
|
|
53
|
|
|
|
8
|
|
|
|
7
|
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
General and administrative
|
|
|
440
|
|
|
|
264
|
|
|
|
186
|
|
|
|
51
|
|
|
|
40
|
|
|
|
40
|
|
|
|
10
|
|
|
|
1
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percentage of Total Revenues
|
|
|
|
Three Months Ended
|
|
|
|
Dec. 31,
|
|
|
Sep. 30,
|
|
|
Jun. 30,
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
|
Sep. 30,
|
|
|
Jun. 30,
|
|
|
Mar. 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
Revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
25.8
|
|
|
|
26.5
|
|
|
|
28.8
|
|
|
|
28.8
|
|
|
|
28.7
|
|
|
|
30.8
|
|
|
|
30.8
|
|
|
|
34.4
|
|
Selling and marketing
|
|
|
32.2
|
|
|
|
33.0
|
|
|
|
32.1
|
|
|
|
34.5
|
|
|
|
30.9
|
|
|
|
32.0
|
|
|
|
31.5
|
|
|
|
35.7
|
|
Research and development
|
|
|
12.0
|
|
|
|
13.5
|
|
|
|
13.5
|
|
|
|
13.7
|
|
|
|
12.9
|
|
|
|
14.1
|
|
|
|
13.4
|
|
|
|
14.3
|
|
General and administrative
|
|
|
14.2
|
|
|
|
13.7
|
|
|
|
11.7
|
|
|
|
13.4
|
|
|
|
12.6
|
|
|
|
11.7
|
|
|
|
12.9
|
|
|
|
12.8
|
|
Amortization
|
|
|
0.7
|
|
|
|
0.9
|
|
|
|
1.4
|
|
|
|
1.6
|
|
|
|
1.8
|
|
|
|
2.1
|
|
|
|
2.0
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
84.9
|
|
|
|
87.6
|
|
|
|
87.5
|
|
|
|
92.0
|
|
|
|
86.9
|
|
|
|
90.7
|
|
|
|
90.5
|
|
|
|
99.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
15.1
|
|
|
|
12.4
|
|
|
|
12.5
|
|
|
|
8.0
|
|
|
|
13.1
|
|
|
|
9.3
|
|
|
|
9.5
|
|
|
|
0.4
|
|
Interest income (expense), net
|
|
|
4.7
|
|
|
|
5.2
|
|
|
|
0.7
|
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
0.5
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Gain (loss) from foreign currency
|
|
|
0.1
|
|
|
|
(0.5
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
Revaluation of preferred stock warrant liabilities
|
|
|
|
|
|
|
0.4
|
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
19.9
|
|
|
|
17.5
|
|
|
|
6.0
|
|
|
|
8.5
|
|
|
|
14.5
|
|
|
|
9.8
|
|
|
|
8.2
|
|
|
|
0.6
|
|
Benefit (provision for) income taxes
|
|
|
30.5
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
0.3
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
50.4
|
|
|
|
16.9
|
|
|
|
6.0
|
|
|
|
8.2
|
|
|
|
14.3
|
|
|
|
9.8
|
|
|
|
8.2
|
|
|
|
0.6
|
|
Accretion of redeemable preferred stock
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(4.4
|
)
|
|
|
(4.7
|
)
|
|
|
(4.7
|
)
|
|
|
(5.0
|
)
|
|
|
(4.6
|
)
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
|
50.4
|
|
|
|
16.8
|
|
|
|
1.6
|
|
|
|
3.5
|
%
|
|
|
9.6
|
%
|
|
|
4.8
|
%
|
|
|
3.6
|
%
|
|
|
(4.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over the quarters presented in the preceding tables, revenues
have generally increased due primarily to increases in
subscription revenues from existing customers, growth in our
customer base (both domestically and internationally) and
general increases in pricing for our products. In 2006, revenues
increased significantly on a sequential basis in the first and
second quarters before decreasing in the third quarter due to
fluctuations in the closing of agreements relating to, and the
execution of, projects. Revenues increased significantly in the
fourth quarter of 2006 and continued to rise throughout 2007 due
to increased growth in subscription revenues from existing and
new customers and our international expansion. Subscription
revenues increased sequentially in each of the quarters
presented.
During 2006, the decrease in cost of revenues on a percentage
basis was due to the growth in revenues relative to the
moderation in fixed costs to support our consumer panel, data
center and technical infrastructure. In the first and second
quarters of 2007 the percentage increased slightly due to the
development and support of our new products. In the third and
fourth quarters of 2007 the percentage decreased due to the
increased revenues relative to our fixed costs.
On an absolute basis, total expenses from operations increased
in the second quarter of 2006 due to increases in general and
administrative expenses associated with the hiring of new
finance personnel and increases in professional services fees
related to anticipated business expansion. In addition, expenses
from operations increased in the second quarter of 2006 due to
higher research and development costs tied to the development of
several new products. After a decline in the third quarter,
expenses from operations increased again in the fourth quarter
of 2006 and throughout 2007, due to increased salaries,
benefits, stock compensation and related costs associated with
hiring additional personnel in our operations, technology,
sales, research and development and general and administrative
organizations to support the growth of our business. In 2007,
total expenses from operations as a percentage of revenues
increased in the first quarter due to the seasonality of some
employee costs such as payroll taxes and vacation expense. In
the fourth quarter 2007, we saw a decrease as we were able to
better leverage our cost
57
structure. The total expenses from operations in 2006 increased
at a lower rate than revenues as we were consequently able to
better leverage our cost structure.
We became profitable on a net income basis in the first quarter
of 2006, and were profitable on a net income basis every quarter
in 2006 and 2007 as our revenues increased significantly during
these periods and our costs grew at a lower rate.
Liquidity
and Capital Resources
The following table summarizes our cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Consolidated Cash Flow Data
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
21,211
|
|
|
$
|
10,905
|
|
|
$
|
4,253
|
|
Net cash used in investing activities
|
|
|
(30,305
|
)
|
|
|
(9,573
|
)
|
|
|
(2,505
|
)
|
Net cash provided by (used in) financing activities
|
|
|
71,979
|
|
|
|
(1,381
|
)
|
|
|
(1,092
|
)
|
Effect of exchange rate changes on cash
|
|
|
451
|
|
|
|
(43
|
)
|
|
|
(36
|
)
|
Net increase (decrease) in cash and equivalents
|
|
|
63,336
|
|
|
|
(92
|
)
|
|
|
620
|
|
Prior to our initial public offering, which closed on
July 2, 2007, we funded our operations and met our capital
expenditure requirements primarily with venture capital and
private equity funding. In five separate issuances of preferred
stock, from Series A on September 27, 1999 to
Series E on August 1, 2003, we have raised over
$88 million from a number of institutional investors. The
proceeds from all of these issuances have been used for general
business purposes, with the exception of the Series E
Preferred Stock offering, which was partially used to extinguish
a $1.5 million bank note. The conversion of our preferred
stock occurred upon the closing of our initial public offering.
On July 2, 2007, we completed our initial public offering
and issued 5,000,000 shares of our common stock and
received gross proceeds of $82.5 million. Net proceeds were
$73.1 million after deducting underwriting discounts and
commissions and offering costs.
Our principal uses of cash historically have consisted of
payroll and other operating expenses and payments related to the
purchase of equipment primarily to support our consumer panel
and technical infrastructure required to support our customer
base. Since the beginning of 2005, we have purchased over
$7.0 million in property and equipment, made
$5.0 million in principal payments on capital lease
obligations, and spent $600,000 as the cash component of
consideration paid for acquisitions.
As of December 31, 2007, our principal sources of liquidity
consisted of cash, cash equivalents and short-term investments
of $96.8 million. As of December 31, 2007, we held
$7.9 million in long-term investments consisting of
$4.9 million in auction rate securities and
$3.0 million in other long-term fixed income securities. We
generally invest in these securities for short periods of time
as part of our investment policy. However, the recent
uncertainties in the credit markets have prevented us and other
investors from liquidating holdings of auction rate securities
in recent auctions for these securities because the amount of
securities submitted for sale has exceeded the amount of
purchase orders. Accordingly, we still hold these long-term
securities and are due interest at a higher rate than similar
securities for which auctions have cleared. None of these
investments are mortgage backed securities or collateralized
debt obligations. As of December 31, 2007, these
investments were fully backed by AAA rated bonds and are insured
against loss of principal and interest by bond insurers whose
AAA ratings are under review. These securities were valued using
a discounted cash flow model that takes into consideration the
financial condition of the issuers and the bond insurers as well
as the expected date liquidity will be restored. If the credit
ratings of the issuer, the bond insurers or the collateral
continues to deteriorate, we may further adjust the carrying
value of these investments. We are uncertain as to when the
liquidity issues relating to these investments will improve.
Accordingly, we classified these securities as long-term as of
December 31, 2007.
Subsequent to December 31, 2007, we sold auction rate
securities with a total par value of $23.1 million on the
scheduled auction dates and reinvested the proceeds in treasury
notes. As the credit markets continue to decline, we have
experienced additional illiquidity in $2.4 million in par
value of auction rate securities. In addition, subsequent
58
to December 31, 2007, one of the bond insurers backing one
of the investments was downgraded by the credit agencies from
AAA to A3/AA and the resulting bond was also downgraded to A3/AA.
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 $21.2 million of net cash from
operating activities during the year ended December 31,
2007. The significant components of cash flows from operations
were net income of $19.3 million, adjusted for
$7.4 million in non-cash depreciation, amortization and
stock-based compensation expenses, $1.2 million in non-cash
revaluation of our preferred stock warrant liability, and a
$9.8 million increase in amounts collected from customers
in advance of when we recognize revenues as a result of our
growing customer base and a $1.1 million increase in
accounts payable and accrued expenses, offset by a
$9.2 million increase in accounts receivable,
$8.1 million non-cash deferred tax benefit and $231,000
increase in other current and non-current assets.
We generated approximately $10.9 million of net cash from
operating activities during 2006. The significant components of
cash flows from operations were net income of $5.7 million,
$4.3 million in noncash depreciation and amortization
expenses, a $1.4 million increase in accounts payable and
accrued expenses and a $3.1 million increase in amounts
collected from customers in advance of when we recognize
revenues as a result of our growing customer base, offset by a
$3.9 million increase in accounts receivable.
We generated $4.3 million of net cash from operating
activities during 2005. The significant components of cash flows
from operations were a $6.4 million increase in amounts
collected from customers in advance of when we recognized
revenues as a result of our growing customer base, and
$5.1 million in non-cash depreciation and amortization
expenses. These items were partially offset by a
$3.5 million net increase in accounts receivable related to
our larger customer base, a net loss of $4.4 million and
other uses of cash in operations.
Investing
Activities
Our primary 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, 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 $30.3 million of net cash in investing activities
during the year ended December 31, 2007, a net
$25.6 million of which was used to purchase investments,
$3.6 million of which was used to purchase property and
equipment to maintain and expand our technology and
infrastructure and $1.1 million used to purchase
certificates of deposit to collateralize letters of credit
associated with new office leases.
We used $9.6 million of net cash in investing activities
during 2006, a net $7.0 million of which was used to
purchase short-term investments, $2.3 million of which was
used to purchase property and equipment and $300,000 of which
was used to pay contingent considerations associated with our Q2
acquisition. We used $2.5 million of net cash in investing
activities during 2005, of which $1.1 million was used to
purchase property and equipment, $943,000 was used as part of
the acquisition of SurveySite and $300,000 was used to pay
contingent consideration associated with the Q2 acquisition.
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
59
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
Our primary financing activities from 2004 until mid-2007
consisted of financings to fund the acquisition of capital
assets. We entered into an equipment lease agreement with GE
Capital in 2003 and a line of credit agreement with GE Capital
in 2005, both of which were paid in full in 2007, to finance the
purchase of hardware and other computer equipment to support our
business growth. These borrowings were secured by a senior
security interest in the equipment acquired under the facility.
In December 2006, we entered into an equipment lease agreement
with Banc of America Leasing & Capital, LLC to finance
the purchase of new hardware and other computer equipment as we
continue to expand our technology infrastructure in support of
our business growth. This agreement included a $5 million
line of credit which expired December 31, 2007. Through
December 31, 2006, we used this credit facility to
establish an equipment lease for the amount of approximately
$2.9 million. The base term for this lease is three years
and includes a small charge in the event of prepayment.
On July 2, 2007, we completed our initial public offering,
in which we issued and sold 5,000,000 shares of our common
stock for approximately $73.1 million, which amount
reflects the net proceeds received by us in that offering.
We generated $72.0 million of cash during the year ended
December 31, 2007 from financing activities. This included
$73.1 million in net proceeds, after deducting
underwriters commissions and offering costs, from the sale
and issuance of common stock in our initial public offering and
$972,000 in proceeds from the exercise of outstanding options
for common stock. We also made payments of $2.1 million on
our capital lease obligations during that period.
We used $1.4 million of net cash in financing activities
during 2006. We used $1.6 million to make payments on our
capital lease obligations partially offset by $241,000 in
proceeds from the exercise of our common stock options.
We used $1.1 million of net cash from financing activities
during 2005. We used $1.2 million to make payments on our
capital lease obligations partially offset by $136,000 in
proceeds from the exercise of our common stock options.
We do not have any special purpose entities, and other than
operating leases for office space, described below, we do not
engage in off-balance sheet financing arrangements.
Contractual
Obligations and Known Future Cash Requirements
Set forth below is information concerning our known contractual
obligations as of December 31, 2007 that are fixed and
determinable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
3-5
|
|
|
Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Capital lease obligations
|
|
$
|
2,042
|
|
|
$
|
1,021
|
|
|
$
|
1,021
|
|
|
$
|
|
|
|
$
|
|
|
Operating lease obligations
|
|
|
39,926
|
|
|
|
3,232
|
|
|
|
8,118
|
|
|
|
8,039
|
|
|
|
20,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
41,968
|
|
|
$
|
4,253
|
|
|
$
|
9,139
|
|
|
$
|
8,039
|
|
|
$
|
20,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our principal lease commitments consist of obligations under
leases for office space and computer and telecommunications
equipment. We finance the purchase of some of our computer
equipment under a capital lease arrangement over a period of
36 months. Our purchase obligations relate to outstanding
orders to purchase computer equipment and are typically small;
they do not materially impact our overall liquidity. In
addition, due to the uncertainty with respect to the timing of
future cash flows associated with our unrecognized tax benefits
at December 31, 2007, we were unable to make reasonably
reliable estimates of the period of cash settlement with the
respective taxing authority. Therefore, $71,000 of unrecognized
tax benefits have been excluded from the
60
contractual obligations table above. See Note 9 to the notes to
consolidated financial statements for a discussion on income
taxes.
We have used $2.9 million of a $5.0 million line of
credit that was available to us until December 31, 2007 to
establish an equipment lease for the amount of approximately
$2.9 million bearing interest at a rate of 7.75% per annum.
The line of credit expired on December 31, 2007.
In December 2007, we entered into a 10 year lease with a
new landlord for approximately 62,000 square feet of new
office space for our corporate headquarters. We expect to move
our corporate headquarters in June 2008 when our current lease
expires.
In August 2007, we entered into a 10 year lease with a new
landlord for approximately 28,000 square feet of new office
space for our Chicago office. We expect to move our Chicago
office in March 2008.
Future
Capital Requirements
We believe that our existing cash, cash equivalents, and
short-term investments and operating cash flow will be
sufficient to meet our projected operating and capital
expenditure requirements for at least the next twelve months. In
addition, we expect that the net proceeds from our initial
public offering completed July 2, 2007 will provide us with
the financial flexibility to execute our strategic objectives,
including the ability to make acquisitions and strategic
investments. Our ability to generate cash, however, is subject
to our performance, general economic conditions, industry trends
and other factors. To the extent that funds from this offering,
combined with 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.
Additionally, for the
ninety-day
period beginning January 1, 2008, the former shareholders
of SurveySite have the right to sell their 135,635 shares
back to us for an aggregate price of approximately
$1.8 million, or $13.35 per share.
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,
2007 and 2006.
|
|
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, 2007, our cash
reserves were maintained in bank deposit accounts, fixed income,
and auction rate securities totaling $104.7 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 is derived from transactions
denominated in U.S. dollars, even though we maintain sales
and business operations in foreign countries. As such, we have
exposure to adverse changes in exchange rates associated with
operating expenses of our foreign operations, but we believe
this exposure to be immaterial at this
61
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, 2007, our principal sources of liquidity
consisted of cash, cash equivalents and short-term investments
of $96.8 million. These amounts were invested primarily in
certificates of deposit, U.S. government debt securities
and adjustable rate notes. The unrestricted cash and cash
equivalents are held for working capital purposes. We do not
enter into investments for trading or speculative purposes. We
believe that we do not have any material exposure to changes in
the fair value as a result of changes in interest rates.
Declines in interest rates, however, will reduce future
investment income. If overall interest rates fell by 10% in
2007, our interest income would have declined approximately
$294,000, assuming consistent investment levels.
Adjustable
Rate Securities
As of December 31, 2007, we held $7.9 million in
long-term investments consisting of $4.9 million in auction
rate securities and $3.0 million in other long-term fixed
income securities. We generally invest in these securities for
short periods of time as part of our investment policy. However,
the recent uncertainties in the credit markets have prevented us
and other investors from liquidating holdings of auction rate
securities in recent auctions for these securities because the
amount of securities submitted for sale has exceeded the amount
of purchase orders. Accordingly, we still hold these long-term
securities and are due interest at a higher rate than similar
securities for which auctions have cleared. None of these
investments are mortgage backed securities or collateralized
debt obligations. As of December 31, 2007, these
investments were fully backed by AAA rated bonds and are insured
against loss of principal and interest by bond insurers whose
AAA ratings are under review. These securities were valued using
a discounted cash flow model that takes into consideration the
financial condition of the issuers and the bond insurers as well
as the expected date liquidity will be restored. If the credit
ratings of the issuer, the bond insurers or the collateral
continues to deteriorate, we may further adjust the carrying
value of these investments. We are uncertain as to when the
liquidity issues relating to these investments will improve.
Accordingly, we classified these securities as long-term as of
December 31, 2007.
Subsequent to December 31, 2007, we sold auction rate
securities with a total par value of $23.1 million on the
scheduled auction dates and reinvested the proceeds in treasury
bills. As the credit markets continue to decline, we have
experienced additional illiquidity in $2.4 million in par
value of auction rate securities. In addition, subsequent to
December 31, 2007 one of the bond insurers backing one of
the investments was downgraded by the credit agencies from AAA
to A3/AA and the resulting bond was also downgraded to A3/AA.
We believe we will be able to liquidate our auction rate
securities without significant loss, and we currently believe
these securities are not permanently impaired, based on the
underlying credit value of the companies backing the bonds and
the bond insurers; however, it could take until the final
maturity of the underlying notes to recover our investment. We
currently have the ability and intent to hold the remaining
adjustable rate securities, until market stability is restored
with respect to these securities. We believe that, even allowing
for the reclassification of these securities to long-term and
the possible requirement to hold all such securities for an
indefinite period of time, our remaining cash and cash
equivalents and short-term investments will be sufficient to
meet our anticipated cash needs and to execute our current
business plan.
62
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
63
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, 2007 and
2006, and the related consolidated statements of operations,
stockholders equity (deficit), and cash flows for each of
the three years in the period ended December 31, 2007.
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. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of comScore, Inc. at
December 31, 2007 and 2006, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2007, in conformity with
U.S. generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial
statements, the Company adopted FASB Staff Position
150-5,
Issuers Accounting Under FASB Statement No. 150
for Freestanding Warrants and Other Similar Instruments on
Shares That Are Redeemable, effective July 1, 2005, and
changed its method of accounting for stock-based compensation in
accordance with guidance provided in FASB Statement
No. 123(R), Share-Based Payments, effective
January 1, 2006.
McLean, Virginia
March 5, 2008
64
COMSCORE,
INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
68,368
|
|
|
$
|
5,032
|
|
Short-term investments
|
|
|
28,449
|
|
|
|
11,000
|
|
Accounts receivable, net of allowances of $234 and $188,
respectively
|
|
|
23,446
|
|
|
|
14,123
|
|
Prepaid expenses and other current assets
|
|
|
1,620
|
|
|
|
1,068
|
|
Restricted cash
|
|
|
1,385
|
|
|
|
270
|
|
Deferred tax asset
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
123,444
|
|
|
|
31,493
|
|
Long-term investments
|
|
|
7,924
|
|
|
|
|
|
Property and equipment, net
|
|
|
6,867
|
|
|
|
6,980
|
|
Other non-current assets
|
|
|
168
|
|
|
|
1,267
|
|
Long-term deferred tax asset
|
|
|
7,888
|
|
|
|
|
|
Intangible assets, net
|
|
|
17
|
|
|
|
983
|
|
Goodwill
|
|
|
1,364
|
|
|
|
1,364
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
147,672
|
|
|
$
|
42,087
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,140
|
|
|
$
|
1,353
|
|
Accrued expenses
|
|
|
6,992
|
|
|
|
6,020
|
|
Deferred revenues
|
|
|
33,045
|
|
|
|
22,776
|
|
Capital lease obligations
|
|
|
900
|
|
|
|
1,726
|
|
Preferred stock warrant liabilities
|
|
|
|
|
|
|
1,005
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
42,077
|
|
|
|
32,880
|
|
Capital lease obligations, long-term
|
|
|
977
|
|
|
|
2,261
|
|
Deferred tax liability
|
|
|
|
|
|
|
77
|
|
Other liabilities
|
|
|
181
|
|
|
|
374
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
43,235
|
|
|
|
35,592
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Redeemable preferred stock:
|
|
|
|
|
|
|
|
|
Series A preferred convertible stock, $0.001 par
value; no shares authorized, issued or outstanding at
December 31, 2007; 9,187,500 shares authorized,
1,837,503 shares issued and outstanding as of
December 31, 2006. Liquidation preference of $7,715 at
December 31, 2006
|
|
|
|
|
|
|
8,154
|
|
Series B preferred convertible stock, $0.001 par
value; no shares authorized, issued or outstanding at
December 31, 2007; 3,535,486 shares authorized,
695,865 shares issued and outstanding as of
December 31, 2006. Liquidation preference of $14,315 at
December 31, 2006
|
|
|
|
|
|
|
15,130
|
|
Series C preferred convertible stock, $0.001 par
value; no shares authorized, issued or outstanding at
December 31, 2007; 13,355,052 shares authorized,
2,647,209 shares issued and outstanding as of
December 31, 2006. Liquidation preference of $25,220 at
December 31, 2006
|
|
|
|
|
|
|
26,633
|
|
Series C-1
preferred convertible stock, $0.001 par value; no shares
authorized, issued or outstanding at December 31, 2007;
357,144 shares authorized, 71,430 shares issued and
outstanding as of December 31, 2006. Liquidation preference
of $420 at December 31, 2006
|
|
|
|
|
|
|
443
|
|
Series D preferred convertible stock, $0.001 par
value; no shares authorized, issued or outstanding at
December 31, 2007; 22,238,042 shares authorized,
4,312,813 shares issued and outstanding as of
December 31, 2006. Liquidation preference of $40,723 at
December 31, 2006
|
|
|
|
|
|
|
34,682
|
|
Series E preferred convertible stock, $0.001 par
value; no shares authorized, issued or outstanding at
December 31, 2007; 25,000,000 shares authorized,
4,801,116 shares issued and outstanding as of
December 31, 2006. Liquidation preference of $19,565 at
December 31, 2006
|
|
|
|
|
|
|
16,653
|
|
Common Stock subject to put; 135,635 and 347,635 shares
issued and outstanding at December 31, 2007 and 2006,
respectively
|
|
|
1,815
|
|
|
|
4,357
|
|
Stockholders equity (deficit)
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 5,000,000 shares
authorized at December 31, 2007; no shares issued or
outstanding at December 31, 2007; no shares authorized,
issued or outstanding at December 31, 2006
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 100,000,000 shares
authorized at December 31, 2007; 27,960,573 shares
issued and outstanding at December 31, 2007;
130,000,000 shares authorized at December 31, 2006;
4,000,165 shares issued and outstanding at
December 31, 2006
|
|
|
28
|
|
|
|
4
|
|
Additional paid-in capital
|
|
|
183,433
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
1
|
|
|
|
(75
|
)
|
Accumulated deficit
|
|
|
(80,840
|
)
|
|
|
(99,486
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
102,622
|
|
|
|
(99,557
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$
|
147,672
|
|
|
$
|
42,087
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
65
COMSCORE,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Revenues
|
|
$
|
87,153
|
|
|
$
|
66,293
|
|
|
$
|
50,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (excludes amortization of intangible assets
resulting from acquisitions shown below)(1)
|
|
|
23,858
|
|
|
|
20,560
|
|
|
|
18,218
|
|
Selling and marketing(1)
|
|
|
28,659
|
|
|
|
21,473
|
|
|
|
18,953
|
|
Research and development(1)
|
|
|
11,413
|
|
|
|
9,009
|
|
|
|
7,416
|
|
General and administrative(1)
|
|
|
11,599
|
|
|
|
8,293
|
|
|
|
7,089
|
|
Amortization of intangible assets resulting from acquisitions
|
|
|
966
|
|
|
|
1,371
|
|
|
|
2,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
76,495
|
|
|
|
60,706
|
|
|
|
54,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
10,658
|
|
|
|
5,587
|
|
|
|
(3,846
|
)
|
Interest income (expense), net
|
|
|
2,627
|
|
|
|
231
|
|
|
|
(208
|
)
|
(Loss) gain from foreign currency
|
|
|
(296
|
)
|
|
|
125
|
|
|
|
(96
|
)
|
Revaluation of preferred stock warrant liabilities
|
|
|
(1,195
|
)
|
|
|
(224
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and cumulative effect of
change in accounting principle
|
|
|
11,794
|
|
|
|
5,719
|
|
|
|
(4,164
|
)
|
Benefit (provision for) income taxes
|
|
|
7,522
|
|
|
|
(50
|
)
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before cumulative effect of change in
accounting principle
|
|
|
19,316
|
|
|
|
5,669
|
|
|
|
(3,982
|
)
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
19,316
|
|
|
|
5,669
|
|
|
|
(4,422
|
)
|
Accretion of redeemable preferred stock
|
|
|
(1,829
|
)
|
|
|
(3,179
|
)
|
|
|
(2,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
17,487
|
|
|
$
|
2,490
|
|
|
$
|
(7,060
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.99
|
|
|
$
|
|
|
|
$
|
(2.30
|
)
|
Diluted
|
|
$
|
0.88
|
|
|
$
|
|
|
|
$
|
(2.30
|
)
|
Weighted-average number of shares used in per share calculation
common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,139,365
|
|
|
|
3,847,213
|
|
|
|
3,130,194
|
|
Diluted
|
|
|
18,377,563
|
|
|
|
3,847,213
|
|
|
|
3,130,194
|
|
Net income attributable to common stockholders per common share
subject to put:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.33
|
|
|
$
|
0.41
|
|
|
$
|
0.38
|
|
Diluted
|
|
$
|
1.21
|
|
|
$
|
0.41
|
|
|
$
|
0.38
|
|
Weighted-average number of shares used in per share
calculation common share subject to put:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
308,720
|
|
|
|
347,635
|
|
|
|
347,635
|
|
(1) Amortization of stock-based compensation is included in the
line items above as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
279
|
|
|
$
|
12
|
|
|
$
|
|
|
Selling and marketing
|
|
|
1,009
|
|
|
|
82
|
|
|
|
|
|
Research and development
|
|
|
245
|
|
|
|
13
|
|
|
|
|
|
General and administrative
|
|
|
941
|
|
|
|
91
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
19,316
|
|
|
$
|
5,669
|
|
|
$
|
(4,422
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency cumulative translation adjustment
|
|
|
258
|
|
|
|
(51
|
)
|
|
|
(35
|
)
|
Unrealized loss on marketable securities
|
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
19,392
|
|
|
$
|
5,618
|
|
|
$
|
(4,457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
66
COMSCORE,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Deferred Stock
|
|
|
Other
|
|
|
|
|
|
Stockholders
|
|
|
|
|
|
|
|
|
|
Paid-In
|
|
|
Based
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
(Deficit)
|
|
|
|
(In thousands, except share data)
|
|
|
Balance at December 31, 2004
|
|
|
3,041,110
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
(9
|
)
|
|
$
|
11
|
|
|
$
|
(95,235
|
)
|
|
$
|
(95,230
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,422
|
)
|
|
|
(4,422
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
(35
|
)
|
Exercise of common stock options
|
|
|
306,378
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Issuance of common stock warrants
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Accretion of redeemable preferred stock warrants
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Accretion of redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
(160
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,478
|
)
|
|
|
(2,638
|
)
|
Accretion of common stock subject to put
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132
|
)
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
3,347,488
|
|
|
|
3
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(24
|
)
|
|
|
(102,267
|
)
|
|
|
(102,294
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,669
|
|
|
|
5,669
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
(51
|
)
|
Exercise of common stock options
|
|
|
652,677
|
|
|
|
1
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
3
|
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195
|
|
Accretion of redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
(435
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,744
|
)
|
|
|
(3,179
|
)
|
Accretion of common stock subject to put
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
4,000,165
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
(75
|
)
|
|
|
(99,486
|
)
|
|
|
(99,557
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,316
|
|
|
|
19,316
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258
|
|
|
|
|
|
|
|
258
|
|
Unrealized loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(182
|
)
|
|
|
|
|
|
|
(182
|
)
|
Exercise of common stock options
|
|
|
580,727
|
|
|
|
1
|
|
|
|
890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
891
|
|
Exercise of common stock warrants, net
|
|
|
138,536
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
Issuance of restricted stock, net
|
|
|
771,783
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock in initial public
offering
|
|
|
5,000,000
|
|
|
|
5
|
|
|
|
73,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,116
|
|
Conversion of preferred stock to common stock
|
|
|
17,257,362
|
|
|
|
17
|
|
|
|
103,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,523
|
|
Reclassification of common stock subject to put to common stock
|
|
|
212,000
|
|
|
|
|
|
|
|
2,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,650
|
|
Amortization of stock based compensation
|
|
|
|
|
|
|
|
|
|
|
2,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,239
|
|
Preferred warrant liability reclassification
|
|
|
|
|
|
|
|
|
|
|
2,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,200
|
|
Accretion of redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
(1,190
|
)
|
|
|
|
|
|
|
|
|
|
|
(639
|
)
|
|
|
(1,829
|
)
|
Accretion of common stock subject to put
|
|
|
|
|
|
|
|
|
|
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
27,960,573
|
|
|
$
|
28
|
|
|
$
|
183,433
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
(80,840
|
)
|
|
$
|
102,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
67
COMSCORE,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
19,316
|
|
|
$
|
5,669
|
|
|
$
|
(4,422
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
3,764
|
|
|
|
2,888
|
|
|
|
2,686
|
|
Amortization of intangible assets resulting from acquisitions
|
|
|
966
|
|
|
|
1,371
|
|
|
|
2,437
|
|
Provisions for bad debts
|
|
|
142
|
|
|
|
212
|
|
|
|
90
|
|
Stock-based compensation
|
|
|
2,474
|
|
|
|
198
|
|
|
|
3
|
|
Revaluation of preferred stock warrant liabilities
|
|
|
1,195
|
|
|
|
224
|
|
|
|
14
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
440
|
|
Amortization of deferred finance costs
|
|
|
7
|
|
|
|
33
|
|
|
|
33
|
|
Deferred tax benefit
|
|
|
(8,142
|
)
|
|
|
(97
|
)
|
|
|
(182
|
)
|
Changes in operating assets and liabilities, net of effect of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(9,186
|
)
|
|
|
(3,882
|
)
|
|
|
(3,540
|
)
|
Prepaid expenses and other current assets
|
|
|
(486
|
)
|
|
|
(311
|
)
|
|
|
(157
|
)
|
Other non-current assets
|
|
|
255
|
|
|
|
30
|
|
|
|
539
|
|
Accounts payable, accrued expenses, and other liabilities
|
|
|
1,065
|
|
|
|
1,431
|
|
|
|
(115
|
)
|
Deferred revenues
|
|
|
9,841
|
|
|
|
3,139
|
|
|
|
6,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
21,211
|
|
|
|
10,905
|
|
|
|
4,253
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of restricted cash
|
|
|
(1,115
|
)
|
|
|
(9
|
)
|
|
|
(41
|
)
|
Purchase of investments
|
|
|
(56,475
|
)
|
|
|
(14,900
|
)
|
|
|
(8,960
|
)
|
Sale of investments
|
|
|
30,920
|
|
|
|
7,950
|
|
|
|
8,810
|
|
Purchase of property and equipment
|
|
|
(3,635
|
)
|
|
|
(2,314
|
)
|
|
|
(1,071
|
)
|
Acquisition of businesses, net of cash acquired of $715 in 2005
|
|
|
|
|
|
|
|
|
|
|
(943
|
)
|
Payment of additional consideration for acquired businesses
|
|
|
|
|
|
|
(300
|
)
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(30,305
|
)
|
|
|
(9,573
|
)
|
|
|
(2,505
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of common stock options and warrants
|
|
|
972
|
|
|
|
241
|
|
|
|
136
|
|
Proceeds from the issuance of common stock, net of offering costs
|
|
|
73,116
|
|
|
|
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(2,109
|
)
|
|
|
(1,622
|
)
|
|
|
(1,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
71,979
|
|
|
|
(1,381
|
)
|
|
|
(1,092
|
)
|
Effect of exchange rate changes on cash
|
|
|
451
|
|
|
|
(43
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
63,336
|
|
|
|
(92
|
)
|
|
|
620
|
|
Cash and cash equivalents at beginning of year
|
|
|
5,032
|
|
|
|
5,124
|
|
|
|
4,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
68,368
|
|
|
$
|
5,032
|
|
|
$
|
5,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
302
|
|
|
$
|
249
|
|
|
$
|
314
|
|
Capital lease obligations incurred
|
|
$
|
|
|
|
$
|
2,707
|
|
|
$
|
1,704
|
|
Accretion of preferred stock
|
|
$
|
1,829
|
|
|
$
|
3,179
|
|
|
$
|
2,638
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
68
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. By
applying advanced statistical methodologies to the panel data,
the Company projects consumers online behavior for the
total online population and a wide variety of user categories.
On July 2, 2007, the Company completed its initial public
offering (IPO) of common stock in which the Company issued and
sold 5,000,000 shares of its common stock at an issuance
price of $16.50 per share. In addition, selling stockholders,
including officers and directors of the Company or entities
affiliated therewith, sold an aggregate of 1,095,000 shares
of common stock, which amount included the exercise of the
underwriters over-allotment option in the IPO. The Company
raised a total of $82,500,000 in gross proceeds from the IPO, or
approximately $73,116,000 in net proceeds after deducting
underwriting discounts and commissions of $5,775,000 and
offering costs of $3,609,000. The Company did not receive any
proceeds from the sale of shares in the IPO by the selling
stockholders. Upon the closing of the IPO, all shares of
convertible preferred stock then outstanding automatically
converted into 17,257,362 shares of common stock and all
preferred stock warrants converted into common stock warrants.
In connection with the IPO, the Companys Board of
Directors and stockholders approved a
1-for-5
reverse stock split of its outstanding common stock and
convertible preferred stock effective June 21, 2007. All
share and per share amounts contained in these consolidated
financial statements have been retroactively adjusted to reflect
the reverse stock split.
|
|
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 as
defined by Accounting Research Bulletin (ARB) No. 51,
Consolidated Financial Statements, as amended by
Statement of Financial Accounting Standards (SFAS) No. 94,
Consolidation of all Majority-Owned Subsidiaries. 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, as
defined by Financial Accounting Standards Board (FASB)
Interpretation No. 46, Consolidation of 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.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of
the financial statements and the
69
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
reported amounts of revenues and expenses during the reporting
period. Actual results could differ materially from those
estimates.
Cash
and Cash Equivalents, Investments, and Restricted
Cash
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 consists primarily of bank
deposit accounts.
Investments, which consist principally of fixed income and
auction rate securities, are stated at fair market value. These
securities are accounted for as available-for-sale securities in
accordance with SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. The
Company typically has the option to re-invest in its short-term
investments every 30 days. The Company uses the specific
identification method to compute realized gains and losses on
its short-term investments.
Restricted cash is comprised of certificates of deposit that are
collateral for letters of credit pertaining to the security
deposit for operating leases.
Interest income on short-term investments was $2.9 million,
$515,000 and $133,000 for the years ended December 31,
2007, 2006 and 2005, respectively.
Accounts
Receivable
Accounts receivable are recorded at the invoiced amount and are
non-interest bearing. The Company generally grants
uncollateralized credit terms to its customers and maintains an
allowance for doubtful accounts to reserve for potentially
uncollectible receivables. Allowances are based on
managements judgment, which considers historical
experience and specific knowledge of accounts where
collectibility 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 allowances for
doubtful accounts and sales returns for the fiscal years
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Allowance for Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(188
|
)
|
|
$
|
(185
|
)
|
|
$
|
(102
|
)
|
Additions
|
|
|
(142
|
)
|
|
|
(212
|
)
|
|
|
(90
|
)
|
Reductions
|
|
|
96
|
|
|
|
209
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
(234
|
)
|
|
$
|
(188
|
)
|
|
$
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
Property and equipment is stated at cost, net of accumulated
depreciation. Property and equipment is depreciated on a
straight-line basis over the estimated useful lives of the
assets, ranging from three to five years. Assets under capital
leases are recorded at their net present value at the inception
of the lease and are included in the appropriate asset category.
Assets under capital leases and leasehold improvements are
amortized over the shorter of the related lease terms or their
useful lives. Replacements and major improvements are
capitalized; maintenance and repairs are charged to expense as
incurred. Amortization of assets under capital leases is
included within the expense category on the Statement of
Operations in which the asset is deployed.
70
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 replacement cost, income and market approaches. The
replacement cost approach is based on determining the discrete
cost of replacing or reproducing a specific asset. The Company
generally uses the replacement cost approach 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 worth of
anticipated future net cash flows generated by an asset. The
Company generally uses the income approach to value customer
relationship assets and non-compete agreements. The market
approach compares the acquired asset to similar assets that have
been sold. The Company generally uses the market approach to
value trademarks and brand assets.
Under SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142), 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, based
on estimated future cash flows, 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
derived fair value of the goodwill to its carrying value, and
any impairment determined is recorded in the current period. In
accordance with SFAS 142, all of the Companys
goodwill is associated with one reporting unit. Accordingly, on
an annual basis the Company performs the impairment assessment
for goodwill required under SFAS 142 at the enterprise
level. The Company completed its annual impairment analysis as
of October 1st for 2007, 2006 and 2005 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)
|
|
|
Non-compete agreements
|
|
|
3 to 4
|
|
Customer relationships
|
|
|
1 to 3
|
|
Acquired methodologies/technology
|
|
|
1 to 3
|
|
Trademarks and brands
|
|
|
2
|
|
Impairment
of Long-Lived Assets
Long-lived assets, including property and equipment, are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount should be
addressed pursuant to SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets
(SFAS 144). Pursuant to SFAS 144, impairment is
determined by comparing the carrying value of these long-lived
assets to an estimate of the future undiscounted cash flows
expected to result from the use of the assets and eventual
disposition. In the event an impairment exists, a loss is
recognized based on the amount by which the carrying value
exceeds the fair value of the asset, which is generally
determined by using quoted market prices or valuation techniques
such as the discounted present value of expected future cash
flows, appraisals, or other pricing models as appropriate. There
were no impairment charges recognized during the years ended
December 31, 2007, 2006 and 2005. In the event that there
are changes in the planned use of the Companys long-term
assets or its expected future undiscounted cash flows are
reduced significantly, the Companys assessment of its
ability to recover the carrying value of these assets could
change.
71
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Foreign
Currency Translation
The Company applies SFAS No. 52, Foreign Currency
Translation, with respect to its international operations.
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 included as a
component of other comprehensive income. The Company incurred a
foreign currency transaction loss of $296,000 for the year ended
December 31, 2007, a gain of $125,000 for the year ended
December 31, 2006 and a loss of $96,000 for the year ended
December 31, 2005. These gains and losses related to
U.S. dollar denominated cash accounts and accounts
receivable held by the Companys foreign subsidiaries.
Business
Segment Information
The Company is managed and operated as one business segment. A
single management team reports to the chief operating decision
maker who manages the entire business. The Company does not
operate any material separate lines of business or separate
business entities with respect to its services. The various
products that the Company offers are all related to analyzing
consumer behavior on the Internet. The same data source is used
regardless of the product delivered. The Companys expenses
are shared and are not allocated to individual products.
Accordingly, the Company does not accumulate discrete financial
information by product line and does not have separately
reportable segments as defined by SFAS No. 131,
Disclosure About Segments of an Enterprise and Related
Information.
Revenue
Recognition
The Company recognizes revenues in accordance with Securities
and Exchange Commission Staff Accounting Bulletin (SAB)
No. 104, Revenue Recognition (SAB 104).
SAB 104 requires that four basic criteria must be met prior
to revenue recognition: (i) persuasive evidence of an
arrangement exists, (ii) delivery has occurred or the
services have been rendered, (iii) the fee is fixed or
determinable and (iv) collection of the resulting
receivable is reasonably assured.
The Company generates revenues by providing access to the
Companys online database or delivering information
obtained from the database, usually in the form of periodic
reports. Revenues are typically recognized on a straight-line
basis over the period in which access to data or reports are
provided, which generally ranges from three to 24 months.
Revenues are also generated through survey services under
contracts ranging in term from two months to one year. Survey
services consist of survey and questionnaire design with
subsequent data collection, analysis and reporting. Revenues are
recognized on a straight-line basis over the estimated data
collection period once the survey or questionnaire has been
delivered. Any change in the estimated data collection period
results in an adjustment to revenues recognized in future
periods.
Certain of the Companys arrangements contain multiple
elements, consisting of the various services the Company offers.
Multiple element arrangements typically consist of a
subscription to the Companys online database combined with
customized services. These arrangements are accounted for in
accordance with Emerging Issues Task Force (EITF) Issue
No. 00-21,
Revenue Arrangements with Multiple Deliverables. The
Company has determined that there is not objective and reliable
evidence of fair value for any of its services and, therefore,
accounts for all elements in multiple 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 of customized
services generally occurs subsequent to contract execution. The
Company recognizes the entire arrangement fee over the
performance period of the last deliverable. As a result, the
total arrangement fee is
72
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recognized on a straight-line basis over the period beginning
with the commencement of the last customized service delivered.
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.
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
and related expenses of network operations, survey operations,
custom analytics and technical support departments, and are
expensed as they are incurred. Cost of revenues also includes
data collection costs for the products and operational costs
associated with the Companys data centers, including
depreciation expense associated with computer equipment.
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 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 and related costs for personnel associated with
research and development activities, and allocated overhead,
including rent and depreciation.
General
and Administrative
General and administrative expenses consist primarily of
salaries, stock-based compensation 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 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, which are
regarded as highly creditworthy. Investments consist of fixed
income and auction rate securities. With respect to accounts
receivable, credit risk is mitigated by the Companys
ongoing credit evaluation of its customers financial
condition.
73
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the years ended December 31, 2007, 2006 and 2005, one
customer accounted for 13%, 12% and 14%, respectively, of total
revenues. One customer accounted for 12% of accounts receivable
as of December 31, 2007. No customer accounted for more
than 10% of accounts receivable as of December 31, 2006.
Advertising
Costs
All advertising costs are expensed as incurred. Advertising
expense, which is included in sales and marketing expense,
totaled $371,000, $210,000 and $58,000 for the years ended
December 31, 2007, 2006 and 2005, respectively.
Stock-Based
Compensation
In December 2004, the FASB issued SFAS No. 123(R),
Share-Based Payment (SFAS 123R), which requires
companies to expense the estimated fair value of employee stock
options and similar awards. This statement is a revision to
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123), supersedes Accounting
Principles Board Opinion No. 25 (APB 25), Accounting for
Stock Issued to Employees, and amends SFAS No. 95,
Statement of Cash Flows.
Prior to January 1, 2006, the Company accounted for its
stock-based compensation plans under the recognition and
measurement provisions of APB 25, and related interpretations,
as permitted by SFAS 123. Effective January 1, 2006,
the Company adopted SFAS 123R, including the fair value
recognition provisions, using the prospective method. Under
SFAS 123R, a non-public company that previously used the
minimum value method for pro forma disclosure purposes is
required to adopt the standard using the prospective method.
Under the prospective method, all awards granted, modified or
settled after the date of adoption are accounted for using the
measurement, recognition and attribution provisions of
SFAS 123R. As a result, stock-based awards granted prior to
the date of adoption of SFAS 123R will continue to be
accounted for under APB 25 with no recognition of stock-based
compensation in future periods, unless such awards are modified
or settled. Subsequent to the adoption of SFAS 123R, the
Company estimates the value of stock-based awards on the date of
grant using the Black-Scholes option-pricing model. For
stock-based awards subject to graded vesting, the Company has
utilized the straight-line ratable method for allocating
compensation cost by period. For the years ended
December 31, 2007 and 2006, the Company recorded
stock-based compensation expense of $2.5 million and
$198,000, respectively, in accordance with SFAS 123R.
Included within 2007 stock-based compensation expense and
liabilities was an accrual for $235,000 for compensation earned
during the year. This accrual will be settled with shares of
restricted stock to be granted in 2008.
Prior to the completion of the Companys IPO, the Company
estimated the fair value of its common stock in its
determination of stock-based compensation expense under both APB
25 and SFAS 123R. The primary approach used by the Company
for estimating the fair value of its common stock was the
probability-weighted expected return method, consistent with the
recommendations of the American Institute of Certified Public
Accountants Technical Practice Aid, Valuation of
Privately-Held Company Equity Securities Issued as
Compensation. As the Companys securities were not
publicly traded or subject to any market evaluation of fair
value prior to the IPO, the Company utilized valuation
methodologies commonly used in the valuation of private company
equity securities.
In its use of the probability-weighted expected return method,
the Company considered a combination of two generally accepted
approaches to determine the Companys business enterprise
value: the income and market approaches. Under the income
approach, value is measured as the present worth of
anticipated future net cash flows generated by the business or
asset. Under the market approach, the Companys
value is compared to similar businesses, business ownership
interests, securities or assets that have been sold. These
approaches were used in conjunction with probability-weighted
expected returns for three scenarios: an initial public
offering, a sale or merger, or the Company remaining privately
held.
74
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Applying the income approach, a discounted cash flow, or DCF
analysis was performed as of the valuation date. The DCF
analysis included a forecast of revenues, operating expenses,
capital expenditures and incremental working capital. Based on
these forecasts, the net cash flow to be generated by the
business during the projection period and the terminal value was
determined and discounted to present value. An unlevered cash
flow forecast was utilized and a weighted-average cost of
capital was used as the discount rate. The income approach was
used to value the Company assuming it remained a private
company. The market approach was used in the scenario involving
a sale or merger of the Company. Transactions were identified
for the acquisition of similar companies and acquisition
multiples were determined and applied to the Companys
operating metrics. The market approach was also used for the
initial public offering scenario, using comparable public
company valuations. The Company determined a set of comparable
public companies and developed multiples that were then applied
to the Companys operating metrics.
To determine the value of the total equity (both common and
preferred), the value determined under each scenario was then
adjusted by adding non-operating assets and subtracting
interest-bearing obligations. The equity value was then
allocated to the various security holders, including the common
stockholders. Once the common equity value was determined for
each scenario, certain adjustments were also made to reflect the
value of a specific ownership interest in the business including
the application of discounts for lack of marketability and
control, in appropriate circumstances. The resulting common
equity value was then divided by the applicable shares
outstanding to arrive at the estimated fair value of common
stock per share for each scenario. As discussed above, the
probability-weighted expected return method was the primary
approach used by the Company to determine the fair value of the
Companys common stock. Applying this approach, relative
weightings were determined by the Company that applied the
likelihood of the Company pursuing an initial public offering
versus a sale of the Company or remaining an independent,
private company. This resulted in the final estimated fair value
of common stock per share used in the Companys
determination of stock-based compensation.
Cumulative
Effect of Change in Accounting Principle
Effective July 1, 2005, the Company adopted the provisions
of FASB Staff Position
No. 150-5,
Issuers Accounting under Statement No. 150 for
Freestanding Warrants and Other Similar Instruments on Shares
that are Redeemable
(FSP 150-5),
an interpretation of SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of Both
Liabilities and Equity (SFAS 150). Pursuant to
FSP 150-5,
freestanding warrants for shares that are either puttable or
warrants for shares that are redeemable are classified as
liabilities on the consolidated balance sheet at fair value.
Upon adoption of
FSP 150-5,
the Company reclassified the carrying value of its warrants to
purchase shares of its redeemable convertible preferred stock
from mezzanine equity to a liability and recorded a cumulative
effect charge of approximately $440,000 for the change in
accounting principle to record the warrants at fair value on
July 1, 2005. The Company recorded additional charges of
approximately $14,000 to reflect the increase in fair value
between July 1, 2005 and December 31, 2005. For the
year ended December 31, 2006, the Company recorded
approximately $224,000 of charges to reflect the increase in
fair value of the warrant liabilities. The Company recorded
approximately $1.2 million of expense during the year ended
December 31, 2007 to reflect an increase in fair value
during the period. Upon the closing of the IPO on July 2,
2007, these liabilities were reclassified to stockholders
equity (deficit).
The pro forma effect of the adoption of
FSP 150-5
on the results of operations for fiscal year 2005 if applied
retroactively, assuming
FSP 150-5
had been adopted in this year, has not been disclosed as these
amounts would not be materially different from the reported
amounts.
Income
Taxes
Income taxes are accounted for using the liability method in
accordance with SFAS No. 109, Accounting for Income
Taxes. Deferred income taxes are provided for temporary
differences in recognizing certain income,
75
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. In accordance with SFAS 123R, we will not
recognize a deferred tax asset with respect to the excess stock
compensation deductions until those deductions actually reduce
the companys income tax liability.
In June 2006, the FASB issued FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income
Taxes, an interpretation of SFAS No. 109. This
interpretation clarifies the accounting for income taxes by
prescribing that a company should use a more-likely-than-not
recognition threshold based on the technical merits of the tax
position taken. Tax provisions that meet the
more-likely-than-not recognition threshold should be measured as
the largest amount of tax benefits, determined on a cumulative
probability basis, which is more likely than not to be realized
upon ultimate settlement in the financial statements.
FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting for interim
periods, disclosure and transition, and explicitly excludes
income taxes from the scope of SFAS No. 5,
Accounting for Contingencies. FIN 48 is effective
for fiscal years beginning after December 15, 2006, and was
adopted by the Company on January 1, 2007. As of
January 1, 2007, the Company did not have any material
gross unrecognized tax benefits. It is the Companys policy
to recognize interest and penalties related to income tax
matters in income tax expense.
Earnings
Per Share
The Company computes earnings per share in accordance with the
provisions of FASB No. 128, Earnings Per Share
(SFAS 128). The Company has issued shares of common
stock in connection with business acquisitions (see
Note 4) that give the holders the right to require the
Company to repurchase the shares at a fixed price at a specified
future date (Common Stock Subject to Put). The
difference between the fair value of the shares of Common Stock
Subject to Put on the issuance date and the price at which the
Company may be required to repurchase those shares is being
accreted over the period from issuance to the first date at
which the Company could be required to repurchase the shares as
a dividend to the holders. EITF Topic D-98, Classification
and Measurement of Redeemable Securities (EITF D-98) states
that when a common shareholder has a contractual right to
receive, at share redemption, an amount that is other than fair
value, such shareholder has received, in substance, a
preferential distribution. Under SFAS 128, entities with
capital structures that include classes of common stock with
different dividend rates are required to apply the two-class
method of calculating earnings per share. Accordingly, the
Company calculates earnings per share for its common stock and
its Common Stock Subject to Put using a method akin to the
two-class method under SFAS 128.
In addition, the Companys series of convertible redeemable
preferred stock that were outstanding until their automatic
conversion upon the completion of the IPO on July 2, 2007
were considered participating securities as they were entitled
to an 8% noncumulative preferential dividend before any
dividends could be paid to common stockholders. The Company
includes its participating preferred stock in the computation of
earnings per share using the two-class method in accordance with
EITF 03-06,
Participating Securities and the Two - Class Method
under FASB Statement No. 128
(EITF 03-06).
The two-class computation method for each period allocates the
undistributed earnings or losses to each participating security
based on their respective rights to receive dividends. In
addition to undistributed earnings or losses, the accretion to
their redemption or put prices is also allocated to the Common
Stock Subject to Put and the convertible redeemable preferred
stock. In periods of undistributed losses, all losses are
allocated to common stock in accordance with
EITF 03-06
as the holders of Common Stock Subject to Put and participating
preferred stock are not required to fund losses nor are their
redemption or put prices reduced as a result of losses incurred.
In periods of undistributed income, income is first allocated to
the participating preferred stock for their preferential
dividend, currently $7.1 million per annum. Any
undistributed earnings remaining are then allocated to holders
of common stock, Common Stock Subject to Put and preferred stock
(assuming conversion) on a pro rata basis. The total
76
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
earnings or losses allocated to each class of common stock are
then divided by the weighted-average number of shares
outstanding for each class of common stock to determine basic
earnings per share.
EITF 03-06
does not require the presentation of basic and diluted earnings
per share for securities other than common stock; therefore,
earnings per share is only computed for the Companys
common stock.
Diluted earnings per share for common stock reflects the
potential dilution that could result if securities or other
contracts to issue common stock were exercised or converted into
common stock. Diluted earnings per share assumes the exercise of
stock options and warrants using the treasury stock method.
Diluted earnings per share does not assume the conversion of the
Companys convertible preferred stock using the
if-converted method as the result is anti-dilutive for the
period prior to conversion. No potentially dilutive securities
are convertible or exercisable into shares of Common Stock
Subject to Put.
The following is a summary of common stock equivalents for the
securities outstanding during the respective periods that have
been excluded from the earnings per share calculations as their
impact was anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Stock options and restricted stock units
|
|
|
3,796
|
|
|
|
2,750,022
|
|
|
|
2,820,945
|
|
Convertible preferred stock warrants
|
|
|
|
|
|
|
113,129
|
|
|
|
113,129
|
|
Common stock warrants
|
|
|
2,000
|
|
|
|
115,357
|
|
|
|
398,960
|
|
Convertible preferred stock
|
|
|
8,605,041
|
|
|
|
17,257,362
|
|
|
|
17,257,362
|
|
77
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the computation of basic and
diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except share data)
|
|
|
Calculation of basic and diluted net income per
share two class method:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
19,316
|
|
|
$
|
5,669
|
|
|
$
|
(4,422
|
)
|
Accretion of redeemable preferred stock
|
|
|
(1,829
|
)
|
|
|
(3,179
|
)
|
|
|
(2,638
|
)
|
Accretion of common stock subject to put
|
|
|
(103
|
)
|
|
|
(141
|
)
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed earnings (loss)
|
|
|
17,384
|
|
|
|
2,349
|
|
|
|
(7,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of undistributed earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before cumulative effect of change in accounting
principle
|
|
|
16,358
|
|
|
|
|
|
|
|
(6,752
|
)
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
(440
|
)
|
Preferred stock
|
|
|
1,026
|
|
|
|
2,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allocated earnings (loss)
|
|
$
|
17,384
|
|
|
$
|
2,349
|
|
|
$
|
(7,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.99
|
|
|
$
|
0.00
|
|
|
$
|
(2.30
|
)
|
Diluted
|
|
$
|
0.88
|
|
|
$
|
0.00
|
|
|
$
|
(2.30
|
)
|
Cumulative effect of change in accounting principle
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
(0.14
|
)
|
Weighted-average shares outstanding-common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,139,365
|
|
|
|
3,847,213
|
|
|
|
3,130,194
|
|
Diluted
|
|
|
18,377,563
|
|
|
|
3,847,213
|
|
|
|
3,130,194
|
|
Net income attributable to common stockholders per common share
subject to put:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.33
|
|
|
$
|
0.41
|
|
|
$
|
0.38
|
|
Diluted
|
|
$
|
1.21
|
|
|
$
|
0.41
|
|
|
$
|
0.38
|
|
Weighted-average shares outstanding-common stock subject to put:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
308,720
|
|
|
|
347,635
|
|
|
|
347,635
|
|
Diluted
|
|
|
308,720
|
|
|
|
347,635
|
|
|
|
347,635
|
|
Fair
Value of Financial Instruments
SFAS No. 107, Disclosure about Fair Value of
Financial Instruments, defines the fair value of financial
instruments as the amount at which the instrument could be
exchanged in a current transaction between willing parties. Cash
equivalents, investments, accounts receivable, accounts payable,
accrued expenses and capital lease obligations reported in the
consolidated balance sheets equal or approximate their
respective fair values. The fair value of the Companys
preferred stock warrants liabilities, convertible preferred
stock and common stock subject to put is not practicable to
determine, as no quoted market price exists for these
instruments.
78
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Recent
Pronouncements
In December 2007, the SEC staff issued Staff Accounting
Bulletin No. 110 (SAB 110), which
expresses the views of the SEC staff regarding the use of a
simplified method in developing an estimate of
expected term of plain vanilla share options in
accordance with SFAS 123R. The use of the
simplified method, which was first described in
Staff Accounting Bulletin No. 107, was scheduled to
expire on December 31, 2007. SAB 110 extends the use
of the simplified method for plain
vanilla awards in certain situations. The SEC staff does
not expect the simplified method to be used when
sufficient information regarding exercise behavior, such as
historical exercise data or exercise information from external
sources, becomes available. SAB 110 is effective
January 1, 2008. The Company is currently evaluating the
impact of the provisions of SAB 110 on its consolidated
results of operations and financial condition
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS No. 141(R)).
SFAS No. 141(R) establishes principles and
requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. SFAS No. 141(R) also
establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination.
SFAS No. 141(R) is effective for fiscal years
beginning after December 15, 2008. The Company is currently
evaluating the potential impact of adopting the provisions of
SFAS No. 141(R) on its consolidated results of
operations and financial position.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research
Bulletin No. 51
(SFAS No. 160). SFAS No. 160
establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent,
the amount of the consolidated net income attributable to the
parent and to the noncontrolling interest, changes in a
parents ownership interest, and the valuation of retained
noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS No. 160 also establishes
disclosure requirements that clearly identify and distinquish
between the interests of the parent and the interests of the
noncontrolling owners. SFAS No. 160 is effective for
fiscal years beginning after December 15, 2008. The Company
is currently evaluating the potential impact of adopting the
provisions of SFAS No. 160 on its consolidated results
of operations and financial position.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. The purpose of this statement is
to define fair value, establish a framework for measuring fair
value and enhance disclosures about fair value measurements. The
measurement and disclosure requirements are effective for the
Company as of January 1, 2008 and are applied
prospectively. In February 2008, the FASB agreed to delay the
effective date of SFAS 157 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a
recurring basis, to fiscal years beginning after
November 15, 2008. The Company is currently evaluating the
potential impact of adopting this new guidance on its
consolidated results of operations and financial position.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS No. 159), to permit all entities
to choose to elect, at specified election dates, to measure
eligible financial instruments at fair value. An entity shall
report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent
reporting date, and recognize upfront costs and fees related to
those items in earnings as incurred and not deferred.
SFAS No. 159 applies to fiscal years beginning after
November 15, 2007, with early adoption permitted for an
entity that has also elected to apply the provisions of
SFAS No. 157. An entity is prohibited from
retrospectively applying SFAS No. 159, unless it
chooses early adoption. The Company is currently evaluating the
impact of the provisions of SFAS No. 159 on its
consolidated results of operations and financial position.
79
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investments
in Marketable Securities
|
As of December 31, 2007, the Company had $30.3 million
invested in auction rate securities, of which $25.4 million
are classified as current, short-term investments and
$4.9 million are classified as long-term investments on its
consolidated balance sheet. As of December 31, 2006, the
Company had $11.0 million invested in auction rate
securities, all of which were classified as short-term
investments on its consolidated balance sheet.
Auction rate securities are generally long-term debt instruments
that provide liquidity through a Dutch auction process that
resets the applicable interest rate at pre-determined calendar
intervals, generally every 28 days. This mechanism
typically allows existing investors to rollover their holdings
and continue to own their respective securities or liquidate
their holdings by selling their securities at par value. The
Company generally invests in these securities for short periods
of time as part of its investment policy. However, the recent
uncertainties in the credit markets have prevented the Company
and other investors from liquidating holdings of certain auction
rate securities in recent auctions 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. As of
December 31, 2007, these investments were fully backed by
AAA rated bonds and insured against loss of principal and
interest by bond insurers. However, certain bond insurers are
experiencing financial difficulty and have either had their
credit ratings downgraded or have been placed on watch. As of
December 31, 2007, five auction rate securities with a par
value of $5.1 million had failed their most recent auction
and are considered illiquid. These securities were valued using
a discounted cash flow model that takes into consideration the
financial condition of the issuers and the bond insurers, as
well as the expected date liquidity will be restored. If the
credit ratings of the issuer, the bond insurers or the
collateral continues to deteriorate, we may further adjust the
carrying value of these investments.
The Company is uncertain as to when the liquidity issues
relating to these investments will improve. Accordingly, we
classified these securities as non-current as of
December 31, 2007.
Marketable securities, which are classified as
available-for-sale, are summarized below as of December 31,
2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
Gross
|
|
|
Gross
|
|
|
Aggregate
|
|
|
Classification on Balance Sheet
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Short-Term
|
|
|
Long-Term
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
Investments
|
|
|
Investments
|
|
|
|
(In thousands)
|
|
|
As of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government debt securities
|
|
$
|
6,005
|
|
|
$
|
38
|
|
|
$
|
|
|
|
$
|
6,043
|
|
|
$
|
2,999
|
|
|
$
|
3,044
|
|
Auction rate securities
|
|
|
30,550
|
|
|
|
|
|
|
|
(220
|
)
|
|
|
30,330
|
|
|
|
25,450
|
|
|
|
4,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,555
|
|
|
$
|
38
|
|
|
$
|
(220
|
)
|
|
$
|
36,373
|
|
|
$
|
28,449
|
|
|
$
|
7,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
Gross
|
|
|
Gross
|
|
|
Aggregate
|
|
|
Classification on Balance Sheet
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Short-Term
|
|
|
Long-Term
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
Investments
|
|
|
Investments
|
|
|
|
(In thousands)
|
|
|
As of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
$
|
11,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,000
|
|
|
$
|
11,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,000
|
|
|
$
|
11,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the fair value and gross
unrealized losses related to available-for-sale securities,
aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss
position, as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 months
|
|
|
More Than 12 months
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
(In thousands)
|
|
|
Auction rate securities
|
|
$
|
30,330
|
|
|
$
|
(220
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30,330
|
|
|
$
|
(220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,330
|
|
|
$
|
(220
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30,330
|
|
|
$
|
(220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrealized losses on the investments were due primarily to
changes in market conditions and overall lack of demand for
auction rate securities. For all investments, it is expected
that the investments will not be settled at a price less than
the amortized cost of the investment. Because the Company has
the ability and intent to hold these investments until an
anticipated recovery of the fair value, the Company does not
consider these investments to be other-than temporarily impaired
as of December 31, 2007
Subsequent to December 31, 2007, the Company sold auction
rate securities with a total par value of $23.1 million on
the scheduled auction dates and reinvested the proceeds in
treasury notes. As the credit markets continue to decline, the
Company has experienced additional illiquidity in
$2.4 million in par value of auction rate securities. In
addition, subsequent to December 31, 2007, one of the bond
insurers backing one of the investments was downgraded by the
credit agencies from AAA to A3/AA and the resulting bond was
also downgraded to A3/AA. As of February 29, 2008, the
Companys estimated unrealized loss increased to $540,000.
Q2
Brand Intelligence, Inc.
On July 28, 2004, the Company acquired the outstanding
stock of Denaro and Associates, Inc, otherwise known as Q2 Brand
Intelligence, Inc. (Q2), to improve the Companys ability
to provide customers more robust custom research integrated with
its underlying digital marketing intelligence platform. The
total cost of the acquisition was $3,336,000, which included
cash of $873,000, the issuance of 212,000 shares of
restricted common stock valued at $2,412,000 and related costs
incurred in the amount of $51,000. The former sole shareholder
of Q2 was entitled to receive up to an additional $600,000 in
cash based on the entitys achievement of certain
performance criteria. No amounts were earned as of
December 31, 2004. In 2005 and 2006, the performance
criteria were met and the Company paid $300,000 each year which
was recorded as additional goodwill. The Company accounted for
the acquisition as a purchase in accordance with
SFAS No. 141, Business Combinations
(SFAS 141). Accordingly, the results of operations of
Q2 have been included in the accompanying consolidated financial
statements since the purchase date.
Acquired trademarks and brand names were initially determined to
have an indefinite life and, therefore, were not amortized. In
July 2005, the Company determined that the trademarks and brand
names would be phased out over the next six months so that the
services could be branded under the Companys name. At the
time of the decision, there were no indicators of impairment.
Accordingly, the asset was amortized on a straight-line basis
over its remaining six month useful life. The change in the
estimated useful life resulted in additional amortization
expense of $290,000 for the year ended December 31, 2005.
Acquired methodology and customer relationships are being
amortized on a straight-line basis over one to three years. The
noncompete agreement is being amortized on a straight-line basis
over four years.
The common stock issued to the former sole shareholder of Q2 was
subject to a restricted stock agreement that included a put
right at a price of $12.50 per share effective for a
ninety-day
period beginning on the third anniversary of the closing date.
The Company valued the common stock subject to put at fair value
on the date of issuance. The
81
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
carrying value of the common stock subject to the put right is
being accreted to the put obligation over the three year term
using the effective interest rate method. For the years ended
December 31, 2007, 2006 and 2005, the Company accreted a
total of $44,000, $80,000 and $78,000, respectively. On
October 26, 2007, the put right expired unexercised.
Accordingly, the company reclassified the common stock subject
to put to common stock.
SurveySite,
Inc.
On January 4, 2005, the Company acquired the assets and
assumed certain liabilities of SurveySite Inc., or SurveySite.
Through this acquisition, the Company acquired proprietary
data-collection technology and increased customer penetration
and revenues in the survey business. The total cost of the
acquisition was $3.6 million, which included cash of
$1.7 million, the payment of additional purchase
consideration of $132,000, the issuance of 135,635 shares
of restricted common stock valued at $1.6 million and
related costs incurred and adjustments in the amount of $111,000.
The Company accounted for the acquisition as a purchase in
accordance with SFAS 141. Accordingly, the results of
operations of SurveySite have been included in the accompanying
consolidated financial statements since the purchase date. In
accordance with SFAS 141, the purchase price was allocated
to the assets and liabilities of SurveySite based on their
estimated fair values. Based on this analysis, the fair value of
the identifiable tangible and intangible assets exceeded the
cost of the acquired business by approximately $790,000.
Therefore, in accordance with SFAS 141, the Company
reduced, on a pro rata basis, the value attributed to certain
assets acquired.
The following table summarizes the estimated fair values of the
tangible assets acquired and liabilities assumed at the date of
acquisition:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Cash
|
|
$
|
715
|
|
Accounts receivable
|
|
|
606
|
|
Prepaid expense and other current assets
|
|
|
90
|
|
Property and equipment
|
|
|
283
|
|
|
|
|
|
|
Total assets acquired
|
|
|
1,694
|
|
Accounts payable and accrued expenses
|
|
|
245
|
|
Deferred revenues
|
|
|
480
|
|
Deferred tax liability
|
|
|
356
|
|
|
|
|
|
|
Net tangible assets acquired
|
|
$
|
613
|
|
|
|
|
|
|
The former shareholders of SurveySite were entitled to receive
$132,000 based on the entitys achievement of certain
performance criteria. The performance criteria was achieved as
of December 31, 2005 and the performance criteria was also
expected to be achieved in 2006, therefore, the total contingent
purchase consideration was paid in January 2006 and is included
in the purchase price. The common stock issued is subject to a
restricted stock agreement that includes a put right at a price
of $13.35 per share to be effective for a
ninety-day
period beginning on the third anniversary of the closing date.
The Company has valued the common stock subject to put at fair
value on the date of issuance. The fair value of the common
stock subject to put was estimated as the sum of (i) the
fair value of common stock exclusive of a put right of $1.25 per
share and (ii) the fair value of the embedded put right as
measured using the Black-Scholes option-pricing formula of
$10.85 per share. The key assumptions used in the Black-Scholes
option-pricing formula were as follows: expected dividend
yield 0%; risk-free interest rate 3.36%;
expected volatility 40.0%; expected term
3 years. The carrying value of the common stock subject to
the put right is being accreted to the put obligation over the
three year term using the effective interest rate method. For
the years ended December 31, 2007, 2006 and 2005, the
Company accreted a total of $59,000, $58,000 and $55,000,
respectively.
82
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The non-tangible portion of the purchase price, including the
payment of the contingent purchase consideration, was allocated
as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Trademarks
|
|
$
|
323
|
|
Non-compete agreements
|
|
|
213
|
|
Customer relationships
|
|
|
2,228
|
|
Acquired methodologies/technology
|
|
|
237
|
|
Acquired methodology and customer relationships are being
amortized on a straight-line basis over six months to three
years. The trademarks and non-compete agreements are being
amortized on a straight-line basis over two and three years,
respectively.
|
|
5.
|
Property
and Equipment
|
Property and equipment, including equipment under capital lease
obligations, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Computer equipment
|
|
$
|
16,050
|
|
|
$
|
14,855
|
|
Computer software
|
|
|
2,529
|
|
|
|
2,816
|
|
Office equipment and furniture
|
|
|
1,408
|
|
|
|
1,159
|
|
Leasehold improvements
|
|
|
1,070
|
|
|
|
1,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,057
|
|
|
|
19,909
|
|
Less: accumulated depreciation and amortization
|
|
|
(14,190
|
)
|
|
|
(12,929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,867
|
|
|
$
|
6,980
|
|
|
|
|
|
|
|
|
|
|
Property and equipment financed through capital lease
obligations, consisting of computer equipment, totaled
$3.1 million and $4.6 million at December 31,
2007 and 2006, respectively. At December 31, 2007 and 2006,
accumulated depreciation related to property and equipment
financed through capital leases totaled $1.2 million and
$1.1 million, respectively. During the years ended
December 31, 2007 and 2006, $2.5 million and
$3.2 million, respectively, of fully depreciated assets
were written off. In addition, $2.6 million of assets
financed through capital leases terminated and were subsequently
returned and written off.
For the years ended December 31, 2007, 2006 and 2005, total
depreciation expense was $3.8 million, $2.9 million
and $2.7 million, respectively.
83
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Goodwill
and Intangible Assets
|
The carrying amounts of goodwill and intangible assets are as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Goodwill
|
|
$
|
1,364
|
|
|
$
|
1,364
|
|
|
|
|
|
|
|
|
|
|
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
Trademarks and brands
|
|
$
|
662
|
|
|
$
|
662
|
|
Non-compete agreements
|
|
|
326
|
|
|
|
326
|
|
Customer relationships
|
|
|
3,467
|
|
|
|
3,467
|
|
Acquired methodologies/technology
|
|
|
688
|
|
|
|
688
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
5,143
|
|
|
|
5,143
|
|
Accumulated amortization
|
|
|
(5,126
|
)
|
|
|
(4,160
|
)
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
17
|
|
|
$
|
983
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to intangible assets was
approximately $966,000, $1.4 million and $2.4 million
for the years ended December 31, 2007, 2006 and 2005,
respectively. All intangible assets at December 31, 2007
are expected to be fully amortized during 2008.
The weighted average amortization period by major asset class as
of December 31, 2007, is as follows:
|
|
|
|
|
|
|
(In years)
|
|
|
Trademarks and brands
|
|
|
1.7
|
|
Non-compete agreements
|
|
|
3.4
|
|
Customer relationships
|
|
|
2.7
|
|
Acquired methodologies/technology
|
|
|
2.0
|
|
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Accrued payroll and related
|
|
$
|
3,054
|
|
|
$
|
3,118
|
|
Other
|
|
|
3,938
|
|
|
|
2,902
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,992
|
|
|
$
|
6,020
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Commitments
and Contingencies
|
Leases
In December 2006, the Company entered into an equipment lease
agreement with Banc of America Leasing & Capital, LLC
to finance the purchase of new hardware and other computer
equipment as the Company continues to expand its technology
infrastructure in support of its business growth. This agreement
includes a $5.0 million line of credit that was available
to the Company until December 31, 2007; its initial
utilization of this credit facility was to establish an
equipment lease for approximately $2.9 million bearing
interest at a rate of 7.75% per annum. The base
84
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
term for this lease is three years and includes a nominal charge
in the event of prepayment. Assets acquired under the equipment
leases secure the obligations. The line of credit expired
December 31, 2007.
In addition to equipment financed through capital leases, the
Company is obligated under various noncancelable operating
leases for office facilities and equipment. These leases
generally provide for renewal options and escalation increases.
Future minimum payments under noncancelable lease agreements
with initial terms of one year or more are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
Leases
|
|
|
Leases
|
|
|
2008
|
|
$
|
1,021
|
|
|
$
|
3,232
|
|
2009
|
|
|
1,021
|
|
|
|
4,150
|
|
2010
|
|
|
|
|
|
|
3,968
|
|
2011
|
|
|
|
|
|
|
4,057
|
|
2012
|
|
|
|
|
|
|
3,982
|
|
Thereafter
|
|
|
|
|
|
|
20,537
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
2,042
|
|
|
$
|
39,926
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
(165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
1,877
|
|
|
|
|
|
Less current portion
|
|
|
(900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations, long-term
|
|
$
|
977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rent expense was $2.4 million, $2.1 million and
$2.5 million for the years ended December 31, 2007,
2006 and 2005, respectively.
In December 2007, the Company entered into a 10 year lease
with a new landlord for approximately 62,000 square feet of
new office space for their corporate headquarters. The Company
expects to move its corporate headquarters in June 2008 when its
current lease expires.
In August 2007, the Company entered into a 10 year lease
with a new landlord for approximately 28,000 square feet of
new office space for its Chicago office. The Company expects to
move its Chicago office in March 2008.
In June 2003, the Company modified its lease for its corporate
headquarters resulting in (i) a reduction in the space
rented, (ii) the lease termination date being revised from
January 2011 to June 2008, and (iii) a reduction in the
monthly lease rate. In connection with the modification, the
Company relinquished its security deposit on the original lease
and made certain cash payments which totaled $2.0 million.
The Company has treated the modification payments, net of a
deferred rent liability of approximately $300,000 associated
with the vacated space, as prepaid rent and is recognizing the
amount over the remaining lease term. The prepaid lease balance
at December 31, 2007 and 2006 was approximately $126,000
and $386,000, respectively. The short-term portion is included
in Prepaid Expenses and Other Current Assets and the long-term
portion is included in Other Non-Current Assets in the
Consolidated Balance Sheets.
During August 2007, the Company paid the $582,000 principal
balance of certain capital lease obligations resulting in the
termination of those lease agreements.
As of December 31, 2007, the Company is required to
maintain letters of credit in the amount of approximately
$1.4 million as additional security deposit pertaining to
operating leases This amount is included in Restricted Cash in
the Consolidated Balance Sheets .
85
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Contingencies
The Company has no asserted claims as of December 31, 2007,
but is from time to time exposed to unasserted potential claims
encountered in the normal course of business. Although the
outcome of any legal proceedings cannot be predicted with
certainty, management believes that the final resolution of
these matters will not materially affect the Companys
consolidated financial position or results of operations.
The components of pretax income in consolidated companies for
the years ended December 31, 2007, 2006 and 2005 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Domestic
|
|
$
|
11,450
|
|
|
$
|
6,190
|
|
|
$
|
(2,256
|
)
|
Foreign
|
|
|
344
|
|
|
|
(471
|
)
|
|
|
(2,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,794
|
|
|
$
|
5,719
|
|
|
$
|
(4,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(197
|
)
|
|
$
|
(147
|
)
|
|
$
|
|
|
State
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
(412
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(620
|
)
|
|
|
(147
|
)
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
6,833
|
|
|
|
|
|
|
|
|
|
State
|
|
|
1,112
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
197
|
|
|
|
97
|
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,142
|
|
|
|
97
|
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$
|
7,522
|
|
|
$
|
(50
|
)
|
|
$
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the statutory United States income tax rate
to the effective income tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statutory federal tax rate
|
|
|
35.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
Nondeductible items
|
|
|
6.6
|
|
|
|
3.4
|
|
|
|
(1.2
|
)
|
State tax rate, net of federal benefit
|
|
|
6.5
|
|
|
|
5.6
|
|
|
|
2.6
|
|
Foreign rate differences
|
|
|
(0.3
|
)
|
|
|
(0.2
|
)
|
|
|
0.4
|
|
Change in valuation allowance
|
|
|
(111.6
|
)
|
|
|
(41.9
|
)
|
|
|
(31.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(63.8
|
)%
|
|
|
0.9
|
%
|
|
|
4.6
|
%
|
The Company recognized an income tax benefit of approximately
$7.5 million during the year ended December 31, 2007,
primarily due to the recording of a reduction in the deferred
tax asset valuation allowance of approximately $8.1 million
offset by federal alternative minimum tax expense and state and
foreign income taxes.
86
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys net deferred income taxes are as follows.
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Deferred tax asset:
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
26,466
|
|
|
$
|
31,580
|
|
Tax credits
|
|
|
344
|
|
|
|
147
|
|
Accrued vacation and bonus
|
|
|
126
|
|
|
|
197
|
|
Deferred revenues
|
|
|
177
|
|
|
|
438
|
|
Acquired intangibles
|
|
|
880
|
|
|
|
596
|
|
Depreciation
|
|
|
363
|
|
|
|
525
|
|
Deferred compensation
|
|
|
779
|
|
|
|
|
|
Deferred rent
|
|
|
59
|
|
|
|
96
|
|
Other
|
|
|
154
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
29,348
|
|
|
|
33,669
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(21,284
|
)
|
|
|
(33,746
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
8,064
|
|
|
$
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007 and 2006, the Company had valuation
allowances of $21.3 million and $33.7 million,
respectively, against certain deferred tax assets, which
consisted principally of net operating loss carryforwards. As of
the year ended December 31, 2006, the Company believed
that, based on a number of factors, the available objective
evidence created sufficient uncertainty regarding the
realizability of the deferred tax assets such that a full
valuation allowance was required. As of December 31, 2007,
the Company concluded that it is more likely than not that a
portion of its deferred tax assets will be utilized in
subsequent years and that a reduction in the deferred tax asset
valuation allowance was necessary. In determining the amount of
deferred tax assets to recognize, the Company considered its
history of profitability, the history of its industry, the
overall amount of the deferred tax assets and the timeframe over
which it would take to utilize the deferred tax assets prior to
their expiration. Given the relatively limited history of
profitability and the fact that the online marketing industry is
a young and developing industry, the Company concluded that it
was appropriate at this time to consider future taxable income
(exclusive of reversing temporary differences and carryforwards)
for a limited period of one year into the future. As a result,
the Company reversed a portion of its valuation allowance and
recognized a net deferred tax asset of $8.1 million
The Company will continue to evaluate its valuation allowance
position on a regular basis. To the extent that the Company
determines that all or a portion of its valuation allowance is
no longer necessary, the Company will recognize an income tax
benefit in the period such determination is made for the
reversal of the valuation allowance. It is expected that any
such reduction of the Companys valuation allowance would
have a material impact on the Companys results from
operations.
87
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of activities in valuation allowance
for the fiscal years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Deferred Tax Valuation Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(33,746
|
)
|
|
$
|
(36,139
|
)
|
|
$
|
(33,056
|
)
|
Additions
|
|
|
(393
|
)
|
|
|
|
|
|
|
(3,083
|
)
|
Reductions
|
|
|
12,855
|
|
|
|
2,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
(21,284
|
)
|
|
$
|
(33,746
|
)
|
|
$
|
(36,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, the Company had both federal and
state net operating loss carryforwards for tax purposes of
approximately $67.8 million and $48.1 million,
respectively These net operating loss carryforwards begin to
expire in 2020 for federal and begin to expire in 2011 for state
income tax reporting purposes. In addition, at December 31,
2007 the Company had an aggregate net operating loss
carryforward for tax purposes related to its foreign
subsidiaries of $561,000, which begin to expire in 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Domestic
|
|
$
|
10,860
|
|
|
$
|
6,190
|
|
|
$
|
(3,030
|
)
|
Foreign
|
|
|
934
|
|
|
|
(471
|
)
|
|
|
(1,574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,794
|
|
|
$
|
5,719
|
|
|
$
|
(4,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The exercise of stock options during 2007 generated an income
tax deduction equal to the excess of the fair market value over
the exercise price. In accordance with SFAS 123R, the
Company will not recognize a deferred tax asset with respect to
the excess stock compensation deductions until those deductions
actually reduce the Companys income tax liability. As
such, the Company has not recorded a deferred tax asset related
to the net operating losses resulting from the exercise of these
stock options in the accompanying financial statements. At such
time as the Company utilizes these net operating losses to
reduce income tax payable, the tax benefit will be recorded as
an increase in additional paid in capital.
Under the provisions of Internal Revenue Code Section 382,
certain substantial changes in the Companys ownership may
result in a limitation on the amount of U.S. net operating
loss carryforwards that could be utilized annually to offset
future taxable income and taxes payable. Additionally, despite
the net operating loss carryforward, the Company may have a
future tax liability due to alternative minimum tax, foreign tax
or state tax requirements.
The Company intends to indefinitely reinvest the undistributed
earnings from its foreign subsidiaries. As of December 31,
2007, the Company has not recorded U.S. income tax expense
related to undistributed foreign earnings of approximately
$1 million.
The Company adopted FIN 48 on January 1, 2007. As of
January 1, 2007, the Company did not have any material
gross unrecognized tax benefits. At December 31, 2007, the
Company had unrecognized tax benefits of $71,000 on a tax
effected basis, all of which would affect the Companys
effective tax rate if recognized. The net increase in the
liability for unrecognized income tax benefits since the date of
adoption resulted from the following:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance at January 1, 2007
|
|
$
|
|
|
Increase related to tax positions of prior years
|
|
$
|
71
|
|
Balance at December 31, 2007
|
|
$
|
71
|
|
88
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company or one of its subsidiaries files income tax returns
for U.S. federal jurisdiction and various states and
foreign jurisdictions. For income tax returns filed by the
Company, the Company is no longer subject to U.S. federal,
state and local tax examinations by tax authorities for years
before 2003, although carryforward tax attributes that were
generated prior to 2003 may still be adjusted upon
examination by tax authorities if they either have been or will
be utilized.
|
|
10.
|
Convertible
Preferred Stock
|
Prior to the completion of the Companys IPO on
July 2, 2007, the Companys certificate of
incorporation authorized the issuance of 9,187,500 shares
of Series A Preferred Stock (Series A),
3,535,486 shares of Series B Preferred Stock
(Series B), 13,355,052 shares of Series C
Preferred Stock (Series C), 357,144 shares of
Series C-1
Preferred Stock
(Series C-1),
22,238,042 shares of Series D Preferred Stock
(Series D) and 25,000,000 shares of Series E
Preferred Stock (Series E). Upon the closing of the
Companys IPO on July 2, 2007, all shares of
convertible preferred stock were converted into
17,257,362 shares of common stock.
Prior to the conversion of the Companys convertible
preferred stock, the Series E ranked senior to all other
classes of capital stock, with the exception of the Incentive
Plan (see Note 13), on a distribution of assets upon
liquidation, dissolution, or winding up of the Company. Upon
such event, each share of Series E was entitled to a
liquidation preference equal to 1.63 times the original purchase
price of $2.50 per share. In addition, each share of
Series E was entitled to participate in any distribution
pari passu with all classes of stock after $88,392,465 (the Cap
Amount) had been distributed to the holders of Series A
through Series D preferred stock. The assets distributed to
each share of Series E upon liquidation, dissolution or
winding up of the Company shall not have exceeded five times the
original purchase price of $2.50 per share. Series E was
convertible into common stock at a conversion price equal to the
original issuance price, subject to adjustment.
The holders of Series E were entitled to dividends in
preference to any class of capital stock of the Company at an
annual rate of 8.0%. Following payment of any dividends to
holders of Series E, holders of Series D were entitled
to dividends in preference to any class of stock other than
Series E at an annual rate of 8.0%. Following the payment
of any dividends to the holders of Series D, holders of
Series A, Series B, Series C and
Series C-1
were entitled to dividends in preference to common stockholders
at an annual rate of 8.0%. All dividends were noncumulative and
were paid only when, if, and as declared by the Board of
Directors. No dividend shall have been paid on shares of common
stock in any fiscal year unless (i) the noncumulative
preferential dividends of the preferred stock had been paid in
full and (ii) the holders of preferred stock participated
in any such dividend on common stock on a pro rata basis
assuming conversion of all preferred stock into common stock.
The Series A, B, C, C-1 and D
(Series A-D)
each had a liquidation preference senior to the common stock. In
the event of any liquidation, dissolution, or winding up of the
Company, each
Series A-D
share was entitled to a liquidation preference equal to a
portion of the Cap Amount. The portion of the Cap Amount to
which each share of Series A, B, C and C-1 was entitled was
equal to the original purchase price for such share (plus all
declared and unpaid dividends) multiplied by an adjustment
factor set forth in the prior certificate of incorporation. The
portion of the Cap Amount to which each share of Series D
was entitled was equal to the original issue price (plus all
declared and unpaid dividends) plus a 25% premium, compounded
annually (but such total not to exceed 250% of the original
issue price) multiplied by an adjustment factor set forth in the
prior certificate of incorporation. The original purchase price
per share for Series A, Series B, Series C,
Series C-1
and Series D was $5.00, $24.50, $11.35, $7.00 and $4.50
respectively. After the payment of the liquidation preference to
the
Series A-D,
each share of
Series A-D
was entitled to participate in any distribution pari passu with
all classes of stock. The assets distributed to each share of
Series A-D
upon liquidation, dissolution, or winding up of the Company
shall not have exceeded 2.5 times the original purchase price of
such shares.
Upon the occurrence of a Liquidation Event, defined as a
consolidation, merger, or sale of the Company, Management was
entitled to receive the first 10% of any liquidation proceeds
pursuant to an Incentive Plan (see Note 13). The
distribution of such proceeds were to be to the Incentive Plan
participants (senior management and
89
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Companys founders) based on both their respective equity
ownership in the Company and a variable percentage which was
subject to Board approval.
As a result of the issuance of Series E, the conversion
prices of the Series A, Series B, Series C,
Series C-1
and Series D were adjusted to the following rates:
Series A $4.30 per share, Series B $12.35 per share,
Series C $7.50 per share,
Series C-1
$5.90 per share and Series D of $4.00 per share.
Each share of preferred stock was convertible at any time into
shares of common stock based on the conversion price then in
effect. Conversion was automatic in the event of a public
offering of common stock at a price of at least $12.50 per share
with gross proceeds of at least $25 million. Each holder of
preferred stock was entitled to the number of votes equal to the
number of whole shares of common stock into which the shares
held by the holder were then convertible at each meeting of the
stockholders of the Company. All series of preferred stock had
anti-dilution protection in the event the Company issued shares
at a purchase price less than $2.50.
All classes of preferred stock were redeemable by the holder on
or after August 1, 2008. Series E ranked senior to all
other classes of stock and may have been redeemed at 1.63 times
its original purchase price plus all declared but unpaid
dividends. The aggregate redemption value for the
Series A-D
shares was equal to the Cap Amount. In the event that any series
of preferred stock was converted into common stock prior to
redemption, the aggregate redemption value of the remaining
series of preferred stock remained equal to the Cap Amount. The
redemption value for the
Series A-D
shares was equal to the liquidation preference in effect on the
redemption date for each series of preferred stock as adjusted
by a formula set forth in the prior certificate of
incorporation. Upon the initiation of the Cap Amount, the
carrying values of Series A, Series B, Series C
and
Series C-1
were in excess of their individual redemption values. The
carrying value of Series D was below its individual
redemption value. The differences between the carrying value of
each series of preferred stock and its respective redemption
value (as adjusted for the Cap Amount for
Series A-D)
was being accreted as preferred stock dividends using the
interest method over the period to the redemption date. Such
accretion amounted to $1.8 million, $3.2 million and
$2.6 million for the years ended December 31, 2007,
2006 and 2005, respectively.
In connection with the closing of the Companys IPO on
July 2, 2007, all outstanding shares of convertible
preferred stock were converted into 17,257,362 shares of
common stock.
|
|
11.
|
Convertible
Preferred Stock Warrants
|
In prior years, the Company issued fully vested warrants to
purchase 97,324 shares of preferred stock in connection
with a master lease and various equipment lease agreements. The
exercise prices of the warrants range from $2.50 to $24.50 per
share and the warrants expire 10 years from the date of
issue. The Company recorded the fair value of the warrants
totaling $383,000 as deferred financing costs with an offset to
warrants to purchase redeemable preferred stock. The fair value
of the warrants was estimated using the Black-Scholes option
pricing model. The deferred financing costs were being amortized
to interest expense over the respective agreement on a straight
line basis. For the years ended December 31, 2007, 2006 and
2005, the Company recorded $7,000, $33,000 and $33,000 in
interest expense.
Upon adoption of
FSP 150-5
(July 1, 2005), the Company reclassified the carrying value
of its warrants to purchase shares of its convertible preferred
stock from mezzanine equity to a liability and adjusted the
warrants to fair value. The fair value of the convertible
preferred stock warrants at December 31, 2006 was
approximately $1.0 million. The fair value of warrants was
estimated using the Black-Scholes option pricing model. The
Company continued to adjust the liabilities for changes in fair
value until the completion of the IPO, which closed on
July 2, 2007, at which time the carrying value of
liabilities of $2.2 million was reclassified to
stockholders equity (deficit) (see Note 1).
To reflect the increase in fair value of the preferred stock
warrants, the Company recorded charges of $1.2 million,
$224,000 and $14,000 for the years ended December 31, 2007,
2006 and 2005, respectively.
90
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Common
Stock Subject to Put
|
In prior years, the Company issued 347,635 shares of Common
Stock Subject to Put. The carrying value of the Common Stock
Subject to the Put right is being accreted to the put obligation
over the three year term using the effective interest rate
method. For the years ended December 31, 2007, 2006 and
2005, the Company accreted a total of $103,000, $141,000 and
$132,000, respectively. During October 2007, the put right
associated with 212,000 shares expired unexercised and the
carrying value of the shares of $2.7 million was
reclassified to common stock and additional paid in capital.
|
|
13.
|
Stockholders
Equity (Deficit)
|
1999
Stock Option Plan and 2007 Equity Incentive Plan
Prior to the effective date of the registration statement for
the Companys IPO on June 26, 2007, eligible employees
and non-employees were granted options to purchase shares of the
Companys common stock, restricted stock or restricted
stock units pursuant to the Companys 1999 Stock Plan (the
1999 Plan). Upon the effective date of the
registration statement of the Companys IPO, the Company
ceased using the 1999 Plan for the issuance of new equity
awards. Upon the closing of the Companys IPO on
July 2, 2007, the Company established its 2007 Equity
Incentive Plan (the 2007 Plan and together with the
1999 Plan, the Plans). The 1999 Plan will continue
to govern the terms and conditions of outstanding awards granted
thereunder. The Plans provide for the issuance of a maximum of
5.4 million shares of common stock. The exercise price is
determined by the Board of Directors, which is generally equal
to fair value for incentive stock options and is determined on a
per-grant basis for nonqualified options. The vesting period of
options granted under the Plans is determined by the Board of
Directors, generally ratably over a four-year period. The
options expire 10 years from the date of the grant. As of
December 31, 2007, 1,732,376 shares were available for
grant under the 2007 Plan and as of December 31, 2006
1,063,229 shares were available for grant under the 1999
Plan.
Effective January 1, 2006, the Company adopted the fair
value recognition provisions of SFAS 123R using the
prospective transition method, which requires the Company to
apply its provisions only to awards granted, modified,
repurchased or cancelled after the effective date. Under this
transition method, stock-based compensation expense recognized
beginning January 1, 2006 is based on the following:
(1) the grant-date fair value of stock option awards
granted or modified beginning January 1, 2006; and
(2) the balance of deferred stock-based compensation
related to stock option awards granted prior to January 1,
2006, which was calculated using the intrinsic-value method as
previously permitted under APB 25. Results for prior periods
have not been restated.
In connection with the adoption of SFAS 123R, the Company
estimates the fair value of stock option awards granted
beginning January 1, 2006 using the Black-Scholes
option-pricing formula and a single option award approach. The
Company then amortizes the fair value of awards expected to vest
on a straight-line basis over the requisite service periods of
the awards, which is generally the period from the grant date to
the end of the vesting period. The weighted-average expected
option term for options granted during the year ended
December 31, 2006 was calculated using the simplified
method described in SAB No. 107, Share-Based
Payment. The simplified method defines the expected term as
the average of the contractual term and the weighted average
vesting period. Estimated volatility for the year ended
December 31, 2006 also reflected the application of
SAB No. 107 interpretive guidance and, accordingly,
incorporates historical volatility of similar entities whose
share prices are publicly available. The risk-free interest rate
is based on the yield curve of a zero-coupon U.S. Treasury
bond on the date the stock option award is granted with a
maturity equal to the expected term of the stock option award.
The Company used historical data to estimate the number of
future stock option forfeitures. There were no options granted
during the year ended December 31, 2007.
The following are the weighted-average assumptions used in
valuing the stock options granted during The Year Ended
December 31, 2006, and a discussion of the Companys
assumptions
91
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Dividend yield
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
63.37
|
%
|
Risk-free interest rate
|
|
|
4.76
|
%
|
Expected life of options (in years)
|
|
|
6.02
|
|
Dividend yield The Company has never declared
or paid dividends on its common stock and does not anticipate
paying dividends in the foreseeable future.
Expected volatility Volatility is a measure
of the amount by which a financial variable such as a share
price has fluctuated (historical volatility) or is expected to
fluctuate (expected volatility) during a period. The Company has
used the historical volatility of its peer group to estimate
expected volatility. The peer group includes companies that are
similar in revenue size, in the same industry or are competitors.
Risk-free interest rate This is the average
U.S. Treasury rate (with a term that most closely resembles
the expected life of the option) for the quarter in which the
option was granted.
Expected life of the options This is the
period of time that the options granted are expected to remain
outstanding. This estimate is derived from the average midpoint
between the weighted average vesting period and the contractual
term as described in the SAB No. 107.
The weighted average grant date fair value of options granted
during the year ended December 31, 2006 was $4.30. Options
granted in the year ended December 31, 2005 were issued
prior to the adoption of SFAS 123R. The total fair value of
shares vested during the years ended December 31, 2007 and
2006 was $302,000 and $178,000, respectively.
A summary of the Plan is presented below:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted-Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Options outstanding at December 31, 2004
|
|
|
3,028,080
|
|
|
$
|
0.45
|
|
Options granted
|
|
|
838,902
|
|
|
|
3.50
|
|
Options exercised
|
|
|
306,378
|
|
|
|
0.45
|
|
Options forfeited
|
|
|
175,641
|
|
|
|
1.10
|
|
Options expired
|
|
|
12,000
|
|
|
|
1.65
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2005
|
|
|
3,372,963
|
|
|
|
1.15
|
|
Options granted
|
|
|
342,710
|
|
|
|
7.25
|
|
Options exercised
|
|
|
652,677
|
|
|
|
0.35
|
|
Options forfeited
|
|
|
301,855
|
|
|
|
2.25
|
|
Options expired
|
|
|
37,201
|
|
|
|
2.80
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2006
|
|
|
2,723,940
|
|
|
|
2.00
|
|
Options granted
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
580,727
|
|
|
|
1.50
|
|
Options forfeited
|
|
|
95,133
|
|
|
|
4.27
|
|
Options expired
|
|
|
8,646
|
|
|
|
4.21
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2007
|
|
|
2,039,434
|
|
|
$
|
2.01
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2007
|
|
|
1,617,366
|
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
92
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information about options
outstanding at December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
Weighted
|
|
|
Contractual
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
|
Options
|
|
|
Average
|
|
|
Life
|
|
|
Options
|
|
|
Exercise
|
|
|
Life
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
Exercise Price
|
|
|
(Years)
|
|
|
Exercisable
|
|
|
Price
|
|
|
(Years)
|
|
|
$0.00 $3.67
|
|
|
1,473,221
|
|
|
$
|
0.56
|
|
|
|
6.08
|
|
|
|
1,383,893
|
|
|
$
|
0.51
|
|
|
|
6.05
|
|
$3.68 $7.34
|
|
|
350,625
|
|
|
$
|
4.41
|
|
|
|
7.71
|
|
|
|
173,312
|
|
|
$
|
4.42
|
|
|
|
7.60
|
|
$7.35 $11.00
|
|
|
215,588
|
|
|
$
|
7.97
|
|
|
|
8.11
|
|
|
|
60,161
|
|
|
$
|
7.95
|
|
|
|
7.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,039,434
|
|
|
$
|
2.01
|
|
|
|
6.58
|
|
|
|
1,617,366
|
|
|
$
|
1.21
|
|
|
|
6.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of exercised stock options is calculated
based on the difference between the exercise price and the
quoted market price of our common stock as of the close of the
exercise date. The aggregate intrinsic value of options
exercised for the years ended December 31, 2007, 2006 and
2005 was $8.7 million, $3.7 million and
$1.1 million, respectively. The aggregate intrinsic value
for all options outstanding under the Companys stock plans
as of December 31, 2007 was $62.5 million. The
aggregate intrinsic value for options exercisable under the
Companys stock plans as of December 31, 2007 was
$50.8 million. The weighted average remaining contractual
life for all options outstanding and all options exercisable
under the Companys stock plans as of December 31,
2007 was 6.58 years and 6.23 years, respectively. As
of December 31, 2007, total unrecognized compensation
expense related to non-vested stock options granted prior to
that date is estimated at $772,000, which the Company expects to
recognize over a weighted average period of approximately
1.4 years. Total unrecognized compensation expense is
estimated and may be increased or decreased in future periods
for subsequent grants or forfeitures.
Our nonvested stock awards are comprised of restricted stock and
restricted stock units. The Company has a right of repurchase on
such shares that lapses at a rate of twenty-five percent (25%)
of the total shares awarded at each successive anniversary of
the initial award date, provided that the employee continues to
provide services to the Company. In the event that an employee
terminates their employment with the Company, any shares that
remain unvested and consequently subject to the right of
repurchase shall be automatically reacquired by the Company at
the original purchase price paid by the employee A summary of
the status for nonvested stock awards as of December 31,
2007 is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of Shares
|
|
|
Weighted
|
|
|
|
|
|
|
Restricted
|
|
|
Number
|
|
|
Average
|
|
|
|
Restricted
|
|
|
Stock
|
|
|
Underlying
|
|
|
Grant-Date Fair
|
|
Nonvested Stock Awards
|
|
Stock
|
|
|
Units
|
|
|
Awards
|
|
|
Value
|
|
|
Nonvested at December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
798,132
|
|
|
|
65,027
|
|
|
|
863,159
|
|
|
$
|
14.04
|
|
Vested
|
|
|
249
|
|
|
|
|
|
|
|
249
|
|
|
|
11.45
|
|
Forfeited
|
|
|
26,100
|
|
|
|
1,300
|
|
|
|
27,400
|
|
|
|
13.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007
|
|
|
771,783
|
|
|
|
63,727
|
|
|
|
835,510
|
|
|
$
|
14.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value for all non-vested shares of
restricted common stock and restricted stock units outstanding
as of December 31, 2007 was $15.6 million. The
weighted average remaining contractual life for all non-vested
shares of restricted common stock and restricted stock units as
of December 31, 2007 was 3.3 years.
We granted nonvested stock awards at no cost to recipients
during the year ended December 31, 2007. As of
December 31, 2007, total unrecognized compensation expense
related to non-vested restricted stock and restricted stock
units was $9.9 million, which the Company expects to
recognize over a weighted average period of
93
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
approximately 2.12 years. Total unrecognized compensation
expense may be increased or decreased in future periods for
subsequent grants or forfeitures.
Incentive
Plan
In connection with the Series E offering, the Company
created a management incentive plan (the Incentive Plan) for
certain officers, founders and key employees of the Company.
Under the terms of the Incentive Plan, up to 10% of any
liquidation proceeds from the consolidation, merger, or sale of
the Company will be distributed to the plan participants. Of the
potential payout to a plan participant, 75% is based on a
pre-determined formula with the remaining 25% of the payout at
the discretion of the administrators of the Incentive Plan. The
potential payout is reduced by any amounts the participant would
receive in the liquidation through stock option exercises or
stock ownership. The Incentive Plan terminated upon the closing
of the Companys IPO on July 2, 2007 in connection
with the automatic conversion of the Companys outstanding
convertible preferred stock.
Common
Stock Warrants
In prior years, the Company had granted an aggregate of 403,368
warrants to purchase common stock. The common stock warrants
began to expire in February 2006 through to April 2015 with
exercise prices ranging from $3.00 to $24.50. As of
December 31, 2007, warrants to purchase 30,395 shares
of common stock were outstanding. As of December 31, 2006,
warrants to purchase 62,057 shares of common stock were
outstanding.
Shares
Reserved for Issuance
At December 31, 2007, the Company had reserved for future
issuance the following shares of common stock upon the exercise
of options and warrants:
|
|
|
|
|
Common stock available for future issuances under 2007 Equity
Incentive Plan
|
|
|
1,732,376
|
|
Common stock available for outstanding options
|
|
|
2,039,434
|
|
Common stock warrants
|
|
|
30,395
|
|
|
|
|
|
|
|
|
|
3,802,205
|
|
|
|
|
|
|
|
|
14.
|
Employee
Benefit Plans
|
The Company has a 401(k) Plan for the benefit of all employees
who meet certain eligibility requirements. This plan covers
substantially all of the Companys full-time employees. The
Company made $343,000, $221,000 and $181,000 in contributions to
the 401(k) Plan for the years ended December 31, 2007, 2006
and 2005, respectively.
|
|
15.
|
Related
Party Transactions
|
During December 2007, the Company entered into a services
agreement with an aggregated value of approximately $150,000
with a third party for which the Chairman of the Board of the
Company is also a member of the third partys board of
directors. As of December 31, 2007, no services were
provided and no amounts were payable to the third party.
On August 1, 2003, the Company entered into a Licensing and
Services Agreement with a counterparty that until
November 27, 2006 was a stockholder of the Company.
Pursuant to the terms of the Licensing and Services Agreement,
the Company granted the counterparty a license to certain
digital marketing intelligence data and products. In 2007, 2006
and 2005, the Company recognized revenues of $3.7 million
in each year. In relation to this counterparty, there were $0
included in our accounts receivable balance as of
December 31, 2007 and 2006.
94
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
16.
|
Geographic
Information
|
The Company attributes revenues to customers based on the
location of the customer. The composition of the Companys
sales to unaffiliated customers between those in the United
States and those in other locations for each year is set forth
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
77,029
|
|
|
$
|
60,550
|
|
|
$
|
46,900
|
|
Canada
|
|
|
4,674
|
|
|
|
3,150
|
|
|
|
2,479
|
|
United Kingdom/Other
|
|
|
5,450
|
|
|
|
2,593
|
|
|
|
888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
87,153
|
|
|
$
|
66,293
|
|
|
$
|
50,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The composition of the Companys property, plant and
equipment between those in the United States and those in other
countries as of the end of each year is set forth below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
6,527
|
|
|
$
|
6,525
|
|
Canada
|
|
|
183
|
|
|
|
305
|
|
United Kingdom
|
|
|
157
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,867
|
|
|
$
|
6,980
|
|
|
|
|
|
|
|
|
|
|
95
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
17.
|
Quarterly
Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Dec. 31,
|
|
|
Sep. 30,
|
|
|
Jun. 30,
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
|
Sep. 30,
|
|
|
Jun. 30,
|
|
|
Mar. 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
$
|
25,274
|
|
|
$
|
22,389
|
|
|
$
|
20,809
|
|
|
$
|
18,681
|
|
|
$
|
18,237
|
|
|
$
|
16,165
|
|
|
$
|
16,906
|
|
|
$
|
14,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues(1)
|
|
|
6,528
|
|
|
|
5,942
|
|
|
|
6,000
|
|
|
|
5,388
|
|
|
|
5,230
|
|
|
|
4,977
|
|
|
|
5,205
|
|
|
|
5,148
|
|
Selling and marketing(1)
|
|
|
8,135
|
|
|
|
7,390
|
|
|
|
6,683
|
|
|
|
6,451
|
|
|
|
5,634
|
|
|
|
5,171
|
|
|
|
5,323
|
|
|
|
5,345
|
|
Research and development(1)
|
|
|
3,026
|
|
|
|
3,018
|
|
|
|
2,813
|
|
|
|
2,556
|
|
|
|
2,341
|
|
|
|
2,273
|
|
|
|
2,258
|
|
|
|
2,137
|
|
General and administrative(1)
|
|
|
3,605
|
|
|
|
3,059
|
|
|
|
2,428
|
|
|
|
2,507
|
|
|
|
2,302
|
|
|
|
1,897
|
|
|
|
2,176
|
|
|
|
1,918
|
|
Amortization
|
|
|
169
|
|
|
|
211
|
|
|
|
293
|
|
|
|
293
|
|
|
|
334
|
|
|
|
333
|
|
|
|
333
|
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
21,463
|
|
|
|
19,620
|
|
|
|
18,217
|
|
|
|
17,195
|
|
|
|
15,841
|
|
|
|
14,651
|
|
|
|
15,295
|
|
|
|
14,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
3,811
|
|
|
|
2,769
|
|
|
|
2,592
|
|
|
|
1,486
|
|
|
|
2,396
|
|
|
|
1,514
|
|
|
|
1,611
|
|
|
|
66
|
|
Interest income (expense), net
|
|
|
1,206
|
|
|
|
1,180
|
|
|
|
144
|
|
|
|
97
|
|
|
|
113
|
|
|
|
84
|
|
|
|
23
|
|
|
|
11
|
|
Gain (loss) from foreign currency
|
|
|
25
|
|
|
|
(111
|
)
|
|
|
(202
|
)
|
|
|
(8
|
)
|
|
|
149
|
|
|
|
3
|
|
|
|
(33
|
)
|
|
|
6
|
|
Revaluation of preferred stock warrant liabilities
|
|
|
|
|
|
|
82
|
|
|
|
(1,288
|
)
|
|
|
11
|
|
|
|
(9
|
)
|
|
|
(6
|
)
|
|
|
(211
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
5,042
|
|
|
|
3,920
|
|
|
|
1,246
|
|
|
|
1,586
|
|
|
|
2,649
|
|
|
|
1,595
|
|
|
|
1,390
|
|
|
|
85
|
|
Benefit (provision for) income taxes
|
|
|
7,703
|
|
|
|
(129
|
)
|
|
|
(6
|
)
|
|
|
46
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
12,745
|
|
|
|
3,791
|
|
|
|
1,240
|
|
|
|
1,540
|
|
|
|
2,599
|
|
|
|
1,595
|
|
|
|
1,390
|
|
|
|
85
|
|
Accretion of redeemable preferred stock
|
|
|
|
|
|
|
(21
|
)
|
|
|
(923
|
)
|
|
|
(885
|
)
|
|
|
(848
|
)
|
|
|
(812
|
)
|
|
|
(777
|
)
|
|
|
(742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
12,745
|
|
|
$
|
3,770
|
|
|
$
|
317
|
|
|
$
|
655
|
|
|
$
|
1,751
|
|
|
$
|
783
|
|
|
$
|
613
|
|
|
$
|
(657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders:
|
|
$
|
12,732
|
|
|
$
|
3,748
|
|
|
$
|
282
|
|
|
$
|
622
|
|
|
$
|
1,716
|
|
|
$
|
748
|
|
|
$
|
579
|
|
|
$
|
(691
|
)
|
Basic
|
|
$
|
0.45
|
|
|
$
|
0.13
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
(0.19
|
)
|
Diluted
|
|
$
|
0.42
|
|
|
$
|
0.12
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
(0.19
|
)
|
Weighted-average number of shares used in per share
calculation common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
27,795,936
|
|
|
|
27,248,379
|
|
|
|
4,933,081
|
|
|
|
4,196,736
|
|
|
|
3.972.087
|
|
|
|
3.958.059
|
|
|
|
3.843.579
|
|
|
|
3.609.928
|
|
Diluted
|
|
|
29,859,926
|
|
|
|
29,545,321
|
|
|
|
4,933,081
|
|
|
|
4,196,736
|
|
|
|
3.972.087
|
|
|
|
3.958.059
|
|
|
|
3.843.579
|
|
|
|
3.609.928
|
|
Net income attributable to common stockholders per common share
subject to put:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.53
|
|
|
$
|
0.19
|
|
|
$
|
0.10
|
|
|
$
|
0.09
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
Diluted
|
|
$
|
0.50
|
|
|
$
|
0.18
|
|
|
$
|
0.10
|
|
|
$
|
0.09
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
Weighted-average number of shares used in per share
calculation common stock subject to put
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
193,244
|
|
|
|
347,635
|
|
|
|
347,635
|
|
|
|
347,635
|
|
|
|
347,635
|
|
|
|
347,635
|
|
|
|
347,635
|
|
|
|
347,635
|
|
Diluted
|
|
|
193,244
|
|
|
|
347,635
|
|
|
|
347,635
|
|
|
|
347,635
|
|
|
|
347,635
|
|
|
|
347,635
|
|
|
|
347,635
|
|
|
|
347,635
|
|
|
|
|
1) |
|
Amortization of stock-based compensation is included in the
preceding line items as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Dec. 31,
|
|
|
Sep. 30,
|
|
|
Jun. 30,
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
|
Sep. 30,
|
|
|
Jun. 30,
|
|
|
Mar. 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
Cost of revenues
|
|
$
|
134
|
|
|
$
|
76
|
|
|
$
|
60
|
|
|
$
|
9
|
|
|
$
|
6
|
|
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
|
|
Selling and marketing
|
|
|
500
|
|
|
|
298
|
|
|
|
172
|
|
|
|
39
|
|
|
|
27
|
|
|
|
23
|
|
|
|
26
|
|
|
|
6
|
|
Research and development
|
|
|
117
|
|
|
|
67
|
|
|
|
53
|
|
|
|
8
|
|
|
|
7
|
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
General and administrative
|
|
|
440
|
|
|
|
264
|
|
|
|
186
|
|
|
|
51
|
|
|
|
40
|
|
|
|
40
|
|
|
|
10
|
|
|
|
1
|
|
96
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A(T).
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
Our Chief Executive Officer and our Chief Financial Officer,
after evaluating the effectiveness of our disclosure controls
and procedures (as defined in Securities Exchange Act of 1934
(the Exchange Act)
Rules 13a-15(e)
and
15d-15(e))
as of the end of the period covered by this report (the
Evaluation Date), have concluded that as of the
Evaluation Date, our disclosure controls and procedures are
effective, in all material respects, to ensure that information
required to be disclosed in the reports that we file and submit
under the Exchange Act (i) is recorded, processed,
summarized and reported as and when required and (ii) is
accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure.
Managements
Annual Report on Internal Control over Financial
Reporting
This annual report does not include a report of
managements assessment regarding internal control over
financial reporting or an attestation report of our registered
public accounting firm due to a transition period established by
rules of the Securities and Exchange Commission (SEC) for newly
public companies.
Changes
in Internal Control Over Financial Reporting
In October 2007, we hired a Director of Corporate Compliance to
help strengthen our internal controls. Other than that activity,
there were no changes in our internal control over financial
reporting that occurred during the fourth quarter of 2007 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required by Item 10 of Form 10-K is incorporated
by reference to our Proxy Statement for the 2008 Annual Meeting
of Stockholders, anticipated to be filed with the SEC within 120
days after the end of the fiscal year ended December 31,
2007. Certain information required by this item concerning our
executive officers is set forth in Part I, Item 1 of
this Annual Report on Form 10-K under Executive Officers
of the Registrant.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by Item 11 of Form 10-K is
incorporated by reference to our Proxy Statement for the 2008
Annual Meeting of Stockholders, anticipated to be filed with the
SEC within 120 days after the end of the fiscal year ended
December 31, 2007.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by Item 12 of Form 10-K is incorporated
by reference to our Proxy Statement for the 2008 Annual Meeting
of Stockholders, anticipated to be filed with the SEC within 120
days after the end of the fiscal year ended December 31,
2007.
97
EQUITY
COMPENSATION PLANS
The following table summarizes our equity compensation plans as
of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
Number of
|
|
|
Weighted-
|
|
|
for Future Issuance
|
|
|
|
Securities to be
|
|
|
Average
|
|
|
Under Equity
|
|
|
|
Issued Upon
|
|
|
Exercise Price of
|
|
|
Compensation Plans
|
|
|
|
Exercise of
|
|
|
Outstanding
|
|
|
(Excluding
|
|
|
|
Outstanding
|
|
|
Options,
|
|
|
Securities
|
|
|
|
Options, Warrants
|
|
|
Warrants
|
|
|
Reflected in Column
|
|
|
|
and Rights
|
|
|
and Rights
|
|
|
(a))
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security holders
|
|
|
2,039,434
|
|
|
$
|
2.01
|
|
|
|
1,732,376
|
(1)
|
Equity compensation plans not approved by security holders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,039,434
|
|
|
$
|
2.01
|
|
|
|
1,732,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our 2007 Equity Incentive Plan provides for annual increases in
the number of shares available for issuance thereunder on the
first day of each fiscal year, beginning with our 2008 fiscal
year, equal to the least of: (i) 4% of the outstanding
shares of our common stock on the last day of the immediately
preceding fiscal year; (ii) 1,800,000 shares; or
(iii) such other amount as our board of directors may
determine. |
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information required by Item 13 of Form 10-K is incorporated
by reference to our Proxy Statement for the 2008 Annual Meeting
of Stockholders, anticipated to be filed with the SEC within 120
days after the end of the fiscal year ended December 31,
2007.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information required by Item 14 of Form 10-K is incorporated
by reference to our Proxy Statement for the 2008 Annual Meeting
of Stockholders, anticipated to be filed with the SEC within 120
days after the end of the fiscal year ended December 31,
2007.
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
(a) The following documents are filed as part of this
Annual Report on
Form 10-K:
(1) Financial Statements. See Index to Consolidated
Financial Statements at Item 8 of this Report on
Form 10-K.
(2) All other schedules are omitted as the required
information is inapplicable or the information is presented in
the Consolidated Financial Statements and notes thereto in
Item 8 of Part II of this Annual Report on
Form 10-K.
(3) Exhibits. The exhibits filed as part of this report are
listed under Exhibits at subsection (b) of this
Item 15.
(b) Exhibits
98
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Exhibit Document
|
|
|
3
|
.1(1)
|
|
Amended and Restated Certificate of Incorporation of the
Registrant (Exhibit 3.3)
|
|
3
|
.2(1)
|
|
Amended and Restated Bylaws of the Registrant (Exhibit 3.4)
|
|
4
|
.1(1)
|
|
Specimen Common Stock Certificate (Exhibit 4.1)
|
|
4
|
.2(1)
|
|
Fourth Amended and Restated Investor Rights Agreement by and
among comScore Networks, Inc. and certain holders of preferred
stock, dated August 1, 2003 (Exhibit 4.2)
|
|
4
|
.3(1)
|
|
Amendment, Waiver and Termination Agreement by and among
comScore, Inc. and certain holders of preferred stock, dated
June 8, 2007 (Exhibit 10.20)
|
|
4
|
.4(1)
|
|
Warrant to purchase 108,382 shares of Series D Convertible
Preferred Stock, dated July 31, 2002 (Exhibit 4.10)
|
|
4
|
.5(1)
|
|
Stock Restriction and Put Right Agreement by and among comScore
Networks, Inc., 954253 Ontario, Inc. and Rice and Associates
Advertising Consultants, Inc., dated January 1, 2005 (Exhibit
4.16)
|
|
10
|
.1(1)
|
|
Form of Indemnification Agreement for directors and executive
officers (Exhibit 10.1)
|
|
10
|
.2(2)
|
|
1999 Stock Plan (Exhibit 4.2)
|
|
10
|
.3(1)
|
|
Form of Stock Option Agreement under 1999 Stock Plan (Exhibit
10.3)
|
|
10
|
.4(1)
|
|
Form of Notice of Grant of Restricted Stock Purchase Right under
1999 Stock Plan (Exhibit 10.4)
|
|
10
|
.5(1)
|
|
Form of Notice of Grant of Restricted Stock Units under 1999
Stock Plan (Exhibit 10.5)
|
|
10
|
.6(2)
|
|
2007 Equity Incentive Plan (Exhibit 4.3)
|
|
10
|
.7(1)
|
|
Form of Notice of Grant of Stock Option under 2007 Equity
Incentive Plan (Exhibit 10.7)
|
|
10
|
.8(1)
|
|
Form of Notice of Grant of Restricted Stock under 2007 Equity
Incentive Plan (Exhibit 10.8)
|
|
10
|
.9(1)
|
|
Form of Notice of Grant of Restricted Stock Units under 2007
Equity Incentive Plan (Exhibit 10.9)
|
|
10
|
.10(1)
|
|
Stock Option Agreement with Magid M. Abraham, dated December 16,
2003 (Exhibit 10.10)
|
|
10
|
.11(1)
|
|
Stock Option Agreement with Gian M. Fulgoni, dated December 16,
2003 (Exhibit 10.11)
|
|
10
|
.12(1)
|
|
Lease Agreement by and between comScore Networks, Inc. and
Comstock Partners, L.C., dated June 23, 2003, as amended
(Exhibit 10.12)
|
|
10
|
.13(1)
|
|
Separation Agreement with Sheri L. Huston, dated February 28,
2006 (Exhibit 10.13)
|
|
10
|
.14(1)
|
|
Letter Agreement with John M. Green, dated May 8, 2006 (Exhibit
10.14)
|
|
10
|
.15(1)
|
|
Letter Agreement with Gregory Dale, dated September 27, 1999
(Exhibit 10.15)
|
|
10
|
.16(1)
|
|
Letter Agreement with Christiana Lin, dated December 29, 2003
(Exhibit 10.16)
|
|
10
|
.17(1)
|
|
Letter Agreement by and between comScore, Inc. and 11465
SH I, LC, dated June 4, 2007 (Exhibit 10.19)
|
|
10
|
.18(1)
|
|
Letter Agreement by and between comScore, Inc. and Citadel
Equity Fund Ltd. dated May 25, 2007 (Exhibit 10.21)
|
|
10
|
.19(1)
|
|
Licensing and Services Agreement, as amended, by and between
Citadel Investment Group, L.L.C. and comScore Networks, Inc.,
dated August 1, 2003 (Exhibit 10.22)
|
|
10
|
.20(3)
|
|
Deed of Lease between South of Market LLC (as Landlord) and
comScore, Inc. (as Tenant), dated December 21, 2007 (Exhibit
10.1)
|
|
21
|
.1
|
|
List of Subsidiaries
|
|
23
|
.1
|
|
Consent of Ernst & Young
|
|
24
|
.1
|
|
Power of Attorney (see signature page)
|
|
31
|
.1
|
|
Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
99
|
|
|
|
|
Exhibit No.
|
|
Exhibit Document
|
|
|
31
|
.2
|
|
Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
32
|
.1
|
|
Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
Confidential treatment requested |
|
(1) |
|
Incorporated by reference to the exhibits to the
Registrants Registration Statement on
Form S-1,
as amended, dated June 26, 2007 (No.
333-141740).
The number given in parenthesis indicates the corresponding
exhibit number in such
Form S-1. |
|
(2) |
|
Incorporated by reference to the exhibits to the
Registrants Registration Statement on
Form S-8,
as amended, dated July 2, 2007 (No.
333-144281).
The number given in parenthesis indicates the corresponding
exhibit number in such
Form S-8. |
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(3) |
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Incorporated by reference to the exhibits to the
Registrants Current Report on
Form 8-K,
filed February 5, 2008. The number given in parenthesis
indicates the corresponding exhibit number in such
Form 8-K. |
100
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.
comScore, Inc.
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By:
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/s/ Magid
M. Abraham, Ph.D.
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Magid M. Abraham, Ph.D.
President, Chief Executive
Officer and Director
March 11, 2008
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below hereby constitutes and appoints Magid M.
Abraham, Ph.D. and John M. Green, and each of them acting
individually, as his true and lawful attorneys-in-fact and
agents, with full power of each to act alone, with full powers
of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all
amendments to this Annual Report on
Form 10-K
with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, with full power of each
to act alone, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as
he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or his or their
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
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Signature
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Title
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Date
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/s/ Magid
M. Abraham, Ph.D.
Magid
M. Abraham, Ph.D.
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President, Chief Executive Officer and Director (Principal
Executive Officer)
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March 11, 2008
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/s/ John
M. Green
John
M. Green
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Chief Financial Officer (Principal Financial and Accounting
Officer)
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March 11, 2008
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/s/ Gian
M. Fulgoni
Gian
M. Fulgoni
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Executive Chairman of the Board of Directors
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March 11, 2008
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/s/ Thomas
D. Berman
Thomas
D. Berman
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Director
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March 11, 2008
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/s/ Bruce
Golden
Bruce
Golden
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Director
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March 11, 2008
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/s/ William
J. Henderson
William
J. Henderson
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Director
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March 11, 2008
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/s/ Ronald
J. Korn
Ronald
J. Korn
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Director
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March 11, 2008
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/s/ Frederick
R. Wilson
Frederick
R. Wilson
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Director
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March 11, 2008
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101