comScore, Inc. (SCOR) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q2 2013 comScore, Inc. Earnings Conference Call. My name is Teresa, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Mr. Ken Tarpey, CFO. Please proceed, sir.

Thank you very much. Good morning, everyone, and welcome to comScore's earnings call for the second quarter of 2013. Again, I'm Ken Tarpey, CFO of comScore. And with me today is Magid Abraham, our CEO and Co-Founder; Serge Matta, our President; and Cameron Meierhoefer, our Chief Operating Officer. 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 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 forecasts of future financial performance for the third quarter and the full year 2013, 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; comScore's Form 10-K for the period ending December 31, 2012, and our quarterly reports on Form 10-Q. 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 in 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 for joining us today. Let me first cover an overview of the quarter. Serge will then discuss key operational highlights driving our business. After Serge, Ken will provide more details in our financial performance before we take your questions. We also have a presentation posted on the Investor Relations website under Events and Presentations that accompany our comments today and might be helpful for you to follow along with us. On Slide 5, our strong second quarter results served as a confirmation of our strategy, market position and the value that we deliver for our customers. The results also represent continued progress on comScore's key priorities for 2013, which I will reiterate for you. Number one is to maintain our measurement leadership especially in mobile and multi-platform; number two is to continue our campaign measurement progress and rollout globally; three, to capitalize on Digital Analytix momentum both in the U.S. and globally; four, continued focus on execution, particularly driving organic growth, improved margin and increase in free cash flow; and finally, a continued focus on returning capital for investors as appropriate. On Slide #6. As you can see, our continued momentum was evident in the second quarter. We reported record quarterly revenues of $69.9 million, which is up 21% versus pro forma results in Q2 2012. Our record revenues were driven by growing momentum in validated campaign essentials or vCE and Digital Analytix and multi-platform products, along with continued strength in our Audience Analytics business. Our momentum in campaign measurement has never been stronger and we are also pleased with the marketplace momentum of our Digital Enterprise Analytics software. We delivered adjusted EBITDA of $14 million, which represents 20% adjusted EBITDA margin and record quarterly free cash flow of $17.8 million. In Slide 7, you see that we have continued the momentum in bookings of contract value for the trailing 12-month period ending in June 30. CV grew 15% over the prior 12-month period. This is consistent with our performance in the first quarter. In Slide 8, I'm happy to say that we continue to see some momentum in our new products as we successfully address the growing market demand for reassigned value-added data analytics to meet our client needs. At our Q4 2012 earnings call, you may recall that we discussed the growing contribution of our new products to our contract value and ultimately, to revenue. We had set a target of a percentage contribution to CV of 28% to 30% from those new products. I'm happy to say that we have achieved that milestone in Q2 with new products contributing 30% of first-half CV. This excellent performance helped us achieve better-than-expected results in Q1 and Q2. In Slide 9, comScore's momentum is also reflected in our increasing share of voice in the U.S., to the reflection of media mentions. Year-over-year, our share of Voice have increased nearly 9 points. In the first half of 2013, there were over 40,000 comScore mentions or an average of approximately 1 mention every 6 minutes in the United States. Last month, we appointed Serge Matta as management of the company. Serge is an exceptional leader and strategic thinker both inside and across the industry. He combines excellent product vision, great client relationships and proven execution skills. And I look forward to partnering with him to realize comScore's exciting opportunities. Serge was an early and key contributor when he first joined comScore and his contributions to both our business and our people have grown ever since. Serge joined comScore over 12 years ago as a product manager and progressed through the ranks, ultimately leading comScore's global sales organization. During his tenure, he has held a variety of key roles and have been pivotal in driving comScore's growth and success. He previously oversaw the custom media solutions group, headed the company's telecommunications and financial services practices and played a key role in driving strategic acquisitions and deep critical customer relationships. As we constantly evolve to meet the multi-platform measurement and analytics needs of our clients, Serge's in-depth product knowledge, vision and strong client partnerships will all be critical elements to comScore's continued growth and innovation. And with that, I'd like to turn the call over to Serge.

Thank you, Magid, and good morning, everyone. I'm very pleased be in my new role as President of comScore and look forward to continue building on the strong momentum that is driving our business forward across our key audience, advertising and Digital Analytix segments. On Slide 10, our multi-platform product are rapidly gaining broad market acceptance and momentum, particularly within our core Audience Analytics business. The adoption of Media Metrix Multi-Platform are commonly used as MMX MP, continues to grow. Since the beta launch back in October of 2012, 175 customers have signed up for Media Metrix MP in the U.S. with more than 50 customers subscribing during the second quarter. We're also seeing increasing upsell activity where existing customers are adding MMX MP to existing subscriptions. Over half of new MP subscriptions -- subscribers, also bought Mobile Metrix and/or Video Metrix during the quarter as well. Moving on to Slide 11. comScore's Advertising Analytics offerings are unmatched in the industry. Our validated Campaign Essentials products or vCE, leading the way, providing real-time, cloud-based, on-demand monitoring and optimization of digital advertising campaigns. We continue to secure key customer wins including agencies like Starcom MediaVest and Zenith Optimedia, leading advertisers like P&G and Kraft and publishers such as Microsoft advertising. In our most recent vCE announcement, Microsoft advertising has selected vCE to optimize their high-quality digital display advertising inventory and to help advertisers better understand how their campaigns are working. VCE will be implemented across several Microsoft advertising services, providing important metrics on digital ad viewability, audience verification and brand safety to help improve campaign performance. Perhaps the best measurement of vCE traction lies in the fact that 22 of the top 25 largest global advertisers representing 89% of the global ad dollars are vCE clients. This includes all of the top 10 CPG advertisers. On Slide 12, you can see the market momentum of vCE as we continue to outpace the competition. Internationally, vCE is delivering 4.6x the impressions of our closest competitor. And in the U.S., we garnered 2.3x the impressions. We are gratified that these ratios are even better than similar ratios in the first quarter. Finally, on Slide 13, we also continued to gain momentum across Digital Enterprise Analytics. Worldwide bookings for Digital Enterprise Analytics grew 29% on a trailing 12-month basis as of the end of the second quarter. During the quarter, comScore launched Digital Analytix Multi-Platform, the next generation of Digital Enterprise Analytics. Building on Digital Analytix, a proven technology used by leading corporations to better understand their digital customers' behavior. This new offering applies comScore's multi-platform expertise to help businesses gain a deeper understanding of user behavior across platforms. Now I'll turn the call over to our CFO Ken Tarpey, for a review of our financial results.

Thank you, Serge. Good morning, again, everyone. Let's take a look at our performance in the second quarter of 2013 in more detail, starting with revenues. As Magid said, revenues for the second quarter was a record of $69.9 million, up 21% versus pro forma results in the same quarter last year. Subscription revenue on the second quarter was $59.5 million, up 20% versus pro forma results in Q2 2010 -- 2012, excuse me. Subscription revenue and project revenue represented 85% and 15% of total revenue, respectively. GAAP revenue from existing customers was up 20% year-over-year in the second quarter to $62.5 million and represented 89% of total revenues. Our renewal rate with existing customers remained above 90% on a constant dollar basis, and we added 44 net new customers in the second quarter. Our customer count now stands at 2,250. We continue to increase our international revenues. In the second quarter, revenue from outside the United States represented 29% of total revenue, an increased 20% over 2012 driven by continued strength of our audience products particularly in Europe, Asia and Latin America. On a constant currency basis, our revenues would have been $200,000 higher, with the British pound fluctuations being the primary reason. Now let's turn to expenses and margins. Our gross margin was 69%, up from 67% in the first quarter due to the higher revenue growth, continued cost optimization efforts and the benefit from operating leverage driven by our scalable SaaS model. GAAP pretax income was $918,000 in the second quarter as compared to a loss of $6.4 million in the same quarter last year. The positive change in pretax income from 2012 is the result of margin leverage from our revenue growth and the impact of a $1.2 million gain from certain legal settlements this quarter. Our stock compensation expense in Q2 was $7.1 million. This increase reflects a periodic refresh of retention grants to certain members of the management team following a benchmarking analysis we conducted during the second quarter. Our effective tax rate for the first half of the year was 325% while our cash tax rate was 74%. We have recorded a larger year-to-date income tax expense for several reasons. First, we have several loss-generating entities in foreign countries where we are unable to recognize a current income tax benefit due to the uncertainty of future profits in those countries. The second reason is the treatment of stock compensation charges under GAAP accounting. For GAAP, we use the fair value at the time of the stock grant to determine the stock compensation and used those deductions accordingly for GAAP tax rate purposes, whereas for the cash rate, we used the fair value at the time of investing. This timing difference causes the GAAP effective rate to be well above our cash tax rate. This book tax stock compensation difference will continue to occur throughout 2013. We cannot predict the tax impact of stock compensation effect because it depends in part on future stock price. This makes our quarterly effective tax rate during 2013 difficult to predict, but we'd expect our cash tax rate to be similarly smaller because of our currently available net operating losses. In the second quarter, GAAP net loss was $398,000 or a loss of $0.01 per basic share and diluted share, based on a basic and diluted share count of approximately 34.4 million shares. Due to the GAAP net loss, the weighted average basic share count is used for both basic and fully diluted EPS calculations. Non-GAAP net income for the second quarter of 2013 was $9.4 million or $0.26 per diluted share, excluding stock-based compensation, amortization of intangibles, acquisition-related expenses and other nonrecurring items. Since non-GAAP net income is positive, the accompanying EPS calculation is based on a Q2 fully diluted share count of 35.8 million shares. We believe that adjusted EBITDA is a useful measure for investors to evaluate our operating performance. Adjusted EBITDA takes non-GAAP net income and adjusted to exclude the cash tax provision, depreciation and net interest expense income. On this basis, adjusted EBITDA was $14 million in the second quarter, representing an adjusted EBITDA margin of 20%. Now turning to our balance sheet. We ended the quarter with cash and cash equivalents of $85.8 million, an increase of $12.1 million from March 31, and an increase of $24 million from December 31. Our receivables of $61.1 million declined from $65.8 million a year ago as higher cash collections drove a decrease in our DSO sequentially. Borrowings under revolving credit facility were $2 million at June 30, reflecting funds borrowed earlier this year to pay down certain short-term intercompany loans in order to minimize the potential impact of foreign exchange rate fluctuations. We plan on repaying this remaining borrowing during Q3 with existing cash balances. Our total deferred revenue was $81.1 million at June 30. Cash flow from operations from the second quarter of 2013 was $18.6 million. Our second quarter capital expenditures were $800,000. This resulted in a free cash flow for the second quarter of $17.8 million. For the full year, we expect our capital expenditures for the second half of 2013 will approximate between $4 million to $5 million, primarily to fund expanded data center capacity and support our expanding DAx customer base in the U.S. During the second quarter, we repurchased approximately 23,000 shares of comScore's stock for a total proceeds of about $500,000 under the authorization we announced in June. Going forward, we will continue to execute on this authorization, subject of course, to appropriate price parameters on share repurchase. In the second half of 2013, we remain focused on extending comScore's leadership position in continuing to drive improvements in revenue, profit and adjusted EBITDA in 2013 and beyond. On Slide 15 of the presentation, there was a guidance a slide, which I will walk us through now. The following guidance for the third quarter and full year 2013 is provided on a non-GAAP pro forma basis, excluding the financial performance of our nonhealth copy testing and configuration manager products, which we divested in Q1 2013. For the third quarter of 2013, we anticipate revenues in the range of $69.5 million to $73.5 million, representing an increase of 11% at the low end to 17% at the high end or 14% at the midpoint, over the third quarter of 2012 on a non-GAAP pro forma basis. Our Q3 2013 revenue guidance does not have any pro forma impact. As I mentioned before, we completed those divestitures in the first quarter of 2013. We anticipate third quarter GAAP loss before income taxes in the range of a $3.6 million loss to a $1.9 million loss. Our estimated basic share count for the third quarter is about 36.0 million shares. We anticipate adjusted EBITDA for the third quarter of 2013 to be in the range of $13.4 million to $14.6 million, which represents an adjusted margin of 20% at the midpoint of our revenue and adjusted EBITDA guidance ranges. We have increased our expectations for the full year of 2013. We expect the full year 2013 non-GAAP pro forma revenue range of $280.5 million to $287.5 million. On this non-GAAP pro forma basis, in 2013 revenue growth range, is 14% at the low end, 17% at the high end or 15% at the midpoint on a pro forma basis. We anticipate full year non-GAAP pro forma income or loss before income taxes to be in the range of a $4.1 million loss to pretax income of $1.0 million. Our estimated fully diluted share count for 2013 is 36.1 million shares. We anticipate pro forma adjusted EBITDA to be between $54.4 million and $57.6 million in 2013, representing an adjusted EBITDA range of approximately 19% to 20%. We currently project the 2013 annual GAAP tax rate of approximately 64% and an annual cash tax rate of 19%. We continue to hold significant net operating loss carryforwards in the United States, certain states within the United States, and certain foreign jurisdictions, predominantly The Netherlands and U.K. For 2013, we expect approximately $8 million in amortizations of intangibles and patents and $28.6 million in stock-based compensation. For the full year, we anticipate an average fully diluted share count of $36.1 million. This excludes the potential impact of share repurchases that may occur in the second half. A reconciliation of GAAP net income and net loss before income taxes to adjusted EBITDA guidance for the third quarter and the full year of 2013 is included in the tables to our earnings press release, as well as the slides accompanying today's presentation. A reconciliation of GAAP net income and net loss before income taxes to adjusted EBITDA guidance for the third quarter -- for your reference, excuse me, we have also provided comparable 2012 and 2011 information for the pro forma products, which we divested or eliminated during the first quarter of 2013, so you get a sense of the financial contribution of those products during the quarters of 2012 and 2011. Now with that, operator, we can open the lines to take questions.

[Operator Instructions] Your first question comes from Jason Helfstein from Oppenheimer. Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division: A few questions.

I'm sorry, his line got disconnected. [Technical Difficulty] We go to Youssef Squali from Cantor Fitzgerald. Youssef H. Squali - Cantor Fitzgerald & Co., Research Division: So a couple of questions. First, starting with the pro forma revenue growth that you just posted in Q2 in guidance for Q3. So pro forma for Q2 was 21%, which was very good, higher than we expected. And then, guidance at the midpoint is around 14%. I was wondering if you can maybe just walk us through the ins and outs of that deceleration and how do you see that evolving for 2014. And on the gross margin, the jump was pretty substantial. I was wondering if you can maybe give us a little more detail as to what drove that and the sustainability of it. And then I have a follow-up.

Okay, sure. This is Ken, I'll start if off. Let me start with the gross margin piece first. I think, again, as we know, that we have a very good business model here that permits a good flow through of strong revenue contribution down to gross margin and all the way down to EBITDA. And accordingly, we had a very good quarter in the second quarter in terms of the revenue performance. On a relatively fixed cost nature, the variable cost related to the incremental revenue were quite low. So the gross margin on the incremental revenue quite high, which allowed us to get to the 2-point -- over -- better performance in the last quarter. And we know that the business can have the ability to operate north of 70% gross margin and we do see that as the direction we're heading in. So we'd certainly think the 69% in the second half of the year is a good starting point with some expansion, clearly as we're in to the fourth quarter and as we head into next year. Youssef H. Squali - Cantor Fitzgerald & Co., Research Division: So there's nothing, one time in nature that impacted Q3 that wouldn't render these gross margins sustainable going forward?

In Q2, no, Youssef. But we feel we're, from a run rate standpoint, the 69% is a good place to start. That's why we now kind of feel that for the year, our EBITDA will be at 20%. We show 19% to 20%. So we think that, that's a good starting point and we'll continue to work on expanding it from there. To your first question regarding the revenue growth. Again, we did have very strong performance. Exceeded our expectations, we are pleased to report. And I think in terms of how we've been operating over the last several quarters with our newer products, we have done very well as we've expanded on the volume-based products, both DAx and vCE. As we look forward, we are doing our guidance based on the best estimates that we can come up with at this point in time. And therefore, there is a bit of a difference between the actual performance and how the guidance plays out. So I would not read into that, anything from the standpoint of a deceleration in the business, but rather, the run rate of the new products, as we've discussed, is still an ongoing process. We are able to report increasingly positive results. And that will permit us to have a more normalized growth run rate, I think, as we head into next year. So I hope that helps give you some color from that standpoint. Youssef H. Squali - Cantor Fitzgerald & Co., Research Division: No, it does. It does. And maybe for Serge. Can you rank order the different -- the impacts from the different newer product that you have, vCE, DAx, something [ph] et cetera?

I would put on top of that list as vCE. That, by far, with the success that we've had in the first half of the year, ranks the highest, especially with the great client wins that we've had. Followed by DAx in, both the U.S. and worldwide. And then obviously, I don't want to underestimate -- it's hard -- it's probably tied per second as well, is Media Metrics Multi-platform. That product has been one of the most successful, if not the most successful product that we've ever launched in terms of generating revenue as quickly as it had. And then also, the upsell that it has generated, it has helped significantly sell both Video Metrix and Mobile Metrix. The video play here is exceptional and so is mobile. So it's helping us not only sell that product but it's also helping us upsell the product, video, for example, is on pace to, to exceed all of our internal expectations.

The next question comes from Jason Helfstein from Oppenheimer. Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division: So just to ask a little more detail on just that points. So clearly, in the quarter, we saw a very nice implied ARPU growth. I think the effective pricing was kind of flat, flat, the last 3 quarters and it was obviously up very nicely this quarter. How much of that is what we'll call kind of pricing versus additional products? And then as you kind of go back and you kind of rank order vCE, multi-platform and Digital Analytix, do you see, kind of -- you just talk a little bit about the levers, kind of in price and volume, that's my first question and I've got 2 follow-ups.

Obviously, our Media Metrix Multi-Platform, we are able to provide an increase in the price anywhere between $15,000 to $20,000 additional in subscription. But then, as we had mentioned, Jason, it allows us to sell the additional products, namely mobile and video. So that by itself will not only increase the price for the base subscription in Media Metrix but then, it also allows us to upsell, increasing the overall ARPU. As far as -- down the road, the levers, we obviously are doing well in all of these 3 areas. I think the biggest one that we've seen a lot of momentum is vCE and I don't see that slowing down anytime soon. Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division: Okay. And then kind of 2 follow-ups. So it does look like you guys are on track roughly 80% free cash flow growth this year. Ken, is there anything kind of in the working capital that could inverse in the back half year that's kind of helping you onetime in the first half that reverses in the back half? And then, secondly, I just -- can you clarify, I think there's probably some confusion out there with consensus estimates. I think there's an estimate that's being included from Deutsche Bank out there and the consensus number is just is an old estimate that's not relevant for EBITDA and that's probably confusing some of the numbers out, so Ken, if you have your own internal consensus estimates, if you want to kind of share them on the call, I think people will probably appreciate that.

Okay. So first, let me start with your first part about cash flow. From the standpoint of cash flow, no, we're seeing the good leverage that's taking place in our business, obviously continue down to increased EBITDA and then the high conversion to cash, number one; number two, we're still getting the appropriate level of prepayments, et cetera, from customers as we went into contracts. Again, the second quarter, first quarter, our lower quarters from the standpoint of renewal. Renewals, overall, in terms of our book of business, that will pick up more in the second half. Thirdly, from the standpoint of capital expenditures, we do see ourselves spending some more this year than in the past but not significantly so. So we still see our cash -- our free cash flow continuing to do well in the second half of this year. We don't see any obstacles there. And that gives us more than enough cash to repurchase shares and return capital to investors. From the standpoint of EBITDA, what I have in front of me is that, from a margin perspective, kind of a, call it 19% in this year going to roughly 20% next year. As we -- that's what I show right now. And then not every -- not all -- that's what I show from our group of covering analysts at the moment.

The next question comes from Heath Terry from Goldman Sachs.

Magid, we've gone through, over the last couple of years, a cycle of acquisitions, given some divestitures as you got it, you got geographies and products to the portfolio. Where's your head up at right now in terms of the need for investment, either through M&A or new product development, for the company, particularly now that you seem to have come through given that, this last transition cycle.

Sure. We have made a commitment at the beginning of the year and actually, late in the second half of last year, that we would be focused on execution and making sure that we take advantage of the acquisitions that we already made, that we execute well on them and we integrate them well and we invest all we need to make those products best-of-class, and I think we have done that. We don't feel like there is anything that's a gap in our product offering right now that isn't the normal product roadmap that we do on a normal business cycle. If there are any acquisitions that will come in, I don't anticipate anything that will be material at all. And we have followed this year a very disciplined investment approach where we have focused our investments on the things that will generate the biggest payoff and you have seen some -- from the discussion here, which products are really generating that and that's where we're focusing all our investment.

The next question comes from Ned Davis from Wm Smith & Co. Ned Davis - Wm Smith & Co.: I just have one question. On the international, could you give us a refresh on how your strategy there differs from the U.S.? And specifically, what the competitive issues are, and how you address them over there to keep this revenue momentum going?

Well, so let me provide an answer and I will have my colleague, Ken in here, interfere. So there are 2 sets of countries internationally. There are countries where it is an open market where, in a sense that it's free competition, there is no official industry body that kind of intervenes and appoints a quasi-monopoly in that market. And that represents pretty much all of Latin America, a lot of countries in Europe and a lot of the countries in Asia Pacific. And those are countries where we're doing really well. And when we introduce new products, our focus is that any products that can be applicable to those countries, we will introduce them as quickly as possible. Now there's a second class of country -- and so that there are the U.K., Spain, Germany and France, I would say, have what's called a joint industry committee that basically makes a selection. And Ken has been very involved in those, so I will let him comment on that.

Sure. In the European markets, typically, engaging with these industry bodies is a process of demonstrating best-in-class methodology, going through a process of review and audit with their technical communities. And our strategy in Europe has been able -- has been centered around building up a track record of demonstrating the capability of our products by winning specific markets, working through the process and demonstrating a record of success. And our experience in the U.K. and Spain have really given us that and that is a strength that we continue to leverage going forward. Ned Davis - Wm Smith & Co.: Did the in Europe restrict both -- all platforms, both regular, computer and tablets and social, or are they -- do they really include all digital type media?

I think that jigs themselves evolving their thinking. And typically, that's a big part of the partnership, is working together with the industry to demonstrate how our technology and methodology can be deployed to help them stay current. Committees in and of themselves are not terribly innovative, so this is a partnership where we work together to demonstrate best-in-class technology and partnership moving forward.

Our multi-platform measurement is something that we -- helps us in effect, accelerate the transition to multi-platform measurement across some of these countries on cycles that are faster than normal cycles that they're used to. Ned Davis - Wm Smith & Co.: So you benefit from both cross-tabbing and Fusion in Europe, then?

Absolutely.

Absolutely.

Your next question comes from line of Matt Chesler from Deutsche Bank.

I just wanted to drill down a little bit more on the gross margin comments from earlier. So you talked about being able to take the business back up to the 70%. [Technical Difficulty]

Operator?

His line is --

I can hear you now, Matt. So you want to talk about gross margins in terms of what's going on, in terms of the ability and move forward?

Yes, moving forward. So let's just say, in the past, you've talked about what type of leverage you get on the gross margin line. Let's presume that you sustain this level of growth rate. Going into 2014, what type of leverage on gross margins can we expect to get on an annual basis.

Sure. As we didn't talk before about that the Investor Day and previously, all of the core products that we have in our product families have a similar -- enjoy a similarly high gross margin characteristic from a product standpoint. And now we're starting to get scale on the ones, in particular vCE, that as we've discussed with investors, we needed to make investments in, in order to differentiate ourselves in the marketplace. As we're doing that now, that will lift up and that allows us to get back in the near to midterm of gross margin that overall is north of 70%, which is where we had been when we were strictly focused on being a measurement company years ago. And we feel that, that, as we go through this year, we'll be, certainly later this year, at that level and then position from there to continue to grow for 2014 and beyond. And I believe some of our analysts covering us have kind of started to factor that in into their modeling and I think our performance supports that.

Okay. So you're talking about, by the end of the year, you're going to be at that type of run rate, not that you think you're going to -- you think you'll print at that level for the full year.

Yes, yes right. That's correct.

Just really, I just wanted to understand a little better there the puts and takes on the guidance for the full year. What was -- what would you think go right for you to either exceed the high level of that and conversely, in the low end, what would you need to do if that not worked out so well?

Honestly, Matt, I don't know if there's something in our business that is not going well. At least, for the first half of the year, the results speak for themselves.

I mean, I was asking about the risk. Or what were the risks to the bottom end, rather than that not going well?

I think what we see is just focused on -- remain focused on execution. We are very -- we're really focused on that, we want to continue the momentum that we have. We -- that is our #1 priority, is just to continue the priorities that we've set and execute on them.

We have no question. And I would like to turn the call over to Mr. Magid Abraham for closing remarks. Please go ahead.

Okay. Thank you, and thank you, all, for your participation today. We delivered a strong first half performance for 2013 and we are bullish that we can sustain this momentum throughout the balance of the year. As using the same formula, remaining focused on executing our strategy and delivering value for our shareholders. We look forward to speaking with you again on the next conference call. And thank you very much.

Thank you, ladies and gentlemen, for your participation in today's conference call. This concludes the presentation. You may disconnect now and have a good day.