comScore, Inc. (SCOR) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 comScore, Inc. Earnings Conference Call. My name is Jeff, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Ken Tarpey, Chief Financial Officer. And you have the floor, sir.

Thank you, Jeff. Thank you, everyone. Good afternoon, and welcome to comScore's earnings call for the first quarter of 2012. Again, I'm Ken Tarpey, CFO for comScore. On the phone with me today is Magid Abraham, our President, CEO and cofounder; along with Cam Meierhoefer, our COO; and Serge Matta, the President of our Operator and Mobile Solutions Group. 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 periods that may follow, representatives of the company may make forward-looking statements within the meaning of the 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, the strength of comScore's business, expectations as to comScore's sales cycle, particularly with respect to sales of new products; expectations as to opportunities, including new customers and markets for comScore; expectations as to the growth and composition of comScore's customer base and renewal rates; expectations regarding the impact and benefits of particular lines of business and products; expectations regarding the relative quality of comScore's products; assumptions regarding tax rates and net operating loss carryforwards; and forecast of future financial performance for the second quarter and the full year of 2012, including related growth rates, exchange rates and other assumptions. Such statements are only predictions based on management's current expectations. Actual events or results could materially change 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, 2011. 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 on 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. With that, I will now turn the call over to Magid.

Thank you, Ken, and thank you all for joining our earnings conference call for the first quarter of 2012. We are pleased to report strong first quarter revenue and adjusted EBITDA performance. Moreover, we are excited about the traction we are beginning to see, particularly with recently introduced products, and we believe this positions us well to deliver strong top line results with the leverage to the bottom line in 2012. Our strategy to offer best-in-class products across all ranges of digital business analytics appears to be working. By offering a broad range of capabilities, including audience measurement, website analytics, advertising analytics and mobile and operator analytics, our momentum in the marketplace is increasing. Revenue in the first quarter was up 18% from a year ago at $62.3 million. We continue to execute well and delivered adjusted EBITDA of $11.6 million, an 18% increase from a year ago and representing 19% adjusted EBITDA margin. Moreover, we believe these results only partially reflect the momentum that we are seeing. Growth in the first quarter was driven by existing customers, which grew by 25% compared to a year ago, well in excess of our total revenue growth of 18%. During the quarter, we were single-mindedly focused on selling and establishing traction for newer products within existing customers as these represent the best payoff to our short- and medium-term sales efforts. In addition, we added 44 net new customers during the quarter. Our audience measurement business continues to establish itself as a worldwide standard and got a boost from its selection by the United Kingdom Online Measurement industry association or UKOM. ComScore was appointed as the preferred audience measurement service in the U.K. after a thorough 9-month evaluation, including a comparison of comScore's UDM methodology to alternative offerings. Selection includes a 3-year contract for online video and mobile measurement beginning in January 2013. This makes the U.K. the third European industry association to select comScore's products following Spain and The Netherlands. In advertising analytics, we are pleased with the level and scale of traction that we are seeing, particularly with Campaign Essentials. Campaign Essentials has been used by customers on multiple continents, representing global brands for over 2,600 campaigns. These customers include over 120 advertisers and agencies and over 80 publishers and ad networks. We are especially gratified with the consistently positive customer response to our next generation of campaign management, validated Campaign Essentials or vCE, which was just launched in the U.S. on January 18 and has already been adopted by over 35 paying customers. While typical sales cycles start with a pilot involving 1 or 2 campaigns, we are starting to see customers sign up for campaign package subscriptions with significant deal sizes, which we expect to grow considerably as the U.S. introductory period winds down within the next 6 months. Last week, we announced the rollout of vCE to an additional 43 countries in response to significant customer interest. We believe the initial adoption rate of vCE indicates strong demand from customers for technology to measure, validate and optimally manage ad campaigns in near realtime. In keeping with our history of innovation, vCE offers a significant number of compelling, competitive advantages that are worth noting. We believe vCE is the only independent third-party service that with patent-pending single-type technology, accomplishes viewability measurement, which is both comprehensive and independent of publisher cooperation. This is important compared to other solutions, which have limitations in one or both of these areas, undermining their ability to report viewability on almost 2/3 of ads served in a typical campaign. vCE also incorporates fraud detection technology that detects campaign fraud rates, we find ranging from 4% to 10%. This was over 10x the rates detected when using industry-standard blacklists, leaving from fraud detection alone, can deliver 300% to 500% ROI for advertisers. In addition, vCE offers robust demographics, beyond age and gender, such as income and household size, which are often more predictive of purchase decision than simply age and gender. For example, larger households buy more food, wealthier households buy more expensive cars. vCE also includes a self-healing capability, which discovers exactly where the campaign is underperforming and alerts users on a daily basis, so they can cost-correct as needed while the campaign is still in flight. Finally, we are working diligently with the Media Rating Council to get vCE accredited, and we believe such accreditation will reduce market noise and help drive further interest in adoption. Our website analytics suite, branded as Digital Analytix, is also providing a significant contribution to bookings growth. While activity remains robust in Europe, we have also seen a surge in momentum in the U.S. market. In fact, our sales pipeline in the U.S. is now comparable in dollar size to the sales pipeline in Europe. Digital Analytix has been deployed at large-scale within large sites such as the BBC and OTTO, the largest -- the second largest online European retailer, as well as by a number of customers in the U.S., including associated press Bloomberg and Hertz. In the first quarter we saw a number of large customers including Microsoft, Virgin Media and Liberal, the largest Italian website, sign on to deploy Digital Analytix alongside their big data platform, leveraging Digital Analytix's scalable and unique capabilities. On the mobile and operator side, we are gaining more traction among both domestic and international carriers for our Xplore offerings, including our Customer Insight Manager suite, which is a combination of the Xplore product line and comScore's digital data collection expertise. Within mobile measurement, our Mobile Metrix 2.0 is currently completing an extensive data process with a number of customers, and we expect a formal launch to occur quite soon. In summary, we are very excited about our prospects for 2012, and we believe we're off to a good start. With strong decent momentum that's not fully yet reflected in the numbers, we are well-positioned for the balance of 2012. Now I would like to turn the call over to Ken for his comments on our financial performance in the quarter and the outlook for 2012. Ken?

Thank you, Magid. GAAP revenue in the first quarter was $62.3 million, up 18% year-over-year and within our expectations. Subscription revenue in the first quarter was $52.3 million, up 17% year-over-year. Subscription revenue represented 84% of total revenue, in line with recent trends. Project revenue was $10 million, up 22% from the first quarter of 2011. With the focus on upselling new products to current clients in the quarter, revenue from existing customers was up 25% year-over-year in the first quarter to $56.2 million and represented 90% of total revenues, while revenue from new customers showed a small decline year-over-year. Still, we added 44 net new customers with our customer count now standing over 2,000 at 2,022. We continue to expand internationally, and the first quarter revenues from outside the United States were $16.2 million or 26% of revenue and up 30% year-over-year. Our top 10 customers represented 24% of revenue in the first quarter compared to 27% a year ago, reflecting increased diversification in our overall customer base. Turning to expenses. Gross margins were 67%, in line with the performance over the last few quarters. GAAP pretax net income was $600,000 in the first quarter as compared to GAAP pretax net loss of $2.5 million in the first quarter of 2011. Our effective GAAP income tax rate for the first quarter was 178%, which is mainly driven by our inability to recognize an income tax benefit for certain losses, primarily in The Netherlands, Australia and Spain. Our first quarter cash tax rate was 24%, a little bit higher than what we expect for the year, which I'll speak to in a moment. GAAP net loss was $0.5 million or $0.01 per basic and diluted share in the first quarter of 2012 based on a basic and diluted share count of 32.9 million shares. Currently, for 2012, we project an annual GAAP tax rate of approximately 72%. The GAAP tax rate is higher than expected for several reasons. As mentioned before, we cannot recognize the income tax benefit for GAAP purposes for losses primarily in Netherlands and Spain due to valuation allowances. Additionally, we will be writing off a deferred tax asset of $2.6 million relating to the $7.4 million of accrued stock-based compensation previously recorded, which was associated with certain market-based stock compensation awards that will not be issued since the performance criteria were not met. This write-off of the tax assets will increase the GAAP tax expense for 2012, which therefore, increases the annual tax rate. For 2012, we anticipate an annual cash tax rate of approximately 12%. This rate is somewhat higher than in previous periods, primarily due to an increase in tax expense for certain states and foreign jurisdictions as a result of fully utilizing our net operating loss carryforwards in those jurisdictions. We continue to hold significant net operating loss carryforwards in the United States -- certain states within the United States and in certain international subsidiaries, principally Netherlands and U.K. Non-GAAP net income for the first quarter of 2012 was $7.9 million or $0.23 per diluted share, excluding stock-based compensation, amortization of intangibles and deferred tax expense. This compares to a non-GAAP net income of $7.7 million or $0.24 per diluted share in the first quarter of 2011. With our varying tax rates and noncash expenses, we believe that adjusted EBITDA is a useful measure for investors to use to evaluate our operating performance. Adjusted EBITDA takes non-GAAP net income and adjust it to exclude the cash tax provision, depreciation and tangible amortization costs, stock-based compensation expenses, acquisition-related expenses, litigation costs, net interest income and the impact of purchase accounting on accrued acquired deferred revenue. On this basis, adjusted EBITDA was $11.6 million in the first quarter of 2012, within our expectations and an increase of 18% when compared to the $9.9 million in the first quarter of 2011. Our adjusted EBITDA margin in the first quarter of 2012 was 19%. As of March 31, 2012, cash and cash equivalents totaled $42.4 million. Our receivables are $61 million -- $66.1 million, which increased from $47.6 million a year ago due to the growth of our business and the timing of our first quarter bookings. Our DSOs were 80 days in the first quarter of 2012, increasing slightly from the first quarter of last year, but decreasing sequentially from the fourth quarter of 2011. Total deferred revenue was $77.8 million with current deferred revenue of $76.6 million and long-term deferred revenue of $1.2 million. Total deferred revenue was comprised of amounts billed in advance for subscription licenses or subscriptions that will be recognized over future periods. Despite what is normally a seasonally light quarter for renewal activity, the strong overall order activity during the quarter, we saw a healthy growth in deferred revenue on a year-over-year and sequential basis reaching a record level. Our cash flow from operations for the first quarter was $11.4 million. Our capital expenditures were $600,000 and our free cash flow, therefore, was $10.8 million. Now I would like to outline our guidance for the second quarter of 2012 and the full year of 2012. Our first quarter performance and strong business activity levels provide us with continued confidence in our full year expectations. However, we expect revenue growth to be more heavily back-end weighted in 2012 as compared to our historical quarterly patterns for several factors: among them, strong early activity for both vCE and Digital Analytix, which we expect to further expand throughout the year, generating higher revenue in the second half; an anticipated gap between first sight or campaign installations for vCE and expanded camping commitments; and contractual user-acceptance periods for our mobile and operator products. With that as a backdrop, we anticipate revenues for the second quarter of 2012 in the range of $63.7 million to $64.8 million, which represents an increase of 10% to 12% over the second quarter of 2011. We anticipate second quarter GAAP loss before income taxes of between $100,000 to $700,000 pretax loss. We anticipate adjusted EBITDA for the second quarter of 2012 to be in the range of $11.8 million to $12.4 million. This represents an adjusted EBITDA percentage of 19% at the midpoint of our revenue and adjusted EBITDA guidance reflecting the operating leverage of our business model and our combination of cost discipline, completion of our intensive investments in products and acquisition integration during 2011. Our estimated fully diluted share count for the second quarter is 34.7 million shares. As in the first quarter, second quarter GAAP income before taxes will be impacted by a number of noncash items. We currently expect approximately $2.3 million in amortization of intangibles and patents as well as $6.4 million in stock-based compensation. Looking at the full year of 2012, we continue to anticipate revenue growth of 19% to 21% based on current foreign exchange rates, with revenue expected to be in the range of $277 million to $281.7 million for 2012. Those numbers consistent with our prior given or stated guidance. We continue to anticipate driving leverage in our operating mile, which we expect will result in approximately a 50 to 150 basis point increase in adjusted EBITDA margins from 2011. For 2012, we currently expect approximately $9 million in amortization of intangibles in patents and $24.4 million in stock-based compensation. We anticipate GAAP income before income taxes to be in the range of $8.4 million to $11.7 million. We expect adjusted EBITDA to be in the range of $57.2 million to $60.5 million. For the full year 2012, we anticipate average fully diluted share count of 34.8 million. A reconciliation of GAAP net income before income taxes to adjusted EBITDA guidance for the second quarter and the full year is included in the tables to our earnings press release today. In summary, we are pleased that 2012 is off to a good start, and we remain very optimistic about our prospects for 2012 and beyond. In particular, we are pleased to see success with our strategy to broaden our market reach with new products that are helping to drive growth at both new and existing customers over a wider geographic footprint. With that, operator, we can now open the lines to take questions.

[Operator Instructions] Our first question comes from the line of Jason Helfstein with Oppenheimer and Company.

Just get a housekeeping question first out of the way. Ken, what was the growth adds in the quarter? And then I've got some follow-ups.

Okay. Just give me a second I'll grab that. If you want to go with your follow-up in the meantime.

So, Magid, the guidance clearly suggests an acceleration in both client additions and revenue per client or ARPU in the back half. I think you talked about vCE and Digital Analytix kind of being, probably, the most significant drivers in the second half. Can you talk about how -- if the mobile relaunch and kind of social media, how that's playing into your guidance. And then if we think about 2013, we know, will vCE and Digital Analytix be also the biggest drivers, or do you expect some of those other products to be more incremental next year?

We expect a nice contribution from the launch of mobile analytics in the second half, and we also expect the products that we are selling to operators to achieve a significant contribution. The timing of revenue accrual is always a function of the specific terms related to customer-acceptance period. So the things that we feel very strongly about, given the momentum that we already see in the pipelines, are the contributions that will be coming from Digital Analytix and vCE. And we see -- we think that, that momentum is likely to continue for next year. As far as social, I think it will have a modest contribution this year, but will be a major area of expansion focus for us next year.

And then what makes this probably more complicated, the way we all model, right, thinking about new clients and revenue per client is on your carrier analytics products, that will be a smaller number of clients but a much bigger revenue per client, so that will shift the mix kind of more towards ARPU than towards new client growth, is that fair kind of thinking about the back half of the year?

Yes, it is definitely fair, particularly given the way we account for clients. So, for example, if we have international carriers have 15 countries or 20 countries, we count that as one client. If we were to count it as a carrier-company combination, it might not have as big an impact as you see here.

Jason, gross adds are 141.

Our next question comes from the line of Matt Chesler with Deutsche Bank.

So the first question is, can you -- Magid, can you comment just generally about the tone of business for your clients, if you could address some customer verticals, perhaps, and even geographies that would be helpful. I guess the context of my question is that I certainly -- I understand the concept of the ramp in vCE and Digital Analytix and mobile in the back half of the year, but your implied guidance for the second quarter implies a slowdown to levels we haven't seen for the core business in a while, and I just want to get some comfort around that. Can you talk about what's driving that?

Well, we, the -- our core measurement business continues to do well across the board and across all geographic areas. One of the questions that we will have is whether these association contracts that we have gotten in the U.K. and Spain, given that they have a start date of 2013, whether that will affect new client activity in late 2012 or not. We will certainly make sure that it doesn't but that might be a factor. The -- in terms of verticals, we see the publisher market is still doing well. Agencies are doing well. We see financial services and telecom doing really well. One sector that we have seen a weakness in is pharmaceuticals, and that's driven by the -- a lot of the off-patent conversions off some black-vessel [ph] drugs. And so the industry is kind of reassessing how much direct-to-consumer advertising it does. And I think beyond that, our business is pretty strong across the board, and we feel the momentum. One of the nice things is that in almost every segment of our business, the customer has a need for vCE. So we have something additional that we can sell them.

Okay. So if you look out a couple of years, I understand there's going to be a broader suite of products here that you didn't have in the past. But if you think about your Campaign Essentials business and vCE, how do you see your existing audience measurement business fitting in alongside of that? And do you think those of us in the investment community are obsessing about the race to establish a standard for -- around campaign measurements? Or is it -- do you consider it to be absolutely critical for your core business?

Well, I think that there are -- we need to distinguish between 2 separate needs in the marketplace. One is a planning need, which is what you need to do before the campaign is launched. And that's basically what our core Media Metrix business done -- does. Then you execute your campaign and you want to see how the campaign is doing throughout its life cycle and that's what the campaign management solutions do. And you can take it all the way to ROI measurement, which can help advertisers assess how they want to allocate their media. So I kind of look at the 2 as being relatively independent. Now there is some feedback loop that ideally you would like to establish between the 2, but not too many companies today do that. Now that being said, it is important to be able to become a big factor in how campaigns are evaluated and eventually how much people should be paid. As you know, the industry has been reliant on ad server counts for payments. I think now it's up in the air. And in that sense, the Internet never really had a currency, it now potentially has the beginning of a currency and that really adds value to the entire market.

Our next question comes from line of Mark Zgutowics with Piper Jaffray.

Yes, this is John on for Mark. First question here is obviously you outlined some of the issues that is going to make guidance back-half weighted here. One of the things you highlighted was the gap between the first use of vCE versus broader rollout. And I wonder if you could kind of maybe to a degree help us kind of understand maybe the examples that are used in the past that gives you comfort that you are going to -- the timeline between the first use and broader rollout across multiple campaigns.

Well, the -- so the typical sales cycle with vCE is you go and you talk to a client, and they love the concept. And then they want to say, "Well, let's do a trial." And depending on the campaign they want do a trial on, it could be right away or it could be a month from now. And then they want to wait for the campaign results to be finished so that may take a month, 2 months, et cetera. So we have this built in almost 3 months period where the revenue is pretty limited, or in some cases with some strategic clients who would basically say, "We will give you -- we will invest in a trial with you." But the fact that we have gotten 35-paying clients since basically late in January is a really good testimonial to the stickiness of the product and the fact that once people get their initial trial going, they end up signing up for a much larger set of campaigns, and in many cases, for an advertiser, it will be all their campaigns on a particular brand or on a set of brands. And that becomes kind of a subscription revenue that will have a term of a year or more. So that's kind of the cycle that we deal with. But I have to tell you that vCE is probably the fastest growing product launch that we've ever had, and the product launch that our people have been the most excited about in -- for a long time.

Okay. And then kind of follow that up in the back-end weighted on the carrier analytics or the mobile side, obviously it sounds like you got a lot of confidence that, that can be a driver in the second half. I'm just wondering, on an update there, is that confidence being driven by contracts that are in-hand and you know are going to ramp in the second half of the year, or just how much is -- you feel like you've got a good chance to close some clients here in the next couple of months?

Let me have Serge Matta who heads up that division answer that question.

Yes, we have a tremendous amount of confidence there, because we have -- like you said, we have signed contracts in-hand. It's just a matter of getting the customer -- going to the delivery and getting the customer acceptance, and that usually takes around 6 months to get it done. But the contracts are in hand it's just a matter of getting the customer acceptance.

Okay. And then just one last question on kind of cross-platform. In the quarter, you guys obviously delivered some data to the CIMM panel on cross-platform. Wondering if you could maybe talk about your -- what you feel like the results were coming out of that, where you have strength and how you think you can leverage that here over the next 9 to 12 months?

Let me have Cameron Meierhoefer, our COO, answer the question.

Yes, our cross media work is on track. We have -- the AT&T relationship is in place. We have executed against the course and contract, developed the methodologies, and we're making progress on gaining access to a broader set of television data to add to that. So this puts us in a position to productize this both in terms of audience measurement and also in terms of campaign measurement, where we plan to add it to the vCE suite.

Our next question comes from the line of John Blackledge with Crédit Suisse.

A couple of questions. If you could talk about maybe the improvements that are embedded in the Mobile Metrix 2.0 launch, the rollout plan by geography. And then CapEx looked pretty small in the first quarter, I'm just wondering how that's going to trend for the year and also gross margins in the second quarter, is that -- are they up, flat, down versus first quarter?

Let me ask Cameron to answer the question on Mobile Metrix and Ken will answer the question on CapEx.

Okay. So the improvement in Mobile Metrix is really adapting measurement to the realities of digital media and adding not just coverage across devices but also coverage across browsers and applications that represent the advertising units that's -- are actively being bought and sold through agencies. So the product itself will be able to fit into the planning suite that we have and be able to render all of the available digital inventory that they need to evaluate in this process.

And, John, this is Ken. From the standpoint of capital expenditures, yes, Q1 was light. That's really just a timing factor. We actually expect this coming year that our capital expenditures are going to be more in the neighborhood, over the balance of the year, between $3 million to $4 million a quarter and then we also have potentially some impact of leasehold improvements. As we're scaling for our next level of growth over the next several years, we will be doing some office expansions as well. But most of the CapEx is, again, infrastructure addition, as well as infrastructure refresh for some of our technology. And on gross margins, again, we have the impact of seasonality to some extent on gross margin due to the social taxes and vacation impact. I would say, over the course of the year, the gross margin will probably expand a point during the course of the year, and I think we'll continue to see good operating leverage on the G&A line, which I think will be the 2 -- in combination the 2 factors that give us confidence about the expanded EBITDA range.

Our next question comes from the line of Shyam Patil with Raymond James. You might be on mute. Our next question comes from the line of Heath Terry with Goldman Sachs.

Great. Just to follow-up on the mobile question. Specifically, as it relates to audience, the audience measurement side of the business, the partnership that you signed in the U.K. to give you access to mobile traffic data, can you give us a sense of what that's doing for measurement quality business in that market? And then to what extent you see something like that possible in the U.S., or maybe even more broadly, what strategy you're looking towards in order to start to get into more detailed traffic measurement in -- within mobile here?

Well, I think the mobile measurement in the U.K. was one of the factors that led to our win of the UKOM product. I think second only to establishing the superiority of the basic web measurement service. As far as replicating this in different places, the strategy is to deal with certain operators to be able to do it. It is something that we know is very important for us, and we'll do whatever it takes to get it done. But it will involve individual negotiations that we have to do particularly with operators where we have established a significant strategic relationships. Now the one thing that I want to mention is that for campaigns, we have census measurement of mobile. I'm not sure that really people will realize that, but if we have a campaign that's being tagged, we will get its usage whether it is on a mobile app, whether it is on a -- whether it is within a website, whether it is on a tablet. And so, for campaign measurement, we are getting data on millions and millions and millions of people. And the methodology that we are going to be using for mobile measurement is very similar to the UDM methodology that we have applied so successfully for the web, which is to start with census and apply a smaller panel to be able to create the most precise mobile measurement that's possible. And this is, by the way, something that we can do today in any geography if we want to evaluate a campaign or a website for a publisher across all their mobile assets. We will be able to measure it everywhere.

Great. Now that's really helpful. On the audience measurement side, though. Until you have, I guess, that kind of comparable data in the U.K. and other markets, are you adjusting the results for the lack of that data? How much of an impact do you feel like it's having in terms of your ability to measure? What's happening broadly within the Internet or, even more specifically, for certain sites, not having a clear view in terms of what mobile usage looks like?

Well, I mean, generally speaking, as you know, we have a great -- the greatest majority of publishers are tagging with us, and as such, we get their mobile activity. The sites that are not tagging tend to be the -- probably the 2 biggest sites that could be mentioned would be Google and Facebook. But Google and Facebook, we have a large enough panel to be able to measure them within Media Metrics 2.0, and as result we feel like we have all the data elements that are necessary to be able to measure the industry well.

Our final question comes from the line of Shyam Patil with Raymond James.

First question, given that the revenues is back-end loaded a little bit this year can you talk about how we should think about the ramp from 3Q to 4Q for revenue and EBITDA margins?

I mean, I think, that historically you would see that our Q4 tends to have the highest EBITDA margin. So, for example, I am looking here at what we did last year. So our EBITDA margin jumped from 18.2% in Q3 to 24.7% in Q4. That's a combination of expanding the revenue and the revenue leverage, as well as having all of these social tax charges and vacations and things like that kind of already spent and not burdening the expense line. So historically, we have always had a major ramp-up in EBITDA margin in the fourth quarter. I don't think that we can give you, at this point, any further guidance in terms of how the pattern will be refined this year other than we expect the pipeline activity that we are seeing in these new products to progressively rise revenue and as revenue is progressively sizing, it improves EBITDA margin by itself without the benefit of these other seasonal effects.

Great, that was helpful. And then you mentioned in the Q&A earlier that pharma was a little bit weaker than expected. Are you just expecting that to rebound at all in the second half of the year? And then there was another player that -- they talked about telco being weak for online ad spending. You guys mentioned as an area of strength, just curious if can elaborate on that a little bit as well.

So on pharma, I really don't have a crystal ball on how it's going to turn out. I think that new products are coming onboard are products that don't quite have the same scale as a LIPITOR, let's say. And they tend to be also very highly targeted and specialized. So how the pharma industry is going to choose to market that is -- remains to be seen. As far as advertising, spending on telco, I haven't actually looked really at the data per se. We are -- as you know, our business with telco has a whole broad or array of things related to market share, measurements related to network optimization related to whole bunch of things and not necessarily to advertising. So from that standpoint, if there was weakness in the ad spending, we do not feel it.

Great. And just my last question around DAx. It seems like you guys are seeing really strong demand for that, a little bit earlier than expected as well as it seems like in the U.S. Can you talk about kind of what you're seeing from a competitive response standpoint, given that it's mostly displacement sale here in the U.S.? And also if you could talk about what the deal sizes look like? They -- are they approaching kind of what you saw in Europe in terms of BBC?

Okay. So DAx is benefiting in the U.S. from 2 things. One is our established client relationships we are a known quantity and generally have a good customer satisfaction rates. And the fact that we have added to DAx a number of applications that are really a help in this type of software or this type of industry. In particular, one of the things that we are doing is we have added to DAx some monetization applications to help publishers, who are having to adapt to the viewability kind of wave that's coming. They -- that creates for them all kinds of operational issues such as how much inventory do they really have and how do they plan and pace campaigns and how do they rearrange or repackage their inventory, et cetera. And so we have created kind of, if you like, within DAx a vCE for publishers, which is very important, and it is helping in accelerating the sales cycle for us, because people are starting to have more of a sense of urgency that this is a problem that they need to solve. As far as deal sizes, I mean we definitely expect the deal sizes in the U.S. to be higher than the deal sizes in Europe, whether it is higher than the deal sizes for the BBC is really going to depend on the size of the client. But we definitely see a lot of 6- and 7-figure deals in the pipeline. And some of those deals can be really attractive and really significant.

Ladies and gentlemen, that concludes the Q&A portion of our events. I'd now like to turn the presentation back over to Dr. Magid Abraham for closing remarks.

Well, thank you very much for your interest and your support. We look forward to speak with you again on the next conference call. Goodbye.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.