Melvin F. Wesley - Chief Financial Officer Serge Matta - President, Chief Executive Officer & Director.

Youssef H. Squali - Cantor Fitzgerald Securities Robert S. Peck - SunTrust Robinson Humphrey, Inc. Jason S. Helfstein - Oppenheimer & Co., Inc. (Broker) Laura Martin - Needham & Co. LLC Shyam Vasant Patil - Susquehanna Financial Group LLLP Timothy J. McHugh - William Blair & Co. LLC Allen Klee - Sidoti & Co.

LLC Thomas William Eagan - Telsey Advisory Group LLC.

Good day, ladies and gentlemen, and welcome to the comScore third quarter 2015 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.

I would like to introduce your host for today's conference Mr. Mel Wesley. Sir, you may begin..

Thank you. Good morning and welcome to comScore's earnings call for the third quarter of 2015. I'm Mel Wesley, comScore's Chief Financial Officer and with me today is. Before we begin, please allow me to read the following disclaimer regarding our use of forward-looking information and non-GAAP financial measures.

During the course of today's call, as well as during any question-and-answer period that may follow, representatives of the company may make forward-looking statements within the meaning of Securities Act of 1933 and the Securities Exchange Act of 1934, regarding future events or performance of the company that involve risks and uncertainties, including without limitation, expectations as to opportunities for comScore, including new product lines, customers, markets and partnerships; expectations as to the strength of comScore's business, including the growth and composition of comScore's customer base and renewal rates; expectations regarding comScore's products, including regarding new releases and features, their quality relative to competitors, customer adoption, and the potential benefits of particular products; expectations regarding the strategic and economic benefits of certain strategic relationships, expectations as to the financial effects of comScore's pending acquisition of Rentrak and divestiture of certain business lines; assumptions regarding tax rates and net operating loss carry-forwards, and forecast of future financial performance for the fourth quarter and full-year 2015, including related growth rates, exchange rates, and assumptions.

Such statements are only predictions based on management's current expectations. Actual events or results could differ materially from those predictions, due to a number of risks and uncertainties, including those identified in the documents comScore files from time-to-time with the Securities and Exchange Commission.

Those documents specifically include, but are not limited to, comScore's Form 8-K filed earlier today relating to this call, and comScore's Form 10-K for the period ending December 31, 2014, along with subsequently filed Form 10-Q reports.

We caution you not to place undue reliance on any forward-looking statements included in these presentations, which speak only as of today. We do not undertake any obligation to publicly update any forward-looking statements to reflect new information after today's call or to reflect the occurrence of unanticipated events.

In addition, we may also reference certain non-GAAP financial measures in the course of our presentation. You will find in our press release and our Investor Relations website a reconciliation of non-GAAP financial measures discussed during today's call to the most directly comparable GAAP financial measure.

The link to our Investor Relations website is ir.comScore.com and our results are posted under press releases. We have a presentation posted on our IR website under Events & Presentations that corresponds to our comments today, and will be helpful as you follow along. With that, I will now turn the call over to Serge..

expanding our cross-media offerings globally; extending vCE market leadership, including display, video, and mobile on a worldwide basis; integrating comScore data into the places clients use them with a focus on our data into programmatic platforms and client workflows; and finally, focusing on execution and continue to return capital to our investor base.

As we close out 2015 and head into what we expect to be a momentous new year for comScore, I'd like to talk about our view in the market and the foundations of our strategy. The industry has reached an exciting movement that comScore has been building for many years. Digital media and advertising has expanded across desktop, mobile, and video.

TV has evolved to video everywhere. A siloed platform-first view is no longer sufficient for measuring audiences or planning, transacting, and optimizing advertising.

In order to understand today's world and give the media and advertising industries the insight and tools they need to succeed, you must combine massive and passive data assets with sophisticated approaches to research and data science.

This combination is the foundation of what we built at comScore, and it's why we're so confident about our position for the future. Simply extending old approaches to this radically new world or thinking you can just dump a data set on top of your old model is a recipe for slow-motion failure.

Our approach to measuring this multi-screen world is based on the years of experience we have in unifying panel and census data and in combining our proprietary data assets with massive partner data sets.

As you've seen over the years, this has become a core competency at comScore, and this unmatched access to massive granular data has helped fuel sophisticated and durable methodologies that precisely measure increasingly complex consumer behavior.

But before I provide specifics on our go-forward cross-platform strategy, I'd like to take a few minutes and give everyone an update on key initiatives related to vCE and our programmatic solutions. Starting with vCE, in terms of revenue impact, we're seeing very healthy growth rates representing 53% year-over-year revenue growth.

We're on track to turn this into a $100 million business by the end of 2017. As you may have seen earlier this week, Oracle announced they're using vCE as part of their data management platform for ad buy guarantees. Our Google relationship is going well, and we're now approved to measure video viewability on YouTube.

This has been a consistent request among our key advertiser clients like P&G and Kellogg's, and we now can expect them to leverage our new joint capabilities. We are also on track to expand mobile and international, leveraging the same deep integration methodology we've done in the U.S. in the first half of 2016.

On our last earnings call, I announced that we had expanded advanced demographic reporting for vCE to 13 markets worldwide, and we continue to focus on international expansion. These efforts are paying off. I am pleased to announce today a new strategic partnership with Spotify.

As you know, Spotify is an international phenomenon with more than 75 million active users in 58 countries. Spotify needed a global partner to help with measurement, and they've chosen to work with comScore. As part of this strategic partnership, Spotify will also collaborate with us to enhance our global desktop and mobile advertising products.

Based on the work that we will be doing together, we expect to be providing each other with services beginning in Q4. Moving on to slide eight, a corporate priority for us over the past years has been to integrate comScore data into the places clients use them.

Nowhere is this a bigger priority than in our work to bring comScore data to programmatic advertising platforms. Last week we announced that our pre-bid technology solution, comScore Bid Ratings, is now live in eight leading programmatic buying platforms, AppNexus, TubeMogul, Centro, Netmining, RhythmOne, and Turn.

ComScore Bid Ratings allows media buyers to surface quality programmatic inventory by bidding only on inventory that meets their campaign requirements, and it's available in several global markets, such as Canada, France, Germany, Italy, Mexico, Spain, the UK, and the United States.

Through Bid Ratings, media buyers can purchase inventory that is based on key comScore attributes such as viewability, invalid traffic, brand safety, contextual categories, page content, and site rank.

These attributes leverage existing comScore data assets and methods, including those that power comScore Media Metrix, Video Metrix rankings, and vCE, and also incorporates three-bid attributes from Proximic, which we acquired in the middle of this year.

I said earlier that we're focused on putting together the pieces required to meet the needs of this highly dynamic media and advertising industry, and this is a great example of that. We've all seen the rise in programmatic and automated ad buying, and with it we've watched the parallel rise in concerns about fraud and ad quality.

These are real problems, but they are problems we can and are solving with trusted, independent comScore metrics. These trusted metrics are built from data science methods and a data measurement infrastructure that integrates proprietary data assets, partner data, and in this case, capabilities from a company we've recently acquired.

This is a great demonstration of the core capabilities that are the foundation of our business. I now want to talk more generally about how we think about data assets and share some details on a new innovation we're bringing to the measurement world.

Moving to slide nine, we've built our competitive advantage on producing trusted, independent metrics to measure audience and advertising across all the screens that matter.

Our proprietary data assets and the view of the world they give us are a requirement for being able to meaningfully evaluate and integrate data from partners, whether it's demographic data to extend the granularity and global reach of advertising solutions like vCE, census data from partners, or even set-top box data from telecom operators.

Our proprietary data assets include the comScore Census Network, which captures nearly 2 trillion interactions on digital devices each month across TVs, tablets, mobile phones, game consoles, and desktops, and includes the range of comScore panels passively measuring more than 2 million users of mobile phones and desktops around the world.

We're the only measurement company to have assembled both deep panels and a massive proprietary census network. Today, we are announcing a step change in our data capabilities, the comScore Total Home Panel.

Moving to slide 10, what is it? We're constantly working to build new technologies and methodologies to measure quickly-evolving consumer media habits. For more than three years, our engineers have been building and testing a next generation media measurement appliance that enables the break-through in multi-platform and cross-media measurement.

With the Total Home Panel, we're able to measure the full range of connected devices, including TVs, smartphones, tablets, game consoles, over-the-top devices and other connected devices.

We are able to measure all digital consumption inside the home, all television consumption inside the home, including co-viewing behavior, and because we have our census network, we can capture out-of-home consumption, as well. We're doing this at the level of both households and persons.

This is especially important since we all know that census-based person-level metrics is what the industry is screaming for. There're several previously elusive platforms and behaviors that will have under-measurement. We are measuring show-level Netflix viewing. We are measuring video content over Xbox, Roku, Comcast and Apple TV.

We're even seeing Apple watch usage in our data today. And I want to be clear that I'm not just announcing that we've developed this technology or are planning to roll it out. We have it in the field today and we are collecting data that should soon answer key questions our clients have about video, television and cross-device content consumptions.

Turning to slide 11, the build-out of our Total Home Panel is underway. We're currently installed in more than 800 homes, measuring more than 11,000 devices. This opt-in panel includes representation of all major video service providers and across all geographies in the United States.

We're seeing more than 10 connected devices in each household, a number that will rise as devices continue to proliferate within the home. In 2016, we'll be building the Total Home Panel to somewhere between 25,000 homes and 50,000 homes and expect to have hundreds of thousands of devices under measurement through Total Home by the end of the year.

On its own, the Total Home Panel represents a major step towards next generation media measurement. When combined with our current proprietary data assets and massive partner data assets, we have a data footprint that is scalable and unmatched.

We're embarking on this next stage in technology and measurement innovation at exactly the right time, and I look forward to updating you over the next several quarters on our progress. The innovative work we're doing with Total Home perfectly supports the goals that underlie our planned merger with Rentrak. Let me give you an update on that.

Moving to slide 12, just over a month ago, we announced the definitive agreement to merge with Rentrak. In terms of the transaction itself, we made our HSR filing on October 23 and filed our initial S-4 on October 30. We hope to hold a shareholder vote in mid-to-late December and expect the transaction to close in early Q1.

This merger combines two media measurement leaders to create a new cross-platform measurement company that will define the future of media measurement, paving the way for the introduction of a new cross-platforms ratings currency.

Our announcement of the merger has been uniformly welcomed by clients and stakeholders in the media and advertising industries, as evidenced from nearly two dozen senior executives from across the media landscape who joined publicly in supporting our merger. It's terrific and frankly inspiring to see such a positive reception among our clients.

There's a clear desire in the market for a bigger comScore to crack the cross-platform code and deliver next generation currency and metrics for audiences and advertising. Moving to slide 14, we're closing 2015 in the strong position and are very much playing offense.

We have been preparing for the convergence of digital media and television for years.

This year we saw major disruptions across the media and advertising world, that challenge existing business models and at the same time more people than ever before were consuming content, video and engaging with advertising across a multitude of devices and platforms.

We're motivated by this disruption and believe there're huge opportunities in front of us, our clients and our partners. Our success will come from focus and we've taken clear steps over the past year to remove components of our business that were a distraction from our core mission. We divested our Mobile Operator Analytics unit earlier this year.

Today, we announced that we are divesting our enterprise analytics business to Adobe. We made these decisions in parallel with clarifying our vision and strategy. When I'm asked what does comScore – what comScore does? I say, we make audiences and advertising more valuable across all the screens that matter.

We make audiences more valuable by measuring them accurately with deep granularity and doing it better than anybody else in the world.

We make advertising more valuable by helping clients optimize their planning, buying and performance, helping them reach audiences and individuals and get their message across, and we do this across all the screens that matter. Now it's not enough to have a vision. You also have to have the pieces to execute on that vision.

We're incredibly focused on execution at comScore and have been putting the pieces together that we believe are required to win.

This includes amassing vast amount of data from partners that we can integrate into our products, it includes developing a unique data source that give us a proprietary view of the modern consumer, technology innovations like our Total Home Panel, which delivers a step change in measurement, it includes our global strategic relationship with Kantar and it certainly includes our transformative merger with Rentrak.

These pieces are embodied in products that our clients want in many cases need to buy because those products are critical for running their business. The proof of our success will obviously be in the business results we drive for comScore. But as I said, we've been gearing up and expecting this moment for a long time.

Many of you know, I'm a big football fan, in strong support of the Washington NFL team. Well in the other Washington out in Seattle, the quarterback Russell Wilson often says, that the separation is in the preparation and those are the words that apply perfectly to our approach to the work we're doing at comScore.

Now, I'll turn it over to Mel for a review of our financial results..

Thank you, Serge. I'll now provide more detail regarding our third quarter results. Revenue in the quarter was $92.4 million on a pro forma basis, up 14% versus the same quarter last year. We're pleased with our revenue growth, despite softness from our Digital Analytix division and continued foreign currency exchange rate headwinds.

If exchange rates against the U.S. dollar remain content from the same quarter last year, our Q3 pro forma revenue would have been $96.4 million, or a growth of 19%. Turning to slide 17, revenue from non-monetary transactions in the quarter was $9 million, down $2 million sequentially and up $4 million versus the same quarter last year.

Expense from non-monetary transactions in the quarter was $5 million, flat sequentially and up $2 million versus the same quarter last year. Subscription revenue in the quarter was $85 million on a pro forma basis, up 16% versus the same quarter last year. Subscription and project revenue represented 92% and 8% of total revenue respectively.

Revenue from existing customers was $85 million on a pro forma basis, up 14% year-over-year and representing 92% of total revenue. Total customers increased by 45 from last quarter to 2,728.

Our international revenue on a pro forma basis was $25 million, which was flat year-over-year, despite significant foreign currency headwinds and represented 27% of total revenue. Moving to margin and expenses on a GAAP basis, our gross margin was 67%, down from 70% for the same quarter last year.

The lower gross margin is primarily due to data costs associated with recent product launches, including cross-media. Prior to product launch, these costs were expensed in research and development. Costs associated with new offerings will put near-term pressure on gross margin, but we expect margin to expand as new product sales ramp.

Selling and marketing expense decreased to $23.2 million, down $2.9 million from the same quarter last year. Selling and marketing expense for Q3 represented 25% of revenue compared to 32% for the same quarter last year. The decrease in expense was driven by a decrease in commission expense and stock-based compensation.

The decrease in selling and marketing expense as a percentage of revenue was due to operating model leverage from revenue growth and to a lesser extent a decrease in expenses. R&D expense increased to $15 million for the third quarter, up $1.2 million from the same quarter last year.

R&D expense for Q3 represented 16% of revenue compared to 17% for the same quarter last year. The increase in expense is largely the result of increased compensation related to head count. G&A expenses increased to $17 million for the third quarter, up $2.1 million from the same quarter last year.

G&A expense for Q3 represented 18% of revenue, consistent with the same quarter last year. The increase in expense is the result of $3.3 million in fees associated with the proposed acquisition of Rentrak, partially offset by a decline in stock-based compensation.

GAAP pre-tax income for the quarter was $900,000, which includes $3.3 million of fees associated with the proposed acquisition of Rentrak. The loss for the same quarter last year was $5.8 million, which included an impairment charge of $6.9 million.

Our tax benefit for the quarter was $40,000 compared to a benefit of $2.6 million for the same quarter last year. We expect our cash taxes to remain low in the near-term as we hold net operating loss carry-forwards in the U.S. and certain foreign jurisdictions.

During the quarter, GAAP net income was $1 million, or $0.02 per diluted share based on a diluted share account of 39.8 million shares. Non-GAAP net income for the quarter was $17 million, or $0.43 per diluted share, excluding stock-based compensation, amortization of intangibles, acquisition-related expenses and other non-recurring items.

Our non-GAAP EPS calculation is based on a fully diluted share count of 39.8 million shares. Third quarter adjusted EBITDA was $23.4 million, a 16% increase over the prior year, representing an adjusted EBITDA margin of 25%.

We are pleased by the continued adjusted EBITDA margin expansion and we expect these gains to provide us with incremental investment dollars to accelerate key projects we believe will contribute significant ROI.

Looking at our balance sheet, we ended the quarter with cash and cash equivalents of $142 million, a decrease of $46 million sequentially and an increase of $102 million from the same quarter last year. The sequential decline was due to the repurchase of our common stock.

The year-over-year increase was driven by proceeds of $205 million received in connection with the issuance of shares to WPP on April 1, partially offset by repurchase of our common stock.

Cash flow from operations during 2015 through the period ended September 30 was $48 million, and capital expenditures were $3 million, resulting in free cash flow of $45 million. Free cash flow for the same period last year was $35 million. Let's move to the next slide. Slide 18 details our guidance.

It is important to note the following guidance ranges continue to exclude the financial impact of the Mobile Operator division, as the division was divested during the second quarter.

Furthermore, the ranges exclude the projected financial impact of the Digital Analytix division for the month of December, which includes a reduction in our anticipated revenue of $4.85 million, as we expect to complete the sale of the Digital Analytix division on December 1.

For the fourth quarter of 2015, we anticipate revenue on a pro forma basis in the range of $95 million to $103 million. We anticipate GAAP income before income taxes on a pro forma basis in the range of a $5.3 million loss to income of $4.3 million.

We anticipate adjusted EBITDA to be in the range of $20.5 million to $27 million, which represents an adjusted EBITDA margin range of approximately 22% to 26%, or 24% at the midpoint of our revenue and adjusted EBITDA guidance ranges. Our estimated fully diluted share count for Q4 is 39.7 million and does not include any projected buyback activity.

For the fourth quarter of 2015, we anticipate non-monetary revenue of $5.5 million and non-monetary expense of $6 million. For Q4 of last year, non-monetary revenue was $7.6 million and non-monetary expense was $9.2 million. We expect both non-monetary revenue and expense to decline year-over-year in the coming quarters.

The expected decline is driven by the release of new products in the last year that required acquisition of scarce data sets and the fact that we don't believe a similar need exists based on anticipated product launches in the coming quarters. We will now open the line for questions..

Our first question comes from Youssef Squali from Cantor Fitzgerald. Your line is open..

Thank you very much. Good morning, Serge and Mel. Just a couple of questions. One on the DoubleClick relationship; I was hoping, Serge, if you can give us just any color on how that relationship is going. This was the first quarter where that relationship was at a beta.

What kind of traction have you gotten? If you can help us quantify it in any way, in terms of volume, in terms of customers, revenue would be nice, as well. And kind of expectations for 2016, or actually just expectations for the fourth quarter. Let's start with that. And then, Mel, so congratulations on the Digital Analytix sales.

In terms of Q4 guidance, we've quantified the impacts on revenue. I was hoping that you would maybe quantify the impacts on EBITDA. And then when was that deal actually consummated? Was there any revenue that you X'ed out of Q3 from Digital Analytix? Thanks..

Hey, Youssef, I like your questions. Let's talk about Google. Obviously, we're not going to disclose Google's specific performance. We're actually not even allowed to do that. But suffice to say, we're really happy with 53% year-over-year growth on vCE. Obviously that includes DoubleClick.

We're also happy with the ability to measure video viewability on YouTube, and as mentioned things are on track for the first half of 2016 for mobile and international expansion. We're also starting to see increasing joint marketing sessions with Google, as is evidenced by a recent webinar where more than 100 prospects attended.

I have to tell you, it's early. Things are going well. I'm really happy and pleased about the 53% year-over-year increase that's in total revenue and we are committed to the $100 million number that we mentioned by 2017. So things are going well. No additional color to provide. I'll hand it off to Mel.

I do want actually – before I hand it off to Mel, when was this consummated, this actual Adobe deal? How about two hours ago, or three hours ago? And that's really – it was an all-nighter and it got down three hours ago and – but it got done. And so, no, there was no Q3 revenue impact..

Hey, Youssef, it's Mel. Yes, so I think the only remaining question you had was on EBITDA impact for Q4 that we put into the guide. And that was a range of between $1 million and $2 million.

So that is – we wanted to call out the – obviously the top-line number just so that was 100% clear but, again, the EBITDA range impact was between $1 million and $2 million..

Got it. Thanks a lot..

Yeah..

Sure..

Our next question comes from Robert Peck from SunTrust. Your line is open..

Hi, just a couple of quick questions here. So, just touching on Youssef's question there, as well. Bigger picture, does this make for a better relationship with Adobe? Is this a precursor to anything, Mel? Maybe you can just elaborate – sorry, Serge, maybe just elaborate on that.

And then, Mel, on the NMT [Non-Monetary Transaction] revenues, it looks like you're implying more about $14 million, $15 million for the second half. We were a little bit lower there. Were curious if anything particularly changed there? Thanks..

Hey, Bob. I need to be careful what I say and all I'm going to say is, listen, historically Adobe and comScore have had a friction point, and that friction point was Digital Analytix. We competed against each other in a lot of different scenarios and a lot of different clients at Microsoft, at BBC, at Orange. We competed in a lot of cases.

We won a lot of cases, they won. It was a very strong point of contention. That point of friction has been removed. What it means for the future, honestly, I'm not going to comment, but suffice to say that point of friction has been removed. And then I'll hand it off to Mel for the NMT question..

Hey, Bob.

And specifically you're talking about in the current quarter, Q3, correct?.

Yes, and just the second half in total.

So we had one incremental deal in Q3 that contributed NMT revenue. But as you saw, NMT revenue in total declined $2 million sequentially. In Q4, the revenue and expense that I noted is just related to the current active deals we have tracking. We do not anticipate any incremental deals related to non-monetary transactions in Q4..

As we mentioned in early September, we are committed to bringing down the non-monetary revenue. That being said, we are going to be opportunistic where it makes sense, and we will continue doing them when it makes sense, if it makes sense.

That said, if you look at the numbers that we're projecting for Q4, it is $2 million lower than Q4 of 2014 and $3 million lower in expense from Q4 2014. So we have heard from the Street.

We understand it and we are committed to bringing it down, but we're also going to be opportunistic if and when the time – if we need to do these in the future, we'll continue doing them, but not at the same rate that we were in the previous..

Okay, thanks so much..

Sure..

Our next question comes from Jason Helfstein from Oppenheimer. Your line is open..

Thanks, a few questions. Just first, I just want to lay out what we calculated we think was the year-over-year organic growth if you strip out currency and non-monetary revenue. So, Mel, just correct me if I'm wrong. The second quarter would have been about 12% growth year over year, third quarter 15%.

And then the guidance, assuming about $2.5 million of currency headwind would imply about 22%, and so I don't know if that foots with your numbers. Second, if I look at nine-month free cash flow, year over year it's up 22%. That's an as-reported number.

If you take out the Digital Analytix, how would that impact the free cash flow? Also, we're getting questions about the S-4 that was filed and there are projections for both Rentrak and comScore in there.

And I know – so if you can comment on if those actually reflect a business outlook, or are they are more banker projections that have to be done for legal reasons? And then lastly, can you comment as far as the Total Home Panel? Is this something you expect to be material to revenue next year, or is this more will be in beta, will be an actual sellable product next year and if it's a sellable product, what would be the magnitude – give us something that is comparable that you sell right now? Thanks..

Yes, so on the growth rates that you outlined, I think we're within like 1% – 1.5% on all the ones that you quoted, so I think we're fine there. We can work through, if you have some questions about that, we can work through those separately. On the DAx divestiture, we are still working through the carve-out financials.

Obviously, that's been a part of our business for several years, so that's going to take us some time. As Serge mentioned, that was literally signed at 4 o'clock in the morning. So unfortunately, I don't have specifics that I can provide in terms of forward impact, but we'll be working through that and reporting on that here in the near term..

And then, Jason, I'll take on the last two in terms of the projections on the S-4. Yes, there were numbers that moved around and they got revised downwards. Honestly, all we can say at this point is we're just trying to take a conservative approach. There's really nothing to it.

You shouldn't read a whole lot into it on both either our side or on Rentrak's side. It's just taking a conservative approach as we put the two companies – hopefully as we put the two companies together upon regulatory and shareholder approval.

On the Total Home Panel, I'm hoping you got the sense – and obviously, we have been really excited about this. We've been working on it for a long time. It's finally out, it's live. We're not going to go do some sort of a beta or anything like that.

We hope to generate revenue in 2016, absolutely 100% it will probably be initially – think of them as what we call data feeds to our clients. That's probably at the beginning.

There will probably also be understanding of all the different devices in the home, for example, not only of just wireless devices and PC and desktop and all that, but you know what, at the end of the day, Internet of Things, people want to know how big is that, market share analysis based on that. That's something that is going to be of value.

And probably the most important thing as well is that we mentioned the show-level viewing, for example of Netflix, of Roku, of Chromecast, of Apple TV. Those are things that are going to be easily able to sell because it's a differentiated solution, and it will be scalable. We're not talking a sample of 5,000 to 10,000.

We're talking hundreds of thousands of devices under measurement, since one of these appliances gives us access to over 10 different – 10 or plus different connected devices. So we are absolutely expecting revenue from it in 2016. How much, too early to tell at this point. We'll obviously guide that when we guide 2016 in February..

Thank you..

Sure..

Our next question comes from Laura Martin from Needham. Your line is open..

Good morning. So, Serge, I'm really interested in how Total Home integrates with the Rentrak data because it feels like you're replicating the Nielsen panel, which is also 50,000 homes, although you're connecting it to all the devices in the home, which is a cooler idea.

But it feels like a lot of the data you'll be gathering is actually replicated by Rentrak. So are you paying twice for the television data through both the acquisition and then through this expense that you are taking on? And then my second question is also strategic.

Since you guys have announced the merger a month ago, I'm very interested in the incoming call volume from clients who are interested in your stated strategy of this cross-platform. We are hearing a lot of grumblings that this measurement has been unavailable.

So what kind of – is the call volume higher, lower than you've expected from announcing that you're actually going to do something that everyone says they want?.

Sure and good morning, Laura. Absolutely, on the Total Home stuff, it is very, very different from what we're getting from the Rentrak merger. Just to give you an idea, what we are getting here from Total Home Panel is all the different connected devices.

Now, yes, some of it is data from the set-top box data, but more importantly what we are getting here is over-the-top devices, we're getting mobile devices, we're getting PC devices, we're getting everything within the home, it's not just the set-top box viewing. It is really from every connected devices. We're seeing Netflix. We're seeing Roku.

We're seeing Chromecast, that by itself is more than enough of a differentiator from what the Rentrak currently offers. It actually is – the combination of the two is the real power here. It's because we get the massive and passive data that Rentrak has and now we're able to connect it with this unique date set.

And again, we're not talking 30,000 to 50,000. Because, if you think – and really think about it, one home panel provides us around 10 to 11 different connected devices and it's real. It's live. We already have it live today. It's 800 plus router – home appliances are out there, and it's capturing over 9,000 different connected devices. So, it's real.

We're not waiting for another three, six, nine months. It's happening today. In terms of incoming volume, I can't tell you enough how much since the announcement with Rentrak, how much the incoming volume has increased.

We timed it very well, it turns out, by announcing it during ad week, but the reception we have gotten, the volume that we have gotten has just significantly increased from – we are now truly considered as a – of having a potential of really cracking the cross-platform code. We are the leaders in digital on a census-based measurement service.

Rentrak, as you know, is the leader in tracking TV measurement on a census-based measurement. So, putting the two assets together has definitely got a lot of clients and across all of the agencies, really, really excited. We put out a press release a couple of weeks ago.

We had a bunch of different senior executives publicly supporting us about this and how they are – all they keep asking us is when, when, when, and how soon can I get it? And that's the volume and that's the reaction we've received..

What's the answer to that by that way? How soon can they get it?.

You know, I knew the minute I said that you're going to ask that. We can't give you a timing because we are going through our regulatory process. We have to respect that regulatory process. That being said, I want to make sure that everybody knows that comScore and Rentrak have been friends and partners for a long time.

We've worked together on a bunch of clients in the past, on joint products for those clients, so it's not going to take us years to go develop this, assuming we get regulatory and shareholder approval.

I'm not going to go into specifics of the timing, but the fact that we know each other, we have worked together, we have partnered together, rest assured, it's going to be quick..

Thank you very much..

Sure..

Our next question comes from Shyam Patil from SIG. Your line is open..

Hi. Good morning, guys. I had a few questions. Serge, on the Bid Ratings product, it seems like a very interesting product.

Can you talk about just kind of how you are thinking about this as a revenue driver, how big it could be in 2016, 2017 and who do you consider to be the key competitors here?.

Sure. On the Bid Ratings, I think the fact is, we have a bunch of differentiated unique solutions here, right? We're the only service out there that can provide viewability, brand safety, fraud, and then the impact, most importantly on the Media Metrix rankings, on the Video Metrix rankings, on all the different rankings that we have.

That's the currency that clients use to decide whether or not the actual advertising actually worked. Did it show up and did it actually provide a better yield on Media Metrix and on Video Metrix. So the way we're looking at it and the fact that we can't do this alone.

We've always said this ecosystem is so complicated we have to integrate it with other partners. So that's why we've integrated with programmatic partners, like TubeMogul and AppNexus and others. And they are going to be – they've installed it and we've integrated that into their platforms.

From a revenue perspective, it's going to be a CPM-like model, but it also makes our product stickier in terms of our syndicated products.

That's been one of the questions people have always asked is, with programmatic, does the reliance of our syndicated products become more or less? And we've always said, it's more, and it's because of products like Bid Ratings. It will probably be – it will be a CPM-like model, can't forecast any revenue in 2016 and 2017 at this point.

But suffice to say, we're going to be doing it by ourselves, but also with the cooperation and integration with these programmatic platforms.

And then the onus is on both of us, both us and the partners, to make sure that the utilization is there because at the end of the day you just don't want to be integrating it and then – integrate it and then leave.

You want to make sure that you integrate it and then make sure that the utilization is there and that's a key focus of our execution on a going-forward basis..

Great. And then, Mel, I wanted to go through some of the numbers and the impact that you may have seen in some other areas. But, for 3Q revenue, I know you gave the year-over-year FX impact.

Give us sense as to what the FX impact was on revenue kind of versus – kind of in the period between when you gave guidance originally for 3Q when you reported and the same for EBITDA for the third quarter?.

I am sorry. Could you clarify that a bit? I mean, the year-over-year, we have good visibility into the year-over-year variance obviously because we know what the exchange rates were obviously in the comparable period and within the quarter – in third quarter from the time we gave guidance to the end of the quarter.

Obviously, it didn't significantly change. So we had good visibility into that.

Does that answer your question?.

I'm just trying to figure out, if you look at the kind of the actual reported results versus kind of the midpoint of 3Q revenue, about $700,000 and $800,000 impact, just trying to figure out if FX is the reason for that or if there's some other reason?.

Got you. No, no, no, it was primarily softness in our DAx division..

Great. And I guess the same for the fourth quarter, it seems like DAx is the main reason for the 4Q mid-point now being kind of below the previous implied 4Q mid-point, but was there any other variable there, like FX that's impacting the revenue guide and then the same thing for EBITDA.

It looks like the variance is about $2 million at the mid-point, you said DAx is about $1 million to $2 million there.

So is there anything else whether it's FX or merger fees that's impacting that kind of extra $1 million or so in the fourth quarter EBITDA versus kind of the original kind of implied mid-point?.

No. So the merger fees, we obviously carved those out, so that's not impactful. But the issue is that the softness that we saw in DAx, that actually does have a carry-through impact in the Q4 for even October and November because obviously those contracts are typically ratable in nature.

So that flow-through is also impacting the quarter in October and November, when obviously we will still have DAx included in our numbers prior to the sale..

Got it.

So just to summarize, it seems like kind of you think your expectations, the softness was in DAx or in the merger fees for the third quarter? Is that correct?.

Merger fees in the third quarter for the EBIT range, yes, the merger fees – the projected merger fees are not a factor in the adjusted EBITDA range. That's primarily the carry-through on the DAx weakness..

Great.

And then just maybe one more question, I know you can't give the DAx impact for 2016 or just how to think about it what it contributed in 2016, but can you give a sense as to what DAx was in 2015, maybe from a top-line standpoint, the growth rate you were seeing there and then kind of the EBITDA contribution as well?.

Yeah, I mean it was a bit less than 10% of our revenue, which is kind of consistent with what we've said. But, again, we're working through the carve-out financials. I don't want to get too specific on the metrics because it is a tedious process going through and doing the carve-out.

And one of the issues is that obviously some of the contracts that we signed were bundled arrangements with other products, right, so there's a lot of tedious calculations and analysis you have to do to tease out those differences, i.e. the financial impact of what you're divesting versus what you're keeping.

So we're working through that now and we'll obviously get something out on that as soon as we complete that analysis, but it is a pretty tedious analysis, and you have to go back obviously for all the comparable periods as well..

Great. Thank you, guys. Congrats on the results..

Yes. Appreciate it..

Sure. Thanks..

Our next question comes from Timothy McHugh from William Blair. Your line is open..

Hi, guys, thanks.

First I guess, I apologize if I missed it, but the home panel that you are building out, any way to think about the cost, I guess, and I guess before the revenue comes in, how much of an investment do we need to anticipate?.

Hey, Tim, it's Mel. So, we're working through the – still working through the proof of concepts right now with a couple of vendors and this is such a new effort that the vendors don't have any past experience with this, right? So, they were unable to give us any type of guarantees to-date on the ramp, i.e.

how long it would take to build the panel up to the levels that we need to generate revenue or to start generating revenue. And they also are not able to give us any firm, fixed estimates on the ultimate costs.

Now we do expect to get that in the near-term, probably in the next 30 days to 45 days, so we'll have more visibility, but they haven't completed that proof of concept phase yet. So just because this is such a new effort for them and for us, we don't have anything that we can share at this time that's definitive.

I will tell you that what we've done is in the contracts, we're negotiating as such that we'll be basically deferring the costs on the panel build until we start to generate the revenue and obviously use that data in our products. So obviously, we're very sensitive to aligning the revenue contribution with the costs.

So I can certainly share that with you, but unfortunately at this time we haven't been provided with anything definitive from the vendors, because again they are still working through the proof of concept..

Do you have a sense for the homes you are in today though, the 800 homes, I mean, what is the cost to build that out yet?.

You know, it's early, but I would say anywhere between – I don't want to give – I don't want to disclose too much, how much we're paying, but from an incentive – but it's definitely much higher than what we've paid on both the PC and on mobile.

It's in low double digits here, but again, the most important thing that we've decided is; first, let's roll it out, let's start getting data, let's start generating revenue. We're aligning the revenue – the expenses with revenue.

So, it's not going to hit EBITDA until we start generating revenue and that is a really important thing that we have been negotiating with all the vendors, with the two vendors that we've been talking to and we're aligned. And so we are very hopeful.

We've looked at multiple scenarios of the run-out of the revenue on this product and suffice to say the fact that it's so unique, we feel very confident about its future..

As you've worked with the data, I guess one of the criticisms from others of server-based approach would have been sensitivity to some of the I guess privacy and some of the data that you do get through that approach.

As you've worked and seen more of the data, have you become more comfortable with that, or any learnings from that I guess is the question?.

Sure, let me just make sure to clarify something. This is not a server-based solution. This is something where we're actually installing within the homes, and it is 100% opt-in. So from a privacy perspective, the panelists are getting paid for something in return.

The other thing that's also worth noting is we are not collecting anything at the PII level, or personally identifiable information. So that information will not be collected, will not be stored, we'll remove it. We just don't want exposure of that, and that reduces the risk of any of this. So there's no PII.

But there's a lot of granular-rich data like we talked about on e-commerce, across mobile phones. That's something that has never been available up to this date. What's actually happening on purchases on Amazon.com on your mobile devices? Now we will have that data. We have that data, and it will continue to ramp.

Show-level viewing of Netflix, of Roku, and all of that, that is also at sample sizes of really, really large sample sizes. That we feel is very unique.

So we're confident, but it is, from a privacy and all of that, we're obviously very, very sensitive about that and we've taken every single measure we can ever think about to ensure that we are protected..

Okay. And then just customer adds for the quarter, I know last quarter was abnormally strong, but a step down I guess from the pace of net customer adds you saw last quarter.

Anything in the market or anything changed there, or is it just I guess normal fluctuation in that quarter?.

Yes, we do have normal fluctuations. We did see a decline in customers associated with the Digital Analytix division. That was probably the thing that stuck out the most. If you normalize the rate of customer adds over the last six to eight quarters, I think it's in line with those..

Okay, thank you..

Sure..

Our next question comes from Allen Klee from Sidoti. Your line is open..

Yes, good morning, a couple questions. First one, if there's any updates on the Kantar partnership? And second, what is the share count now? Can you disclose what you're getting paid for the Digital Analytix business? And then to what extent are you able to get – I heard this somewhere, but I don't know if it's true or if you can comment on it.

But from the set-top data that you get from some of your suppliers, is there any way that you can get data on an individual level? Thank you..

I can address the share count for you really quickly, Allen. I assume you're talking about just kind of outstanding as of the end of the quarter..

Yes, if you had diluted, yes..

Outstanding at the end of the quarter, just straight outstanding was 38.953 million. And you said you wanted just diluted for the quarter was....

As Mel is looking at that, I can answer some of the other questions. How is Kantar going? Kantar is going very well. Kantar is a large, large organization, and we have our products and services made available in a lot of different places, both in the U.S. and overseas. We've expanded doing some countries in mobile.

As we mentioned last quarter, one of the things that we are working on is we're hopeful to get that going sometime early next year is the combination of our data, our census digital data with all of the offline data that Kantar has.

Kantar has a lot of offline purchasing related to – they bought at the grocery store or they bought at a consumer electronics store, stuff like that. We're going to be – the idea is we're going to be combining the digital data that we have down to that individual with the offline purchasing.

And that could be then used for ad effectiveness, cross-platform ad effectiveness studies. So that's a big opportunity that we see that we can do in a lot of different countries. In terms of the set-top box data, we have access to a tremendous amount of set-top box data available today.

Hopefully, with the merger getting approved, at the beginning of the year we'll have access to a lot more set-top box data coming from the Rentrak merger. It does provide us at the individual household level. We also have the ability to calibrate that and turn it into a person-level sample.

We have access to a person-level TV sample, as everybody knows. So we feel very confident about our position in terms of both on the set-top box data at a household level and also at the person level as well..

Allen, just getting back to you on the share count. So as I mentioned, the straight outstanding as of the end of the quarter was 38.953 million. The diluted – fully diluted for the quarter was 39.8 million, fully diluted for the nine months ended was 37.6 million..

Thank you..

Sure..

Our next question comes from Tom Eagan from Telsey Advisory Group. Your line is open..

Hey, Tom. Tom? Operator, we may have lost Tom..

Can you hear me?.

Yes..

Is this better?.

Yes..

Okay. Serge, last quarter you mentioned how the impact of the data from cross-media varies widely according to each national network..

Tom, unfortunately we're having phone problems and we've lost you again..

Okay. I'll call back. Thank you..

Sure.

Operator, is there anybody else?.

At this time, I'm showing no further questions. I'd like to turn the call back over to Mr. Serge Matta for closing remarks..

Thank you all for your participation today. Our third quarter results confirm that we're executing well. We're focused, committed to a winning strategy and eager to continue moving comScore and the market forward.

We look forward to speaking with you again on the next conference call, and hopefully by then, we'll be with the new comScore between us, comScore and Rentrak. Thank you..

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day..