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| SCOR > SEC Filings for SCOR > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-2009
Quarterly Report
• growth in our customer base through the addition of new customers;
• 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 September 30, 2009, we had 1,216 customers, compared to 895 as of
December 31, 2007. We sell most of our products through our direct sales force.
As a result of the recent global financial crisis in the credit markets,
softness in the housing markets, difficulties in the financial services sector
and continuing economic uncertainties, the direction and relative strength of
the U.S. and global economies have become increasingly uncertain. During the
nine months ended September 30, 2009, we experienced a limited number of our
current and potential customers ceasing, delaying or reducing renewals of
existing subscriptions and purchases of new or additional services and products
presumably due to the effects of the current economic downturn. Further, certain
of our existing customers have exited the market due to industry consolidation
and bankruptcy in connection with these challenging economic conditions. Despite
this economic downturn, we continued to add net new customers during the first
three quarters 2009, and our existing customers renewed their subscriptions at a
rate of 89% based on revenue renewed in the quarter ended September 30, 2009.
However, if these adverse economic conditions continue or further deteriorate,
our operating results could be adversely affected.
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, comScore Marketing Solutions and through our mobile
solutions.
A significant characteristic of our business model is our large percentage of
subscription-based contracts. Subscription-based revenues accounted for 79% of
total revenues in 2007, 83% of total revenues in 2008, and 86% during the nine
months ended September 30, 2009.
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, 2008, our international
revenues were $16.5 million, an increase of $6.4 million, or 63% compared to
2007. For the nine months ended September 30, 2009, our international revenues
were $14.1 million, an increase of $2.1 million or 18% over international
revenues of $12.0 million for the nine months ended September 30, 2008.
International revenues comprised approximately 12%, 14% and 15% of our total
revenues for the fiscal years ended December 31, 2007 and 2008 and the nine
months ended September 30, 2009, 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.
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 360, Media Metrix 2.0, Plan Metrix, World Metrix, Video Metrix and
Ad Metrix. These product offerings provide subscribers with intelligence on
digital media usage, audience characteristics, audience demographics and online
and offline purchasing behavior. Customers who subscribe to our Media Metrix
products are provided with login IDs to our Web site, have access to our
database and can generate reports at anytime.
We also generate subscription-based revenues from certain reports and
analyses provided through comScore Marketing Solutions, if that work is procured
by customers for at least a nine month period and the customer enters into an
agreement to continue or extend the work. Through our Marketing Solutions
products, we deliver digital marketing intelligence relating to specific
industries, such as automotive, consumer packaged goods, entertainment,
financial services, media, pharmaceutical, retail, technology,
telecommunications and travel. This marketing intelligence leverages our global
consumer panel and extensive database to deliver information unique to a
particular customer's 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 customer's active online users and contrasts their
market share and loyalty with similar metrics for a competitor's 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 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. In 2008,
we also launched Brand Metrix, which shows customers the test compared to
control effectiveness of a campaign using survey-based metrics that we collect
for our Ad Recruit technology. Project revenues from Campaign Metrix and Brand
Metrix are generated when a customer accesses or downloads a report through our
Web site. Pricing for our Campaign Metrix and Brand Metrix products are
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 1 of this Quarterly
Report on Form 10-Q and our Annual Report on Form 10-K for the year ended
December 31, 2008, we believe the following accounting policies to be the most
critical to the judgments and estimates used in the preparation of our
consolidated financial statements.
Revenue Recognition
We recognize revenues when the following fundamental criteria are met:
(i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or
the services have been rendered, (iii) the fee is fixed or determinable, and
(iv) collection of the resulting receivable is reasonably assured.
We generate revenues by providing access to our online database or delivering
information obtained from our database, usually in the form of periodic reports.
Revenues are typically recognized on a straight-line basis over the period in
which access to data or reports 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. 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.
Fair Value Measurements and Investments
We adopted new guidance which establishes fair value measurements and
disclosures on January 1, 2008, with respect to our financial assets and
liabilities, and on January 1, 2009, with respect to our nonfinancial assets and
nonfinancial liabilities that are recognized and disclosed at fair value on a
nonrecurring basis.
Fair value is an exit price representing the amount that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants. As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in
pricing an asset or liability. We prioritize the inputs used in measuring fair
value using the following hierarchy:
Level 1 - observable inputs such as quoted prices in active markets;
Level 2 - inputs other than the quoted prices in active markets that are
observable either directly or indirectly;
Level 3 - unobservable inputs of which there is little or no market data, which
require us to develop our own assumptions.
This hierarchy requires the use of observable market data, when available,
and to minimize the use of unobservable inputs when determining fair value. On a
recurring basis, we measure our marketable securities at fair value and
determine the appropriate classification level for each reporting period. This
determination requires significant judgments to be made by us.
Our investment instruments are classified within Level 1 or Level 3 of the
fair value hierarchy. Level 1 investment instruments are valued using quoted
market prices. Level 3 instruments are valued using a discounted cash flow model
that takes into consideration the securities coupon rate, the financial
condition of the issuers and the bond insurers, the expected date liquidity will
be restored, as well as an applied illiquidity discount. The types of
instruments valued based on quoted market prices in active markets include all
U.S. government and agency securities. Such instruments are generally classified
within Level 1 of the fair value hierarchy. The types of instruments valued
based on significant unobservable inputs include the illiquid auction rate
securities. Such instruments are classified within Level 3 of the fair value
hierarchy.
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.
As of April 1, 2009, the existing model for recognition and measurement of
impairment for debt securities was modified. The two principal changes to the
impairment model for securities are as follows:
• Recognition of an other-than-temporary impairment charge for debt securities
in an unrealized loss position or impaired is required if any of these
conditions are met: (1) we do not expect to recover the entire amortized
cost basis of the security, (2) we intend to sell the security or (3) it is
more likely than not that we will be required to sell the security before it
recovers its amortized cost basis.
• If the first condition above is met, but we do not intend to sell and it is not more likely than not that we will be required to sell the security before recovery of its amortized cost basis, we are required to record the difference between the security's amortized cost basis and its recoverable amount (representing the credit loss) in earnings and the difference between the security's recoverable amount and fair value in other comprehensive income. If either the second or third criteria are met, then we are required to recognize the entire difference between the security's amortized cost basis and its fair value in earnings.
We concluded that our auction rate securities fall within the second and
third criteria above, and as a result, the modification had no effect on our
consolidated financial statements as all previous impairment were deemed
other-than-temporary and were recognized in earnings.
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 management's 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.
Intangible assets with finite lives are amortized over their useful lives
while goodwill and indefinite lived assets are not amortized, but rather are
periodically tested for impairment. An impairment review generally requires
developing assumptions and projections regarding our operating performance. We
have determined that all of our goodwill is associated with one reporting unit
as we do not operate separate lines of business with respect to our services.
Accordingly, on an annual basis we perform the impairment assessment for
goodwill at the enterprise level by comparing the fair value of our reporting
unit to its carrying value including goodwill recorded by the reporting unit. If
the carrying value exceeds the fair value, impairment is measured by comparing
the implied fair value of the goodwill to its carrying value and any impairment
determined is recorded in the current period. If our estimates or the related
assumptions change in the future, we may be required to record impairment
charges to reduce the carrying value of these assets, which could be material.
There were no indicators of impairment suggesting that an interim assessment was
necessary for goodwill during the three and nine months ended September 30, 2009
and 2008.
Long-lived Assets
Our long-lived assets primarily consist of property and equipment and
intangible assets. We evaluate the recoverability of our long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying
value of such assets may not be recoverable. If an indication of impairment is
present, we compare the estimated undiscounted future cash flows to be generated
by the asset to its carrying amount.
Recoverability measurement and estimation of undiscounted cash flows are grouped
at the lowest level for which identifiable cash flows are largely independent of
the cash flows of other assets and liabilities. If the undiscounted future cash
flows are less than the carrying amount of the asset, we record an impairment
loss equal to the excess of the asset's carrying amount over its fair value. The
fair value is determined based on valuation techniques such as a comparison to
fair values of similar assets or using a discounted cash flow analysis. Although
we believe that the carrying values of our long-lived assets are appropriately
stated, changes in strategy or market conditions or significant technological
developments could significantly impact these judgments and require adjustments
to recorded asset balances. There were no impairment charges recognized during
the three and nine months ended September 30, 2009 or 2008.
Allowance for Doubtful Accounts
We manage credit risk on accounts receivable by performing credit evaluations
of our customers for existing customers coming up for renewal as well as all
prospective new customers, by reviewing our accounts and contracts and by
providing appropriate allowances for uncollectible amounts. Allowances are based
on management's 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 Tax
We account for income taxes using the asset and liability method. We estimate
our tax liability through calculations we perform for the determination of our
current tax liability, together with assessing temporary differences resulting
from the different treatment of items for income tax and financial reporting
purposes. These differences result in deferred tax assets and liabilities, which
are recorded on our balance sheet. We then assess the likelihood that deferred
tax assets will be recovered in future periods. In assessing the need for a
valuation allowance against the 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
. . .
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