comScore said third-quarter 2008 adjusted EDITDA was $7.2 million, above the top end of its prior guidance of $5.4 million to $5.7 million, driven by strong growth in subscription sales from both new and existing customers on a year-over-year and sequential basis. Growth initiatives at the provider of digital marketing intelligence — which supplies data enabling web property owners and advertisers to measure and analyze behavior of Internet audiences to improve the effectiveness of their Internet brand and presence — have historically remained captive to capital intensive spending, as revealed in its third-quarter 2008 regulatory filing:
- Our primary investing activities have consisted of purchases of computer network equipment to support our Internet user panel and maintenance of our database, furniture and equipment to support our operations, and payments related to the acquisition of several companies. As our customer base continues to expand, we expect purchases of technical infrastructure equipment to grow in absolute dollars. The extent of these investments will be affected by our ability to expand relationships with existing customers, grow our customer base, introduce new digital formats and increase our international presence.
Operating cash flow of $3.8 million for the third quarter of 2008 was reduced by capital expenditures, resulting in free cash flow in total of $200,000 for the quarter ended September 30. However, for the nine-months ended September 2008, free cash flow was a use of $27 million, resulting from the May 2008 merger with M: Metrics, a provider of marketing and media intelligence for the mobile phone medium.
Going forward, while the company anticipates the need for ongoing investments in technical infrastructure and new digital market intelligence formats to support the combination of an increased customer base and new products, management believes that capex requirements will be less than the revenue growth generated by these actions. Lending credence to this argument: an important characteristic of comScore’s business model is that a large percentage of sales is generated from subscription-based contracts, with a 90 percent renewal rate during the third quarter. Nonetheless, continuity of this annuity stream assumes the company will continue to rollout new products that meet the needs of its diversified client base — with customer add-ons leading to economies of scale in R&D spend. Management would not disclose its dependence on the big four: Yahoo! Google, Microsoft, and AOL – except to say Microsoft accounted for approximately 12 percent of total revenue in its third-quarter.
