Hattie Young – Brand Manager Bryan Wiener – Chief Executive Officer Greg Fink – Chief Financial Officer.

Tim McHugh – William Blair Laura Martin – Needham & Co Alan Gould – Loop Capital Surinder Thind – Jefferies.

Good day, ladies and gentlemen, and welcome to the comScore's Third Quarter 2018 Financial Results Call. At this time all participants are in the listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call maybe recorded.

I would now like to turn the conference over to Hattie Young. Please go ahead..

Thank you, George. Good afternoon. Thank you for joining us to discuss comScore's third quarter financial performance. Joining me on today's call are comScore's CEO, Bryan Wiener; and CFO, Greg Fink.

Before we begin our prepared remarks, I'd like to remind all of you that the following discussion contains forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include comments about our plans, expectations and prospects and are based on our view as of today, November 8, 2018. We disclaim any duty or obligation to update our forward-looking statements to reflect new information after today's call.

We'll be discussing non-GAAP measures during this call, for which we've provided reconciliations in the appendices of today's press release and on our website. Our actual results in future periods may differ materially from those currently expected, because of the number of risks and uncertainties.

These risks and uncertainties include those outlined in our 10-K, 10-Q and other SEC filings, which you can find on our IR website or at sec.gov. I will now turn the call over to Bryan Wiener..

positivity, productivity and positioning. First, positivity. The marketplace is getting increasingly excited about comScore and that is starting to bear fruit, both in customer growth dialogues and in recruiting world-class talents.

In addition to high impact seen in hires made in the last hundred days, we're trending towards a 30% uptick in applicant interest during the second half of the year compared to the first.

We believe these are leading indicators for revenue and margin expansion, though they will take some time to appear in the financial results given the average six months sale cycle for our products. Second, productivity. Our workforce is energized again after a really challenging few years.

We have reorganized, focused on motivating our existing talent and brought a new star talent while at the same time reducing costs. Efficiency continues to improve and we are seeing and accomplishing more today than we were a year ago and that is after streamlining our staff by more than 12%.

We still have a long way to go to maximize productivity, but as we do, we believe we will free up sufficient resources to invest in rapid product innovation and expanded focus on the buy side customers while keeping our cost structure relatively flat. Lastly, positioning.

We are starting to see increased share of wallet from existing customers and existing products through a combination of better listening, story telling and bundling of products.

Of particular note, while our syndicated digital audience product continues to experience market driven pressure, we are seeing early encouraging signs as we rolled out new pricing bundles at the end of Q3.

Moreover, last month we’ve launched a significant product release in the form of an enhanced interface for merging digital audience solutions within a single streamlined user interface. This tool provides more insights to help publishers grow their audiences.

We're also evolving our digital audience products to better align with customers increasingly mobile and multi-platform consumption behaviors. Earlier this week, we announced a strategic partnership with snap in which we became the first ever third party measurement of the Discover platform.

It’s called the senior media executive in the Wall Street Journal's coverage of the news. “Platforms like Snapchat need stronger third party measurement tools that show what audiences are watching”.

In terms of future growth, we have said before that the key levers to become a currency for digital and TV content and advertising, and we said we would make demonstrable progress in Q3. Here are some of the results so far. First, we said we would launch our comScore ratings product, CCR for short in a single quarter product strength.

CCR launched on time on September 27. We will go into more detail on CCR as well as our overall cross platform progress and plans during Investor Day next week. Second, we had built a dedicated team for driving comScore's a buying currency.

We're seeing real progress is TV buying moves beyond age and gender to advanced demographics of audiences where we believe we have a competitive advantage. During the quarter, we extended our multi-year television deal with GroupM and we are starting to see increased traction with other agencies around adoption of our products in a buying currency.

We are pleased with our progress, but at nearly this is a journey. Sarah is heavily focused on revamping our go to market strategy for brands and agencies.

We believe this will not only help our revenue from these customers directly, but also will make us much more valuable to the television networks thus increasing the dollar value of these contracts over time.

Lastly, we recently announced strategic relationships with Adobe and Oracle to grow our footprint for our unique set of TV and digital activation products.

We expect activation to be a growth engine for us as marketing accountability grows in importance and especially as we gain more traction as a planning and transacting currency for video across platforms.

We will go into more detail on our offerings and strategy for activation at Investor Day, but suffice it to say that we were very excited about our traction in this area. And now I want to turn it over to Greg to take you through our financial results, including a view into our new product pillars.

Greg?.

Thanks, Bryan, and welcome everyone. Today, we reported Q3 revenue of $102.9 million, which compares to revenue of $100.3 million reported in the third quarter last year and $101.4 million in the second quarter of 2018.

In the third quarter, we began to analyze our customers and revenue by three primary areas of opportunity and growth, ratings and planning, analytics and optimization and movies reporting and analytics.

In our press release and in our 10-Q to be filed later today, we have provided our current and prior period revenue on this basis as well as comparable information to our previous product categories.

Of particular note our digital syndicated audience products are included in our ratings and planning category while our custom digital products are included in analytics and optimization. These two products used to be reported together in a single line item under digital audience.

We believe the new product categories better reflect our customer needs and where we are focused from a revenue perspective.

Revenue from Ratings and Planning in the third quarter was $70.5 million, up 1.5% from the same period last year and consistent with the second quarter of 2018 and includes our syndicated digital audience, TV and cross-platform products. We saw sustained growth in our TV and cross-platform products from continued strength with our largest customers.

Additionally, revenue was higher as compared to the prior year quarter as a result of certain contracts I discussed last quarter, which are now recorded on a gross basis. Increases in TV and cross-platform products were offset by expected declines in our digital audience products.

Our syndicated digital revenue represents 53% of Ratings and Planning for the quarter as compared to 60% in the same period a year ago and 55% in the second quarter of 2018. As Bryan described earlier, we’re making changes to the product offering and the way we position our solutions that are positively impacting the business.

As a result, we expect the declines in revenue from the syndicated digital audience products that we've seen in recent quarters should begin to stabilize with sequential quarterly declines in the low single digits.

Revenue from analytics and optimization in the third quarter was $22.2 million, up 4.9% from the third quarter of last year and up 8.2% compared to the second quarter of 2018. We continue to see solid growth in this product category. Movies reporting and Analytics revenue increased 5% from prior year levels to $10.2 million.

Moving onto our operating performance in the third quarter. We reported a GAAP net loss for the third quarter of $24.6 million compared to a net loss of $130.1 million reported in the same period last year. Q3 2017 includes the settlement of litigation as well as significantly higher audit and investigation costs.

We reported adjusted EBITDA for the third quarter of $5.2 million, which includes a $1.6 million payment received from the prior year patent settlement that was higher than payments received in prior periods. This compares to an adjusted EBITDA loss of $5 million reported for the same period last year.

The $10.2 million improvement relates to our ongoing focus on cost reduction, most of which took effect earlier in the year. We maintained discipline in sales and marketing, R&D and G&A. Year-to-date our adjusted EBITDA has improved more than $20 million over the same period in 2017.

Our non-GAAP net loss for the third quarter of 2018 was $11.9 million. This compares to a non-GAAP net loss of $22.1 million reported in the year ago quarter.

I’ll now discuss operating results for Q3 of 2018 and 2017 on a non-GAAP basis excluding stock-based compensation and other major reconciling items as identified in the tables accompanying our press release filed today and available on our investor relations website. Gross profit for the quarter was $54.7 million, or 53% of revenue.

This was slightly better than the year ago quarter reflecting relatively flat costs on increased revenue.

Gross margins in the third quarter of 2018 reflects a decrease in employee cost, depreciation and other operating costs offset by an increase in data costs, selling and marketing expense for the quarter decreased to $23 million or 22% of revenue compared to $28.4 million or 28% of revenue reported in the year ago quarter.

R&D expense for the quarter was $17.6 million, or 17% of revenue, compared to $21 million, or 21% of revenue, in the year ago quarter. While we continued investing in new products such as the Beta launch of CCR, the decrease in both categories was primarily related to lower headcount and other operating costs.

We also capitalized $2.2 million in the quarter for internally developed software. G&A expense for the quarter was $16.6 million or 16% of revenue roughly flat when compared to the year ago quarter. A modest increase in G&A expense was driven by legal, audit and consulting professional fees as well as compliance costs.

We have reduced G&A costs by more than $2 million compared to the second quarter of 2018. We continue to focus on improving efficiency around our administrative and accounting processes and strengthening our internal controls. On a sequential basis, overall operating costs were relatively flat.

We are confident in our ability to control operating costs and we'll be providing more detail on the future outlook during Investor Day next week. We continue to focus on reducing our headcount costs, which excluding stock-based compensation were $50.3 million in the quarter or 49% of revenue.

This was unchanged from the second quarter, but significantly lower compared to $57.6 million or 57% of revenue in the year ago period. The portion of this decrease is a result of capitalized costs for internally developed software. And as Bryan mentioned, our current headcount is 12% lower than a year ago.

I previously mentioned that we would incur costs associated with restructuring some of our facilities and leased properties. These negotiations are ongoing and we expect the majority of our restructuring activities to be completed in the fourth quarter, which should reduce our operating expenses and cash requirements next year.

We closed the quarter with cash, cash equivalents and restricted cash of $54.2 million, an increase of $9.1 million over year-end and an increase of $1 million compared to the end of the second quarter.

In the third quarter, our cash position improved due in part to $10 million payment from the settlement of a legal matter and the patent payment as well as a decrease in our cash needs for operations and a reduction in our non-operating expenses.

Investigation and prior year audit costs as well as restructuring expenses were less than $1 million in total in the quarter compared to $33 million and $9 million in the first and second quarters of 2018. We continue to closely manage our capital requirements and intended to move the company towards positive cash flow as quickly as we can.

We believe that our options and cause for raising capital are improving every quarter. We plan to give more guidance on our strategy for managing our balance sheet next week at Investor Day. As of September 30, our weighted average share count for EPS calculation purposes was approximately 58 million shares.

During the quarter, we issued just under 1 million shares associate with RSU and options settlement. Many of the challenges and costs that we had earlier in the year are now behind us.

And as we look forward, we're determined to build a culture around cost discipline and efficiency while redeploying resources to focus on innovation and product development to generate incremental revenue without the need to increase costs.

In the fourth quarter of 2018, we expect revenue to be slightly higher as we start to see traction from our efforts today. We also expect costs to be slightly higher due in part to larger sales commissions expense.

As such, we expect the adjusted EBITDA to be positive for the four straight quarters and at the low end of the range of the first three quarters of 2018, excluding the $1.6 million patent payment we received in Q3. As Bryan mentioned, we plan to provide our 2019 and longer term outlook at next week's Investor Day.

With that I'll turn the call back to Bryan..

Thank you, Greg. In conclusion and consistent with what we have stated previously, we believe 2018 will serve as a base for accelerated growth starting in the second half of 2019 as we launched new products and execute on our revised go to market strategies centered on becoming a leading currency for video advertising across platforms.

We have a large addressable market within which we are the clear number two, but have a lot of room to capture additional market share. This quarter demonstrates that we have made significant progress in reducing our cost structure.

We believe there’s ample opportunity to continue taking out costs in 2019 while accelerating innovation with new product launches as we integrate and further automate our technology platform.

On the revenue front, we believe we're going to see steady progress as our traction in the market and revised go to market strategy start to bear fruit with our two quarter sales cycle.

We understand that it is important to offer investors transparency and granularity into our turnaround roadmap, which is why we are excited to take you through our strategic plans, operating model and multi-year financial outlook in greater detail at Investor Day next week. The details for that event can be found at ir.comscore.com. Thank you.

Now, we will open up the call for questions. Operator, please go ahead..

Thank you. [Operator Instructions] Our first question comes from the line of Tim McHugh with William Blair. Your line is now open..

Thank you. I just want to first ask about the comment about the new pricing bundles for the digital products I guess.

Can you elaborate a little bit more on that? And I guess in particular response that you're seeing from customers?.

Sure, Tim. Well, first, let me say it's early. It's early days.

We launched these new bundles in end of Q3, but effectively we had pricing around micro SKUs within our digital audience product and our – what we've done is we have reoriented around bundles and pricing for customer and so we're focusing instead of on average selling price per product SKU is average selling price per customer.

And so that's freed up our commercial teams to be able to construct bundles that actually satisfy the customers' needs and still generate incremental revenue with us. And we think we're optimistic that it's going to help us with our retention rate.

In the past, what would happen is when you started to add up all the different feature sets, the price often became not affordable versus what we can now do with our new bundles. And I think the important thing for investors to understand is our marginal costs for providing these incremental features is as close to zero. So we're optimistic.

We've gotten good market reactions so far. But again, we're – it's early days..

It's included in other income..

Okay, all right. I guess – and then just the last comment, I guess when I think about the comment about sequential declines you have made in the digital solution. I guess one that was only the syndicated products if I'm correct, not the entirety of that segment.

And then secondly, I guess, is that just not counting that the new pricing plan that much of an impact? Or how do I reconcile that again, I guess, admittedly early, but you said you sound – you see more positive signs, I guess in that business..

Yeah. So, the first question is yes. The custom solutions for digital now fit in the Analytics and Optimization product category and the reason we've done that is the Ratings and Planning.

If you think about that business model is very largely based on subscriptions with annual and multi-year contracts where Analytics and Optimization tend to be shorter term agreements. And so that's why we split it up that way. In terms of kind of what we're seeing, so we were optimistic.

When we look at this and we start to think that in digital, the year-over-year is a harder way to look at this because we're implementing these programs and there's not a ton of seasonality in the business. So really we're kind of looking at this as Q2 being the new base and how do we stabilize off of that.

And so when you look at sequentially, it's about 2% decline. And that's really without the benefit of much of the sort of new pricing bundles.

And also the other thing that I mentioned in my prepared remarks was around we have a new UI that we launched in October, user interface, that we think it makes – add value to the user base as well as things like the Snap partnership.

And so it's a combination of pricing bundles, ease of use, and more product innovation that that we're cautiously optimistic that we can change the trend line from where it's been..

Okay, great. Thank you..

Thank you. And our next question comes from the line of Laura Martin with Needham & Co. Your line is now open..

Hi, guys. Thanks for taking the question. Could you talk about….

Hey, Laura.

How are you?.

I am great, thanks. So it sounds like you lowered the staff by 12%.

And I'm just wondering what inning would you say that too? In terms of the cost cutting, how much further can we go with headcount reduction?.

Laura, I don't think we want to give you a specific target. I think the way we've really outlined this and we'll go into far more detail on Investor Day is we think that we're about halfway through our technology transformation.

And that is going to open up a lot of resources to be able to reinvest into product innovation and into expanding our commercial strategy without increasing our cost base. And so, I think the way we look at this is we see our efficiency efforts principally creating operating leverage.

Well we're going to be able to increase our revenue while keeping our costs relatively flat. And these are things that we will talk about our strategies as well as the economic impact of that next week, next Tuesday, and give more detail.

But I think in general, it's less about taking our cost structure down in absolute terms and it's more about being able to redeploy resources in areas that we think are going to drive increase customer satisfaction and increase revenue growth while keeping our costs relatively flat, which obviously will drive incremental EBITDA margin and incremental cash flow..

Okay, great. So one of the things you said in your prepared remarks, Bryan, was that you sort of view that success is going to be measured by increased adoption of your products. But later on in your prepared remarks, you said that it sort of a six month selling cycle.

So my guess – my question is, have you guys thought about what metrics you want to give us in that six month period? Are you going to actually give us adoption numbers until we start seeing in the financials? So we can keep track of how you're doing with adoption?.

Well, I think, what I'm – what I said was that you would see progress in quarters and not years and that I think you'll be able to see that in each successive quarter. We have – our business model is not predicated on getting lots of new customers. Our growth is coming principally from existing customers.

And so, you're going to see that each and every quarter in our revenue numbers. I think you're starting to see it now, granted its early days, but I think each, each quarter when we're sitting here in three months, we believe we'll be able to have demonstrable progress each and every quarter and you'll see that in our revenue numbers..

Okay? So the metric you want to see is revenue growth. That's what you're saying..

Yes..

Okay. And then my last thing is there was a lot of press with this Snap deal you did, which looked really cool. Could you talk about the deal you did with like 11 different measurement companies and turning like with Roku and all those guys? Is that like additives to your economics? I noticed you didn't mention that one, but you did mention snap.

How is that one which looked like a bigger deal different for comScore?.

Well, it's important for us to be included as a measurement provider for any platform. I think the differences in the Snap deal is the first ever and we’re the – that's been a third party measurement in measuring Discover. And so, I think they're different. There are different arrangements.

I think ultimately you should think about those as not – there is not specific revenue deals as they're driving increased adoption of comScore as a currency, which creates the – which increases our value proposition to both buyers and sellers.

And so we're going to continue to look for distribution in particular on our premium video products both on the currency side and on the planning. And so, I think it’s safe to say that we're putting a lot of time and attention not only in the product development but also in the distribution in those areas..

Okay, great. That's super helpful. Thank you very much..

You got it. Thanks Laura..

Thank you. [Operator Instructions] And our next question comes from the line of Alan Gould with Loop Capital. Your line is now open..

Thank you for taking the question. Bryan, going back to the Snap deal again, the interesting thing to me is that a lot of these new media companies feel that they don't need independent third party measurement that they're – that they've got data.

What do you think it was that Snap to join with an independent third party? What are the prospects of going beyond Snap to Facebook and other digital companies and providing independent measurement?.

Sure. I don't think I want to comment on what – on what the motivations were for Snap. I think that's probably best for them to, comment on and similarly for Google and Facebook. But I think it's pretty clear whereas a couple of years ago there could be some debate on well, whether or not third party measurement is necessary.

And I think you made the comment that the data might be better if, it's being provided directly from the media platform. That may or may not be true, but in order to be a currency you have to be trusted on both sides of the equation.

I think conventional wisdom is right now is that it's a requirement to do business at scale in the advertising or media space to have a third party that is counting audiences and verifying efficiency and verifying effectiveness..

Okay, and if I got follow-up with Greg – I'm sorry..

No, go ahead Bryan..

Yes, if I could follow-up with Greg on a quick one, Greg, what was the impact of the ASC 606 in the quarter on revenue?.

It's very minor. It's probably a couple of hundred thousand. It will be disclosed in our current Q Allen, but after we had first quarter, given how small it is we haven't really put that into our talking points here, but it will be disclosed in the 10Q..

Okay. Thank you..

Thank you. [Operator Instructions] And our next question comes from the line of Surinder Thind with Jefferies. Your line is now open..

Hi, good afternoon guys. Brian, I was just hoping to kind of touch base on the big picture growth opportunity at least the way that you guys are thinking about it.

In one of the comments you talked about the majority of the growth coming from existing clients at this point, is that the primary way we should be thinking about it, or how should we be thinking about the opportunity for maybe you to bring on new clients at this point or how you kind of think about the balance between the two?.

Well, thank you for the question. I think kind of to repeat, I think, you should be thinking about it primarily as share-of-wallet from existing customers. When you think about our customer, our largest customers are the extraordinarily large media companies both traditional and newer digital players.

But when you think about our share-of-wallet in terms of a currency, it's fairly small. And so when you look at other basically our largest competitor in the space, we're taking a small fraction of that. And so we see and our clients, I think, see tremendous room for growth there.

And we believe executing our strategy to be that trusted currency for planning, transacting and evaluating media across platforms it’s going to open up a lot of different revenue streams.

And you're going to see that not only in our Ratings and Planning group, which will be driven primarily from our TV across platforms growth, but I think you'll see it in continued nice growth in our Analytics and Optimization business..

Understood. And then how should we....

And….

Sorry..

We said we're going to be giving you guys more guidance into how we think that growth trajectory looks like not only for 2019, but multiyear on Tuesday..

Understood.

And then in terms of just maybe the pricing part of the equation and just kind of any color that you can provide on the debate or, the pressure that the clients are seeing and the ability to drive that down versus obviously you guys providing an enhanced portfolio of services and the ability to keep pushing pricing in the other direction or any color on the tug-of-war there?.

Can you elaborate tug-of-war that you’re seeing pricing pressure on our services or on the services, media companies?.

Well on your services..

In terms of – listen, it's a very competitive world. So I don't want to imply that anything about that. I think everybody, the economy is incredibly competitive and when our customers are under pressure, they're going to look for cost savings everywhere they can.

That being said, I wouldn't list pricing pressure as one of our biggest threats right now, or concerns.

I think it's more about our partners and customers, and I said this when I joined the company, are eager and they are cheering for us to be successful and introduce new products into the market, because what they pay us is a fraction of the value that we can bring to them if we're successful in measuring media across platforms, which will allow them to do more business, more efficiently.

And on the buy side, the hope is that they will be able to connect with their audiences more efficiently, which is going to drive their top line growth. So we're really seen as enabler of growth of our customers, which is why they care about our prospects.

And then that's what one of the main reasons why I joined the company, because I think it's a really unique circumstance where if we're successful, we're going to make our customers successful. So while of course they would love to pay us less, I don't think that's their primary concern, it's about how can we help them grow their business..

Understood. So maybe I can ask the pricing question maybe a slightly different way.

In terms of growing the wallet-share component, how much can you leverage pricing or how does that enter the equation versus the value of the services that your guys are offering?.

I think you should think about it as we need to increase our volume of activity with our customers. It’s not – we are not going, our revenue growth is not primarily going to come from increasing the price per se, per unit of our services, it’s going to come from getting greater share of activity.

And so presumably they're paying somebody else for that activity now. And as the marketplace grows and evolves, there are opportunities not only to take share, but also to create new solutions that bring new value just as it is always is in disruptive markets.

But you shouldn't think about it that we're going to be charging more for the exact same service that we're providing them. There's two aspects to it, there’s price and there’s quantity, and we're looking primarily to drive up quantity of activity..

So I apologize if my question was not clear. But I guess my question was how much can you use pricing to drive up quantity, meaning there's a trade off, right? So obviously the more that you lower pricing, the easier it is to gain wallet-share. And then that was kind of the tug-of-war that I was talking about..

Yes, so I'm sorry I didn't get the first time first of all. I don't believe that actually this is true. I don't think price is the main driver of us getting quantity. It's more about can we establish that we are, it can be that trusted currency among other product suites that we have. But it's primarily going to become that trusted currency.

And if so, that will increase quantity. Price is not the driving factor for our customers right now in how much they use us..

Understood, thank you..

Thank you. And this concludes today's question-and-answer session. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. And you may all disconnect. Everyone, have a great day..