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Vocus Inc. (VOCS - Analyst Report) reported fourth quarter 2012 adjusted earnings of 1 cent, missing the Zacks Consensus Estimate by 2 cents.

Revenues

Revenues of $47.1 million in the fourth quarter increased 54.4% from $30.5 million generated in the year-ago quarter. The favorable outcome was backed by customer additions, strong demand growth from existing customers and improved product adoption. The top line however missed the company’s guided range of $47.2 million to $47.6 million.

Customers

Vocus added 1,363 new subscribers during the fourth quarter compared with 1,052 in the year-earlier quarter. Total active subscribers were 16,494 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 the agreements with British Airways, Center Stage Productions, Colchester Zoo, Farmers Insurance, Gentle Giant Moving, Harlem Globetrotters, Lasio, Make-A-Wish Foundation of America, McGladrey, My Stuff Lost and Found, PEZ Candy, The Pasadena Playhouse, Trinity Broadcast Network and Wyndham Worldwide.

Operating Results

Gross margin was 81.3%, marginally up from 81.2% in the year-ago quarter. Operating loss was $3.2 million compared to operating income of $0.4 million in the year-ago quarter. The operating loss can be traced back to a 70.4% year-over-year rise in operating expenses, which offset the 54.4% revenue growth. Operating expenses increased due to growth in direct sales capacity.

Net loss on a GAAP basis was $3.7 million or 19 cents per share compared with a net loss of $11.8 million or 63 cents in the fourth quarter of 2011. Excluding one-time items, but including stock-based compensation expense, net profit was $0.15 million or 1 cent per share compared with a net income of $1.36 million or 7 cents in the year-earlier period.

Balance Sheet & Cash Flow

Vocus exited the quarter with $32.8 million in cash and short-term investments versus $30.6 million in the previous quarter. Accounts receivables were $29.8 million compared with $18.9 million in the previous quarter. The company generated $7.6 million in cash from operations compared with $4.2 million in the previous quarter.

Guidance

For the first quarter of 2013, revenues are expected in a range of $46.3 million to $46.7 million. The company expects non-GAAP EPS to be 9 cents to 10 cents on an estimated non-GAAP weighted average of 24.9 million diluted shares outstanding and projected tax provision of $550,000. GAAP loss per share is expected between 26 cents and 25 cents.

For full year 2013, revenue is estimated between $200.3 million and $201.8 million. Non-GAAP EPS is estimated in a range of 50–53 cents. Including one-time adjustments of $1.24 per share, GAAP loss per share is expected to be in the range of 74–71 cents. The company expects free cash flow in the range of $24.5 million to $25.5 million. Capital expenditures are projected at $6.5 million.

Apart from this, the company is optimistic about the launch of a new version of its marketing suite. Vocus expects that the enhanced features offered through the new version will likely attract buyers, which could boost its billings growth by 20.0% in 2013.

To Conclude

Though Vocus posted a GAAP loss in the fourth quarter, the company reported non-GAAP EPS of a penny, which came below the Zacks Consensus Estimate. But, Vocus generated solid year-on-year revenue growth. The company benefited from the high revenue generation ability of its new marketing suite.

Vocus exists 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. By leveraging iContact’s capabilities and increasing the sales team to target small and medium sized businesses (SMBs), Vocus is eyeing cloud-space opportunities in the SMBs. However, 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 Rank #3 (Hold).

We recommend investors to also consider other software stocks that are performing well and are worth buying. Symantec Corp. (SYMC - Analyst Report) and Compuware Corp. (CPWR - Analyst Report) have a Zacks Rank #1 (Strong Buy), while CA Inc. (CA - Analyst Report) has a Zacks Rank #2 (Buy).

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