Vocus Inc.’s (VOCS) third quarter 2010 earnings per share (EPS) of 4 cents surpassed the Zacks Consensus Estimate of $0.00. Revenue during the quarter was $24.7 million, which was below the Zacks Consensus of $25.0 million.
Revenue
Revenue of $24.7 million in the third quarter, represents a 17.0% increase from the year-ago period. This was at the lower end of the company’s guided range of $24.0 million to $24.2 million.
The quarter’s revenue was positively impacted by continuous growth and innovation in the PR software market inspite of challenges faced by the company as a result of rationalization in PR budgets. This apart, new customer addition and an increase in subscription also helped to improve revenue.
Gross margin on a GAAP basis was 80.1%, down from 81.6% in the year-ago quarter. The company fell slightly short of its long-term targeted gross margin range of 83.0% to 87.0%. Gross margin declined as the growth in cost of sales superseded the growth in revenue.
Operating loss on a GAAP basis for the quarter was a loss of $957,000 versus a profit of $160,000 in the year-ago quarter. Operating income on a non-GAAP basis was $3.9 million versus $4.0 million reported in the year-ago quarter.
Operating Result
Net loss on a GAAP basis was $742,000 or 4 cents per share in the third quarter of 2010 compared to a net loss of $382,000 or 2 cents per share in the third quarter of 2009.
Excluding amortization of intangibles, acquisition-related adjustments of deferred revenue and acquisition related expenses, non-GAAP net income during the quarter was $4.07 million or 21 cents per share versus net income of $3.45 million or 17 cents per share in the year-ago quarter. Excluding stock-based compensation, the non-GAAP EPS for the quarter was 4 cents per share.
Customers
Vocus added 579 net new subscription customers during the third quarter and ended the quarter with 7,752 total active subscription customers, compared to 240 net new subscription customers added during the third quarter of 2009.
The company signed subscription agreements with new and existing customers, which include names such as, City of Gatlinburg, Clif Bar & Company, Dow Corning, Envergure, Groupe Volkswagen France, Hormel Foods, Make-A-Wish Foundation of America, MrsPinkelmeyer.com, PowerScout Sports, SunTrust Banks, U-Pack Moving & MoveBuilder, U.S. Department of Energy and World Travel and Tourism Council.
Balance Sheet & Cash Flow
Vocus exited the quarter with $93.1 million in cash and short-term investments versus $103.7 million in the previous quarter. The company generated $2.4 million in cash from operations versus $2.6 million in the previous quarter. This apart, the company purchased 354,487 shares of common stock during the third quarter under the stock repurchase program at an aggregate cost of $5.2 million.
Guidance
For the fourth quarter of 2010, revenue is expected to be in the range of approximately $25.6 million to $25.8 million. Non-GAAP EPS is expected to be in the range of 17 cents to 18 cents assuming an estimated non-GAAP weighted average diluted share count of 19.8 million.
Stock-based compensation, amortization of intangible assets, acquisition-related expenses, the effect of adjustments to deferred revenue related to purchase accounting and adjustments to the fair value of contingent consideration for earn-outs are expected to be 22 cents per share. The GAAP EPS is expected to be in the range of $(0.05) to $(0.04) assuming an estimated weighted average 17.8 million basic and diluted shares outstanding.
For full-year 2010, revenue is expected to be in the range of approximately $96.4 million to $96.6 million. Non-GAAP EPS is expected to be in the range of 69 to 70 cents assuming an estimated non-GAAP weighted average diluted share count of 19.8 million shares.
Stock-based compensation, amortization of intangible assets, acquisition-related expenses, the effect of adjustments to deferred revenue related to purchase accounting and adjustments to the fair value of contingent consideration for earn-outs are expected to be 90 cents per share. The GAAP EPS is expected to be in the range of $(0.21) to $(0.20) assuming an estimated weighted average 17.9 million basic and diluted shares outstanding.
Conclusion
The company reported decent third quarter results, although excluding stock-based compensation, the EPS came in really low. Vocus is a successful player in a nascent market with good growth prospects and has utilized strategic acquisitions for growth.
It is constantly increasing its customer base and faces minimal competition. However, integration risks, small IT budgets in the current environment, risks of operating in international markets are mitigating factors.
Currently, Vocus has a short-term Hold recommendation supported by a Zacks #3 Rank.
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