Attached files
file | filename |
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EX-31.1 - EX-31.1 - Vocus, Inc. | w76185exv31w1.htm |
EX-32.1 - EX-32.1 - Vocus, Inc. | w76185exv32w1.htm |
EX-31.2 - EX-31.2 - Vocus, Inc. | w76185exv31w2.htm |
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-Q
(Mark One) | ||
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended September 30, 2009 | ||
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Commission File Number
000-51644
Vocus, Inc.
(Exact Name of Registrant as
Specified in Its Charter)
Delaware | 58-1806705 | |
(State or other jurisdiction
of incorporation or organization) |
(I.R.S. Employer Identification No.) |
4296
Forbes Boulevard
Lanham, Maryland 20706
(301) 459-2590
(Address including zip code, and telephone number,
including area code, of principal executive offices)
Lanham, Maryland 20706
(301) 459-2590
(Address including zip code, and telephone number,
including area code, of principal executive offices)
Not
applicable
(Former name, former address and former fiscal year, if changed since last report)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
Yes o No þ
As of November 2, 2009, 19,368,931 shares of common
stock, par value $0.01 per share, of the registrant were
outstanding.
TABLE OF
CONTENTS
2
PART I
Item 1. | Consolidated Financial Statements |
Vocus,
Inc. and Subsidiaries
December 31, |
September 30, |
|||||||
2008 | 2009 | |||||||
(Unaudited) | ||||||||
(Dollars in thousands, except |
||||||||
per share data) | ||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 65,429 | $ | 82,084 | ||||
Short-term investments
|
21,758 | 15,830 | ||||||
Accounts receivable, net of allowance for doubtful accounts of
$294 and $156 at December 31, 2008 and September 30,
2009, respectively
|
14,739 | 9,910 | ||||||
Current portion of deferred income taxes
|
394 | 480 | ||||||
Prepaid expenses and other current assets
|
3,340 | 2,294 | ||||||
Total current assets
|
105,660 | 110,598 | ||||||
Long-term investments
|
| 2,736 | ||||||
Property, equipment and software, net
|
4,615 | 4,765 | ||||||
Intangible assets, net
|
5,906 | 4,450 | ||||||
Goodwill
|
17,090 | 17,090 | ||||||
Deferred income taxes, net of current portion
|
6,097 | 7,542 | ||||||
Other assets
|
611 | 682 | ||||||
Total assets
|
$ | 139,979 | $ | 147,863 | ||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 497 | $ | 1,018 | ||||
Accrued compensation
|
2,297 | 1,894 | ||||||
Accrued expenses
|
2,479 | 4,155 | ||||||
Current portion of notes payable and capital lease obligations
|
185 | 198 | ||||||
Current portion of deferred revenue
|
41,775 | 38,658 | ||||||
Total current liabilities
|
47,233 | 45,923 | ||||||
Notes payable and capital lease obligations, net of current
portion
|
188 | 63 | ||||||
Other liabilities
|
71 | 42 | ||||||
Deferred revenue, net of current portion
|
1,079 | 911 | ||||||
Total liabilities
|
48,571 | 46,939 | ||||||
Commitments and contingencies
|
||||||||
Stockholders equity:
|
||||||||
Preferred stock, $0.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding at
December 31, 2008 and September 30, 2009
|
| | ||||||
Common stock, $0.01 par value, 90,000,000 shares
authorized; 19,380,866 and 19,785,202 shares issued at
December 31, 2008 and September 30, 2009,
respectively; 17,965,129 and 18,104,061 shares outstanding
at December 31, 2008 and September 30, 2009,
respectively
|
194 | 198 | ||||||
Additional paid-in capital
|
129,897 | 145,005 | ||||||
Treasury stock, 1,415,737 and 1,681,141 shares at
December 31, 2008 and September 30, 2009, respectively
at cost
|
(10,783 | ) | (14,914 | ) | ||||
Accumulated other comprehensive income
|
564 | 302 | ||||||
Accumulated deficit
|
(28,464 | ) | (29,667 | ) | ||||
Total stockholders equity
|
91,408 | 100,924 | ||||||
Total liabilities and stockholders equity
|
$ | 139,979 | $ | 147,863 | ||||
See accompanying notes.
3
Vocus,
Inc. and Subsidiaries
Consolidated
Statements of Operations
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
(Unaudited) | ||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||
Revenues
|
$ | 19,953 | $ | 21,042 | $ | 56,905 | $ | 62,532 | ||||||||
Cost of revenues, including amortization expense of $11 and $71
for the three and nine months ended September 30, 2008,
respectively
|
3,701 | 3,861 | 10,760 | 11,615 | ||||||||||||
Gross profit
|
16,252 | 17,181 | 46,145 | 50,917 | ||||||||||||
Operating expenses:
|
||||||||||||||||
Sales and marketing
|
8,837 | 10,189 | 25,496 | 29,895 | ||||||||||||
Research and development
|
1,306 | 1,150 | 3,879 | 3,445 | ||||||||||||
General and administrative
|
5,641 | 5,206 | 15,635 | 15,437 | ||||||||||||
Amortization of intangible assets
|
688 | 476 | 2,098 | 1,456 | ||||||||||||
Total operating expenses
|
16,472 | 17,021 | 47,108 | 50,233 | ||||||||||||
Income (loss) from operations
|
(220 | ) | 160 | (963 | ) | 684 | ||||||||||
Other income (expense):
|
||||||||||||||||
Interest and other income
|
507 | 52 | 1,612 | 382 | ||||||||||||
Interest expense
|
(7 | ) | (10 | ) | (21 | ) | (23 | ) | ||||||||
Total other income
|
500 | 42 | 1,591 | 359 | ||||||||||||
Income before provision (benefit) for income taxes
|
280 | 202 | 628 | 1,043 | ||||||||||||
Provision (benefit) for income taxes
|
62 | 584 | (4,851 | ) | 2,246 | |||||||||||
Net income (loss)
|
$ | 218 | $ | (382 | ) | $ | 5,479 | $ | (1,203 | ) | ||||||
Net income (loss) per share:
|
||||||||||||||||
Basic
|
$ | 0.01 | $ | (0.02 | ) | $ | 0.31 | $ | (0.07 | ) | ||||||
Diluted
|
$ | 0.01 | $ | (0.02 | ) | $ | 0.29 | $ | (0.07 | ) | ||||||
Weighted average shares outstanding used in computing per share
amounts:
|
||||||||||||||||
Basic
|
18,193,456 | 18,092,595 | 17,915,754 | 18,021,737 | ||||||||||||
Diluted
|
19,349,935 | 18,092,595 | 18,973,109 | 18,021,737 |
See accompanying notes.
4
Vocus,
Inc. and Subsidiaries
Nine Months Ended September 30, | ||||||||
2008 | 2009 | |||||||
(Unaudited) |
||||||||
(Dollars in thousands) | ||||||||
Cash flows from operating activities:
|
||||||||
Net income (loss)
|
$ | 5,479 | $ | (1,203 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
||||||||
Depreciation and amortization of property, equipment and software
|
1,357 | 1,241 | ||||||
Amortization of intangible assets
|
2,169 | 1,456 | ||||||
Loss on disposal of assets
|
| 3 | ||||||
Impairment of long-lived assets
|
20 | | ||||||
Stock-based compensation
|
8,392 | 9,612 | ||||||
Provision for doubtful accounts
|
181 | 122 | ||||||
Deferred income taxes
|
(5,094 | ) | (1,513 | ) | ||||
Excess tax benefit from stock awards
|
| (4,449 | ) | |||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
3,404 | 4,817 | ||||||
Prepaid expenses and other current assets
|
(332 | ) | 1,080 | |||||
Other assets
|
(151 | ) | (82 | ) | ||||
Accounts payable
|
(276 | ) | 492 | |||||
Accrued compensation
|
(579 | ) | (416 | ) | ||||
Accrued expenses
|
(447 | ) | 5,290 | |||||
Deferred revenue
|
3,190 | (3,552 | ) | |||||
Other liabilities
|
(13 | ) | (29 | ) | ||||
Net cash provided by operating activities
|
17,300 | 12,869 | ||||||
Cash flows from investing activities:
|
||||||||
Purchases of
available-for-sale
securities
|
(42,124 | ) | (25,156 | ) | ||||
Sales of
available-for-sale
securities
|
800 | | ||||||
Maturities of
available-for-sale
securities
|
29,162 | 28,300 | ||||||
Purchases of property, equipment and software
|
(1,690 | ) | (1,143 | ) | ||||
Software development costs
|
(23 | ) | (142 | ) | ||||
Net cash provided by (used in) investing activities
|
(13,875 | ) | 1,859 | |||||
Cash flows from financing activities:
|
||||||||
Repurchases of common stock
|
| (4,131 | ) | |||||
Proceeds from the exercise of stock options
|
7,046 | 1,849 | ||||||
Excess tax benefit from stock awards
|
| 4,449 | ||||||
Payments on notes payable and capital lease obligations
|
(318 | ) | (202 | ) | ||||
Net cash provided by financing activities
|
6,728 | 1,965 | ||||||
Effect of exchange rate changes on cash and cash equivalents
|
(73 | ) | (38 | ) | ||||
Net increase in cash and cash equivalents
|
10,080 | 16,655 | ||||||
Cash and cash equivalents, beginning of period
|
56,541 | 65,429 | ||||||
Cash and cash equivalents, end of period
|
$ | 66,621 | $ | 82,084 | ||||
See accompanying notes.
5
Vocus,
Inc. and Subsidiaries
1. | Business Description |
Organization
and Description of Business
Vocus, Inc. (Vocus or the Company) is a provider of on-demand
software for public relations management. The Companys
on-demand software addresses the critical functions of public
relations including media relations, news distribution and news
monitoring. The Company is headquartered in Lanham, Maryland
with sales and other offices in Virginia, Maryland, California,
Washington, and England.
2. | Summary of Significant Accounting Policies |
Basis
of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial
information and with the instructions to
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, they do not include all of the information and
notes required by accounting principles generally accepted in
the United States for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three
and nine months ended September 30, 2009 are not
necessarily indicative of the results that may be expected for
the year ending December 31, 2009. The consolidated balance
sheet at December 31, 2008 has been derived from the
audited consolidated financial statements at that date but does
not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. For further information, refer to the consolidated
financial statements and footnotes thereto included in the
Companys annual report on
Form 10-K
for the year ended December 31, 2008 filed with the
Securities and Exchange Commission on March 13, 2009.
Principles
of Consolidation
The consolidated financial statements include the accounts of
Vocus, Inc. and its wholly owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make certain estimates and assumptions.
These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, as well as
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Investments
Management determines the appropriate classification of
investments at the time of purchase and evaluates such
determination as of each balance sheet date. The Companys
investments were classified as
available-for-sale
securities and were stated at fair value at December 31,
2008 and September 30, 2009. Realized gains and losses are
included in other income (expense) based on the specific
identification method. Realized gains or losses for the three
and nine months ended September 30, 2008 and
September 30, 2009 were not material. Net unrealized
holding gains and losses on
available-for-sale
securities are reported as a component of other comprehensive
income (loss), net of tax. As of September 30, 2009, the
net unrealized gains on
available-for-sale
securities were not material. The Company regularly monitors and
evaluates the fair value of its investments to identify
other-than-temporary
declines in value. Management believes no such declines in value
existed at September 30, 2009.
6
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Fair
Value Measurements
The Company measures certain financial assets at fair value,
including cash equivalents and
available-for-sale
securities pursuant to a fair value hierarchy based on inputs to
valuation techniques that are used to measure fair value that
are either observable or unobservable. Observable inputs reflect
assumptions market participants would use in pricing an asset or
liability based on market data obtained from independent sources
while unobservable inputs reflect a reporting entitys
pricing based upon its own market assumptions. The fair value
hierarchy consists of the following three levels:
Level 1 | Inputs are quoted prices in active markets for identical assets or liabilities. |
Level 2 | Inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data. |
Level 3 | Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable. |
Revenue
Recognition
The Company derives its revenues from subscription arrangements
and related services permitting customers to access and utilize
the Companys on-demand software and from the online
distribution of press releases. The Company recognizes revenue
when there is persuasive evidence of an arrangement, the service
has been provided to the customer, the collection of the fee is
probable and the amount of the fees to be paid by the customer
is fixed or determinable.
Subscription agreements generally contain multiple service
elements and deliverables. These elements include access to the
Companys on-demand software and often specify initial
services including implementation and training. Subscription
agreements do not provide customers the right to take possession
of the software at any time. The Company considers all elements
in its multiple element subscription arrangements as a single
unit of accounting and recognizes all associated fees over the
subscription period. The Company determined that it does not
have objective and reliable evidence of the fair value of the
subscription fees after delivery of specified initial services;
and therefore, accounts for its subscription arrangements and
its related service fees as a single unit of accounting. As a
result, all revenue from multiple element subscription
arrangements is recognized ratably over the term of the
subscription. The subscription term commences on the start date
specified in the subscription arrangement or the date access to
the software is provided to the customer. The Company also has
entered into a royalty agreement with a reseller of its
application service. The Company recognizes this revenue over
the term of the end-user subscription upon obtaining persuasive
evidence, which includes monthly notification from the reseller,
that the service has been sold and delivered. The Company
recognizes revenue from professional services sold separately
from subscription arrangements as the services are performed.
The Company distributes press releases over the Internet which
are indexed by major search engines and distributed directly to
various news sites, journalists and other key constituents. The
Company recognizes revenue on a per-transaction basis when the
press releases are made available to the public.
Sales
Commissions
Sales commissions are expensed when a subscription agreement is
executed by the customer.
Income
Taxes
Income taxes are determined utilizing the asset and liability
method whereby deferred tax assets are recognized for deductible
temporary differences and operating loss and tax-credit
carryforwards, and deferred
7
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between
the reported amount of assets and liabilities and their tax
bases. Deferred tax assets are reduced by the valuation
allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets
will not be realized.
The provision for income taxes for the three and nine months
ended September 30, 2009 differs from the expected tax
provision computed by applying the U.S. Federal statutory
rate to income before income taxes primarily due to operating
losses in foreign jurisdictions for which no tax benefit is
currently available, and to a lesser extent, state income taxes
and certain non-deductible expenses.
The Company had no material uncertain tax positions at
December 31, 2008 and September 30, 2009, and there
were no material changes during the three and nine months ended
September 30, 2009. The Companys policy is to
recognize interest and penalties accrued on any unrecognized tax
positions as a component of income tax expense. The Company does
not believe its unrecognized tax positions will materially
change over the next twelve months. No interest and penalties
related to uncertain income tax positions were accrued at
December 31, 2008 and September 30, 2009.
The Company files income tax returns in the U.S. federal
jurisdictions and various state and foreign jurisdictions. The
Company is subject to U.S. federal tax, state and foreign
tax examinations for years ranging from 2001 to 2008.
Comprehensive
Income (Loss)
Comprehensive income (loss) includes the Companys net
income (loss) as well as other changes in stockholders
equity that result from transactions and economic events other
than those with stockholders. Other comprehensive income (loss)
includes foreign currency translation adjustments and net
unrealized gains and losses on investments classified as
available-for-sale
securities. For the three months and nine months ended
September 30, 2008 and 2009, the comprehensive income
(loss) was determined as follows (in thousands):
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Net income (loss)
|
$ | 218 | $ | (382 | ) | $ | 5,479 | $ | (1,203 | ) | ||||||
Other comprehensive income (loss):
|
||||||||||||||||
Foreign currency translation adjustment
|
175 | 49 | 161 | (233 | ) | |||||||||||
Unrealized net gain (loss) on
available-for-sale
investments, net of tax
|
(87 | ) | | (74 | ) | (29 | ) | |||||||||
Comprehensive income (loss)
|
$ | 306 | $ | (333 | ) | $ | 5,566 | $ | (1,465 | ) | ||||||
Segment
Data
The Companys chief operating decision maker manages the
Companys operations on a consolidated basis for purposes
of assessing performance and making operating decisions.
Accordingly, the Company reports on one segment.
Earnings
Per Share
Basic net income or loss per share is computed by dividing net
income or loss by the weighted average number of common shares
outstanding for the period. Nonvested shares of restricted stock
are not included in the computation of basic net income or loss
per share until vested. Diluted net income or loss per share
includes the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or
converted into common stock. Diluted net income or loss per
share includes the dilutive effect of nonvested shares of
restricted
8
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
stock. The following summarizes the calculation of basic and
diluted net income (loss) per share (dollars in thousands,
except per share amounts):
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Net income (loss)
|
$ | 218 | $ | (382 | ) | $ | 5,479 | $ | (1,203 | ) | ||||||
Weighted average shares outstanding, basic
|
18,193,456 | 18,092,595 | 17,915,754 | 18,021,737 | ||||||||||||
Dilutive effect of:
|
||||||||||||||||
Options to purchase common stock
|
1,080,001 | | 1,057,355 | | ||||||||||||
Nonvested shares of restricted stock
|
76,478 | | | | ||||||||||||
Weighted average shares outstanding, diluted
|
19,349,935 | 18,092,595 | 18,973,109 | 18,021,737 | ||||||||||||
Net income (loss) per share:
|
||||||||||||||||
Basic
|
$ | 0.01 | $ | (0.02 | ) | $ | 0.31 | $ | (0.07 | ) | ||||||
Diluted
|
$ | 0.01 | $ | (0.02 | ) | $ | 0.29 | $ | (0.07 | ) | ||||||
For the three and nine months ended September 30, 2008,
diluted earnings per share excluded 10,000 and 16,000
outstanding stock options, respectively, because the exercise
prices exceeded the average market price of our common stock
during the periods and as a result, the impact of their
inclusion would be anti-dilutive. For the nine months ended
September 30, 2008, diluted earnings per share excluded
679,162 nonvested shares of restricted stock, as the impact of
their inclusion would be anti-dilutive. For the three and nine
months ended September 30, 2009, the Company incurred net
losses and, therefore, the effect of the Companys
outstanding stock options and nonvested shares of restricted
stock was not included in the calculation of diluted loss per
share as the effect would be anti-dilutive. Accordingly, basic
and diluted net loss per share were identical. For the three and
nine months ended September 30, 2009, diluted earnings per
share excluded 2,200,379 outstanding stock options and 1,228,408
nonvested shares of restricted stock.
Recently
Adopted Accounting Pronouncements
In June 2009, the FASB issued The FASB Accounting Standards
Codification, (Codification) which is the single source of
authoritative U.S. generally accepted accounting principles
(GAAP) recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants.
The Codification supersedes all non-SEC accounting and reporting
standards. All other non-grandfathered non-SEC accounting
literature not included in the Codification is
non-authoritative. The Codification is effective for financial
statements issued for interim and annual periods ending after
September 15, 2009. The Codification did not change or
alter existing GAAP and therefore, did not have an impact on the
Companys consolidated balance sheets, statements of
operations and cash flows.
New
Accounting Pronouncements
In October 2009, the FASB issued authoritative guidance on
multiple deliverable revenue arrangements. Pursuant to the new
guidance, when vendor specific objective evidence or third-party
evidence for deliverables in an arrangement cannot be
determined, a best estimate of the selling price is required to
separate deliverables and allocate arrangement consideration
using the relative selling price method. The new guidance is
effective for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15,
2010.
9
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
However, early adoption is permitted. The Company is currently
evaluating the potential impact the adoption of the new guidance
will have on its consolidated financial statements.
3. | Cash Equivalents and Investments |
The components of cash equivalents and investments at
September 30, 2009 are as follows (dollars in thousands):
Unrealized |
Fair |
|||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Cash equivalents:
|
||||||||||||||||
Money market funds
|
$ | 15,797 | $ | | $ | | $ | 15,797 | ||||||||
Commercial paper and other
|
27,588 | | | 27,588 | ||||||||||||
Certificates of deposit
|
3,975 | | | 3,975 | ||||||||||||
Short-term investments:
|
||||||||||||||||
Government-sponsored agency debt securities
|
8,025 | 12 | | 8,037 | ||||||||||||
Commercial paper and other
|
2,439 | | | 2,439 | ||||||||||||
Certificates of deposit
|
1,900 | 4 | | 1,904 | ||||||||||||
Corporate notes and bonds
|
3,450 | | | 3,450 | ||||||||||||
Long-term investments:
|
||||||||||||||||
Government-sponsored agency debt securities
|
2,735 | 1 | | 2,736 | ||||||||||||
Total
|
$ | 65,909 | $ | 17 | $ | | $ | 65,926 | ||||||||
The components of cash equivalents and investments at
December 31, 2008 are as follows (dollars in thousands):
Unrealized |
Fair |
|||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Cash equivalents:
|
||||||||||||||||
Money market funds
|
$ | 4,056 | $ | | $ | | $ | 4,056 | ||||||||
Commercial paper and other
|
33,345 | | | 33,345 | ||||||||||||
Government-sponsored agency debt securities
|
1,504 | | | 1,504 | ||||||||||||
Certificates of deposit
|
4,798 | | | 4,798 | ||||||||||||
Short-term investments:
|
||||||||||||||||
Government-sponsored agency debt securities
|
17,944 | 76 | (10 | ) | 18,010 | |||||||||||
Certificates of deposit
|
2,299 | 1 | (1 | ) | 2,299 | |||||||||||
Corporate notes and bonds
|
1,450 | | (1 | ) | 1,449 | |||||||||||
Total
|
$ | 65,396 | $ | 77 | $ | (12 | ) | $ | 65,461 | |||||||
Cash equivalents have original maturity dates of three months or
less. Short-term investments have original maturity dates
greater than three months but less than one year. As of
September 30, 2009, long-term investments have original
maturity dates between one and two years.
10
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
4. | Fair Value Measurements |
The fair value measurements of the Companys financial
assets measured on a recurring basis at September 30, 2009
are as follows (dollars in thousands):
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Cash equivalents
|
$ | 47,360 | $ | 19,772 | $ | 27,588 | $ | | ||||||||
Short-term investments
|
15,830 | 13,391 | 2,439 | | ||||||||||||
Long-term investments
|
2,736 | 2,736 | | | ||||||||||||
Total
|
$ | 65,926 | $ | 35,899 | $ | 30,027 | $ | | ||||||||
Cash equivalents and investments are classified within
Level 1 or Level 2 of the fair value hierarchy since
they are valued using quoted market prices or broker or dealer
quotations.
5. | Stockholders Equity |
Common
Stock Repurchases
In November 2008, the Companys Board of Directors
authorized a stock repurchase program for up to $30,000,000 of
the Companys shares of common stock. The shares may be
purchased from time to time in the open market. During the nine
months ended September 30, 2009, the Company purchased an
aggregate of 224,192 shares of its common stock for
$3,500,000. During the nine months ended September 30,
2009, the Company also purchased 41,212 shares of
restricted stock that were withheld from employees to satisfy
the minimum statutory tax withholding obligations of $631,000
upon the vesting of their restricted stock awards during the
nine months ended September 30, 2009.
6. | Stock-Based Compensation |
The Companys share-based arrangements include stock option
awards and restricted stock awards. The Company recognizes
compensation expense for stock-based compensation awards on a
straight-line basis over the requisite service period of the
awards based on the estimated portion of the awards that are
expected to vest and applies estimated forfeiture rates based on
analyses of historical data, including termination patterns and
other factors.
The following table sets forth the stock-based compensation
expense for stock option awards and restricted stock awards
recorded in the consolidated statements of operations for the
three and nine months ended September 30, 2008 and 2009 (in
thousands):
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Cost of revenues
|
$ | 326 | $ | 398 | $ | 886 | $ | 1,141 | ||||||||
Sales and marketing
|
842 | 1,025 | 2,194 | 2,874 | ||||||||||||
Research and development
|
174 | 256 | 539 | 727 | ||||||||||||
General and administration
|
1,892 | 1,696 | 4,773 | 4,870 | ||||||||||||
Total
|
$ | 3,234 | $ | 3,375 | $ | 8,392 | $ | 9,612 | ||||||||
Stock
Option Awards
The Company uses the Black-Scholes option pricing model to
measure the fair value of its stock option awards. The Company
became a public entity in December 2005, and therefore has a
limited history of volatility. Accordingly, the expected
volatility is based primarily on the historical volatilities of
similar entities common
11
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
stock over the most recent period commensurate with the
estimated expected term of the awards. The expected term of an
award is equal to the midpoint between the vesting date and the
end of the contractual term of the award. The risk-free interest
rate is based on the rate on U.S. Treasury securities with
maturities consistent with the estimated expected term of the
award. The Company has not paid dividends and does not
anticipate paying a cash dividend in the foreseeable future and,
accordingly, uses an expected dividend yield of zero.
The following weighted-average assumptions were used in
calculating stock-based compensation for stock option awards
granted during the three and nine months ended
September 30, 2008 and 2009:
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Stock price volatility
|
| 62 | % | 54 | % | 62 | % | |||||||||
Expected term (years)
|
| 6.3 | 6.0 | 6.2 | ||||||||||||
Risk-free interest rate
|
| 2.8 | % | 3.1 | % | 2.5 | % | |||||||||
Dividend yield
|
| 0 | % | 0 | % | 0 | % |
The summary of stock option activity for the nine months ended
September 30, 2009 is as follows:
Weighted- |
Aggregate |
|||||||||||||||
Average |
Weighted- |
Intrinsic |
||||||||||||||
Exercise |
Average |
Value as of |
||||||||||||||
Number of |
Price per |
Contractual |
September 30, |
|||||||||||||
Options | Share | Term | 2009 | |||||||||||||
(In thousands) | ||||||||||||||||
Balance outstanding at December 31, 2008
|
2,567,074 | $ | 14.05 | |||||||||||||
Granted
|
62,689 | 17.23 | ||||||||||||||
Exercised
|
(201,424 | ) | 9.18 | |||||||||||||
Forfeited or cancelled
|
(227,960 | ) | 17.91 | |||||||||||||
Balance outstanding at September 30, 2009
|
2,200,379 | $ | 14.19 | 6.8 | $ | 15,385 | ||||||||||
Options vested and expected to vest at September 30, 2009
|
2,100,616 | $ | 14.04 | 6.8 | $ | 14,978 | ||||||||||
Exercisable at September 30, 2009
|
1,271,666 | $ | 12.54 | 6.5 | $ | 10,831 | ||||||||||
The weighted-average grant date fair value of options granted
during the three months ended September 30, 2009 was
$10.07. The Company did not grant options during the three
months ended September 30, 2008. The weighted-average grant
date fair value of options granted during the nine months ended
September 30, 2008 and 2009 was $15.94 and $10.17,
respectively. The fair value of options that vested during the
three months ended September 30, 2008 and 2009 was $498,000
in each three-month period. The fair value of options that
vested during the nine months ended September 30, 2008 and
2009 was $4,291,000 and $4,240,000 respectively. As of
September 30, 2009, $6.3 million of total unrecognized
compensation cost is related to nonvested option awards and is
expected to be recognized over a weighted-average period of
0.8 years.
The aggregate intrinsic value represents the difference between
the exercise price of the underlying awards and the quoted
closing price of the Companys common stock at the last day
of each respective quarter multiplied by the number of shares
that would have been received by the option holders had all
option holders exercised on the last day of each respective
quarter. The aggregate intrinsic value of options exercised
during the three months ended September 30, 2008 and 2009
was $10,629,000 and $123,000, respectively. The aggregate
intrinsic value of options exercised during the nine months
ended September 30, 2008 and 2009 was $15,840,000 and
$1,514,000, respectively.
12
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Restricted
Stock Awards
The fair value of the restricted stock awards is determined
based on the quoted closing market price of the Companys
common stock on the grant date.
The summary of restricted stock award activity for the nine
months ended September 30, 2009 is as follows:
Number of Shares |
||||
Underlying |
||||
Stock Awards | ||||
Balance nonvested at December 31, 2008
|
676,450 | |||
Awarded
|
842,433 | |||
Vested
|
(202,912 | ) | ||
Forfeited
|
(87,563 | ) | ||
Balance nonvested at September 30, 2009
|
1,228,408 | |||
The weighted-average grant date fair value of restricted stock
awards granted during the three months ended September 30,
2008 and 2009 was $34.74 and $16.86, respectively. The
weighted-average grant date fair value of restricted stock
awards granted during the nine months ended September 30,
2008 and 2009 was $29.60 and $16.68, respectively.
As of September 30, 2009, $21.2 million of total
unrecognized compensation cost is related to nonvested shares of
restricted stock and is expected to be recognized over a
weighted-average period of 2.8 years.
7. | Commitments and Contingencies |
The Company from time to time is subject to lawsuits,
investigations and claims arising out of the ordinary course of
business, including those related to commercial transactions,
contracts, government regulation and employment matters. In the
opinion of management based on all known facts, all such
matters, if any, are either without merit or are of such kind,
or involve such amounts that would not have a material effect on
the financial position or results of operations of the Company
if disposed of unfavorably.
8. | Subsequent Events |
The Company evaluated subsequent events through the time of
filing this Quarterly Report on
Form 10-Q
on November 6, 2009. Management is not aware of any
significant events that occurred subsequent to the balance sheet
date but prior to the filing of this report that would have a
material impact on the Companys consolidated financial
statements.
13
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial
condition and results of operations should be read in
conjunction with our consolidated financial statements and
related notes that appear elsewhere in this report and in our
annual report on
Form 10-K
for the year ended December 31, 2008.
This report includes forward-looking statements that are made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements
can be identified by the use of words such as
anticipate, believe,
estimate, may, intend,
expect, will, should,
seeks or other similar expressions. Forward-looking
statements reflect our plans, expectations and beliefs, and
involve inherent risks and uncertainties, many of which are
beyond our control. You should not place undue reliance on any
forward-looking statement, which speaks only as of the date
made. Our actual results could differ materially from those
discussed in the forward-looking statements. Factors that could
cause or contribute to these differences include those discussed
below and elsewhere in this report, particularly in Risk
Factors in Item 1A of Part II.
Overview
We are a leading provider of on-demand software for public
relations management. Our web-based software suite helps
organizations of all sizes fundamentally change the way they
communicate with both the media and the public, optimizing their
public relations and increasing their ability to measure its
impact. Our on-demand software addresses the critical functions
of public relations including media relations, news distribution
and news monitoring. We deliver our solutions over the Internet
using a secure, scalable application and system architecture,
which allows our customers to eliminate expensive up-front
hardware and software costs and to quickly deploy and adopt our
on-demand software.
We sell access to our on-demand software primarily through our
direct sales channel. As of September 30, 2009, we had
4,001 active subscription customers from a variety of
industries, including financial and insurance, technology,
healthcare and pharmaceutical and retail and consumer products,
as well as government agencies,
not-for-profit
organizations and educational institutions. We define active
subscription customers as unique customer accounts that have an
active subscription and have not been suspended for non-payment.
We are also a provider of online distribution of press releases.
We enable our customers to achieve visibility on the Internet by
distributing search engine optimized press releases directly to
various news sites and the public. We offer an on-demand
solution which allows our customers to widely distribute press
releases containing important elements of content-rich media
such as images, podcasts and video messages designed to drive
Internet traffic to websites and increase brand awareness.
We plan to continue the expansion of our customer base by
expanding our direct distribution channels, expanding our
international market penetration and selectively pursuing
strategic acquisitions. As a result, we plan to hire additional
personnel, particularly in sales and marketing, and expand our
domestic and international selling and marketing activities,
increase the number of locations around the world where we
conduct business and develop our operational and financial
systems to manage a growing business. We also intend to seek to
identify and acquire companies which would either expand our
solutions functionality, provide access to new customers
or markets, or both.
Sources
of Revenues
We derive our revenues from subscription agreements and related
services and from the online distribution of press releases. Our
subscription agreements contain multiple service elements and
deliverables, which include use of our on-demand software,
hosting services, content and content updates, implementation
and training services and customer support. The typical term of
our subscription agreements is one year; however, our customers
may purchase subscriptions with multi-year terms. We invoice our
customers in advance of their annual subscription, with payment
terms that require our customers pay us generally within
30 days of invoice. Our subscription agreements typically
are non-cancelable, though customers have the right to terminate
their agreements for cause if we materially breach our
obligations under the agreement.
14
Additionally, we derive revenue on a per-transaction basis from
the online distribution of press releases. We generally receive
payment in advance of the distribution of the press release.
Professional services revenue consists primarily of data
migration, training and configuration services sold separately
after the initial subscription agreement. Our professional
service engagements are billed on a fixed fee basis with payment
terms requiring our customers to pay us within 30 days of
invoice. Revenues from professional services sold separately
from subscription agreements have not been material to our
business. During the three and nine months ended
September 30, 2009, professional services sold separately
accounted for less than 3% of our revenues.
Cost of
Revenues and Operating Expenses
Cost of Revenues. Cost of revenues consists
primarily of compensation for training, editorial and support
personnel, hosting infrastructure, press release distribution,
acquisition, maintenance and amortization of content,
amortization of purchased technology, amortization of
capitalized software development costs, depreciation associated
with computer equipment and software and allocated overhead. We
allocate overhead expenses such as employee benefits, computer
and office supplies, management information systems and
depreciation for computer equipment based on headcount. As a
result, indirect overhead expenses are included in cost of
revenues and each operating expense category.
We believe content is an integral part of our solution and
provides our customers with access to broad, current and
relevant information critical to their public relations efforts.
We expect to continue to make investments in both our own
content as well as content acquired from third parties and to
continue to enhance our proprietary information database and
news on-demand service. We expect that in 2009, cost of revenues
will increase in absolute dollars but will decrease slightly as
a percentage of revenues, as we incur expenses to expand our
content offerings and our capacity to support new customers.
Sales and Marketing. Sales and marketing
expenses are our largest operating expense, accounting for 48%
of our revenues for the nine months ended September 30,
2009. Sales and marketing expenses consist primarily of
compensation for our sales and marketing personnel, sales
commissions and incentives, marketing programs, including lead
generation, promotional events, webinars and other brand
building expenses and allocated overhead. We expense our sales
commissions at the time a subscription agreement is executed by
the customer, and we recognize substantially all of our revenues
ratably over the term of the corresponding subscription
agreement. As a result, we incur sales expense before the
recognition of the related revenues.
As our revenues increase, we plan to invest in sales and
marketing by increasing the number of sales and marketing
personnel to add new customers, increase sales to our existing
customers and increase sales of our online press release
distribution services. We also plan to expand our marketing
activities in order to build brand awareness and generate
additional leads for our growing sales personnel. We expect that
in 2009, sales and marketing expenses will increase in absolute
dollars and as a percentage of revenues.
Research and Development. Research and
development expenses consist primarily of compensation for our
software application development personnel and allocated
overhead. We have historically focused our research and
development efforts on increasing the functionality and
enhancing the ease of use of our on-demand software. Because of
our hosted, on-demand model, we are able to provide all of our
customers with a single, shared version of our most recent
application. As a result, we do not have to maintain legacy
versions of our software, which enables us to have relatively
low research and development expenses as compared to traditional
enterprise software business models. We expect that in 2009,
research and development expenses will decrease in absolute
dollars and decrease slightly as a percentage of revenues.
General and Administrative. General and
administrative expenses consist of compensation and related
expenses for executive, finance, legal, human resources and
administrative personnel, as well as legal, accounting and
professional fees, facilities rent other corporate expenses and
allocated overhead. We expect that in 2009, general and
administrative expenses will decrease in absolute dollars and as
a percentage of revenues.
Amortization of Intangible Assets. Amortized
intangible assets consist of customer relationships, a trade
name and agreements
not-to-complete
acquired in business combinations.
15
Critical
Accounting Policies
Our consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United
States. The preparation of these consolidated financial
statements requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues,
costs and expenses and related disclosures. On an ongoing basis,
we evaluate our estimates and assumptions. Our actual results
may differ from these estimates under different assumptions or
conditions.
We believe that of our significant accounting policies, which
are described in Note 2 to the accompanying consolidated
financial statements and in our annual report on Form
10-K for the
year ended December 31, 2008, the following accounting
policies involve a greater degree of judgment and complexity.
Accordingly, these are the policies we believe are the most
critical to aid in fully understanding and evaluating our
consolidated financial condition and results of operations.
Revenue Recognition. We recognize revenues
when there is persuasive evidence of an arrangement, the service
has been provided to the customer, the collection of the fee is
probable and the amount of the fees to be paid by the customer
is fixed or determinable. Amounts that have been invoiced are
recorded in accounts receivable and deferred revenue.
Our subscription agreements generally contain multiple service
elements and deliverables. These elements include access to our
software and often specify initial services including
implementation and training. Our subscription agreements do not
provide customers the right to take possession of the software
at any time.
Our revenue recognition policy considers all elements in our
multiple element subscription agreements as a single unit of
accounting and, accordingly, we recognize all associated fees
over the subscription period, which is typically one year. We
recognize our revenue over the subscription period because the
access to our software is the last element delivered to the
customer and the predominant element of our agreements. We
determined that we do not have objective and reliable evidence
of the fair value of the subscription to our on-demand software
after delivery of specified initial services. When we sell this
subscription separately from professional services the price
charged varies and, therefore, we cannot objectively and
reliably determine the subscriptions fair value. As a
result, subscription revenues are recognized ratably over the
subscription period. Professional services sold separately from
a subscription arrangement are recognized as the services are
performed.
We distribute press releases over the Internet which are indexed
by major search engines and distributed directly to various news
sites, journalists and other key constituents. We recognize
revenue on a per-transaction basis when the press releases are
made available to the public.
Sales Commissions. Sales commissions are
expensed when a subscription agreement is executed by the
customer. As a result, we incur incremental sales expense before
the recognition of the related revenues.
Stock-Based Compensation. We recognize
compensation expense for stock-based compensation awards based
on the fair value of the awards and on a straight-line basis
over the requisite service period of the award based on the
estimated portion of the awards that are expected to vest. We
apply estimated forfeiture rates based on analyses of historical
data, including termination patterns and other factors. We use
the quoted closing market price of our common stock on the grant
date to measure the fair value of our restricted stock awards.
We use the Black-Scholes option pricing model to measure the
fair value of our option awards. We became a public entity in
December 2005, and therefore have a limited history of
volatility. Accordingly, the expected volatility is based
primarily on the historical volatilities of similar
entities common stock over the most recent period
commensurate with the estimated expected term of the awards. The
expected term of an award is equal to the midpoint between the
vesting date and the end of the contractual term of the award.
The risk-free interest rate is based on the rate on
U.S. Treasury securities with maturities consistent with
the estimated expected term of the awards. We have not paid
dividends and do not anticipate paying a cash dividend in the
foreseeable future and, accordingly, use an expected dividend
yield of zero.
Business Combinations. We have completed
acquisitions of businesses that have resulted in the recording
of goodwill and identifiable definite-lived intangible assets
based on the estimated fair value of those assets.
Definite-lived intangible assets consist of acquired customer
relationships, a trade name, agreements
not-to-compete
and
16
purchased technology. Definite-lived intangible assets are
amortized either on a straight-line or accelerated basis over
their estimated useful lives ranging from two to seven years.
Accounting for these acquisitions requires us to make
determinations about the fair value of assets acquired, useful
lives for definite-lived intangible assets, and liabilities
assumed that involve estimates and judgments.
Goodwill and Long-Lived Assets. Goodwill is
not amortized, but rather is assessed for impairment at least
annually. Goodwill impairment is evaluated using a two step
process. The first step is to identify if a potential impairment
exists by comparing the fair value of a reporting unit with its
carrying amount, including goodwill. If the fair value of a
reporting unit exceeds its carrying amount, goodwill of the
reporting unit is not considered to have a potential impairment
and the second step of the impairment test is not necessary.
However, if the carrying amount of a reporting unit exceeds its
fair value, the second step is performed to determine if
goodwill is impaired and to measure the amount of impairment
loss to recognize, if any. The second step compares the implied
fair value of goodwill with the carrying amount of goodwill. If
the implied fair value of goodwill exceeds the carrying amount,
then goodwill is not considered impaired. However, if the
carrying amount of goodwill exceeds the implied fair value, an
impairment loss is recognized in an amount equal to that excess.
The implied fair value of goodwill is determined in the same
manner as the amount of goodwill recognized in a business
combination. The fair value of the reporting unit is allocated
to all the assets and liabilities, including any previously
unrecognized intangible assets, as if the reporting unit had
been acquired in a business combination and the fair value of
the reporting unit was the purchase price paid to acquire the
reporting unit.
We assess the impairment of definite-lived intangible and other
long-lived assets when events or changes in circumstances
indicate that the carrying value of an asset may no longer be
fully recoverable. We determine the impairment, if any, by
comparing the carrying value of the assets to future
undiscounted net cash flows expected to be generated by the
related assets. An impairment charge is recognized to the extent
the carrying value exceeds the estimated fair value of the
assets.
There were no events or changes in circumstances through
September 30, 2009 indicating that an interim impairment
assessment was necessary for goodwill or long-lived assets.
Income Taxes. We use the asset and liability
method whereby deferred tax assets are recognized for deductible
temporary differences and operating loss and tax-credit
carryforwards, and deferred tax liabilities are recognized for
taxable temporary differences. Deferred tax assets are reduced
by the valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
Our judgments relative to the current provision for income taxes
take into account current tax laws, our interpretation of
current tax laws and possible outcomes of current and future
audits conducted by foreign and domestic tax authorities. We
file income tax returns in the U.S. federal jurisdictions
and various state and foreign jurisdictions and are subject to
U.S. federal tax, state and foreign tax examinations for
years ranging from 2001 to 2008. Our judgments relative to the
value of deferred tax assets and liabilities take into account
estimates of the amount of future taxable income. Actual
operating results and the underlying amount of income in future
years could render our current assumptions, judgments and
estimates of recoverable net deferred taxes inaccurate. Any of
the assumptions, judgments and estimates mentioned above could
cause our actual income tax obligations to differ from our
estimates, thus materially impacting our financial position and
results of operations.
Historically, we maintained a full valuation allowance on our
deferred tax assets because we were unable to conclude that it
was more likely than not that we would realize the tax benefits
of these deferred tax assets. During 2008, we concluded that it
is more likely than not that we will have future taxable income
sufficient to realize certain of our deferred tax assets and we
reversed our valuation allowance against our U.S. deferred
tax assets. As of September 30, 2009, we maintained a full
valuation against our foreign deferred tax assets.
17
Results
of Operations
The following tables set forth selected unaudited consolidated
statements of operations data for each of the periods indicated
as a percentage of total revenues for the periods indicated.
Three Months |
Nine Months |
|||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Revenues
|
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Cost of revenues
|
19 | 18 | 19 | 19 | ||||||||||||
Gross profit
|
81 | 82 | 81 | 81 | ||||||||||||
Operating expenses:
|
||||||||||||||||
Sales and marketing
|
44 | 48 | 45 | 48 | ||||||||||||
Research and development
|
7 | 6 | 7 | 6 | ||||||||||||
General and administrative
|
28 | 25 | 27 | 24 | ||||||||||||
Amortization of intangible assets
|
3 | 2 | 4 | 2 | ||||||||||||
Total operating expenses
|
82 | 81 | 83 | 80 | ||||||||||||
Income (loss) from operations
|
(1 | ) | 1 | (2 | ) | 1 | ||||||||||
Other income, net
|
2 | | 3 | 1 | ||||||||||||
Income before provision (benefit) for income taxes
|
1 | 1 | 1 | 2 | ||||||||||||
Provision (benefit) for income taxes
|
| 3 | (9 | ) | 4 | |||||||||||
Net income (loss)
|
1 | % | (2 | )% | 10 | % | (2 | )% | ||||||||
Three
Months Ended September 30, 2009 and 2008
Revenues. Revenues for the three months ended
September 30, 2009 were $21.0 million, an increase of
$1.0 million, or 5%, over revenues of $20.0 million
for the comparable period in 2008. The increase in revenues was
primarily due to the increase in the number of total active
subscription customers to 4,001 as of September 30, 2009
from 3,144 as of September 30, 2008. The increase in active
subscription customers was the result of additional sales
personnel focused on acquiring new customers and renewing
existing customers. Revenue growth from the increase in active
subscription customers was $593,000. Revenue growth from
transaction revenue was $504,000. Total deferred revenue as of
September 30, 2009 was $39.6 million, representing an
increase of $1.7 million, or 4%, over total deferred
revenue of $37.9 million as of September 30, 2008.
Cost of Revenues. Cost of revenues for the
three months ended September 30, 2009 was
$3.9 million, an increase of $160,000, or 4%, over cost of
revenues of $3.7 million for the comparable period in 2008.
The increase in cost of revenues was primarily due to an
increase of $74,000 in employee-related costs and $97,000 in
third-party license and royalty fees. We had 143 full-time
employee equivalents in our professional and other support
services group at September 30, 2009 compared to
150 full-time employee equivalents at September 30,
2008. Compensation costs for our content group in the United
Kingdom are included in cost of revenues since the launch of our
United Kingdom and Ireland media database in September 2008.
Prior to the launch, the compensation costs and related
headcount were included in research and development.
Sales and Marketing Expenses. Sales and
marketing expenses for the three months ended September 30,
2009 were $10.2 million, an increase of $1.4 million,
or 15%, over sales and marketing expenses of $8.8 million
for the comparable period in 2008. The increase in sales and
marketing was primarily due to an increase of $663,000 in
employee-related costs from additional personnel, $798,000 in
marketing program costs primarily to increase awareness and
attract customers to our online press release services and
$183,000 in stock-based compensation, offset by a decrease of
$76,000 in incentive compensation reflecting our relative sales
performance against established incentive targets. Our sales and
marketing headcount increased by 23% as we hired additional
sales personnel to focus on acquiring new customers and
increasing revenues from existing customers and marketing
18
personnel to expand our activities to build brand awareness. We
had 254 full-time employee equivalents in sales and
marketing at September 30, 2009 compared to
206 full-time employee equivalents at September 30,
2008.
Research and Development Expenses. Research
and development expenses for the three months ended
September 30, 2009 were $1.2 million, a decrease of
$156,000, or 12%, compared to research and development expenses
of $1.3 million for the comparable period in 2008. The
decrease in research and development was primarily due to a
decrease of $160,000 in employee-related costs. We had
29 full-time employee equivalents in research and
development at September 30, 2009 and 2008. Compensation
costs for our content group in the United Kingdom were included
in research and development prior to the launch of our United
Kingdom and Ireland media database in September 2008. Subsequent
to the launch, the compensation costs and related headcount are
included in costs of revenues.
General and Administrative Expenses. General
and administrative expenses for the three months ended
September 30, 2009 were $5.2 million, a decrease of
$435,000, or 8%, compared to general and administrative expenses
of $5.6 million for the comparable period in 2008. The
decrease in general and administrative expenses was primarily
due to decreases of $107,000 in incentive compensation
reflecting our relative performance against established
incentive targets and $196,000 in stock-based compensation. We
had 49 full-time employee equivalents in our general and
administrative group at September 30, 2009 compared to
46 full-time employee equivalents at September 30,
2008.
Amortization of Intangible
Assets. Amortization of intangible assets for the
three months ended September 30, 2009 was $476,000, a
decrease of $212,000, or 31%, compared to $688,000 for the
comparable period in 2008. Amortization of intangible assets
acquired in our purchase of Gnossos Software, Inc. in November
2004, were fully amortized in October 2008. Amortization expense
for the three months ended September 30, 2008 included
$190,000 related to these assets.
Other Income (Expense). Other income for the
three months ended September 30, 2009 was $42,000, a
decrease of $458,000, or 92%, compared to $500,000 for the
comparable period in 2008. The continued decline in interest
yields in 2009 for fixed income securities resulted in decreased
interest income.
Provision (Benefit) for Income Taxes. The
provision for income taxes for the three months ended
September 30, 2009 was $584,000, an increase of $522,000
over the provision for income taxes of $62,000 for the
comparable period in 2008. The provision for income taxes
reflects our estimated annual effective tax rate for the
respective years. For the three months ended September 30,
2008, our effective tax rate differed from the U.S. Federal
statutory rates primarily due to the effect of the valuation
allowance related to our U.S. deferred tax assets and, to a
lesser extent, operating losses in foreign jurisdictions for
which no tax benefit is currently available, state income taxes
and certain non-deductible expenses. For the three months ended
September 30, 2009, our effective tax rate differed from
the U.S. Federal statutory rates primarily due to operating
losses in foreign jurisdictions for which no tax benefit is
currently available, and to a lesser extent, state income taxes
and certain non-deductible expenses.
Nine
Months Ended September 30, 2009 and 2008
Revenues. Revenues for the nine months ended
September 30, 2009 were $62.5 million, an increase of
$5.6 million, or 10%, over revenues of $56.9 million
for the comparable period in 2008. The increase in revenues was
primarily due to the increase in the number of total active
subscription customers to 4,001 as of September 30, 2009
from 3,144 as of September 30, 2008. The increase in active
subscription customers was the result of additional sales
personnel focused on acquiring new customers and renewing
existing customers. Revenue growth from the increase in active
subscription customers was $4.0 million. Revenue growth
from transaction revenue was $1.6 million. Total deferred
revenue as of September 30, 2009 was $39.6 million,
representing an increase of $1.7 million, or 4%, over total
deferred revenue of $37.9 million as of September 30,
2008.
Cost of Revenues. Cost of revenues for the
nine months ended September 30, 2009 was
$11.6 million, an increase of $855,000, or 8%, over cost of
revenues of $10.8 million for the comparable period in
2008. The increase in cost of revenues was primarily due to an
increase of $428,000 in employee-related costs, $255,000 in
stock-based compensation and $201,000 in third-party license and
royalty fees, offset by a decrease of $167,000 in incentive
compensation reflecting our relative performance against
established incentive targets. We had 143 full-time
19
employee equivalents in our professional and other support
services group at September 30, 2009 compared to
150 full-time employee equivalents at September 30,
2008. Compensation costs for our content group in the United
Kingdom are included in cost of revenues since the launch of our
United Kingdom and Ireland media database in September 2008.
Prior to the launch, the compensation costs and related
headcount were included in research and development.
Sales and Marketing Expenses. Sales and
marketing expenses for the nine months ended September 30,
2009 were $29.9 million, an increase of $4.4 million,
or 17%, over sales and marketing expenses of $25.5 million
for the comparable period in 2008. The increase was primarily
due to an increase of $2.2 million in employee-related
costs from additional personnel, $2.2 million in marketing
program costs primarily to increase awareness and attract
customers to our online press release services and $680,000 in
stock-based compensation, offset by a decrease of $558,000 in
incentive compensation and $323,000 in sales commissions
reflecting our relative sales performance against established
incentive targets. Our sales and marketing headcount increased
by 23% as we hired additional sales personnel to focus on
acquiring new customers and increasing revenues from existing
customers and marketing personnel to expand our activities to
build brand awareness. We had 254 full-time employee
equivalents in sales and marketing at September 30, 2009
compared to 206 full-time employee equivalents at
September 30, 2008.
Research and Development Expenses. Research
and development expenses for the nine months ended
September 30, 2009 were $3.4 million, a decrease of
$434,000, or 11%, compared to research and development expenses
of $3.9 million for the comparable period in 2008. The
decrease in research and development was primarily due to
decreases of $305,000 in employee-related costs and $111,000 in
incentive compensation reflecting our relative performance
against established incentive targets, offset by an increase of
$188,000 in stock-based compensation. For the nine months ended
September 30, 2009, we capitalized $142,000 of
employee-related costs for internally developed software. For
the nine months ended September 30, 2008, we capitalized
$23,000 employee-related costs for internally developed
software used in our subscription services. We had
29 full-time employee equivalents in research and
development at September 30, 2009 and 2008. Compensation
costs for our content group in the United Kingdom were included
in research and development prior to the launch of our United
Kingdom and Ireland media database in September 2008. Subsequent
to the launch, the compensation costs and related headcount are
included in costs of revenues.
General and Administrative Expenses. General
and administrative expenses for the nine months ended
September 30, 2009 were $15.4 million, a decrease of
$198,000, or 1%, compared to general and administrative expenses
of $15.6 million for the comparable period in 2008. The
decrease in general and administrative expenses was primarily
due to a decrease of $505,000 in incentive compensation
reflecting our relative performance against established
incentive targets, offset by increases of $190,000 in
employee-related costs and $97,000 in stock-based compensation.
We had 49 full-time employee equivalents in our general and
administrative group at September 30, 2009 compared to
46 full-time employee equivalents at September 30,
2008.
Amortization of Intangible
Assets. Amortization of intangible assets for the
nine months ended September 30, 2009 was $1.5 million,
a decrease of $642,000, or 31%, compared to $2.1 million
for the comparable period in 2008. Amortization of intangible
assets acquired in our purchase of Gnossos Software, Inc. in
November 2004, were fully amortized in October 2008.
Amortization expense for the nine months ended
September 30, 2008 included $570,000 related to these
assets.
Other Income (Expense). Other income for the
nine months ended September 30, 2009 was $359,000, a
decrease of $1.2 million, or 77%, compared to
$1.6 million for the comparable period in 2008. The
continued decline in interest yields in 2009 for fixed income
securities resulted in decreased interest income.
Provision (Benefit) for Income Taxes. The
provision for income taxes for the nine months ended
September 30, 2009 of $2.2 million reflects our
estimated annual effective tax rate for the year. For the nine
months ended September 30, 2009, our effective tax rate
differs from the U.S. Federal statutory rate primarily due
to operating losses in foreign jurisdictions for which no tax
benefit is currently available, and to a lesser extent, state
income taxes and certain non-deductible expenses. The benefit
from income taxes for the nine months ended September 30,
2008 was $4.9 million. At each balance sheet date, we
assess the likelihood that we will be able to recover our
deferred tax assets. We consider all available evidence, both
positive and negative, including historical levels of
20
profitability and estimates of future taxable income, to
determine the need for the valuation allowance. During the nine
months ended September 30, 2008, we concluded that it was
more likely than not that we would be able to generate
sufficient future taxable income to realize certain of our
deferred tax assets. As a result, we reversed the valuation
allowance against our U.S. deferred tax. Our effective tax
rate differed from the U.S. Federal statutory rate
primarily due to the reversal of the valuation allowance and, to
a lesser extent, state income taxes, certain nondeductible
expenses and operating losses in foreign jurisdictions for which
no tax benefit is currently available.
Liquidity
and Capital Resources
At September 30, 2009, our principal sources of liquidity
were cash and cash equivalents totaling $82.1 million,
investments totaling $18.6 million and net accounts
receivable of $9.9 million.
Net cash provided by operating activities for the nine months
ended September 30, 2009 was $12.9 million reflecting
a net loss of $1.2 million and non-cash charges for
depreciation and amortization charges of $2.7 million and
stock-based compensation expense of $9.6 million, offset by
the excess tax benefit from stock awards of $4.4 million.
Changes in operating assets and liabilities were
$7.6 million resulting primarily resulting from a decrease
of $4.8 million in accounts receivable attributable to the
timing of cash collections and a lower volume of subscription
agreements invoiced in the nine months ended September 30,
2009, compared to a seasonally high volume of subscription
agreement invoiced in the fourth quarter of 2008.
Net cash provided by investing activities for the nine months
ended September 30, 2009 was $1.9 million which
primarily resulted from proceeds received from net maturities of
investments of $3.1 million and investments in property,
equipment and software of $1.3 million to support our
continued growth.
Net cash used in financing activities for the nine months ended
September 30, 2009 was $2.0 million. In the nine
months ended September 30, 2009, we purchased
265,404 shares of our common stock at an aggregate cost of
$4.1 million, received proceeds from the exercise of stock
option awards of $1.8 million and had a tax benefit from
the exercise of stock awards of $4.4 million.
As of September 30, 2009, we did not have any relationships
with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special
purpose entities, which would have been established for the
purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. Other than our
operating leases for office space and equipment, we do not
engage in off-balance sheet financing arrangements. In addition,
we do not engage in trading activities involving non-exchange
traded contracts. As such, we are not materially exposed to any
financing, liquidity, market or credit risk that could arise if
we had engaged in these relationships.
We intend to fund our operating expenses and capital
expenditures primarily through cash flows from operations. We
believe that our current cash, cash equivalents and investments
together with our expected cash flows from operations will be
sufficient to meet our anticipated cash requirements for working
capital and capital expenditures for at least the next
12 months.
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
For quantitative and qualitative disclosures about market risk,
see Item 7A, Quantitative and Qualitative Disclosures
About Market Risk, of our annual report on
Form 10-K
for the year ended December 31, 2008. Our exposures to
market risk have not changed materially since December 31,
2008.
Item 4. | Controls and Procedures |
Evaluation
of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures
(as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of the end of the period covered
by this report. Based on the evaluation of our disclosure
controls and procedures, our Chief Executive Officer and our
Chief Financial Officer
21
have concluded that our disclosure controls and procedures were
effective to ensure that the information required to be
disclosed by us in the reports that we file or submit under the
Exchange Act was recorded, processed, summarized and reported
within the time periods specified in the SECs rules and
forms and that such information required to be disclosed is
accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, to allow timely
decisions regarding required disclosure.
Changes
in Internal Controls
There were no changes in our internal controls over financial
reporting that occurred during the quarter covered by this
report that have materially affected, or are reasonably likely
to materially affect, our internal controls over financial
reporting.
PART II
Item 1. | Legal Proceedings |
We are not currently subject to any material legal proceedings.
From time to time, however, we are named as a defendant in legal
actions arising from our normal business activities. Although we
cannot accurately predict the amount of our liability, if any,
that could arise with respect to legal actions currently pending
against us, we do not expect that any such liability will have a
material adverse effect on our financial positions, operating
results or cash flows.
Item 1A. | Risk Factors |
We operate in a rapidly changing environment that involves a
number of risks, some of which are beyond our control. This
discussion highlights some of the risks which may affect future
operating results. These are the risks and uncertainties we
believe are most important for you to consider. Additional risks
and uncertainties not presently known to us, which we currently
deem immaterial or which are similar to those faced by other
companies in our industry or business in general, may also
impair our business operations. If any of the following risks or
uncertainties actually occurs, our business, financial condition
and operating results would likely suffer.
Risks
Related to Our Business and Industry
Current
economic and market conditions may adversely affect our
business, financial condition and results of
operations.
The current economic downturn, which has resulted in declines in
corporate spending, decreases in consumer confidence and
tightening in the credit markets may adversely affect our
financial condition and the financial condition and liquidity of
our customers and suppliers. Among other things, these economic
and market conditions may result in:
| reductions in the corporate budgets, including technology spending of our customers and potential customers; | |
| declines in demand for our solutions; | |
| decreases in collections of our customer receivables; | |
| insolvency of our key vendors and suppliers; and | |
| volatility in interest rates and decreases in investment income. |
Any of these events, which are outside of our scope of control,
would likely have an adverse effect on our business, financial
condition, results of operations and cash flows.
22
Our
quarterly results of operations may fluctuate in the future. As
a result, we may fail to meet or exceed the expectations of
investors or securities analysts which could cause our stock
price to decline.
Our quarterly revenue and results of operations may fluctuate as
a result of a variety of factors, many of which are outside of
our control. If our quarterly revenue or results of operations
fall below the expectations of investors or securities analysts,
the price of our common stock could decline substantially.
Fluctuations in our results of operations may be due to a number
of factors, including, but not limited to, those listed below
and identified throughout this Risk Factors section:
| our ability to retain and increase sales to existing customers and attract new customers; | |
| changes in the volume and mix of subscriptions sold and press releases distributed in a particular quarter; | |
| seasonality of our business cycle, given that our subscription volumes are normally lowest in the first quarter and highest in the fourth quarter; | |
| our policy of expensing sales commissions at the time our customers execute a subscription agreement, while the majority of our revenue is recognized ratably over future periods; | |
| the timing and success of new product introductions or upgrades by us or our competitors; | |
| changes in our pricing policies or those of our competitors; | |
| the amount and timing of expenditures related to expanding our operations; | |
| changes in accounting policies; | |
| the timing of non-recurring charges; | |
| changes in the payment terms for our products and services; | |
| changes in foreign currency exchange rates; | |
| unforeseen fluctuations in our effective tax rate including changes in the mix of earnings in the various countries in which we operate, the valuation of deferred tax assets and liabilities and the deductibility of certain expenses; | |
| foreign currency exchange rates; and | |
| the purchasing and budgeting cycles of our customers. |
Most of our expenses, such as salaries and third-party hosting
co-location costs, are relatively fixed in the short-term, and
our expense levels are based in part on our expectations
regarding future revenue levels. As a result, if revenue for a
particular quarter is below our expectations, we may not be able
to proportionally reduce operating expenses for that quarter,
causing a disproportionate effect on our expected results of
operations for that quarter.
Due to the foregoing factors, and the other risks discussed in
this report, you should not rely on
quarter-to-quarter
comparisons of our results of operations as an indication of our
future performance.
The
markets for our on-demand software and solutions are emerging,
which makes it difficult to evaluate our business and future
prospects and may increase the risk of your
investment.
The market for software specifically designed for public
relations is relatively new and emerging, making our business
and future prospects difficult to evaluate. Many companies have
invested substantial personnel and financial resources in their
PR departments, and may be reluctant or unwilling to migrate to
on-demand software and services specifically designed to address
the public relations market. Widespread market acceptance of our
solutions is critical to the success of our business. You must
consider our business and future prospects in light of the
challenges, risks and difficulties we encounter in the new and
rapidly evolving market of on-demand public relations management
solutions. These challenges, risks and difficulties include the
following:
| generating sufficient revenue to maintain profitability; | |
| managing growth in our operations; |
23
| managing the risks associated with developing new services and modules; | |
| attracting and retaining customers; and | |
| attracting and retaining key personnel. |
We may not be able to successfully address any of these
challenges, risks and difficulties, including the other risks
related to our business and industry described below. Failure to
adequately do so could adversely affect our business, results of
operations or financial condition.
If our
on-demand solutions are not widely accepted, our business will
be harmed.
We derive, and expect to continue to derive for the foreseeable
future, principally all of our revenue from providing on-demand
solutions. Our success will depend to a substantial extent on
the willingness of companies to increase their use of on-demand
solutions in general and for on-demand public relations software
and services in particular. If businesses do not perceive the
benefits of our on-demand solutions, then the market may not
develop further, or it may develop more slowly than we expect,
either of which would adversely affect our business, financial
condition and results of operations.
A
majority of our on-demand solutions are sold pursuant to
subscription agreements, and if our existing subscription
customers elect either not to renew these agreements or renew
these agreements for fewer modules or users, our business,
financial condition and results of operations will be adversely
affected.
A majority of our on-demand solutions are sold pursuant to
annual subscription agreements and our customers have no
obligation to renew these agreements. As a result, we may not be
able to consistently and accurately predict future renewal
rates. Our subscription customers renewal rates may
decline or fluctuate or our subscription customers may renew for
fewer modules or users as a result of a number of factors,
including their level of satisfaction with our solutions,
budgetary or other concerns, and the availability and pricing of
competing products. Additionally, we may lose our subscription
customers due to the high turnover rate in the PR departments of
small and mid-sized organizations. If large numbers of existing
subscription customers do not renew these agreements, or renew
these agreements on terms less favorable to us, and if we cannot
replace or supplement those non-renewals with new subscription
agreements generating the same or greater level of revenue, our
business, financial condition and results of operations will be
adversely affected.
Because
we recognize subscription revenue over the term of the
applicable subscription agreement, the lack of subscription
renewals or new subscription agreements may not be immediately
reflected in our operating results.
We recognize revenue from our subscription customers over the
terms of their subscription agreements. The majority of our
quarterly revenue usually represents deferred revenue from
subscription agreements entered into during previous quarters.
As a result, a decline in new or renewed subscription agreements
in any one quarter will not necessarily be fully reflected in
the revenue for the corresponding quarter but will negatively
affect our revenue in future quarters. Additionally, the effect
of significant downturns in sales and market acceptance of our
solutions may not be fully reflected in our results of
operations until future periods. Our subscription model also
makes it difficult for us to rapidly increase our revenue
through additional sales in any period, as revenue from new
customers must be recognized over the applicable subscription
term.
We
might not generate increased business from our current
customers, which could limit our revenue in the
future.
The success of our strategy is dependent, in part, on the
success of our efforts to sell additional modules and services
to our existing customers and to increase the number of users
per subscription customer. These customers might choose not to
expand their use of or make additional purchases of our
solutions. If we fail to generate additional business from our
current customers, our revenue could grow at a slower rate or
decrease.
24
Our
business model continues to evolve, which may cause our results
of operations to fluctuate or decline.
Our business model continues to evolve, and is therefore subject
to additional risk and uncertainty. For example, through our
acquisition of PRWeb International, Inc. in August 2006, we
began providing online press release distribution. We anticipate
that our future financial performance and revenue growth will
depend, in part, upon the growth of these services. Unlike our
historical, subscription-based model, we recognize revenue from
our online news distribution services on a per transaction basis
when our customers press releases are made available to
the public. Since our transaction revenue is not derived from
subscription agreements, the amount of transaction revenue we
recognize in any period could fluctuate significantly from prior
periods, which could adversely affect our financial condition
and results of operations.
We
depend on search engines to attract new customers, and if those
search engines change their listings or our relationship with
them deteriorates or terminates, we may be unable to attract new
customers and our business may be harmed.
We rely on search engines to attract new customers, and many of
our customers locate our websites by clicking through on search
results displayed by search engines such as Google and Yahoo!.
Search engines typically provide two types of search results,
algorithmic and purchased listings. Algorithmic search results
are determined and organized solely by automated criteria set by
the search engine and a ranking level cannot be purchased.
Advertisers can also pay search engines to place listings more
prominently in search results in order to attract users to
advertisers websites. We rely on both algorithmic and
purchased listings to attract customers to our websites. Search
engines revise their algorithms from time to time in an attempt
to optimize their search result listings. If search engines on
which we rely for algorithmic listings modify their algorithms,
then our websites may not appear at all or may appear less
prominently in search results which could result in fewer
customers clicking through to our websites, requiring us to
resort to other potentially costly resources to advertise and
market our services. If one or more search engines on which we
rely for purchased listings modifies or terminates its
relationship with us, our expenses could rise, or our revenue
could decline and our business may suffer. Additionally, the
cost of purchased search listing advertising is rapidly
increasing as demand for these channels grows, and further
increases could greatly increase our expenses.
Failure
to effectively develop and expand our sales and marketing
capabilities could harm our ability to increase our customer
base and achieve broader market acceptance of our
solutions.
Increasing our customer base and achieving broader market
acceptance of our solutions will depend to a significant extent
on our ability to expand our sales and marketing operations. We
plan to continue to expand our direct sales force and engage
additional third-party channel partners, both domestically and
internationally. This expansion will require us to invest
significant financial and other resources. Our business will be
seriously harmed if our efforts do not generate a corresponding
significant increase in revenue. We may not achieve anticipated
revenue growth from expanding our direct sales force if we are
unable to hire and develop talented direct sales personnel, if
our new direct sales personnel are unable to achieve desired
productivity levels in a reasonable period of time or if we are
unable to retain our existing direct sales personnel. We also
may not achieve anticipated revenue growth from our third-party
channel partners if we are unable to attract and retain
additional motivated third-party channel partners, if any
existing or future third-party channel partners fail to
successfully market, resell, implement or support our solutions
for their customers, or if they represent multiple providers and
devote greater resources to market, resell, implement and
support competing products and services.
If we
fail to develop our brands, our business may
suffer.
We believe that developing and maintaining awareness of our
brands is critical to achieving widespread acceptance of our
existing and future services and is an important element in
attracting new customers. Successful promotion of our brands
will depend largely on the effectiveness of our marketing
efforts and on our ability to provide reliable and useful
solutions. Brand promotion activities may not yield increased
revenue, and even if they do, any increased revenue may not
offset the expenses we incurred in building our brands. If we
fail to successfully promote and maintain our brands, or incur
substantial expenses in an unsuccessful attempt to promote and
maintain
25
our brands, we may fail to attract new customers or retain our
existing customers to the extent necessary to realize a
sufficient return on our brand-building efforts, and our
business could suffer.
Our online press release and news distribution service is a
trusted information source. To the extent we were to distribute
an inaccurate or fraudulent press release, our reputation could
be harmed, even though we are not responsible for the content
distributed via our online news distribution service.
If our
information database does not achieve and maintain market
acceptance, our business, financial condition and results of
operations could be adversely affected.
We have developed our own content that is included in the
information database that we make available to our customers
through our on-demand software. If our internally-developed
content does not achieve and maintain market acceptance, current
subscription customers may not continue to renew their
subscription agreements with us, and it may be more difficult
for us to acquire new subscription customers. It may become
necessary for us to license additional content from third
parties, and such content may not be available on commercially
reasonable terms, if at all.
We
depend on search engines for the placement of our
customers online news distribution, and if those search
engines change their listings or our relationship with them
deteriorates or terminates, our reputation will be harmed and we
may lose customers or be unable to attract new
customers.
Our online news distribution business depends upon the placement
of our customers news releases. If search engines on which
we rely modify their algorithms or purposefully block our
content, then information distributed via our online service may
not be displayed or may be displayed less prominently in search
results, and as a result we could lose customers or fail to
attract new customers and our results of operations could be
adversely affected.
We
have incurred operating losses in the past and may incur
operating losses in the future.
We have incurred operating losses in the past and we may incur
operating losses in the future. Our recent operating losses were
$1.1 million for 2006, $821,000 for 2007 and $300,000 for
2008. We expect our operating expenses to increase as we expand
our operations, and if our increased operating expenses exceed
our revenue growth, we may not be able to achieve operating
income. You should not consider recent quarterly revenue growth
as indicative of our future performance. In fact, in future
quarters we may not have any revenue growth or our revenue could
decline.
We
face competition, and our failure to compete successfully could
make it difficult for us to add and retain customers and could
reduce or impede the growth of our business.
The public relations market is fragmented, competitive and
rapidly evolving, and there are limited barriers to entry to
some segments of this market. We expect the intensity of
competition to increase in the future as existing competitors
develop their capabilities and as new companies enter our
market. Increased competition could result in pricing pressure,
reduced sales, lower margins or the failure of our solutions to
achieve or maintain broad market acceptance. If we are unable to
compete effectively, it will be difficult for us to maintain our
pricing rates and add and retain customers, and our business,
financial condition and results of operations will be seriously
harmed. We face competition from:
| PR solution providers offering products specifically designed for PR; | |
| generic desktop software and other commercially available software not specifically designed for PR; | |
| outsourced PR service providers; | |
| custom-developed solutions; and | |
| press release distribution providers. |
Many of our current and potential competitors have longer
operating histories, a larger presence in the general PR market,
access to larger customer bases and substantially greater
financial, technical, sales and marketing,
26
management, service, support and other resources than we have.
As a result, our competitors may be able to respond more quickly
than we can to new or changing opportunities, technologies,
standards or customer requirements or devote greater resources
to the promotion and sale of their products and services than we
can. To the extent our competitors have an existing relationship
with a potential customer, that customer may be unwilling to
switch vendors due to existing time and financial commitments
with our competitors.
We also expect that new competitors, such as enterprise software
vendors and online service providers that have traditionally
focused on enterprise resource planning or back office
applications, will enter the on-demand public relations
management market with competing products as the on-demand
public relations management market develops and matures. Many of
these potential competitors have established or may establish
business, financial or strategic relationships among themselves
or with existing or potential customers, alliance partners or
other third parties or may combine and consolidate to become
more formidable competitors with better resources. It is
possible that these new competitors could rapidly acquire
significant market share.
We expect that the traditional press release distribution
providers will offer press release distribution services through
the internet. We had or continue to have partnerships with these
providers to co-market and sell our press release distribution
services. It is possible that these new competitors could
rapidly acquire significant market share.
If we
fail to respond to evolving industry standards, our on-demand
solutions may become obsolete or less competitive.
The market for our on-demand solutions is characterized by
changes in customer requirements, changes in protocols and
evolving industry standards. If we are unable to enhance or
develop new features for our existing solutions or develop
acceptable new solutions that keep pace with these changes, our
on-demand software and services may become obsolete, less
marketable and less competitive and our business will be harmed.
The success of any enhancements, new modules and on-demand
software and services depends on several factors, including
timely completion, introduction and market acceptance of our
solutions. Failure to produce acceptable new offerings and
enhancements may significantly impair our revenue growth and
reputation.
If
there are interruptions or delays in providing our on-demand
solutions due to third-party error, our own error or the
occurrence of unforeseeable events, delivery of our solutions
could become impaired, which could harm our relationships with
customers and subject us to liability.
All of our solutions reside on hardware that we own or lease and
operate. Our hardware is currently located in two third-party
facilities maintained and operated in Virginia and Washington.
Our third-party facility providers do not guarantee that our
customers access to our solutions will be uninterrupted,
error-free or secure. Our operations depend, in part, on our
third-party facility providers ability to protect systems
in their facilities against damage or interruption from natural
disasters, power or telecommunications failures, criminal acts
and similar events. In the event that our third-party facility
arrangements are terminated, or there is a lapse of service or
damage to such third-party facilities, we could experience
interruptions in our service as well as delays and additional
expense in arranging new facilities and services.
Our disaster recovery computer hardware and systems are located
at a third-party facility in Baltimore, Maryland. Our disaster
recovery systems have not been tested under actual disaster
conditions and may not have sufficient capacity to recover all
data and services in the event of an outage occurring at our
third-party facilities. Moreover, our disaster recovery computer
hardware and systems are located within the same geographic
region as one of our third-party facilities and may be equally
or more affected by any disaster affecting such third-party
facilities. Any or all of these events could cause our customers
to lose access to our on-demand software. In addition, the
failure by our third-party facilities to meet our capacity
requirements could result in interruptions in such service or
impede our ability to scale our operations.
We architect the system infrastructure and procure and own or
lease the computer hardware used for our services. Design and
mechanical errors, spikes in usage volume and failure to follow
system protocols and procedures could cause our systems to fail,
resulting in interruptions in our service. Any interruptions or
delays in our service, whether as a result of third-party error,
our own error, natural disasters or security breaches, whether
accidental or willful, could harm our relationships with
customers and our reputation. Also, in the event of damage
27
or interruption, our insurance policies may not adequately
compensate us for any losses that we may incur. These factors in
turn could reduce our revenue, subject us to liability, and
cause us to issue credits or cause customers to fail to renew
their subscriptions, any of which could adversely affect our
business, financial condition and results of operations.
The
market for our solutions among large customers may be limited if
they require customized features or functions that we do not
currently intend to provide in our solutions or that would be
difficult for individual customers to customize within our
solutions.
Prospective customers, especially large enterprise customers,
may require heavily customized features and functions unique to
their business processes. If prospective customers require
customized features or functions that we do not offer, and that
would be difficult for them to implement themselves, then the
market for our solutions will be more limited and our business
could suffer.
Acquisitions
could prove difficult to integrate, disrupt our business, dilute
stockholder value and consume resources that are necessary to
sustain our business.
One of our business strategies is to selectively acquire
companies which would either expand our solutions
functionality, provide access to new customers or markets, or
both. An acquisition may result in unforeseen operating
difficulties and expenditures. In particular, we may encounter
difficulties assimilating or integrating the technologies,
products, personnel or operations of the acquired organizations,
particularly if the key personnel of the acquired company choose
not to work for us, and we may have difficulty retaining the
customers of any acquired business due to changes in management
and ownership. Acquisitions may also disrupt our ongoing
business, divert our resources and require significant
management attention that would otherwise be available for
ongoing development of our business. We also may experience
lower rates of renewal from subscription customers obtained
through acquisitions than our typical renewal rates. Moreover,
we cannot provide assurance that the anticipated benefits of any
acquisition, investment or business relationship would be
realized or that we would not be exposed to unknown liabilities.
In connection with one or more of these transactions, we may:
| issue additional equity securities that would dilute the ownership of our stockholders; | |
| use cash that we may need in the future to operate our business; | |
| incur or assume debt on terms unfavorable to us or that we are unable to repay; | |
| incur large charges or substantial liabilities; | |
| encounter difficulties retaining key employees of an acquired company or integrating diverse business cultures; and | |
| become subject to adverse tax consequences, substantial depreciation or deferred compensation charges. |
To date, we have completed several acquisitions. For example, in
November 2004 we acquired substantially all of the assets of
Gnossos Software, Inc., and in August 2006 we acquired certain
assets and assumed certain liabilities of PRWeb International,
Inc. In each of these transactions, the consideration we paid
included both cash and shares of our common stock. The issuance
of shares of our common stock diluted the ownership of our
existing stockholders, and the cash consideration paid reduced
the cash available to us for other purposes.
We may
be liable to our customers and may lose customers if we provide
poor service, if our solutions do not comply with our agreements
or if there is a loss of data.
The information in our database may not be complete or may
contain inaccuracies that our customers regard as significant.
Our ability to collect and report data may be interrupted by a
number of factors, including our inability to access the
Internet, the failure of our network or software systems or
failure by our third-party facilities to meet our capacity
requirements. In addition, computer viruses and intentional or
unintentional acts of our employees may harm our systems causing
us to lose data we maintain and supply to our customers or data
that our customers input and maintain on our systems, and the
transmission of computer viruses could expose us to litigation.
Our subscription agreements generally give our customers the
right to terminate their agreements for cause if we
28
materially breach our obligations. Any failures in the services
that we supply or the loss of any of our customers data
that we cannot rectify in a certain time period may give our
customers the right to terminate their agreements with us and
could subject us to liability. As a result, we may also be
required to spend substantial amounts to defend lawsuits and pay
any resulting damage awards. In addition to potential liability,
if we supply inaccurate data or experience interruptions in our
ability to supply data, our reputation could be harmed and we
could lose customers.
Although we maintain general liability insurance, including
coverage for errors and omissions, this coverage may be
inadequate, or may not be available in the future on acceptable
terms, or at all. In addition, we cannot provide assurance that
this policy will cover any claim against us for loss of data or
other indirect or consequential damages and defending a suit,
regardless of its merit, could be costly and divert
managements attention.
If our
solutions fail to perform properly or if they contain technical
defects, our reputation will be harmed, our market share would
decline and we could be subject to product liability
claims.
Our on-demand software may contain undetected errors or defects
that may result in product failures or otherwise cause our
solutions to fail to perform in accordance with customer
expectations. Because our customers use our solutions for
important aspects of their business, any errors or defects in,
or other performance problems with, our solutions could hurt our
reputation and may damage our customers businesses. If
that occurs, we could lose future sales or our existing
subscription customers could elect to not renew. Product
performance problems could result in loss of market share,
failure to achieve market acceptance and the diversion of
development resources. If one or more of our solutions fail to
perform or contain a technical defect, a customer may assert a
claim against us for substantial damages, whether or not we are
responsible for our solutions failure or defect. We do not
currently maintain any warranty reserves.
Product liability claims could require us to spend significant
time and money in litigation or arbitration/dispute resolution
or to pay significant settlements or damages. Although we
maintain general liability insurance, including coverage for
errors and omissions, this coverage may not be sufficient to
cover liabilities resulting from such product liability claims.
Also, our insurer may disclaim coverage. Our liability insurance
also may not continue to be available to us on reasonable terms,
in sufficient amounts, or at all. Any product liability claim
successfully brought against us could cause our business to
suffer.
Changes
in laws and/or regulations related to the Internet or changes in
the Internet infrastructure itself may cause our business to
suffer.
The future success of our business depends upon the continued
use of the Internet as a primary medium for commerce,
communication and business applications. Federal, state or
foreign government bodies or agencies have in the past adopted,
and may in the future adopt, laws or regulations affecting data
privacy, the use of the Internet as a commercial medium and the
use of email for marketing or other consumer communications. In
addition, certain government agencies or private organizations
have begun to impose taxes, fees or other charges for accessing
the Internet or for sending commercial email. These laws or
charges could limit the growth of Internet-related commerce or
communications generally, result in a decline in the use of the
Internet and the viability of Internet-based services such as
ours and reduce the demand for our products.
The Internet has experienced, and is expected to continue to
experience, significant user and traffic growth, which has, at
times, caused user frustration with slow access and download
times. If Internet activity grows faster than Internet
infrastructure or if the Internet infrastructure is otherwise
unable to support the demands placed on it, or if hosting
capacity becomes scarce, our business growth may be adversely
affected.
If we
are unable to protect our proprietary technology and other
intellectual property rights, it will reduce our ability to
compete for business.
If we are unable to protect our intellectual property, our
competitors could use our intellectual property to market
products similar to our products, which could decrease demand
for our solutions. We rely on a combination of patent,
copyright, trademark and trade secret laws, as well as licensing
agreements, third-party nondisclosure agreements and other
contractual provisions and technical measures, to protect our
intellectual property rights. These protections may not be
adequate to prevent our competitors from copying our solutions
or otherwise
29
infringing on our intellectual property rights. Existing laws
afford only limited protection for our intellectual property
rights and may not protect such rights in the event competitors
independently develop solutions similar or superior to ours. In
addition, the laws of some countries in which our solutions are
or may be licensed do not protect our solutions and intellectual
property rights to the same extent as do the laws of the United
States.
To protect our trade secrets and other proprietary information,
we require employees, consultants, advisors and collaborators to
enter into confidentiality agreements. These agreements may not
provide meaningful protection for our trade secrets, know-how or
other proprietary information in the event of any unauthorized
use, misappropriation or disclosure of such trade secrets,
know-how or other proprietary information.
If a
third-party asserts that we are infringing its intellectual
property, whether successful or not, it could subject us to
costly and time-consuming litigation or expensive licenses, and
our business may be harmed.
The software and Internet industries are characterized by the
existence of a large number of patents, trademarks and
copyrights and by frequent litigation based on allegations of
infringement or other violations of intellectual property
rights. Third-parties may assert patent and other intellectual
property infringement claims against us in the form of lawsuits,
letters, or other forms of communication. As currently pending
patent applications are not publicly available, we cannot
anticipate all such claims or know with certainty whether our
technology infringes the intellectual property rights of
third-parties. We expect that the number of infringement claims
in our market will increase as the number of solutions and
competitors in our industry grows. These claims, whether or not
successful, could:
| divert managements attention; |
result in costly and time-consuming litigation;
| require us to enter into royalty or licensing agreements, which may not be available on acceptable terms, or at all; or | |
| require us to redesign our solutions to avoid infringement. |
As a result, any third-party intellectual property claims
against us could increase our expenses and adversely affect our
business. In addition, many of our customer agreements require
us to indemnify our customers for third-party intellectual
property infringement claims, which would increase the cost to
us resulting from an adverse ruling in any such claim. Even if
we have not infringed any third-parties intellectual
property rights, we cannot be sure our legal defenses will be
successful, and even if we are successful in defending against
such claims, our legal defense could require significant
financial resources and managements time, which could
adversely affect our business.
Our growth could strain our personnel and infrastructure
resources, and if we are unable to implement appropriate
controls and procedures to manage our growth, we may not be able
to successfully implement our business plan.
Rapid growth in our headcount and operations may place a
significant strain on our management, administrative,
operational and financial infrastructure. Between
January 1, 2005 and December 31, 2008, the number of
our full-time equivalent employees increased by approximately
197%, from 146 to 433. We anticipate that additional growth will
be required to address increases in our customer base, as well
as expansion into new geographic areas.
Our success will depend in part upon the ability of our senior
management to manage growth effectively. To do so, we must
continue to hire, train and manage new employees as needed. To
date, we have not experienced any significant problems as a
result of the rapid growth in our headcount, other than
occasional office space constraints. However, our anticipated
future growth may place greater strains on our resources. For
instance, if our new hires perform poorly, or if we are
unsuccessful in hiring, training, managing and integrating these
new employees as needed, or if we are not successful in
retaining our existing employees, our business may be harmed. To
manage the expected growth of our operations and personnel, we
will need to continue to improve our operational, financial and
management controls and our reporting systems and procedures.
The additional headcount and capital investments we expect to
add will increase our cost base, which will make it more
difficult for us to offset any future revenue
30
shortfalls by offsetting expense reductions in the short term.
If we fail to successfully manage our growth, we will be unable
to execute our business plan.
We are
dependent on our executive officers and other key personnel, and
the loss of any of them may prevent us from implementing our
business plan in a timely manner if at all.
Our success depends largely upon the continued services of our
executive officers. We are also substantially dependent on the
continued service of our existing development personnel because
of the complexity of our service and technologies. We do not
have employment agreements with any of our development personnel
that require them to remain our employees nor do the employment
agreements we have with our executive officers require them to
remain our employees and, therefore, they could terminate their
employment with us at any time without penalty. We do not
currently maintain key man life insurance on any of our
executives, and such insurance, if obtained in the future, may
not be sufficient to cover the costs of recruiting and hiring a
replacement or the loss of an executives services. The
loss of one or more of our key employees could seriously harm
our business.
We may
not be able to attract and retain the highly skilled employees
we need to support our planned growth.
To execute our business strategy, we must attract and retain
highly qualified personnel. Competition for these personnel is
intense, especially for senior sales executives and engineers
with high levels of experience in designing and developing
software. We may not be successful in attracting and retaining
qualified personnel. We have from time to time in the past
experienced, and we expect to continue to experience in the
future, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. Many of the companies
with which we compete for experienced personnel have greater
resources than us. In addition, in making employment decisions,
particularly in the Internet and high-technology industries, job
candidates often consider the value of the stock options and
awards they are to receive in connection with their employment.
Significant volatility in the price of our stock may, therefore,
adversely affect our ability to attract or retain key employees.
If we fail to attract new personnel or fail to retain and
motivate our current personnel, our business and future growth
prospects could be severely harmed.
Because
we conduct operations in foreign jurisdictions, which accounted
for approximately 10% of our 2008 revenues, and because our
business strategy includes expanding our international
operations, our business is susceptible to risks associated with
international operations.
We have small but growing international operations and our
business strategy includes expanding these operations.
Conducting international operations subjects us to new risks
that we have not generally faced in the United States. These
include:
| fluctuations in currency exchange rates; | |
| unexpected changes in foreign regulatory requirements; | |
| difficulties in managing and staffing international operations; | |
| potentially adverse tax consequences, including the complexities of foreign value added tax systems and restrictions on the repatriation of earnings; and | |
| the burdens of complying with a wide variety of foreign laws and different legal standards. |
The occurrence of any one of these risks could negatively affect
our international operations and, consequently, our results of
operations generally. In addition, the Internet may not be used
as widely in international markets in which we expand our
international operations and, as a result, we may not be
successful in offering our solutions internationally.
We
might require additional capital to support business growth, and
this capital might not be available.
We intend to continue to make investments to support our
business growth and may require additional funds to respond to
business challenges, including the need to develop new solutions
or enhance our existing solutions, enhance our operating
infrastructure and acquire complementary businesses and
technologies. Accordingly, we
31
may need to engage in further equity or debt financings to
secure additional funds. If we raise additional funds through
further issuances of equity or convertible debt securities, our
existing stockholders could suffer significant dilution, and any
new equity securities we issue could have rights, preferences
and privileges superior to those of holders of our common stock.
Any debt financing secured by us in the future could involve
restrictive covenants relating to our capital raising activities
and other financial and operational matters, which may make it
more difficult for us to obtain additional capital and to pursue
business opportunities, including potential acquisitions. In
addition, we may not be able to obtain additional financing on
terms favorable to us, if at all. If we are unable to obtain
adequate financing or financing on terms satisfactory to us,
when we require it, our ability to continue to support our
business growth and to respond to business challenges could be
significantly limited.
Our
reported financial results may be adversely affected by changes
in accounting principles generally accepted in the United
States.
Generally accepted accounting principles in the United States
are subject to interpretation by the Financial Accounting
Standards Board, or FASB, the American Institute of Certified
Public Accountants, the SEC and various bodies formed to
promulgate and interpret appropriate accounting principles. A
change in these principles or interpretations could have a
significant effect on our reported financial results, and could
affect the reporting of transactions completed before the
announcement of a change.
Compliance
with new regulations governing public company corporate
governance and reporting is uncertain and
expensive.
Many new laws, regulations and standards have increased the
scope, complexity and cost of corporate governance, reporting
and disclosure practices and have created uncertainty for public
companies. These new laws, regulations and standards are subject
to interpretations due to their lack of specificity, and as a
result, their application in practice may evolve over time as
new guidance is provided by varying regulatory bodies. This may
cause continuing uncertainty regarding compliance matters and
higher costs necessitated by ongoing revisions to disclosure and
governance practices. Our implementation of these reforms and
enhanced new disclosures may result in increased general and
administrative expenses and a significant diversion of
managements time and attention from revenue-generating
activities. Any unanticipated difficulties in implementing these
reforms could result in material delays in complying with these
new laws, regulations and standards or significantly increase
our operating costs.
Risks
Related to our Common Stock and the Securities Markets
If
securities analysts do not publish research or reports about our
business or if they downgrade our stock, the price of our stock
could decline.
The trading market for our common stock relies in part on the
research and reports that industry or financial analysts publish
about us or our business. We do not control these analysts.
There are many large, well-established publicly traded companies
active in our industry and market, which may mean it will be
less likely that we receive widespread analyst coverage.
Furthermore, if one or more of the analysts who do cover us
downgrade our stock, our stock price would likely decline
rapidly. If one or more of these analysts cease coverage of us,
we could lose visibility in the market, which in turn could
cause our stock price to decline.
Volatility
of our stock price could adversely affect
stockholders.
The market price of our common stock could fluctuate
significantly as a result of:
| quarterly variations in our operating results; | |
| seasonality of our business cycle; | |
| interest rate changes; | |
| changes in the markets expectations about our operating results; | |
| our operating results failing to meet the expectation of securities analysts or investors in a particular period; |
32
| changes in financial estimates and recommendations by securities analysts concerning our company or the on-demand software industry in general; | |
| operating and stock price performance of other companies that investors deem comparable to us; | |
| news reports relating to trends in our markets; | |
| changes in laws and regulations affecting our business; | |
| material announcements by us or our competitors; | |
| sales of substantial amounts of common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; | |
| economic conditions including a slowdown in economic growth and uncertainty in equity and credit markets; and | |
| general political conditions such as acts of war or terrorism. |
Provisions
in our amended and restated certificate of incorporation and
bylaws or Delaware law might discourage, delay or prevent a
change of control of our company or changes in our management
and, therefore, depress the trading price of our
stock.
Our amended and restated certificate of incorporation and bylaws
contain provisions that could depress the trading price of our
common stock by acting to discourage, delay or prevent a change
in control of our company or changes in our management that the
stockholders of our company may deem advantageous. These
provisions:
| establish a classified board of directors so that not all members of our board of directors are elected at one time; | |
| provide that directors may only be removed for cause and only with the approval of 662/3 percent of our stockholders; | |
| require super-majority voting to amend our bylaws or specified provisions in our amended and restated certificate of incorporation; | |
| authorize the issuance of blank check preferred stock that our board of directors could issue to increase the number of outstanding shares and to discourage a takeover attempt; | |
| limit the ability of our stockholders to call special meetings of stockholders; | |
| prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; | |
| provide that the board of directors is expressly authorized to adopt, amend, or repeal our bylaws; and | |
| establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings. |
In addition, Section 203 of the Delaware General
Corporation Law may discourage, delay or prevent a change in
control of our company.
Future
sales, or the availability for sale, of our common stock may
cause our stock price to decline.
Our directors and officers hold shares of our common stock that
they generally are currently able to sell in the public market.
We have also registered shares of our common stock that are
subject to outstanding stock options, or reserved for issuance
under our stock option plan, which shares can generally be
freely sold in the public market upon issuance. Moreover, some
of our executive officers and directors have established trading
plans under
Rule 10b5-1
of the Securities Exchange Act of 1934, as amended, for the
purpose of effecting sales of our common stock. Sales of
substantial amounts of our common stock in the public market
could adversely affect the market price of our common stock and
could materially impair our future ability to raise capital
through offerings of our common stock.
33
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Sale of
Unregistered Securities
None.
Use of
Proceeds
In connection with our initial public offering of our common
stock, the SEC declared our Registration Statement on
Form S-1
(No. 333-125834),
filed under the Securities Act of 1933, effective on
December 6, 2005. On December 12, 2005, we closed the
sale of 5,000,000 shares of our common stock registered
under the Registration Statement. On January 6, 2006,
certain selling stockholders sold 750,000 shares of our
common stock pursuant to the exercise in full of the
underwriters over-allotment option. Thomas Weisel Partners
LLC, RBC Capital Markets, Wachovia Securities and William
Blair & Company served as the managing underwriters.
The initial public offering price was $9.00 per share. The
aggregate sale price for all of the shares sold by us was
$45.0 million, resulting in net proceeds to us of
approximately $40.0 million after payment of underwriting
discounts and commissions and legal, accounting and other fees
incurred in connection with the offering of approximately
$5.0 million. The aggregate sales price for all of the
shares sold by the selling stockholders was approximately
$6.8 million. We did not receive any of the proceeds from
the sale of shares of common stock by the selling stockholders.
In December 2005, we used approximately $6.8 million from
the net proceeds received from our initial public offering to
repay certain indebtedness.
In August 2006, we used approximately $20.9 million of the
offering proceeds for the acquisition of PRWeb International,
Inc. We have invested the remainder of the proceeds from the
initial public offering in short-term, interest-bearing,
investment-grade securities and money market funds. We
anticipate that we will use the remaining proceeds to fund
working capital and general corporate purposes, which may
include the expansion of our content and service offerings and
potential acquisitions of complementary businesses, products and
technologies. We cannot specify with certainty all of the
particular uses for the proceeds. The amounts we actually spend
for these purposes may vary significantly and will depend on a
number of factors. Accordingly, our management will retain broad
discretion in the allocation of the proceeds.
Issuer
Purchases of Equity Securities
The following table sets forth a summary of our purchases of our
common stock during the three months ended September 30,
2009, of equity securities that are registered by us pursuant to
Section 12 of the Securities Exchange Act of 1934, as
amended:
Maximum |
||||||||||||||||
Total Number of |
Dollar Value of |
|||||||||||||||
Shares |
Shares |
|||||||||||||||
Total Number |
Average Price |
Purchased as |
That May Yet be |
|||||||||||||
of Shares |
Paid per |
Part of Publicly |
Purchased |
|||||||||||||
Purchased | Share | Announced Plan(2) | Under the Plan | |||||||||||||
July 1 July 31
|
||||||||||||||||
Share repurchase program(1)
|
| | | $ | 19,000,148 | |||||||||||
Employee transactions(3)
|
462 | $ | 16.82 | | N/A | |||||||||||
August 1 August 31
|
||||||||||||||||
Share repurchase program(1)
|
| | | $ | 19,000,148 | |||||||||||
Employee transactions(3)
|
| | | N/A | ||||||||||||
September 1 September 30
|
||||||||||||||||
Share repurchase program(1)
|
| | | $ | 19,000,148 | |||||||||||
Employee transactions(3)
|
159 | $ | 19.64 | | N/A |
(1) | For the three months ended September 30, 2009, we did not purchase any shares of common stock though our publicly announced share repurchase program. |
34
(2) | On November 25, 2008, our Board of Directors authorized us to purchase up to $30,000,000 shares of our common stock. There is no expiration date specified for the program. | |
(3) | All shares were delivered to us by employees to satisfy the minimum statutory tax withholding obligations with respect to the taxable income recognized by these employees upon the vesting of their stock awards. |
Item 6. | Exhibits |
Exhibit |
||||
Number
|
Exhibit
|
|||
3 | .1 | Fifth Amended and Restated Certificate of Incorporation.(1) | ||
3 | .2 | Amended and Restated Bylaws.(1) | ||
31 | .1* | Certification of Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended. | ||
31 | .2* | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended. | ||
32 | .1* | Certification of Chairman and Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Filed herewith | |
(1) | Incorporated by reference to an exhibit to the Registration Statement on Form S-8 of Vocus, Inc. (Registration No. 333-132206) filed with the Securities and Exchange Commission on March 3, 2006. |
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
VOCUS, INC.
By: |
/s/ Richard
Rudman
|
Richard Rudman
Chief Executive Officer,
President and Chairman
By: |
/s/ Stephen
Vintz
|
Stephen Vintz
Chief Financial Officer,
Treasurer and Secretary
Date: November 6, 2009
36
INDEX TO
EXHIBITS
Exhibit |
||||
Number
|
Exhibit
|
|||
3 | .1 | Fifth Amended and Restated Certificate of Incorporation.(1) | ||
3 | .2 | Amended and Restated Bylaws.(1) | ||
31 | .1* | Certification of Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended. | ||
31 | .2* | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended. | ||
32 | .1* | Certification of Chairman and Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Filed herewith | |
(1) | Incorporated by reference to an exhibit to the Registration Statement on Form S-8 of Vocus, Inc. (Registration No. 333-132206) filed with the Securities and Exchange Commission on March 3, 2006. |