Vocus Announces Results for Third Quarter 2013

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Better Than Expected EPS and Strong Growth of the Marketing Suite Highlight Quarterly Results

Vocus, Inc. (NASDAQ: VOCS), a leading marketing cloud provider, announced today financial results for the third quarter ended September 30, 2013.

“The third quarter marked an important step forward in our move up-market and transition from providing stand-alone point products to selling a comprehensive, digital marketing suite for mid-sized organizations,” said Rick Rudman, President and CEO of Vocus, Inc.  “While our guidance today reflects a more tempered outlook due to the discontinuance of our Small Business Edition and recent pricing and packaging changes, we are very pleased to see strong growth in Q3 of our digital marketing suite on higher average selling prices as well as another quarter of consistent performance for our PR products.”        

Financial Highlights

  • GAAP revenue for the third quarter of 2013 was $46.6 million, a 3% increase over the comparable period in 2012.
  • GAAP loss from operations for the third quarter of 2013 was $(3.3) million, compared to $(3.4) million for the comparable period in 2012.
  • Non-GAAP income from operations for the third quarter of 2013 was $2.5 million, compared to $3.9 million for the comparable period in 2012.
  • GAAP net loss for the third quarter of 2013 was $(3.9) million or $(0.19) per diluted share, compared to $(3.8) million or $(0.20) per diluted share for the comparable period in 2012.
  • Non-GAAP net income for the third quarter of 2013 was $1.9 million or $0.08 per diluted share, compared to $3.5 million or $0.14 per diluted share for the comparable period in 2012.
  • Total deferred revenue as of September 30, 2013 was $76.1 million compared to $68.1 million at September 30, 2012.

Business Highlights

  • Ended the quarter with 17,484 total active annual subscription customers compared to 15,131 active annual subscriptions customers as of September 30, 2012.
  • Signed subscription agreements with new and existing customers including Adeptia, Dish Network, Dole Packaged Foods, Eurotalk, GoDaddy, Investor’s Business Daily, Kunzler, Lululemon Athletica, Mila Publishing, National Cancer Institute, SimplifyMD, US Environmental Protection Agency, University of Maryland and Valeo.
  • Released major updates to PRWeb which integrate new social tags for Twitter and Google+, making PRWeb content more accessible and robust in the ever changing world of social media.
  • Announced that Mark Gambill, who previously held executive roles at CDW, Dell and Home Depot, joined the company as Chief Marketing Officer.

Guidance

Vocus is providing, for the first time, guidance for the fourth quarter and revising guidance for the full year 2013 based on information as of October 22, 2013:

  • For the fourth quarter of 2013, revenue is expected to be in the range of approximately $45.1 million to $45.5 million.  Non-GAAP EPS is expected to be in the range of $0.03 to $0.04 assuming an estimated non-GAAP weighted average 24.2 million diluted shares outstanding and an estimated tax provision of $400,000.  The estimated non-GAAP weighted average diluted shares outstanding assume 3.0 million common shares from the conversion of the Series A redeemable convertible preferred stock.  Non-GAAP adjustments are expected to be $0.28 per share. GAAP EPS is expected to be in the range of $(0.25) to $(0.24) assuming an estimated weighted average 20.1 million basic and diluted shares outstanding.
  • For the full year of 2013, revenue is expected to be in the range of $184.6 million to $185.0 million.  Non-GAAP diluted EPS is expected to be in the range of $0.20 to $0.21 assuming an estimated non-GAAP weighted average 24.2 million diluted shares outstanding and an estimated tax provision of $1.5 million.  The estimated non-GAAP weighted average diluted shares outstanding assume 3.0 million common shares from the conversion of the Series A redeemable convertible preferred stock.  The Non-GAAP adjustments are expected to be $1.34 per share.  GAAP EPS is expected to be in the range of $(1.14) to $(1.13) assuming an estimated weighted average 20.1 million basic and diluted shares outstanding.  Free cash flow is expected to range from $3.0 million to $4.0 million.  Capital expenditures are expected to be $6.5 million.

This release includes non-GAAP financial measures and adjustments.  For a description of these non-GAAP financial measures and adjustments, please refer to section “Use of Non-GAAP Financial Measures” and the accompanying tables entitled “Reconciliation of Non-GAAP Measures” and “Reconciliation of 2013 Guidance.”

Conference Call Information

Vocus will discuss the financial results and business highlights of the third quarter of 2013 in a conference call at 4:30 p.m. ET, or 1:30 p.m. PT, today.  Investors are invited to listen to a live audio webcast of the conference call on the Investor Relations section of the Company’s website at http://investor.shareholder.com/vocs/events.cfm.   A replay of the webcast will be available approximately one hour after the conclusion of the call and will remain available for 30 calendar days following the conference call.  An audio replay of the conference call will also be available approximately two hours after the conclusion of the call.  The audio replay will be available until October 29, 2013 at 11:59 p.m. ET and can be accessed by dialing (404) 537-3406 or (855) 859-2056 and entering conference number 73933164.

About Vocus, Inc.

Vocus, Inc. is a leading marketing cloud provider that helps businesses reach and influence buyers across social networks, online and through media.  Vocus provides an integrated suite that combines social marketing, search marketing, email marketing and publicity into a comprehensive solution to help businesses attract, engage and retain customers.  Vocus software is used by more than 120,000 organizations worldwide and is available in seven languages.  Vocus is based in Beltsville, MD with offices in North America, Europe and Asia.  For further information, please visit http://www.vocus.com or call (800) 345-5572.

Forward-Looking Statement

This release contains “forward-looking” statements that are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.  These statements are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “may,” “will,” “expects,” “projects,” “anticipates,” “estimates,” “believes,” “intends,” “plans,” “should,” “seeks,” and similar expressions.  This press release contains forward-looking statements relating to, among other things, Vocus’ expectations and assumptions concerning future financial performance.  Forward-looking statements involve known and unknown risks and uncertainties that may cause actual future results to differ materially from those projected or contemplated in the forward-looking statements.  Forward-looking statements may be significantly impacted by certain risks and uncertainties described in Vocus’ filings with the Securities and Exchange Commission.

The risks and uncertainties referred to above include, but are not limited to, risks associated with possible fluctuations in our operating results and rate of growth, our history of operating losses, risks associated with acquisitions, including our ability to successfully integrate acquired businesses, risks associated with our foreign operations, interruptions or delays in our service or our web hosting, our business model, breach of our security measures, the emerging market in which we operate, our relatively limited operating history, our ability to hire, retain, and motivate our employees and manage our growth, competition, our ability to continue to release and gain customer acceptance of new and improved versions of our service, successful customer deployment and utilization of our services, fluctuations in the number of shares outstanding, foreign currency exchange rates and interest rates.



Vocus, Inc. and Subsidiaries            
Condensed Consolidated Balance Sheets        
(dollars in thousands)    

December 31, 2012

   

September 30, 2013

   
   
Assets
         
(unaudited)
Current assets:
           

Cash and cash equivalents

  $ 32,107   $ 35,932

Short-term investments

    662     -

Accounts receivable, net

    29,841     20,495

Deferred income taxes

    1,478     799

Prepaid expenses and other current assets

    2,933     2,484
     
   
Total current assets
    67,021     59,710
Long-term investments
    1,322     -
Property, equipment and software, net
    20,068     21,164
Intangible assets, net
    26,751     17,687
Goodwill     177,011     177,135
Other assets     641     508
     
   
Total assets
  $ 292,814   $ 276,204
   
   
Liabilities, Series A redeemable convertible preferred stock and stockholders' equity
           
Current liabilities:
           

Accounts payable and accrued expenses

  $ 21,701   $ 17,316

Notes payable and capital lease obligations

    854     151

Deferred revenue

    77,098     73,687
     
   
Total current liabilities
    99,653     91,154
Notes payable and capital lease obligations, net of current portion
    751     1,240
Other liabilities
    6,786     6,486

Deferred income taxes, net of current portion

    5,120     5,068

Deferred revenue, net of current portion

    2,235     2,416
     
   
Total liabilities
    114,545     106,364
Series A redeemable convertible preferred stock
    77,490     77,490
Stockholders' equity:
           

Common stock

    219     219

Additional paid-in capital

    215,226     224,951

Treasury stock

    (41,909)     (42,301)

Accumulated other comprehensive loss

    (426)     (320)

Accumulated deficit

    (72,331)     (90,199)
     
   
Total stockholders' equity
    100,779     92,350
     
   
Total liabilities, Series A redeemable convertible preferred stock and stockholders' equity
  $ 292,814   $ 276,204
   
   
           
Vocus, Inc. and Subsidiaries
   
Consolidated Statements of Operations
   
(dollars in thousands, except per share data)
   
 
Three Months Ended September 30,
Nine Months Ended September 30,
         
 
2012
2013
 
2012
2013
   
 
 
 
 

 

(unaudited)
 
(unaudited)

 

(unaudited)
 
(unaudited)
                 
Revenues
$ 45,217 $ 46,615 $ 123,690 $ 139,479
Cost of revenues   8,932   9,301   24,946   28,857
   
 
 
 
Gross profit   36,285   37,314   98,744   110,622
Operating expenses:                
Sales and marketing   25,623   27,126   70,468   81,581
Research and development   3,280   2,426   10,239   8,149
General and administrative   8,805   9,168   31,562   31,392
Amortization of intangible assets   2,016   1,928   5,136   5,962
   
 
 
 
Total operating expenses   39,724   40,648   117,405   127,084
Loss from operations   (3,439)   (3,334)   (18,661)   (16,462)
Other income (expense)   (105)   (136)   (228)   (272)
   
 
 
 
Loss before provision for income taxes   (3,544)   (3,470)   (18,889)   (16,734)
Provision for income taxes   301   381   970   1,134
   
 
 
 
Net loss $ (3,845) $ (3,851) $ (19,859) $ (17,868)
   
 
 
 
Net loss per share:                
Basic and diluted $ (0.20) $ (0.19) $ (1.02) $ (0.89)
                 
                 
Weighted average shares outstanding used in computing per share amounts:                
Basic and diluted   19,570,459   20,151,494   19,385,318   20,015,284
                 

Vocus, Inc. and Subsidiaries
   
Condensed Consolidated Statements of Cash Flows
   
(dollars in thousands)
   
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
   
2012
2013
2012
2013
   
 
 
 
 

 

(unaudited)
 
(unaudited)

 

(unaudited)
 
(unaudited)
Cash flows from operating activities:                
Net loss $ (3,845) $ (3,851) $ (19,859) $ (17,868)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
Depreciation and amortization   4,733   4,420   11,634   13,161
Other non-cash charges, net   4,016   3,215   13,828   14,116
Payments of contingent consideration for business acquisiton in excess of fair value on acquisition date   -   -   (494)   (4,560)

Changes in operating assets and liabilities

  (668)   (4,147)   6,114   2,621
   
 
 
 

Net cash provided by (used in) operating activities

  4,236   (363)   11,223   7,470
Cash flows from investing activities:                
Business acquisition, net of cash acquired   (152)   -   (79,801)   -

Net change in available-for-sale securities

  1,029   -   7,308   1,979
Purchases of property, equipment and software, net   (1,294)   (760)   (2,727)   (4,751)

Software development costs

  -   (262)   (198)   (478)
   
 
 
 
Net cash used in investing activities   (417)   (1,022)   (75,418)   (3,250)
Cash flows from financing activities:                
Purchases of common stock   (56)   (1)   (3,058)   (458)

Proceeds from exercises of stock options

  44   84   59   84

Payments of contingent consideration for business acquisitions

  -   -   (3,112)   -

Net proceeds from (payments on) notes payable and capital lease obligations

  (36)   465   (168)   (214)
   
 
 
 
Net cash provided by (used in) financing activities   (48)   548   (6,279)   (588)
Effect of exchange rate changes on cash and cash equivalents   171   486   160   193
   
 
 
 
Net increase (decrease) in cash and cash equivalents   3,942   (351)   (70,314)   3,825
Cash and cash equivalents, beginning of period   24,028   36,283   98,284   32,107
   
 
 
 
Cash and cash equivalents, end of period $ 27,970 $ 35,932 $ 27,970 $ 35,932
   
 
 
 

 

Use of Non-GAAP Financial Measures

Vocus provides non-GAAP measures for revenue, income from operations, net income, diluted net income per share and free cash flow as supplemental information. 

We define non-GAAP revenue as GAAP revenue adjusted for the impact of the fair value adjustment to deferred revenue related to purchase accounting.  Management believes the adjustment is useful to investors as a more accurate measure of our ongoing performance from the acquisitions.

We define non-GAAP income from operations as GAAP income from operations including the impact of non-GAAP revenue and excluding stock-based compensation, amortization of acquired intangible assets, fair value adjustments to contingent consideration and acquisition-related expenses. 

We define non-GAAP net income as GAAP net income including the impact of non-GAAP revenue and excluding stock-based compensation, amortization of acquired intangible assets, fair value adjustments to contingent consideration including the effect of foreign currencies and acquisition-related expenses. 

Stock-based compensation included in our GAAP financial results relates to stock option and restricted stock awards.  Companies record stock-based compensation by applying varying valuation methodologies and subjective assumptions to different types of equity awards.  Amortization of acquired intangible assets included in our GAAP financial results consists of amortization of non-compete agreements, trade names, purchased technology and customer relationships that are not expected to be replaced when fully amortized, as a depreciable tangible asset might.  Amortization expense can vary from period to period due to the timing and size of our acquisitions.  Adjustments to deferred revenue reflect the reductions in the fair value of the acquired company’s deferred revenue due to purchase accounting.  Our GAAP financial results include adjustments to the fair value of contingent consideration for acquisition earn-outs as of each reporting date from the fair value recorded on the acquisition date.  Acquisition-related expenses included in our GAAP operating expenses consist of professional fees for legal, accounting and other advisory services, integration related professional services, severance costs and retention payments incurred during the reporting period in connection with our acquired businesses.  Management believes these non-GAAP measures allow management and investors to make meaningful comparisons between our operating results and those of the other companies, as well as provide a consistent comparison of our relative historical financial performance. 

We have not presented the tax impact of non-GAAP adjustments in the calculation of non-GAAP net income as a result of the valuation allowance in nearly all of our taxing jurisdictions.  The tax impact of the non-GAAP adjustments would have resulted in an annual effective tax rate of 43% and 43% for the three and nine months ended September 30, 2012 and 2013, respectively, and non-GAAP diluted net income per share of $0.09 and $0.06 for the three months ended September 30, 2012 and 2013, respectively, and $0.18 and $0.13 for the nine months ended September 30, 2012 and 2013, respectively.

We define free cash flow as cash flow from operations less net capital expenditures and capitalized software development costs plus the excess tax benefits from equity awards and payments of contingent consideration for business acquisitions in excess of fair value on acquisition date.  Management considers free cash flow to be a liquidity measure which provides useful information to management and investors regarding our ability to generate cash from operations that is available for acquisitions and other investments.  Our definition of free cash flow may be different from definitions used by other companies.

Management uses non-GAAP revenue, non-GAAP income from operations, non-GAAP net income and free cash flow to evaluate operating performance, determine incentive compensation and to prepare operating budgets and determine the appropriate levels of capital investments.  However, management believes that the use of non-GAAP measures is subject to material limitations since they may not be indicative of ongoing operating results.  Management compensates for the limitations in the use of non-GAAP measures by also utilizing GAAP financial measures and by providing investors with a detailed reconciliation between our GAAP and non-GAAP financial results.  Investors are advised to carefully review and consider this information as well as the GAAP financial results that are disclosed in our SEC filings.


Vocus, Inc. and Subsidiaries
   
Reconciliation of Non-GAAP Measures
   
(dollars in thousands, except per share data)
   
 
Three Months Ended September 30,
Nine Months Ended September 30,
 
2012
2013
2012
2013
   
 
 
 
 

 

(unaudited)
 
(unaudited)
 
(unaudited)
 
(unaudited)
Reconciliation of GAAP revenue to non-GAAP revenue:                
GAAP revenue $ 45,217 $ 46,615 $ 123,690 $ 139,479
Fair value adjustment to deferred revenue   513   -   1,913   44
   
 
 
 
Non-GAAP revenue $ 45,730 $ 46,615 $ 125,603 $ 139,523
   
 
 
 
                 
Reconciliation of GAAP loss from operations to non-GAAP income from operations:                

Loss from operations

$ (3,439) $ (3,334) $ (18,661) $ (16,462)
Stock-based compensation   3,481   2,816   10,939   9,449
Amortization of intangible assets  

3,129

 

2,976

  7,870   9,107
Fair value adjustment to deferred revenue   513   -   1,913   44
Fair value adjustments to contingent consideration   232   -   696   3,453
Acquisition-related expenses   -   -   4,957   -
   
 
 
 
Non-GAAP income from operations $ 3,916 $ 2,458 $ 7,714 $ 5,591
   
 
 
 
                 
Reconciliation of GAAP net loss to non-GAAP net income:                
Net loss $ (3,845) $ (3,851) $ (19,859) $ (17,868)
Stock-based compensation   3,481   2,816   10,939   9,449
Amortization of intangible assets  

3,129

 

2,976

  7,870   9,107
Fair value adjustment to deferred revenue   513   -   1,913   44
Fair value adjustments to contingent consideration including effects of foreign currency   232   -   678   3,453
Acquisition-related expenses   -   -   4,957   -
   
 
 
 
Non-GAAP net income $ 3,510 $ 1,941 $ 6,498 $ 4,185
   
 
 
 
                 
Non-GAAP diluted net income per share $ 0.14 $ 0.08 $ 0.28 $ 0.17
                 
Non-GAAP diluted weighted average shares used in computing per share amounts   24,317,807   24,204,219   23,340,209   24,161,969
                 
Reconciliation of GAAP diluted weighted average shares outstanding to non-GAAP diluted weighted average shares outstanding:                
GAAP diluted weighted average shares outstanding   19,570,459   20,151,494   19,385,318   20,015,284
Dilutive effect of outstanding equity securities   4,747,348   4,052,725   3,954,891   4,146,685
   
 
 
 
Non-GAAP diluted weighted average shares outstanding   24,317,807   24,204,219   23,340,209   24,161,969
   
 
 
 
Supplemental information of stock-based compensation included in:                
Cost of revenues $ 343 $ 296 $ 1,168 $ 1,086
Sales and marketing   994   738   3,139   2,473
Research and development   712   409   1,859   1,490
General and administrative   1,432   1,373   4,773   4,400
   
 
 
 
Total stock-based compensation $ 3,481 $ 2,816 $ 10,939 $ 9,449
   
 
 
 
Reconciliation of cash flow from operations to free cash flow:                
Net cash provided by (used in) operating activities $ 4,236 $ (363) $ 11,223 $ 7,470
Purchases of property, equipment and software, net   (1,294)   (760)   (2,727)   (4,751)
Software development costs   -   (262)   (198)   (478)
Payments of contingent consideration for business acquisiton in excess of fair value on acquisition date   -   -   494   4,560
   
 
 
 
Free cash flow $ 2,942 $ (1,385) $ 8,792 $ 6,801
   
 
 
 

Vocus, Inc. and Subsidiaries
 
Reconciliation of 2013 Guidance
 
GAAP EPS to Non-GAAP Diluted EPS
 
   
Q4 2013
Full Year 2013
   
 
   
(unaudited)
 
(unaudited)
         
GAAP EPS $ (0.25) to (0.24) $ (1.14) to (1.13)
Effect of non-GAAP adjustments   0.32   1.53
Dilutive effect of outstanding equity securities   (0.04)   (0.19)
   
 
Non-GAAP diluted EPS $ 0.03 to 0.04 $ 0.20 to 0.21
   
 
         

 

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