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Vocus Inc.’s (VOCS - Analyst Report) fourth quarter 2011 adjusted earnings per share (EPS) of 7 cents outpaced the Zacks Consensus Estimate by 6 cents.

The trend among organizations to woo customers through online social networking sites boosted the demand for Vocus’ products and services, and in turn the quarter’s earnings beat. Vocus saw increasing popularity of its new marketing and PR suite launched during the quarter.

The adjusted earnings figure excludes amortization of intangible assets, fair value adjustments to deferred revenue and acquisition-related expenses, but includes stock-based compensation expense.

Revenue

Revenue of $30.5 million in the fourth quarter increased 17.3% from $26.0 million generated a year ago. The top line inched past the company’s guided range of $30.1 million to $30.3 million as well as Zacks Consensus Estimate of $30.0 million. The favorable outcome was backed by customer additions, an extended geographical reach, deal wins and strong product traction.

Customers

Vocus added 1,052 new subscribers during the fourth quarter, compared with 822 in the year-earlier quarter. Total active subscribers were 11,907 at quarter end. A healthy mix of customers across organizations, geographic areas and industries was also noticed.

The company signed a host of subscription agreements with new and existing customers. Notable among these are Cuddledown, City of Sunny Isles Beach, Grand Theatre de Provence, Gruv Gear, Hanes Brands Inc. (HBI - Analyst Report), Mayo Clinic, The Motley Fool, National Geographic Society, Orbitz Worldwide Inc. (OWW - Snapshot Report), PPG Industries Inc. (PPG - Analyst Report), REI, Spanx and the University of Gloucestershire.

Operating Results

Gross margin was 81.2%, slightly down from 81.3% in the year-ago quarter. Operating profit was $0.4 million compared with a loss of $0.9 million in the year-ago quarter.

Net loss on a GAAP basis was $11.8 million or 63 cent per share, compared with $0.4 million or 2 cents per share in the fourth quarter of 2010. Excluding one-time items, but including stock-based compensation expense, net income was $1.4 million or 7 cents per share, compared with $0.7 million or 4 cents in the year-earlier period.

Balance Sheet & Cash Flow

Vocus exited the quarter with $108.2 million in cash and short-term investments versus $106.6 million in the previous quarter. Accounts receivables were $23.5 million. The company generated $6.3 million in cash from operations versus $4.8 million in the previous quarter. Capital expenditure was $0.5 million. Apart from these, the company repurchased its outstanding common shares worth $3.9 million.

During the quarter, Vocus availed of a new $15.0 million revolving credit facility for general working capital purposes and to provide increased liquidity and financial flexibility. The new facility has a one-year, annual renewable term and bears interest at the bank’s LIBOR rate plus 2.25%.

Acquisition

In conjunction with the earnings release, Vocus announced the completion of the acquisition of cloud-based e-mail and social media marketing solutions provider, iContact for a total sum of $169.0 million. iContact’s solutions target mainly the small and medium businesses (SMB).

The idea behind acquiring iContact was to focus more on the SMB sector. Vocus noticed that spending by SMBs on digital marketing is expected to grow from $5 billion in 2010 to $17 billion in 2015, representing a 25% CARG. By 2015, SMBs will allocate 70% of their marketing budget to digital marketing. In addition, e-mail marketing, search marketing and social media marketing will comprise the top three areas of spending for small and midsize businesses by 2013.

Leveraging iContact’s capabilities and growing the sales team targeting SMBs, Vocus is eyeing to capitalize on the cloud-space opportunities in the SMBs.

Guidance

For the first quarter of 2012, non-GAAP revenue is expected in the range of $34.7 million to $35.0 million. Non-GAAP EPS is expected in the range of a loss of one cent to break-even assuming an estimated non-GAAP weighted average diluted share count of 22.0 million. The non-GAAP tax provision will be roughly $360,000.

For full-year 2012, non-GAAP revenue is forecast between $169.9 million and $171.4 million. Non-GAAP EPS is expected in the range of 35 cents to 37 cents assuming an estimated non-GAAP weighted average diluted share count of 24.5 million shares. The non-GAAP tax provision would be around $1.5 million.

Vocus expects free cash flow in the range of $15.0 million to $16.0 million and capital expenditure of $4.0 million.

The above guidance includes expected contribution from the recently acquired iContact.

To Conclude

Vocus reported impressive fourth quarter results, beating the Zacks Consensus Estimate on the bottom line. Vocus vies in a nascent market and anticipates good growth prospects. In the absence of any real competition, the company has been able to steadily expand its customer base.

The company has also successfully capitalized on strategic acquisitions. But, there remains a concern related to margin contraction based on higher investments in sales and marketing as well as acquisitions.

Currently, Vocus has a Zacks #3 Rank, which translates into a short-term Hold recommendation.

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