UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number
000-51644
VOCUS, INC.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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58-1806705
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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4296 Forbes Boulevard
Lanham, Maryland 20706
(301) 459-2590
(Address including zip code, and
telephone number, including area code, of principal executive
offices)
Securities registered pursuant to Section 12(g) of the
Act:
None
Securities registered pursuant to Section 12(b) of the
Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 (the Exchange
Act) 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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. 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):
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Large accelerated filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the common stock held by
nonaffiliates of the registrant (17,461,171 shares) based
on the $19.78 closing price of the registrants common
stock as reported on the NASDAQ Global Market on June 30,
2009, was approximately $345,381,962. For purposes of this
computation, all officers, directors and 10% beneficial owners
of the registrant are deemed to be affiliates. Such
determination should not be deemed to be an admission that such
officers, directors or 10% beneficial owners are, in fact,
affiliates of the registrant.
As of February 26, 2010, there were 19,378,515 outstanding
shares of the registrants common stock.
Documents
Incorporated by Reference
Portions of the registrants definitive proxy statement for
the 2010 Annual Meeting of Stockholders, to be filed within
120 days after the end of the fiscal year covered by this
Form 10-K,
are incorporated by reference into Part III of this
Form 10-K.
CAUTIONARY
NOTES REGARDING FORWARD-LOOKING STATEMENTS
This report on
Form 10-K
contains forward-looking statements. These statements involve
known and unknown risks, uncertainties and other factors which
may cause our actual results, performance or achievements to be
materially different from any future results, performance or
achievements expressed or implied by the forward-looking
statements. Forward-looking statements include, but are not
limited to:
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our plans to develop and market new products and the timing of
these development programs;
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our estimates regarding our capital requirements and our needs
for additional financing;
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our estimates of expenses and future revenues and profitability;
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our estimates of the size of the markets for our solutions;
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the rate and degree of market acceptance of our
solutions; and
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the success of other competing technologies that may become
available.
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In some cases, you can identify forward-looking statements by
terms such as may, will,
should, could, would,
expect, plans, anticipates,
believes, estimates,
projects, predicts, intends,
potential and similar expressions intended to
identify forward-looking statements. These statements reflect
our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties. Given these
uncertainties, you should not place undue reliance on these
forward-looking statements. We discuss many of these risks in
greater detail under the heading Risk Factors in
Item 1A. Also, these forward-looking statements represent
our estimates and assumptions only as of the date of this
report. Except as required by law, we assume no obligation to
update any forward-looking statements after the date of this
report.
This report also contains estimates made by independent parties
and by us relating to market size and growth and other industry
data. These estimates involve a number of assumptions and
limitations and you are cautioned not to give undue weight to
such estimates. In addition, projections, assumptions and
estimates of our future performance and the future performance
of the industries in which we operate are necessarily subject to
a high degree of uncertainty and risk due to a variety of
factors, including those described in Risk Factors,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this
report. These and other factors could cause results to differ
materially from those expressed in the estimates made by the
independent parties and by us.
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PART I
Overview
We are a leading provider of on-demand software for public
relations management. In an age of real-time communication, with
an increasing number of media outlets, a rapidly growing volume
of news and the emergence of blogs and other social media,
traditional approaches to public relations, or PR, are becoming
outmoded. Our web-based software suite helps organizations of
all sizes to 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. By automating and integrating essential
elements of PR functions, our solutions help organizations
communicate directly with key reporters and with the public,
identify and analyze relevant news stories and manage
relationships with the media and other key stakeholders.
As a part of our solutions, we provide a proprietary information
database of approximately one million journalists, analysts,
media outlets, publicity opportunities and other relevant data.
Our database contains extensive information about the media,
including in-depth journalist profiles, contact schedules,
podcast interviews, pitching preferences and other relevant
information compiled by our dedicated media research team. Our
database is integrated with our suite of on-demand modules that
together address the communications life-cycle from identifying
key contacts, to distributing information, to closing the loop
with digitized feedback and management analytics.
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 software. We were an
early pioneer in hosted, multi-tenant, on-demand software,
launching our first version in 1999. Our on-demand software is
offered primarily as an annual subscription, and our press
release distribution service is offered primarily on a
per-transaction basis. As of December 31, 2009 we had 4,438
active subscription customers representing organizations of all
sizes across a wide variety of industries. Our solutions are
currently available in seven languages and are in use by
customers around the world.
Our
Company
We were initially formed in 1988 as First Data Software
Publishing, Inc., a Florida corporation, and in 1992 we began
selling desktop software for government relations. In 1999, we
reincorporated as a Delaware corporation.
Industry
Background
Public
Relations
The process of managing relationships and communications with
journalists, analysts and the public is central to an
organizations reputation, profitability and, ultimately,
shareholder value. As organizations recognize the growing
importance of effective PR to their success, they increasingly
rely on public relations to manage and analyze critical
information and to deliver quick and consistent communications.
Public relations professionals handle organizational functions
such as media, government, consumer, industry and community
relations. Every organization, large and small, engages in
public relations, whether as an organized department, a single
employees responsibility or simply a result of public
interactions by its executives.
Although the most basic elements of PR are practiced widely
across organizations of all types, sizes and geographies, the
specific objectives and complexity of a PR practice will often
vary based on the size of an organization and its PR department.
For small organizations, traditional PR has often not been an
option, as the cost of a single press release over a newswire is
cost prohibitive. In addition, a small business owner often has
no staff to focus on marketing or PR. For the most part, small
businesses have historically relied on
word-of-mouth
to help grow their business and have often limited their
marketing investment to more localized advertising channels such
as phone directories or local
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newspapers. With the advent of the internet and the wide
adoption of search engines, small businesses are better
positioned to leverage PR to increase their visibility and
attract new customers.
For mid-sized organizations, traditional PR is often expensive
and time consuming. These organizations are typically faced with
a decision to either use external consulting agencies, or to
commit internal staff and resources, both of which often exceed
available budgets. In addition, PR responsibilities for these
resources are often assigned to only one or two dedicated staff
or, in many cases, shared across non-dedicated staff with other
full-time responsibilities. The objective for mid-sized
organizations is typically to leverage limited resources in
order to deliver the PR capabilities commonly found in larger
organizations.
Larger organizations are typically well staffed and have
dedicated budgets and resources. These organizations are faced
with the challenges of managing large amounts of information,
delivering consistent and well-executed communications,
collaborating among large or geographically-dispersed teams and
analyzing and reporting on the effectiveness of their PR. The
objective for large organizations is typically to maximize
effectiveness and ensure consistency of message, while
delivering measurable results and improved efficiency.
Trends in business communications and the media are directly
impacting the practice of PR. Technologies including the
Internet, cable, satellite and wireless communications allow
commercial and public media to access audiences almost
instantaneously. In addition, these technologies are leading to
a rapid expansion of media outlets, media channels and news
sources including the rapid emergence of new social media
channels such as blogs, twitter and online communities. As a
result, organizations now face broader and more diverse
audiences who are informed in real-time by these media, and also
face a growing volume of critical business information that
needs to be identified, analyzed and managed. An organization
can no longer rely on a few relationships with key journalists
to achieve PR objectives. As these trends continue, we believe
that organizations will face greater challenges to provide a
consistent corporate message, gain public support, respond to
crisis situations and achieve their public relations goals.
Outside of traditional PR agencies, the public relations market
is generally underserved, with few solutions to address the PR
business process in a comprehensive, integrated and cost
effective manner. A number of vendors offer one or more software
products that each address a single problem or process within
PR, such as contact management, news monitoring, distribution or
analytics. Other than these discrete, stand-alone solutions, PR
processes are generally performed by internal departments or
designated staff either manually or with generic desktop
software. In addition, while organizations may purchase a
variety of these stand-alone products and services, the
resulting combination is usually more expensive and less
efficient than an integrated software suite that addresses the
complete PR life-cycle.
Public
Relations and the On-Demand Software Market
Information technology has created opportunities to deliver
software applications directly to users over the Internet in a
subscription-based, on-demand business model. This
model is made possible by the proliferation of high-speed,
broadband Internet connectivity, open standards for application
integration and advances in network availability and security.
On-demand software is generally delivered over the Internet via
a secure, multi-tenant, scalable application and system
architecture, which allows the provider to concurrently serve a
large number of customers and to efficiently distribute the
workload across a network of servers. For the user, on-demand
software eliminates the need for expensive hardware, software
and internal information technology, or IT, support. In
addition, the hosted architecture helps ensure that the software
and vendor-supplied content is kept current and secure without
user involvement. Additional benefits include rapid deployment
and training for new applications, resulting in faster product
adoption and increased productivity. This typically results in a
lower total cost of ownership and an increased return on
investment. The on-demand model also provides operational
efficiencies for the software provider in the areas of
development and customer support. Traditional enterprise
software vendors must develop, maintain and support multiple
versions of their software on multiple hardware, operating
system and database platforms. On-demand software vendors, by
contrast, generally support and maintain a single version of
software across all customers that is developed, maintained and
supported on a single technology platform. This typically
results in lower development and support costs, and allows the
vendor to more rapidly develop and release new versions of the
software and more efficiently support existing customers.
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The characteristics of the PR market make it well-suited for the
on-demand software business model. As news distribution and
communication services continue to move from manual, paper-based
systems to automated digital services, the Internet and the
on-demand software model provide an efficient and collaborative
platform for PR professionals to access, manage and share
information and resources. The simple user interface and rapid
deployment of web-based software make it ideally suited for
users with little or no technology background. On-demand
software provides a dedicated, modern and sophisticated
technology infrastructure to PR departments that would otherwise
typically receive limited internal IT resources. Finally, in
contrast to sensitive customer or financial data, organizations
are generally comfortable with PR content residing on an
external hosted platform. Currently, the customer-specific
information we store includes PR collateral pieces, notes
regarding customers contacts with journalists and media
outlets, journalist contact information and similar data. We
protect our customers information by requiring the use of
user identifications and passwords to access our on-demand
software.
Our
Solutions
We are a leading provider of on-demand software for public
relations management. Our web-based software suite helps
organizations of all sizes manage local and global relationships
and communications with both the media and the public. Our
integrated, on-demand software modules provide extensive
features and broad functionality that address the critical
functions of public relations including media relations, news
distribution and news monitoring. Specific modules include
contact management, collateral management, project management,
newsrooms, PRWeb online newswire, email campaigns,
analytics & measurement and news on-demand. By
automating and integrating essential elements of PR operations,
our solutions allow our customers to improve effectiveness,
reduce costs and measure results. We deliver our solutions to
customers through a suite of on-demand applications that reduces
the cost and risk associated with traditional enterprise
software deployments. We believe, based upon our market research
and analysis, that the use of on-demand software helps customers
reduce risk and increase the predictability of software
management costs, as compared to traditional enterprise software.
As a part of our solution, we provide a proprietary information
database of approximately one million journalists, analysts,
media outlets, publicity opportunities and other relevant data.
Our database contains extensive information about the media,
including in-depth journalist profiles, contact schedules,
podcast interviews, pitching preferences and other relevant
information compiled by our dedicated media research team. Our
database is integrated with our suite of on-demand software
modules that together enable our customers to address the
communications life-cycle, from identifying key contacts, to
distributing information, to closing the loop with digitized
feedback and management analytics. We have developed significant
domain expertise and have designed on-demand software solutions
and best practices tailored specifically for public relations.
As a result, our on-demand offerings meet the PR needs of a
broad range of organizations regardless of their size,
geography, industry or type.
Our comprehensive suite of integrated, on-demand software
modules provides the following key benefits:
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Improved effectiveness of public
relations. Our on-demand software helps
organizations maximize effectiveness through the automation and
integration of disconnected processes. Our solutions help
organizations manage large amounts of information, deliver
consistent and well-executed communications, collaborate among
large or geographically dispersed teams and analyze and report
on the effectiveness of their PR.
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Increased productivity of PR functions. Our
on-demand software incorporates features and best practices that
automate PR functions to reduce or eliminate manual, paper-based
and discrete business activities. Our solutions allow customers
to maximize the investment in their PR resources and often lead
to a redeployment of PR professionals from repetitive, low-value
tasks to high-value strategic initiatives. In addition, we
provide capabilities that help our customers significantly
reduce the time it takes to monitor, analyze and summarize large
volumes of news and other information.
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Enhanced collaboration. The growth of global
brands and large or geographically dispersed PR teams has
increased the need for organizations to quickly and easily share
critical business information and plan well coordinated
communications. Our web-based solutions provide shared,
real-time access to a central repository of information related
to media contacts, relationship history, PR activities, news,
documents
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and reporting. We believe that by improving the management,
control, retention and sharing of this information, our
solutions enable companies to deliver more effective and
consistent communications.
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Lower total cost of ownership. Our on-demand
delivery model enables our customers to achieve significant
savings relative to a traditional enterprise software model. Our
customers do not spend time installing or maintaining the
servers, network and storage equipment, security products, or
other infrastructure hardware and software necessary to ensure a
scalable and reliable service. In addition, because all upgrades
are implemented on our servers the product enhancements
automatically become part of our offering, allowing customers to
immediately benefit from the upgrade.
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Rapid deployment and scalability. Our
on-demand software can be deployed rapidly and provisioned
easily, without our customers having to make large and risky
upfront investments in software, hardware, implementation
services and dedicated IT staff. The delivery platform for our
software allows it to scale to suit customers needs.
Additional users with defined privileges can be provisioned with
minimal implementation time and new modules, such as
analytics & measurement, can be deployed quickly and
transparently to existing customers.
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Our
Strategy
Our objective is to be the global leader of on-demand software
for public relations management. Key elements of our strategy
include:
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Expand our direct sales force. We believe that
the public relations market represents a significant opportunity
that will allow us to continue our growth for the foreseeable
future. We expect organizations will continue to spend and
commit substantial resources on the processes that our solutions
automate, and that competition is fragmented and specialized. We
believe that our focus on producing a suite of integrated
applications for this market will allow us to capitalize on this
opportunity. As a result, we intend to expand our direct sales
force to increase our coverage and penetration in the PR market.
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Expand international market presence. We also
believe that the public relations market represents a
significant global opportunity. We intend to expand our
international business, which accounted for approximately 9% of
our 2009 revenues. To suit individual markets, our software is
currently available in seven languages. We expect to deploy our
solutions in additional languages in the future.
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Penetrate the small business market. We
believe the small business market represents a significant
opportunity to sell our solutions to over 5 million
prospect organizations. We expect these organizations will
utilize our online news distribution services as a means to
communicate directly with customers and to enhance their
marketing strategies. We intend to expand our solutions and our
direct sales force to increase our coverage and penetration in
the small business market.
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Selectively pursue strategic acquisitions. The
fragmented nature of our market provides opportunities for
selective acquisitions. We have acquired and integrated several
private companies to date, and we will continue to identify and
may acquire companies which would either expand our
solutions functionality, provide access to new customers
or markets, or both.
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Our
Products
On-Demand
Public Relations Management
Our integrated, on-demand software modules provide extensive
features and broad functionality that address the critical
functions of public relations. By automating and integrating
essential elements of PR functions, our solutions help
organizations manage large amounts of information, deliver
consistent and well-executed communications, collaborate among
large or geographically dispersed teams and analyze and report
on the effectiveness of their public relations.
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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.
As a part of our solution, we provide a proprietary information
database of approximately one million journalists, analysts,
media outlets, publicity opportunities and relevant data. Our
database contains extensive information about the media,
including in-depth journalist profiles, contact schedules,
podcast interviews, pitching preferences and other relevant
information compiled by our dedicated media research team. Our
database is integrated with our suite of on-demand software
modules that together enable our customers to address the
communications life-cycle, from identifying key contacts, to
distributing information, to closing the loop with digitized
feedback and management analytics. Our on-demand software for
public relations management includes the following key modules:
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Contact Management. Allows customers easy
access to our database of journalists, media outlets and
publicity opportunities. Customers can quickly create targeted
lists, send messages by email, fax or mail and track meetings,
telephone calls and other important activities.
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Collateral Management. Provides a central and
easily accessible repository in which to store all PR
information that needs to be shared internally or externally
throughout the organization. Can include documents or files of
any type, such as media kits, photographs, videos, executive
biographies, annual reports and other PR materials.
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Project Management. Helps organize PR
projects, including press releases, speaking engagements, or
publicity events. A graphical dashboard shows the status of all
open projects, allowing users to check milestones, reminders,
allocated and used resources, team assignments and other tasks
from the planning stage through execution and
follow-up
reporting.
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Newsrooms. Provides journalists, analysts,
public officials and other key audiences 24/7 access to an
organizations breaking news, press releases, digital
collateral, grassroots advocacy tools and other critical public
information. Matches the look and feel of the
organizations website and allows PR professionals to
quickly and easily update content when and where they want,
without the need for IT support.
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PRWeb Online Newswire. Allows organizations to
increase their online visibility by distributing their news
directly to online news sites such as Yahoo! News and directly
to the public through millions of daily RSS feeds and other
social media tools. PRWeb releases are optimized for search
engines such as Google to help ensure that press releases are
prominently displayed on search results and drive traffic to an
organizations website.
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Email Campaigns. Enables organizations to
deliver interactive communications that provide online access to
related collateral material and to track and measure response
rates and other campaign metrics. Provides a simple process for
delivering information to journalists, analysts, legislators and
other key audiences. Also provides valuable metrics on campaign
initiatives, including emails opened, documents downloaded and
options selected.
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Analytics &
Measurement. Automatically transforms relevant
data about news coverage, PR activities and online newsroom
statistics into valuable insight about a PR departments
programs and results. Provides executive-level dashboards,
allowing an organizations senior management to better
understand the impact of relevant news, monitor the competitive
landscape and recognize trends emerging in the media.
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News On-Demand. Continuously monitors over
40,000 news sources, including print, broadcast, Internet news
sites and key blogs to identify and deliver relevant news
coverage to customers based on their individual criteria. News
clippings are stored in a searchable database, for easy viewing,
printing and sharing.
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Due to our flexible architecture and modular design, we are able
to easily combine these functional capabilities into
pre-packaged editions with optional add-on modules, to meet the
needs of a wide range of organizations, regardless of their size
or specific PR management objectives. Currently we offer our
on-demand software suite in the following pre-packaged editions:
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Small Business Edition. Designed primarily for
small organizations and includes online press release
distribution and basic news monitoring capabilities.
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Standard Edition. Designed primarily for small
and mid-sized organizations and includes contact management and
basic reporting capabilities.
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Professional Edition. Designed primarily for
mid-sized and large organizations and includes contact
management, news management and expanded reporting capabilities.
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Enterprise Edition. Designed primarily for
large organizations. Enterprise Edition is our most fully
featured edition and includes all of the functionality of the
Professional Edition, along with project management, collateral
management, comprehensive reporting and configuration
capabilities.
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Government Relations Edition. Designed to meet
an organizations government relations needs, including
communications with public officials and grassroots advocates,
compliance reporting and issues and legislation management.
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Additional functional capabilities are offered through a variety
of add-on modules which include newsrooms, PRWeb online
newswire, email campaigns, analytics & measurement and
news on-demand.
Technology,
Development and Operations
Technology
We were an early pioneer in hosted, multi-tenant, on-demand
software, launching our first version in 1999. Our on-demand
software is built on a single code base that leverages a highly
scalable, multi-tenant application written in Visual Basic and
C# for the .NET framework. We use commercially available
hardware and a combination of proprietary, open source and
commercially available software, including Microsoft SQL Server,
Microsoft Windows, MySQL and Linux. We have developed
proprietary core services such as user session management and
full text indexing that are tuned to our specific architecture
and environment, allowing us to continually scale
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our service. We have a seamless environment, in which a user is
not bound to a single server but can be routed in the most
optimal way to any number of servers.
Our on-demand software manages all customers as logically
separate tenants in central applications and databases. As a
result, we are able to spread the cost of delivering our service
across our user base. In addition, because we do not have to
manage thousands of distinct applications with their own
business logic and database schemas, we believe that we can
scale our business faster than traditional software vendors,
even those that have modified their products to be accessible
over the Internet.
Every page of our on-demand software is dynamically rendered for
each specific user, including a choice of seven languages. Our
customers access our solutions through any web browser without
installing any software or downloading Java applets, Microsoft
ActiveX, or .NET controls. Performance, functional depth and
usability of our solutions drive our technology decisions and
product direction.
Development
Our research and development efforts are focused on improving
and enhancing our existing solutions as well as developing new
features and functionality. Because of our common, multi-tenant
architecture, we are able to provide all of our customers with a
single version of our solutions, which allows us to maintain
relatively low research and development expenses, as compared to
traditional enterprise software business models which support
multiple versions.
Site
Operations
We serve all of our customers from two third-party facilities
located in Virginia and Washington. These facilities provide a
combination of security personnel, photo ID/access cards,
biometric hand scanners and sophisticated fire systems. The
overall security of each data center (inside and outside) and
network operations center are monitored by digital video
surveillance cameras 24 hours a day, seven days a week.
Additionally, redundant electrical generators and environmental
control devices are used to keep servers up and running. We own
or lease and operate all of the hardware on which our
applications run in the third-party facilities.
We continuously monitor the performance of our service. Our site
operations team provides all system management, maintenance,
monitoring and
back-up. We
use custom, proprietary tools as well as commercially available
tools to monitor our solutions. We run tests in one minute
intervals to ensure adequate response from all of our sites. We
also monitor site availability and latency from over 15
geographic points around the world in five minute intervals.
To facilitate loss recovery, we operate a multi-tiered system
configuration with load balanced web server pools, standby
database servers and fault tolerant storage devices. Databases
are backed up every five minutes to a hot standby database and
server, which are designed to provide near real-time fail-over
service in the event of a malfunction with a primary database or
server. Full backups of all databases take place nightly and are
archived to tape. These tapes are rotated off-site two times per
week to a separate third-party managed facility. We also
maintain a fully redundant site for our Virginia facility,
located in Baltimore, Maryland which would serve as our primary
site in the event that a disaster was to render one of the
third-party sites inoperable.
Customer
Support
We believe that superior customer support is critical to
retaining and expanding our customer base. Our customer support
group is responsible for new customer implementations, training
and general help desk services, including identifying, analyzing
and solving any problems or issues. Support services are
available to customers
on-site, by
telephone, via email and via live chat over the Internet. We
also offer basic and advanced training classes either
on-site or
via the Internet through live or pre-recorded web-based classes.
Customer support is available during standard business hours to
customers that subscribe to our on-demand software. We also
offer 24/7 support to subscription customers at an additional
charge. We have support personnel in our London, England office
to handle support requests from our international customers.
Such support is available during standard international business
hours.
9
In addition, we offer 24/7 editorial support to users of our
online newswire. We also offer, for an additional charge,
premium editorial services, such as editing and rewriting of
press releases to help optimize distribution.
Sales and
Marketing
We sell our solutions through our direct sales organization,
indirect sales channels and the Internet. Our direct sales
organization is separated into new customer and existing
customer base sales groups. In our new customer sales group, we
employ telesales personnel to make initial calls to potential
customers and to qualify customer leads. We employ inside sales
and field sales personnel to close sales with customers. Our
existing customer base sales group focuses on renewing customer
relationships and expanding those relationships by selling
additional users and modules to our customers. We currently have
regional field operations offices in the United States,
including Maryland and Virginia, and in England and Germany.
We also have resellers in certain countries in Europe and Asia
where we do not have a direct selling presence. International
revenue was approximately 9%, 10% and 9% of our total revenue in
2007, 2008 and 2009, respectively; however, we expect
international markets to provide increased opportunities for our
solution offerings in the future. We have relationships with
indirect channel distributors, including our resellers. Revenue
from our indirect channels was approximately 4% of our total
revenue in 2009.
We also use the Internet as a channel to sell our press release
distribution services. Through our website, we attract potential
customers and convert them to ongoing paying customers. These
services consist of individual press releases submitted
primarily by small and mid-size organizations located in the
United States. We may create additional websites to sell similar
services to organizations in other countries.
Our marketing strategy is to generate qualified sales leads,
build our brand and create market awareness of Vocus as a
leading provider of on-demand software for public relations
management. Our marketing programs include search engine
marketing, email campaigns, direct mail, issuing press releases
on a regular basis, using our website to provide product and
company information and launching events to publicize our
solutions to existing customers and prospects. We also conduct
seminars, participate in trade shows and industry conferences,
host an annual user conference, publish white papers relating to
PR issues and develop customer reference programs, such as
customer case studies.
Our
Customers
As of December 31, 2009, we had 4,438 active subscription
customers in various industries, including financial and
insurance, technology, healthcare and pharmaceuticals and retail
and consumer products, as well as government agencies,
not-for-profit
organizations and educational institutions. No single end-user
customer accounted for more than 1% of our revenue in 2009.
Competition
The public relations market is fragmented, competitive and
rapidly evolving, and there are limited barriers to entry to
some segments of this market. Within this segmentation, vendors
are offering solutions through either on-demand or traditional
on-premise delivery methods. We expect to encounter new and
evolving competition as this market consolidates and matures and
as organizations become more aware of the advantages and
efficiencies that can be attained from the use of specialized
software and other technology solutions. Currently, we primarily
face competition from the following sources:
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generic desktop software and other commercially available
software not specifically designed for PR;
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PR solution providers offering products specifically designed
for PR;
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outsourced PR service providers;
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custom-developed solutions; and
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press release distribution providers.
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We compete with generic desktop software tools such as Microsoft
Office or ACT, as well as other commercially available software
solutions not specifically designed for PR. While these
solutions have some application to PR, they typically lack the
specialized content and specific workflow necessary to meet the
complex needs of the PR market.
We compete with PR solution providers such as Cision,
BurrellesLuce, Business Wire and Factiva. These vendors
typically provide one or more products that each address a
single problem or process within PR. We believe we are able to
compete successfully with these vendors due to our comprehensive
and integrated offerings and our secure, scalable application
and system architecture. In particular, we believe PR
departments can, in general, more readily automate and integrate
many manual, paper-based and discrete business activities with
our on-demand software than with our competitors
offerings, thereby improving effectiveness, increasing
productivity and lowering total cost of ownership.
We also compete to a lesser extent with providers of outsourced
PR services, including PR agencies and other outsourced service
providers. While some customers consider outsourcing services
and in-house software to be competing alternatives, many
customers view these as being complementary options and will
often use both. In those cases where customers wish to select a
single option, we believe we compete successfully against
outsourced service providers by providing an in-house, automated
solution that offers customers a more cost-effective and timely
approach to managing their PR efforts.
We compete with custom-developed solutions created either
internally by the organization or outside vendors. However,
building a custom solution often requires extensive financial
and technical resources that may not be available or
cost-effective for the public relations department. In addition,
in many cases the customers legacy database and software
system were not designed to support the increasingly complex and
dynamic needs of todays PR department.
We compete with press release distribution providers such as
Business Wire and PR Newswire. These providers offer solutions
that are generally more expensive and focused on distributing
news to traditional media, such as journalists and reporters. In
contrast, our online press release distribution services are
less expensive and are focused on distributing news directly to
consumers through the Internet. These providers may offer
solutions that will compete directly with our press release
distribution services by expanding their online distribution
services.
We believe the principal factors that generally determine a
companys competitive advantage in the public relations
market include the following:
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broad product functionality and depth of integration;
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ease of use;
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low total cost of ownership and easily demonstrable
cost-effective benefits for customers;
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flexibility and configurability to meet complex customer
requirements;
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rapid deployment and adoption;
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speed, reliability and functionality;
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system performance, security, scalability and reliability;
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ease of integration with existing applications and data;
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availability and quality of implementation, training and
help-desk services; and
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competitive sales and marketing capabilities.
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Intellectual
Property and Proprietary Content
We rely on a combination of trademark, copyright and trade
secret laws in the United States and other jurisdictions as well
as confidentiality procedures and contractual provisions to
protect our proprietary technology and our brand. We have no
issued patents; however, we have one pending patent application.
We also enter into
11
confidentiality and proprietary rights agreements with our
employees, consultants and other third parties and control
access to software, documentation and other proprietary
information.
We pursue the registration of our trademarks in the United
States and in other countries, although we have not secured
registration of all of our marks. We have registered the mark
Vocus in the United States, European Union, Australia,
Singapore, China and Thailand and have an application pending to
register the Vocus mark Hong Kong. We have registered the mark
PRWeb in the United States, Singapore and China and have
applications pending to register the PRWeb mark in the European
Union, Hong Kong and Thailand.
We currently license content included in our on-demand software
from several providers pursuant to data reseller, data
distribution and license agreements with these providers. These
agreements provide us with content such as news coverage from
print and Internet news sites, as well as contact information
for journalists, analysts, public officials, media outlets and
publicity opportunities. The licenses for this content are
non-exclusive. The agreements vary in length from one to three
years, and generally renew automatically subject to certain
cancellation provisions available to the parties. Fees for the
content provided are generally either fixed amounts per
subscriber or based upon the number of concurrent users at a
subscriber. Such fees are generally paid quarterly or monthly.
During 2005, we developed our own United States content which
replaced a significant portion of our acquired third-party
content and began providing our internally-developed content to
our customers. In 2008, we developed and provided to our
customers our own content for the United Kingdom and Ireland. We
do not believe that any of our content providers are single
source suppliers, the loss of whom would substantially affect
our business.
If a claim is asserted that we have infringed the intellectual
property of a third party, we may be required to seek licenses
to that technology. In addition, we license third-party
technologies that are incorporated into some elements of our
services. Licenses from third parties may not continue to be
available to us at a reasonable cost, or at all. Additionally,
the steps we have taken to protect our intellectual property
rights may not be adequate. Third parties may infringe or
misappropriate our proprietary rights. Competitors may also
independently develop technologies that are substantially
equivalent or superior to the technologies we employ in our
services.
Employees
As of December 31, 2009, we had 518 full-time and
part-time employees. Our employees are not covered under any
collective bargaining agreement, and we have never experienced a
work stoppage. We believe we have good relations with our
employees.
Executive
Officers and Key Employees
Our executive officers and key employees and their respective
ages and positions as of February 26, 2010 are as follows:
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Name
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Age
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Position
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Richard Rudman*
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Chief Executive Officer, President and Chairman
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Stephen Vintz*
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Chief Financial Officer, Treasurer and Secretary
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William Wagner*
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Chief Marketing Officer
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Norman Weissberg*
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Senior Vice President, North American Sales
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Darren Stewart
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Senior Vice President, Customer Services
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Mark Heys
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Chief Technology Officer
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Denotes a named executive officer |
Richard Rudman co-founded Vocus and has served as our
Chief Executive Officer, President and Chairman since 1992. From
1986 through 1992, Mr. Rudman served as a senior executive
at Dataway Corporation, a software development company. From
1984 through 1986, Mr. Rudman served as an accountant and
systems analyst at Barlow Corporation, a privately held real
estate development and management company. From 1979 through
1983, Mr. Rudman served in the United States Air Force.
Mr. Rudman serves on the board of directors of the
Baltimore Symphony Orchestra, a non-profit organization.
Mr. Rudman holds a B.S. degree in accounting from the
University of Maryland and is a Certified Public Accountant.
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Stephen Vintz has served as our Chief Financial Officer
and Treasurer since January 2001. From November 1996 to January
2001, Mr. Vintz was Vice President of Strategic Planning
and Analysis at Snyder Communications, Inc., a marketing
services company. Prior to November 1996, Mr. Vintz was a
manager at Ernst & Young LLP. Mr. Vintz serves on
the board of directors of Fishbowl, Inc., a privately held
software company. Mr. Vintz holds a B.B.A. degree in
accounting from Loyola College of Maryland and is a Certified
Public Accountant.
William Wagner has served as our Chief Marketing Officer
since July 2006. From January 2000 to June 2006, Mr. Wagner
served as Chief Marketing Officer at Fiberlink Communications, a
global provider of security and mobility software. From 1989 to
2000, Mr. Wagner held various sales and marketing positions
at AT&T. Mr. Wagner serves on the board of directors
of M5 Networks, a privately held technology company.
Mr. Wagner holds a B.A. degree in history from Lafayette
College and an M.B.A. degree from the University of
Pennsylvanias Wharton School of Business.
Norman Weissberg has served as our Senior Vice President,
North American Sales since June 2006. From August 1998 until
June 2006, he was our Vice President, Account Sales. From March
1997 to August 1998, Mr. Weissberg was a Major Accounts
Manager at Xerox Corporation. Mr. Weissberg holds a B.S.
degree in business from the University of Maryland.
Darren Stewart has served as our Senior Vice President,
Customer Services since February 1996. From January 1994 through
February 1996, Mr. Stewart worked for Information Systems
Group, a software consulting company. From September 1992
through January 1994, Mr. Stewart was Manager of Customer
Service for Job Files Corporation, a privately held HR software
and services company. Mr. Stewart holds a B.S. degree in
business administration and finance from the University of
Colorado.
Mark Heys has served as our Chief Technology Officer
since February 2008. From December 1998 to until February 2008,
he was our Vice President, Development. From February 1996
through November 1998 Mr. Heys served as Development
Manager at T4G Limited, a privately held company. Prior to T4G,
Mr. Heys was the founder and CEO of Definitive Ideas, a
software company focused on
Point-of-Sale
applications.
Available
Information
We make available free of charge on or through our Internet
website our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with or
furnished to the Securities and Exchange Commission, or SEC. Our
website address is www.vocus.com.
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:
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reductions in the corporate budgets, including technology
spending of our customers and potential customers;
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declines in demand for our solutions;
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decreases in collections of our customer receivables;
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insolvency of our key vendors and suppliers; and
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volatility in interest rates and decreases in investment income.
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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.
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:
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our ability to retain and increase sales to existing customers
and attract new customers;
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changes in the volume and mix of subscriptions sold and press
releases distributed in a particular quarter;
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seasonality of our business cycle, given that our subscription
volumes are normally lowest in the first quarter and highest in
the fourth quarter;
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our policy of expensing sales commissions at the time our
customers are invoiced for a subscription agreement, while the
majority of our revenue is recognized ratably over future
periods;
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the timing and success of new product introductions or upgrades
by us or our competitors;
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changes in our pricing policies or those of our competitors;
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the amount and timing of expenditures related to expanding our
operations;
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changes in accounting policies or the timing of non-recurring
charges;
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changes in the payment terms for our products and services;
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changes in foreign currency exchange rates;
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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;
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foreign currency exchange rates; and
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the purchasing and budgeting cycles of our customers.
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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
14
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:
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generating sufficient revenue to maintain profitability;
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managing growth in our operations;
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managing the risks associated with developing new services and
modules;
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attracting and retaining customers; and
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attracting and retaining key personnel.
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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.
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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.
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.
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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 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.
If our
information databases do not 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 databases that we make available to our customers
through our on-demand software. If our internally-developed
content does not 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.
We
rely on third-parties to provide certain content for our
solutions, and if those third-parties discontinue providing
their content, our business, financial condition and results of
operations could be adversely affected.
We rely on third-parties to provide certain data for our
information databases and our news on-demand solutions. These
third-parties may not renew agreements to provide content to us
or may increase the price they charge for their content.
Additionally, the quality of the content provided to us may not
be acceptable to us and we may need to enter into agreements
with additional third-parties. In the event we are unable to use
such third-party content or are unable to enter into agreement
with third-parties, current subscription customers may not renew
their subscription agreements with us, and it may be difficult
to acquire new subscription customers.
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
$821,000 for 2007 and $300,000 for 2008. Although we had
operating income in 2009, 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 maintain 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
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and retain customers, and our business, financial condition and
results of operations will be seriously harmed. We face
competition from:
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PR solution providers offering products specifically designed
for PR;
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generic desktop software and other commercially available
software not specifically designed for PR;
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outsourced PR service providers; and
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custom-developed solutions; and
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press release distribution providers.
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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, 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.
18
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 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:
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issue additional equity securities that would dilute the
ownership of our stockholders;
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use cash that we may need in the future to operate our business;
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incur or assume debt on terms unfavorable to us or that we are
unable to repay;
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incur large charges or substantial liabilities;
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encounter difficulties retaining key employees of an acquired
company or integrating diverse business cultures; and
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become subject to adverse tax consequences, substantial
depreciation or deferred compensation charges.
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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
19
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 databases 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 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.
Our online press release and news distribution 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 new distribution service.
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
20
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 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:
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divert managements attention;
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result in costly and time-consuming litigation;
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require us to enter into royalty or licensing agreements, which
may not be available on acceptable terms, or at all; or
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require us to redesign our solutions to avoid infringement.
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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.
21
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, 2009, the number of
our full-time equivalent employees increased from 146 to 484. 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 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 9% of our 2009 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:
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fluctuations in currency exchange rates;
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unexpected changes in foreign regulatory requirements;
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difficulties in managing and staffing international operations;
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potentially adverse tax consequences, including the complexities
of foreign value added tax systems and restrictions on the
repatriation of earnings; and
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the burdens of complying with a wide variety of foreign laws and
different legal standards.
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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 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
23
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:
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quarterly variations in our operating results;
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seasonality of our business cycle;
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interest rate changes;
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changes in the markets expectations about our operating
results;
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our operating results failing to meet the expectation of
securities analysts or investors in a particular period;
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changes in financial estimates and recommendations by securities
analysts concerning our company or the on-demand software
industry in general;
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operating and stock price performance of other companies that
investors deem comparable to us;
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news reports relating to trends in our markets;
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changes in laws and regulations affecting our business;
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material announcements by us or our competitors;
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sales of substantial amounts of common stock by our directors,
executive officers or significant stockholders or the perception
that such sales could occur; and
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economic conditions including a slowdown in economic growth and
uncertainty in equity and credit markets; and
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general political conditions such as acts of war or terrorism.
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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:
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establish a classified board of directors so that not all
members of our board of directors are elected at one time;
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provide that directors may only be removed for cause
and only with the approval of 662/3 percent of our
stockholders;
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require super-majority voting to amend our bylaws or specified
provisions in our amended and restated certificate of
incorporation;
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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;
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limit the ability of our stockholders to call special meetings
of stockholders;
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prohibit stockholder action by written consent, which requires
all stockholder actions to be taken at a meeting of our
stockholders;
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provide that the board of directors is expressly authorized to
adopt, amend, or repeal our bylaws; and
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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.
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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, from
time to time, 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.
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Item 1B.
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Unresolved
Staff Comments
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Not applicable.
Our corporate headquarters, including our principal
administrative, marketing, sales, technical support and research
and development facilities, are located in Lanham, Maryland,
where we lease approximately 57,300 square feet under three
agreements that expire in 2011. Our content research division is
located in College Park, Maryland where we lease approximately
6,400 square feet of space under an agreement that expires
in 2010, at which time we will relocate to a nearby location and
lease approximately 7,300 square feet of space under an
agreement that expires in 2020. Operations related to our online
press release distribution service are located in Ferndale,
Washington where we lease approximately 7,200 square feet
of space under two agreements that expire in 2010. We also
currently occupy several domestic and international sales and
service offices in Herndon, Virginia and London, England, where
we lease an aggregate of approximately 14,900 square feet
under multiple leases, which have terms that expire at various
times through November 2014.
We believe that our current facilities are suitable and adequate
to meet our current needs, and that suitable additional or
substitute space will be available as needed to accommodate
expansion of our operations.
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Item 3.
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Legal
Proceedings
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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 position, operating
results or cash flows.
We believe that we have obtained adequate insurance coverage or
rights to indemnification, or where appropriate, have
established reserves in connection with these legal proceedings.
25
PART II
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Item 5.
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Market
for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
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Market
for Common Stock
Since December 7, 2005, our common stock has been listed on
the NASDAQ Global Market under the symbol VOCS.
Prior to such time, there was no public market for our common
stock. The following table sets forth, for the periods
indicated, the high and low closing sale prices of our common
stock as reported by NASDAQ, without retail
mark-up,
mark-down or commissions and may not necessarily represent
actual transactions.
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High
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Low
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Fiscal Year Ended December 31, 2008
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First Quarter
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$
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35.14
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$
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21.44
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Second Quarter
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34.01
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22.97
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Third Quarter
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39.21
|
|
|
|
31.08
|
|
Fourth Quarter
|
|
|
33.30
|
|
|
|
14.20
|
|
Fiscal Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
19.50
|
|
|
|
11.66
|
|
Second Quarter
|
|
|
20.27
|
|
|
|
13.66
|
|
Third Quarter
|
|
|
21.23
|
|
|
|
14.99
|
|
Fourth Quarter
|
|
|
21.65
|
|
|
|
16.34
|
|
As of February 26, 2010, there were approximately 82
holders of record of our common stock. This figure does not
reflect persons or entities that hold their stock in nominee or
street name through various brokerage firms.
Dividends
We have never declared or paid any cash dividends on our capital
stock and do not expect to pay any cash dividends for the
foreseeable future. We intend to retain any future earnings, if
any, in the operation and expansion of our business. Any future
determination to pay cash dividends will be made at the
discretion of our board of directors and will depend on our
financial condition, results of operations, capital requirements
and other factors that our board of directors deems relevant. In
addition, the terms of any future indebtedness that we may incur
could preclude us from paying dividends.
Uses of
Proceeds From Registered Securities
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.
26
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
We did not purchase any of our common stock during the fourth
quarter of 2009. In November 2008, our Board of Directors
authorized a stock repurchase program for up to $30,000,000 of
our shares of common stock. The shares may be purchased from
time to time in the open market, and there is no expiration date
specified for the program. During the year ended
December 31, 2009, we purchased an aggregate of
224,192 shares of our common stock for $3.5 million
under the program.
27
Performance
Graph
The following line graph compares cumulative total stockholder
returns for the period from December 7, 2005, the date of
our initial public offering, through December 31, 2009 for
(1) our common stock; (2) the Nasdaq Market Index; and
(3) the Nasdaq Computer & Data Processing Index.
The graph assumes an investment of $100 on December 7,
2005, which was the first day on which our stock was listed on
the Nasdaq Global Market. The calculations of cumulative
stockholder return on the Nasdaq National Index and the Nasdaq
Computer & Data Processing Index include reinvestment
of dividends, but the calculation of cumulative stockholder
return on our common stock does not include reinvestment of
dividends because we did not pay dividends during the
measurement period. The performance shown is not necessarily
indicative of future performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/7/2005
|
|
|
12/31/2005
|
|
|
12/31/2006
|
|
|
12/31/2007
|
|
|
12/31/2008
|
|
|
12/31/2009
|
|
|
Vocus, Inc.
|
|
$
|
100.00
|
|
|
$
|
115.44
|
|
|
$
|
186.67
|
|
|
$
|
383.67
|
|
|
$
|
202.33
|
|
|
$
|
200.00
|
|
Nasdaq Composite
|
|
|
100.00
|
|
|
|
97.93
|
|
|
|
107.25
|
|
|
|
117.77
|
|
|
|
70.03
|
|
|
|
100.76
|
|
Nasdaq Computer and Data Processing Index
|
|
|
100.00
|
|
|
|
97.03
|
|
|
|
103.00
|
|
|
|
125.51
|
|
|
|
66.91
|
|
|
|
114.29
|
|
28
|
|
Item 6.
|
Selected
Financial Data
|
The following selected consolidated financial data should be
read in conjunction with our consolidated financial statements
and the related notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations
included elsewhere in this report. The data for the years ended
December 31, 2007, 2008 and 2009 are derived from
consolidated financial statements included elsewhere in this
report. The data for the years ended December 31, 2005 and
2006 is derived from audited financial statements not included
in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2006(3)
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
28,062
|
|
|
$
|
40,328
|
|
|
$
|
58,076
|
|
|
$
|
77,520
|
|
|
$
|
84,579
|
|
Cost of revenues(1)
|
|
|
6,537
|
|
|
|
8,293
|
|
|
|
10,922
|
|
|
|
14,675
|
|
|
|
15,461
|
|
Accelerated amortization of prepaid royalty fees and contract
termination costs
|
|
|
1,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
20,126
|
|
|
|
32,035
|
|
|
|
47,154
|
|
|
|
62,845
|
|
|
|
69,118
|
|
Operating expenses:(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
14,837
|
|
|
|
18,912
|
|
|
|
26,548
|
|
|
|
35,140
|
|
|
|
41,123
|
|
Research and development
|
|
|
2,515
|
|
|
|
2,896
|
|
|
|
3,822
|
|
|
|
4,998
|
|
|
|
4,675
|
|
General and administrative
|
|
|
6,051
|
|
|
|
9,626
|
|
|
|
14,743
|
|
|
|
20,356
|
|
|
|
21,018
|
|
Amortization of intangible assets
|
|
|
1,605
|
|
|
|
1,705
|
|
|
|
2,862
|
|
|
|
2,651
|
|
|
|
1,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
25,008
|
|
|
|
33,139
|
|
|
|
47,975
|
|
|
|
63,145
|
|
|
|
68,742
|
|
Income (loss) from operations
|
|
|
(4,882
|
)
|
|
|
(1,104
|
)
|
|
|
(821
|
)
|
|
|
(300
|
)
|
|
|
376
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
177
|
|
|
|
1,819
|
|
|
|
2,541
|
|
|
|
2,136
|
|
|
|
485
|
|
Interest expense
|
|
|
(359
|
)
|
|
|
(88
|
)
|
|
|
(47
|
)
|
|
|
(27
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(182
|
)
|
|
|
1,731
|
|
|
|
2,494
|
|
|
|
2,109
|
|
|
|
454
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
(5,064
|
)
|
|
|
627
|
|
|
|
1,673
|
|
|
|
1,809
|
|
|
|
830
|
|
Provision (benefit) for income taxes
|
|
|
|
|
|
|
185
|
|
|
|
674
|
|
|
|
(5,119
|
)
|
|
|
2,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(5,064
|
)
|
|
|
442
|
|
|
|
999
|
|
|
|
6,928
|
|
|
|
(2,024
|
)
|
Accretion of preferred stock
|
|
|
(1,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
(6,964
|
)
|
|
$
|
442
|
|
|
$
|
999
|
|
|
$
|
6,928
|
|
|
$
|
(2,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders per share,
basic
|
|
$
|
(1.43
|
)
|
|
$
|
0.03
|
|
|
$
|
0.06
|
|
|
$
|
0.38
|
|
|
$
|
(0.11
|
)
|
Net income (loss) attributable to common stockholders per share,
diluted
|
|
$
|
(1.43
|
)
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
$
|
0.37
|
|
|
$
|
(0.11
|
)
|
|
|
|
(1) |
|
Cost of revenues and operating expenses include stock-based
compensation expense from equity awards in the following amounts: |
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Cost of revenues
|
|
$
|
|
|
|
$
|
69
|
|
|
$
|
581
|
|
|
$
|
1,262
|
|
|
$
|
1,453
|
|
Sales and marketing
|
|
|
|
|
|
|
530
|
|
|
|
1,498
|
|
|
|
3,212
|
|
|
|
3,753
|
|
Research and development
|
|
|
|
|
|
|
219
|
|
|
|
548
|
|
|
|
769
|
|
|
|
989
|
|
General and administrative
|
|
|
|
|
|
|
1,042
|
|
|
|
3,025
|
|
|
|
5,929
|
|
|
|
6,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
1,860
|
|
|
$
|
5,652
|
|
|
$
|
11,172
|
|
|
$
|
12,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
Operating expenses include stock-based compensation expense
related to purchases of our common stock in the following
amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
General and administrative
|
|
$
|
1,006
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(3) |
|
On August 4, 2006, we acquired PRWeb International, Inc.,
an online distributor of press releases. The operating results
of PRWeb have been included in our results of operations since
the date of acquisition. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
|
(In thousands)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments
|
|
$
|
41,427
|
|
|
$
|
29,863
|
|
|
$
|
67,480
|
|
|
$
|
87,187
|
|
|
$
|
104,669
|
|
Working capital
|
|
|
24,915
|
|
|
|
8,521
|
|
|
|
42,013
|
|
|
|
58,427
|
|
|
|
70,594
|
|
Total assets
|
|
|
55,836
|
|
|
|
74,770
|
|
|
|
114,243
|
|
|
|
139,979
|
|
|
|
159,240
|
|
Total debt
|
|
|
1,407
|
|
|
|
762
|
|
|
|
335
|
|
|
|
373
|
|
|
|
245
|
|
Total deferred revenue
|
|
|
20,696
|
|
|
|
26,631
|
|
|
|
34,964
|
|
|
|
42,854
|
|
|
|
47,750
|
|
Redeemable stock
|
|
|
189
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
30,387
|
|
|
|
40,974
|
|
|
|
71,004
|
|
|
|
91,408
|
|
|
|
104,381
|
|
30
|
|
Item 7.
|
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. In addition
to historical consolidated financial information, the following
discussion contains forward-looking statements that reflect our
plans, estimates and beliefs. 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.
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 December 31, 2009, we had 4,438
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 on-demand solutions
which allow 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 to 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. Our subscription agreements may
include amounts that are not yet contractually billable to
customers, and any such unbilled amounts are not recorded in
deferred revenue until invoiced. We had approximately
$10.4 million and $11.4 million of these unbilled
amounts at December 31, 2008 and 2009, respectively. These
amounts may fluctuate from
year-to-year
depending on the billing cycles for our subscription agreements,
including seasonality in our sales cycle, the timing of renewal
agreements and the amount of multi-year subscription agreements.
Such fluctuations may not be indicative of our future revenue.
31
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 year ended December 31, 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 2010, cost of revenues
will increase in absolute dollars but will remain flat as a
percentage of revenues.
Sales and Marketing. Sales and marketing
expenses are our largest operating expense, accounting for 49%
of our revenues for the year ended December 31, 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 2010, 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 2010,
research and development expenses will increase in absolute
dollars but will remain flat 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 2010, general and
administrative expenses will increase in absolute dollars but
will decrease slightly 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.
32
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 consolidated financial
statements, 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. 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. All elements in our
multiple element subscription agreements are considered 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 we invoice a customer under their subscription
agreement. As a result, we incur sales expense before the
recognition of the related revenues.
Stock-Based Compensation. We recognize
compensation expense for equity awards based on the fair value
of the award and on a straight-line basis over the requisite
service period of the award based on the estimated portion of
the award that is 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.
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
33
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
conducted the goodwill annual impairment test for 2009 with no
resulting impairment. There were no events or circumstances from
the date of the assessment through December 31, 2009 that
would impact this conclusion.
Definite-lived intangible assets consist of acquired customer
relationships, a trade name and agreements
not-to-compete
and are amortized either on a straight-line or accelerated basis
over their estimated useful lives ranging from five to seven
years. 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. Impairment charges for long-lived assets for the years
ended December 31, 2007 and 2008 were not material. There
were no impairment charges for long-lived assets for the year
ended December 31, 2009.
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. 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.
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 2002 to 2009. 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 estimates of recoverable net
deferred taxes inaccurate. Any of the judgments mentioned above
could cause our actual income tax obligations to differ from our
estimates, thus materially impacting our financial position and
results of operations.
At December 31, 2008 and 2009, we had approximately $10.3
and $13.1 million in gross deferred tax assets,
respectively. 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 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 December 31, 2009, we
maintained a full valuation against our foreign deferred tax
assets.
34
Results
of Operations
The following tables set forth selected consolidated statements
of operations data for each of the periods indicated as a
percentage of total revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Revenues
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Cost of revenues
|
|
|
19
|
|
|
|
19
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
81
|
|
|
|
81
|
|
|
|
82
|
|
Operating expenses:
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|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
46
|
|
|
|
45
|
|
|
|
49
|
|
Research and development
|
|
|
6
|
|
|
|
7
|
|
|
|
6
|
|
General and administrative
|
|
|
25
|
|
|
|
26
|
|
|
|
25
|
|
Amortization of intangible assets
|
|
|
5
|
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
82
|
|
|
|
81
|
|
|
|
82
|
|
Income (loss) from operations
|
|
|
(1
|
)
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|
|
|
|
|
|
|
|
Other income, net
|
|
|
4
|
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision (benefit) for income taxes
|
|
|
3
|
|
|
|
3
|
|
|
|
1
|
|
Provision (benefit) for income taxes
|
|
|
1
|
|
|
|
(6
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
2
|
%
|
|
|
9
|
%
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31, 2009 and 2008
Revenues. Revenues for 2009 were
$84.6 million, an increase of $7.1 million, or 9%,
over revenues of $77.5 million for 2008. The increase in
revenues was primarily due to the increase in the number of
total active subscription customers to 4,438 as of
December 31, 2009 from 3,379 as of December 31, 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 $4.7 million.
Revenue growth from transaction revenue was $2.4 million.
Total deferred revenue as of December 31, 2009 was
$47.8 million, representing an increase of
$4.9 million, or 11%, over total deferred revenue of
$42.9 million as of December 31, 2008.
Cost of Revenues. Cost of revenues for 2009
was $15.5 million, an increase of $786,000, or 5%, over
cost of revenues of $14.7 million for 2008. The increase in
cost of revenues was due to an increase of $399,000 in employee
related costs from additional personnel, $301,000 in third-party
license and royalty fees, and $191,000 in stock-based
compensation. We had 146 full-time employee equivalents in
our professional and other support services group at
December 31, 2009 compared to 149 full-time employee
equivalents at December 31, 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.
Sales and Marketing Expenses. Sales and
marketing expenses for 2009 were $41.1 million, an increase
of $6.0 million or 17%, over sales and marketing expenses
of $35.1 million for 2008. The increase was primarily due
to an increase of $3.0 million in employee related costs
from additional personnel, $2.6 million in marketing
program costs primarily to increase awareness and attract
customers to our online press release services and $541,000 in
stock-based compensation, offset by a decrease of $558,000 in
incentive compensation reflecting our relative sales performance
against established incentive targets. Our sales and marketing
headcount increased by 25% as we hired sales personnel to focus
on acquiring new customers and increasing revenues from existing
customers and marketing personnel to expand our marketing
activities to build brand awareness. We had 257 full-time
sales and
35
marketing employee equivalents as of December 31, 2009
compared to 206 full-time employee equivalents as of
December 31, 2008.
Research and Development Expenses. Research
and development expenses for 2009 were $4.7 million, a
decrease of $323,000, or 6%, compared to research and
development expenses of $5.0 million for 2008. The decrease
in research and development was primarily due to decreases of
$313,000 in employee-related costs and $109,000 in incentive
compensation reflecting our relative performance against
established incentive targets, offset by an increase of $220,000
in stock-based compensation. For the year ended 2009 and 2008,
we capitalized $160,000 and $77,000, respectively of
employee-related costs for internally developed software used in
our on-demand software. We had 31 full-time research and
development employee equivalents as of December 31, 2009
and December 31, 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 2009 were $21.0 million, an
increase of $662,000, or 3%, over general and administrative
expenses of $20.4 million for 2008. The increase in general
and administrative expenses was primarily due to an increase of
$248,000 in employee related costs from additional personnel,
$210,000 in professional fees and travel, $251,000 in rents and
facility costs relating to expansion of our offices and $768,000
in stock-based compensation, offset by a decrease of $661,000 in
incentive compensation reflecting our relative performance
against established incentive targets. We had 51 full-time
employee equivalents in our general and administrative group at
December 31, 2009 compared to 47 full-time employee
equivalents at December 31, 2008.
Amortization of Intangible
Assets. Amortization of intangible assets for
2009 was $1.9 million, a decrease of $725,000, or 27%,
compared to amortization of intangible assets of
$2.7 million for 2008. Intangible assets acquired in the
purchase of Gnossos Software, Inc. were fully amortized in
October 2008 resulting in decreased amortization. Amortization
expense for 2008 included $633,000 related to these assets.
Other Income (Expense). Other income for 2009
was $454,000, a decrease of $1.7 million, or 78% compared
to $2.1 million for 2008. The continued decline in interest
rate yields in 2009 resulted in decreased interest income.
Provision (Benefit) for Income Taxes. The
provision for income taxes for 2009 was $2.9 million. For
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,
non-deductible compensation, and to a lesser extent, state
income taxes and certain other non-deductible expenses. The
benefit for income taxes for 2008 of $5.1 million primarily
relates to the reversal of the valuation allowance against our
U.S. deferred tax assets. For 2008, our effective tax rate
differed from the U.S. Federal statutory rates primarily
due to the effect of reversing 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.
Years
Ended December 31, 2008 and 2007
Revenues. Revenues for 2008 were
$77.5 million, an increase of $19.4 million, or 33%,
over revenues of $58.1 million for 2007. The increase in
revenues was primarily due to the increase in the number of
total active subscription customers to 3,379 as of
December 31, 2008 from 2,427 as of December 31, 2007.
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
$16.1 million. Revenue growth from transaction revenue was
$3.6 million. Total deferred revenue as of
December 31, 2008 was $42.9 million, representing an
increase of $7.9 million, or 23%, over total deferred
revenue of $35.0 million as of December 31, 2007.
Cost of Revenues. Cost of revenues for 2008
was $14.7 million, an increase of $3.8 million, or
34%, over cost of revenues of $10.9 million for 2007. The
increase in cost of revenues was due to an increase of
$1.3 million in employee related costs from additional
personnel, $846,000 in third-party license and royalty fees,
$521,000 in hosting infrastructure costs and $681,000 in
stock-based compensation. We had 149 full-time employee
equivalents
36
in our professional and other support services group at
December 31, 2008 compared to 107 full-time employee
equivalents at December 31, 2007.
Sales and Marketing Expenses. Sales and
marketing expenses for 2008 were $35.1 million, an increase
of $8.6 million or 32%, over sales and marketing expenses
of $26.5 million for 2007. The increase was primarily due
to an increase of $3.2 million in employee related costs
from additional personnel, $1.1 million in sales
commissions and incentive based compensation, $2.5 million
in marketing program costs and $1.7 million in stock-based
compensation. Our sales and marketing headcount increased by 27%
as we hired sales personnel to focus on acquiring new customers
and increasing revenues from existing customers and marketing
personnel to expand our marketing activities to build brand
awareness. We had 206 full-time sales and marketing
employee equivalents as of December 31, 2008 compared to
162 full-time employee equivalents as of December 31,
2007.
Research and Development Expenses. Research
and development expenses for 2008 were $5.0 million, an
increase of $1.2 million, or 31%, over research and
development expenses of $3.8 million for 2007. The increase
in research and development expenses was primarily due to an
increase of $728,000 in employee related costs from additional
personnel and an increase of $221,000 in stock-based
compensation. For the years ended 2008 and 2007, we capitalized
$77,000 and $340,000, respectively of employee-related costs for
internally developed software used in our on-demand software. We
had 31 full-time research and development employee
equivalents as of December 31, 2008 compared to
29 full-time employee equivalents as of December 31,
2007. 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 2008 were $20.4 million, an
increase of $5.7 million, or 38%, over general and
administrative expenses of $14.7 million for 2007. The
increase in general and administrative expenses was primarily
due to an increase of $601,000 in employee related costs from
additional personnel, $751,000 in professional fees, $505,000 in
rents and facility costs relating to expansion of our offices
and $2.9 million in stock-based compensation. We had
47 full-time employee equivalents in our general and
administrative group at December 31, 2008 compared to 43
full time employee equivalents at December 31, 2007.
Amortization of Intangible
Assets. Amortization of intangible assets for
2008 was $2.7 million, a decrease of $211,000, or 7%,
compared to amortization of intangible assets of
$2.9 million for 2007. Intangible assets acquired in the
purchase of Gnossos Software, Inc. were fully amortized in
October 2008 resulting in decreased amortization.
Other Income (Expense). Other income for 2008
was $2.1 million, a decrease of $385,000, or 15% compared
to $2.5 million for 2007. The decline in interest rate
yields in 2008 resulted in decreased interest income.
Provision (Benefit) for Income Taxes. The
benefit for income taxes for 2008 of $5.1 million primarily
relates to the reversal of the valuation allowance against our
U.S. deferred tax assets. The provision for income taxes
for 2007 of $674,000 consists primarily of deferred income tax
expense resulting from amortization of tax deductible goodwill
related to PRWeb and to a lesser extent, state income taxes and
Federal alternative minimum tax.
Liquidity
and Capital Resources
As of December 31, 2009, our principal sources of liquidity
were cash and cash equivalents totaling $85.8 million,
investments totaling $18.9 million and net accounts
receivable totaling $18.2 million.
Operating Activities. Net cash provided by
operating activities for the year ended December 31, 2009
was $16.1 million, reflecting a net loss of
$2.0 million, non-cash charges for depreciation and
amortization of $3.6 million, stock-based compensation of
$12.9 million and $1.0 million from net increases in
accounts receivable and deferred revenue due to growth in our
subscription agreements invoiced in 2009. Net cash provided by
operating activities is also impacted by changes in other
working capital accounts in the ordinary course of business.
Investing Activities. Net cash used in
investing activities for the year ended December 31, 2009
was $1.3 million, which primarily resulted from proceeds
received from net maturities of investments of $2.9 million
and investments in property, equipment and software of
$1.6 million to support our continued growth.
37
Financing Activities. Net cash provided by
financing activities for the year ended December 31, 2009
was $3.1 million. In 2009, we purchased 265,404 shares
of our common stock at an aggregate cost of $4.1 million
and received proceeds from the exercise of stock option awards
of $2.4 million.
As of December 31, 2009, we had a letter of credit
outstanding in favor of our principal landlord. The letter of
credit is collateralized by a $270,000 certificate of deposit
which is maintained at the granting financial institution. The
letter of credit renews annually through April 2011 and the
certificate of deposit matures in 2011.
As of December 31, 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 computer equipment, we do
not engage in off-balance sheet financing arrangements. 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.
The following table summarizes our contractual obligations as of
December 31, 2009 that requires us to make future cash
payments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by period
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Operating leases
|
|
$
|
4,367
|
|
|
$
|
1,485
|
|
|
$
|
1,101
|
|
|
$
|
875
|
|
|
$
|
906
|
|
Contractual commitments
|
|
|
3,139
|
|
|
|
2,334
|
|
|
|
761
|
|
|
|
44
|
|
|
|
|
|
Capital lease obligations
|
|
|
274
|
|
|
|
221
|
|
|
|
49
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations
|
|
$
|
7,780
|
|
|
$
|
4,040
|
|
|
$
|
1,911
|
|
|
$
|
923
|
|
|
$
|
906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The contractual commitment amounts in the table above are
associated with agreements that are enforceable and legally
binding and that specify all significant terms, including: fixed
or minimum services to be used; fixed, minimum or variable price
provisions; and the approximate timing of the transaction.
Obligations under agreements that we can cancel without a
significant penalty are not included in the table above.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Foreign
Currency Exchange Risk
Our results of operations and cash flows are subject to
fluctuations due to changes in foreign currency exchange rates,
particularly changes in the British pound sterling. As a result,
we are exposed to movements in the exchange rates of currencies
against the U.S. Dollar. Revenues from subscription
agreements denominated in a foreign currency were approximately
6% of our total revenues in the years ended December 31,
2007 and 2009 and 7% of our total revenues in the year ended
2008. Exchange rate fluctuations have not significantly impacted
our results of operations, financial condition and cash flows.
Historically, we have not utilized derivative financial
instruments to hedge our foreign exchange exposure; however, we
may choose to use such contracts in the future.
Interest
Rate Sensitivity
Our cash equivalents and investments consist primarily of money
market funds, corporate notes and bonds, government-sponsored
agency securities and other debt securities. Our interest income
is subject to interest rate risk. For the year ended
December 31, 2009 a fluctuation in interest rates of
1 percentage point would change interest income by
approximately $1 million.
38
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Our consolidated financial statements and related notes required
by this item are set forth as a separate section of this report.
See Part IV, Item 15 of this
Form 10-K.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
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 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 during the quarter ended December 31, 2009 that
have materially affected, or are reasonably likely to affect,
our internal control over financial reporting.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rules 13a-15(f).
Our internal control system was designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
A companys internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to further
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with policies and procedures may deteriorate.
Under the supervision and with the participation of management,
including its principal executive officer and principal
financial officer, our management assessed the design and
operating effectiveness of internal control over financial
reporting as of December 31, 2009 based on the framework in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
Based on its evaluation under the framework in Internal
Control Integrated Framework, our management
concluded that our internal control over financial reporting was
effective as of December 31, 2009. The effectiveness of our
internal control over financial reporting as of
December 31, 2009 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report which is included herein.
39
Report of
Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting
The Board of Directors and Stockholders of Vocus, Inc.
We have audited Vocus, Inc.s internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Vocus, Inc.s
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Vocus, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Vocus, Inc. and subsidiaries as
of December 31, 2008 and 2009, and the related consolidated
statements of operations, stockholders equity and cash
flows for each of the three years in the period ended
December 31, 2009 and our report dated March 9, 2010
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
McLean, Virginia
March 9, 2010
40
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
A listing of our executive officers, key employees and their
biographies are included under the caption Executive
Officers and Key Employees under Item 1 of this
Form 10-K.
The remaining information required by this Item is incorporated
herein by reference to the definitive Proxy Statement to be
filed pursuant to Regulation 14A of the Exchange Act for
our 2010 Annual Meeting of Stockholders.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filed pursuant
to Regulation 14A of the Exchange Act for our 2010 Annual
Meeting of Stockholders.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filed pursuant
to Regulation 14A of the Exchange Act for our 2010 Annual
Meeting of Stockholders.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filed pursuant
to Regulation 14A of the Exchange Act for our 2010 Annual
Meeting of Stockholders.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filed pursuant
to Regulation 14A of the Exchange Act for our 2010 Annual
Meeting of Stockholders.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) Documents filed as part of this report:
|
|
|
|
1.
|
Consolidated Financial Statements:
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm;
|
|
|
|
Consolidated balance sheets as of December 31, 2008 and
2009;
|
|
|
|
Consolidated statements of operations for the years ended
December 31, 2007, 2008 and 2009;
|
|
|
|
Consolidated statements of stockholders equity for the
years ended December 31, 2007, 2008 and 2009;
|
|
|
|
Consolidated statements of cash flows for the years ended
December 31, 2007, 2008 and 2009; and
|
|
|
|
Notes to consolidated financial statements.
|
|
|
|
|
2.
|
Consolidated Financial Statement Schedule:
|
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts.
|
All other financial schedules are not required under the related
instructions or are inappropriate and therefore have been
omitted.
(b) Exhibits
The exhibits listed in the accompanying Index to Exhibits are
filed or incorporated by reference as part of this report.
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Richard Rudman
Chief Executive Officer, President and Chairman
Date: March 9, 2010
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Richard Rudman
and Stephen Vintz, jointly and severally, his attorney-in-fact,
each with the full power of substitution, for such person, in
any and all capacities, to sign any and all amendments to this
Annual Report on
Form 10-K,
and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might do
or could do in person hereby ratifying and confirming all that
each of said attorneys-in-fact and agents, or his substitute,
may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
date indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Richard
Rudman
Richard
Rudman
|
|
Chief Executive Officer, President and Chairman (Principal
Executive Officer)
|
|
March 9, 2010
|
|
|
|
|
|
/s/ Stephen
Vintz
Stephen
Vintz
|
|
Chief Financial Officer and Treasurer (Principal Financial and
Accounting Officer)
|
|
March 9, 2010
|
|
|
|
|
|
/s/ Kevin
Burns
Kevin
Burns
|
|
Director
|
|
March 9, 2010
|
|
|
|
|
|
/s/ Gary
Golding
Gary
Golding
|
|
Director
|
|
March 9, 2010
|
|
|
|
|
|
/s/ Gary
Greenfield
Gary
Greenfield
|
|
Director
|
|
March 9, 2010
|
|
|
|
|
|
/s/ Ronald
Kaiser
Ronald
Kaiser
|
|
Director
|
|
March 9, 2010
|
|
|
|
|
|
/s/ Robert
Lentz
Robert
Lentz
|
|
Director
|
|
March 9, 2010
|
|
|
|
|
|
/s/ Richard
Moore
Richard
Moore
|
|
Director
|
|
March 9, 2010
|
42
Vocus,
Inc. and Subsidiaries
Index to
Financial Statements
F-1
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Vocus, Inc.
We have audited the accompanying consolidated balance sheets of
Vocus, Inc. and subsidiaries as of December 31, 2008 and
2009, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2009. Our audits
also included the financial statement schedule listed in the
index at Item 15(a)2. These financial statements and
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Vocus, Inc. and subsidiaries at
December 31, 2008 and 2009, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Vocus, Inc.s internal control over financial reporting as
of December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 9, 2010 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
McLean, Virginia
March 9, 2010
F-2
Vocus,
Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
65,429
|
|
|
$
|
85,817
|
|
Short-term investments
|
|
|
21,758
|
|
|
|
17,851
|
|
Accounts receivable, net of allowance for doubtful accounts of
$294 and $212 at December 31, 2008 and December 31,
2009, respectively
|
|
|
14,739
|
|
|
|
18,245
|
|
Current portion of deferred income taxes
|
|
|
394
|
|
|
|
685
|
|
Prepaid expenses and other current assets
|
|
|
3,340
|
|
|
|
1,753
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
105,660
|
|
|
|
124,351
|
|
Long-term investments
|
|
|
|
|
|
|
1,001
|
|
Property, equipment and software, net
|
|
|
4,615
|
|
|
|
4,666
|
|
Intangible assets, net
|
|
|
5,906
|
|
|
|
3,980
|
|
Goodwill
|
|
|
17,090
|
|
|
|
17,090
|
|
Deferred income taxes, net of current portion
|
|
|
6,097
|
|
|
|
7,459
|
|
Other assets
|
|
|
611
|
|
|
|
693
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
139,979
|
|
|
$
|
159,240
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
497
|
|
|
$
|
1,148
|
|
Accrued compensation
|
|
|
2,297
|
|
|
|
2,384
|
|
Accrued expenses
|
|
|
2,479
|
|
|
|
3,239
|
|
Current portion of notes payable and capital lease obligations
|
|
|
185
|
|
|
|
197
|
|
Current portion of deferred revenue
|
|
|
41,775
|
|
|
|
46,789
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
47,233
|
|
|
|
53,757
|
|
Notes payable and capital lease obligations, net of current
portion
|
|
|
188
|
|
|
|
48
|
|
Other liabilities
|
|
|
71
|
|
|
|
93
|
|
Deferred revenue, net of current portion
|
|
|
1,079
|
|
|
|
961
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
48,571
|
|
|
|
54,859
|
|
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 December 31, 2009
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 90,000,000 shares
authorized; 19,380,866 and 19,854,585 issued at
December 31, 2008 and December 31, 2009, respectively;
17,965,129 and 18,173,444 shares outstanding at
December 31, 2008 and December 31, 2009, respectively
|
|
|
194
|
|
|
|
199
|
|
Additional paid-in capital
|
|
|
129,897
|
|
|
|
149,279
|
|
Treasury stock, 1,415,737 and 1,681,141 shares at
December 31, 2008 and December 31, 2009, respectively,
at cost
|
|
|
(10,783
|
)
|
|
|
(14,914
|
)
|
Accumulated other comprehensive income
|
|
|
564
|
|
|
|
305
|
|
Accumulated deficit
|
|
|
(28,464
|
)
|
|
|
(30,488
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
91,408
|
|
|
|
104,381
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
139,979
|
|
|
$
|
159,240
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
Vocus,
Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Revenues
|
|
$
|
58,076
|
|
|
$
|
77,520
|
|
|
$
|
84,579
|
|
Cost of revenues
|
|
|
10,922
|
|
|
|
14,675
|
|
|
|
15,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
47,154
|
|
|
|
62,845
|
|
|
|
69,118
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
26,548
|
|
|
|
35,140
|
|
|
|
41,123
|
|
Research and development
|
|
|
3,822
|
|
|
|
4,998
|
|
|
|
4,675
|
|
General and administrative
|
|
|
14,743
|
|
|
|
20,356
|
|
|
|
21,018
|
|
Amortization of intangible assets
|
|
|
2,862
|
|
|
|
2,651
|
|
|
|
1,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
47,975
|
|
|
|
63,145
|
|
|
|
68,742
|
|
Income (loss) from operations
|
|
|
(821
|
)
|
|
|
(300
|
)
|
|
|
376
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
2,541
|
|
|
|
2,136
|
|
|
|
485
|
|
Interest expense
|
|
|
(47
|
)
|
|
|
(27
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
2,494
|
|
|
|
2,109
|
|
|
|
454
|
|
Income before provision (benefit) for income taxes
|
|
|
1,673
|
|
|
|
1,809
|
|
|
|
830
|
|
Provision (benefit) for income taxes
|
|
|
674
|
|
|
|
(5,119
|
)
|
|
|
2,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
999
|
|
|
$
|
6,928
|
|
|
$
|
(2,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
|
$
|
0.38
|
|
|
$
|
(0.11
|
)
|
Diluted
|
|
$
|
0.05
|
|
|
$
|
0.37
|
|
|
$
|
(0.11
|
)
|
Weighted average shares outstanding used in computing per share
amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
17,147,889
|
|
|
|
17,997,123
|
|
|
|
18,077,616
|
|
Diluted
|
|
|
18,267,020
|
|
|
|
18,958,500
|
|
|
|
18,077,616
|
|
See accompanying notes.
F-4
Vocus,
Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Equity
|
|
|
Balance at December 31, 2006
|
|
|
16,993,515
|
|
|
$
|
170
|
|
|
$
|
80,526
|
|
|
$
|
(3,283
|
)
|
|
$
|
(48
|
)
|
|
$
|
(36,391
|
)
|
|
$
|
40,974
|
|
Public offering, net of costs
|
|
|
1,217,137
|
|
|
|
12
|
|
|
|
21,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,657
|
|
Issuance of common stock to directors
|
|
|
5,196
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
Exercise of stock options and warrants
|
|
|
435,567
|
|
|
|
4
|
|
|
|
1,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,598
|
|
Tax benefit from equity awards
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
Accretion of redeemable common stock
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Forfeiture of common stock redemption right
|
|
|
5,000
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
5,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,567
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
(25
|
)
|
Net unrealized gain on available for sale securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
999
|
|
|
|
999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
18,656,415
|
|
|
|
186
|
|
|
|
109,553
|
|
|
|
(3,283
|
)
|
|
|
(60
|
)
|
|
|
(35,392
|
)
|
|
|
71,004
|
|
Issuance of common stock to directors
|
|
|
210
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Exercise of stock options
|
|
|
709,490
|
|
|
|
8
|
|
|
|
7,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,226
|
|
Tax benefit from equity awards
|
|
|
|
|
|
|
|
|
|
|
1,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,951
|
|
Repurchase of 404,960 shares of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,500
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,500
|
)
|
Stock-based compensation
|
|
|
14,751
|
|
|
|
|
|
|
|
11,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,169
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
601
|
|
|
|
|
|
|
|
601
|
|
Net unrealized gain on available for sale securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
23
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,928
|
|
|
|
6,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
19,380,866
|
|
|
|
194
|
|
|
|
129,897
|
|
|
|
(10,783
|
)
|
|
|
564
|
|
|
|
(28,464
|
)
|
|
|
91,408
|
|
Exercise of stock options
|
|
|
264,133
|
|
|
|
3
|
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,403
|
|
Vesting of restricted stock awards
|
|
|
209,586
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from equity awards
|
|
|
|
|
|
|
|
|
|
|
4,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,088
|
|
Repurchase of 265,404 shares of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,131
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,131
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
12,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,896
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(225
|
)
|
|
|
|
|
|
|
(225
|
)
|
Net unrealized loss on available for sale securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
(34
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,024
|
)
|
|
|
(2,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
19,854,585
|
|
|
$
|
199
|
|
|
$
|
149,279
|
|
|
$
|
(14,914
|
)
|
|
$
|
305
|
|
|
$
|
(30,488
|
)
|
|
$
|
104,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
Vocus,
Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
999
|
|
|
$
|
6,928
|
|
|
$
|
(2,024
|
)
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property, equipment and software
|
|
|
1,480
|
|
|
|
1,821
|
|
|
|
1,658
|
|
Amortization of intangible assets
|
|
|
2,982
|
|
|
|
2,722
|
|
|
|
1,926
|
|
Loss (gain) on disposal of assets
|
|
|
(26
|
)
|
|
|
10
|
|
|
|
3
|
|
Impairment of long-lived assets
|
|
|
24
|
|
|
|
68
|
|
|
|
|
|
Stock-based compensation
|
|
|
5,657
|
|
|
|
11,172
|
|
|
|
12,892
|
|
Provision for doubtful accounts
|
|
|
75
|
|
|
|
237
|
|
|
|
265
|
|
Deferred income taxes
|
|
|
454
|
|
|
|
(7,154
|
)
|
|
|
(1,631
|
)
|
Excess tax benefit from equity awards
|
|
|
(78
|
)
|
|
|
(1,951
|
)
|
|
|
(5,048
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(4,277
|
)
|
|
|
(1,075
|
)
|
|
|
(3,642
|
)
|
Prepaid expenses and other current assets
|
|
|
(744
|
)
|
|
|
(1,532
|
)
|
|
|
1,621
|
|
Other assets
|
|
|
(25
|
)
|
|
|
(145
|
)
|
|
|
(93
|
)
|
Accounts payable
|
|
|
(416
|
)
|
|
|
(405
|
)
|
|
|
616
|
|
Accrued compensation
|
|
|
1,020
|
|
|
|
(712
|
)
|
|
|
75
|
|
Accrued expenses
|
|
|
599
|
|
|
|
1,422
|
|
|
|
4,814
|
|
Deferred revenue
|
|
|
8,304
|
|
|
|
8,836
|
|
|
|
4,624
|
|
Other liabilities
|
|
|
4
|
|
|
|
(18
|
)
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
16,032
|
|
|
|
20,224
|
|
|
|
16,079
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(1,046
|
)
|
|
|
(1,742
|
)
|
|
|
(1,445
|
)
|
Software development costs
|
|
|
(322
|
)
|
|
|
(74
|
)
|
|
|
(156
|
)
|
Proceeds from disposal of assets
|
|
|
34
|
|
|
|
|
|
|
|
|
|
Purchases of
available-for-sale
securities
|
|
|
(14,237
|
)
|
|
|
(46,008
|
)
|
|
|
(32,332
|
)
|
Sales of
available-for-sale
securities
|
|
|
625
|
|
|
|
800
|
|
|
|
|
|
Maturities of
available-for-sale
securities
|
|
|
6,043
|
|
|
|
34,437
|
|
|
|
35,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(8,903
|
)
|
|
|
(12,587
|
)
|
|
|
1,250
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from public offerings, net of offering costs
|
|
|
21,657
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
|
|
|
|
(7,500
|
)
|
|
|
(4,131
|
)
|
Proceeds from exercises of stock options and warrants
|
|
|
1,598
|
|
|
|
7,226
|
|
|
|
2,403
|
|
Excess tax benefit from equity awards
|
|
|
78
|
|
|
|
1,951
|
|
|
|
5,048
|
|
Payments on notes payable and capital lease obligations
|
|
|
(427
|
)
|
|
|
(360
|
)
|
|
|
(218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
22,906
|
|
|
|
1,317
|
|
|
|
3,102
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
(66
|
)
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
30,035
|
|
|
|
8,888
|
|
|
|
20,388
|
|
Cash and cash equivalents at beginning of year
|
|
|
26,506
|
|
|
|
56,541
|
|
|
|
65,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
56,541
|
|
|
$
|
65,429
|
|
|
$
|
85,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
44
|
|
|
$
|
29
|
|
|
$
|
31
|
|
Cash paid for income taxes
|
|
$
|
20
|
|
|
$
|
621
|
|
|
$
|
101
|
|
Supplemental disclosure of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired under capital leases and other financing
arrangements
|
|
$
|
|
|
|
$
|
514
|
|
|
$
|
90
|
|
Forfeiture of common stock redemption right
|
|
$
|
34
|
|
|
$
|
|
|
|
$
|
|
|
See accompanying notes.
F-6
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
|
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.
Cash
and Cash Equivalents
The Company considers all highly liquid investments purchased
with an original maturity date of three months or less to be
cash equivalents.
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 2009. Realized gains and losses are included in other
income (expense) based on the specific identification method.
Realized gains or losses for the years ended December 31,
2008 and 2009 were not material. Net unrealized gains and losses
on
available-for-sale
securities are reported as a component of other comprehensive
income (loss), net of tax. As of December 31, 2008 and
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 December 31, 2009.
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
F-7
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
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.
|
Allowance
for Doubtful Accounts
Estimates are used to determine the amount of the allowance for
doubtful accounts necessary to reduce accounts receivable to the
estimated net realizable value. These estimates are made by
analyzing the status of significant past-due receivables and by
establishing general provisions for estimated losses by
analyzing current and historical bad debt trends. Actual
collection experience has not varied significantly from prior
estimates.
Software
Development and Information Database Costs
The Company incurs software development costs related to its
on-demand software developed for subscription services.
Qualifying costs incurred during the application development
stage are capitalized. These costs primarily consist of internal
labor and are amortized using the straight-line method over the
estimated useful life of the software, generally two years. All
other development costs are expensed as incurred. The Company
also capitalized the costs to acquire and develop its
proprietary information database. These costs are amortized
using the straight-line method over the estimated useful lives
of nine to thirteen years. Costs to maintain and update the
information database are expensed as cost of revenues as
incurred.
Property,
Equipment and Software
Property, equipment and software are stated at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, generally two to five
years. Assets acquired under capital leases and leasehold
improvements are amortized using the straight-line method over
the shorter of the estimated useful lives of the assets or the
terms of the leases. Amortization of assets acquired under
capital leases is included in depreciation expense. Repairs and
maintenance costs are charged to expense as incurred. When
assets are retired or otherwise disposed of, the asset and
related accumulated depreciation are eliminated from the
accounts and any resulting gain or loss is recorded in the
results of operations.
Long-Lived
Assets
Long-lived assets include property, equipment and software and
intangible assets with finite lives. Intangible assets consist
of customer relationships, a trade name and agreements
not-to-compete
acquired in business combinations. Intangible assets are
amortized using the straight-line method or an accelerated basis
over their estimated useful lives ranging from five to seven
years. Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be fully recoverable. If an
impairment indicator is present, the Company evaluates
recoverability by a comparison of the carrying amount of the
assets to future undiscounted net cash flows expected to be
generated by the assets. If the assets are impaired, the
impairment recognized is measured by the amount by which the
carrying amount exceeds the estimated fair value of the assets.
Impairment charges for long-lived assets for the years ended
December 31, 2007 and 2008 were not material. There were no
impairment charges for long-lived assets for the year ended
December 31, 2009.
F-8
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Goodwill
Goodwill represents the excess of the cost of an acquired entity
over the net fair value of the identifiable assets acquired and
liabilities assumed. Goodwill is not amortized, but rather is
assessed for impairment at least annually. 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. The Company performed its
annual impairment assessment on November 1st. The estimated
fair value of the Companys reporting unit exceeded its
carrying amount, including goodwill, and as such, no potential
goodwill impairment was noted.
Foreign
Currency and Operations
The functional currency for the Companys foreign
subsidiaries are the British pound and the Euro. The translation
of each subsidiarys financial statements into
U.S. dollars is performed for assets and liabilities using
exchange rates in effect at the balance sheet date and for
revenue and expense accounts using an average exchange rate
during the period. The resulting translation adjustments are
recognized in accumulated other comprehensive income (loss), a
separate component of stockholders equity. Realized
foreign currency transaction gains and losses are included in
other income (expense) in the consolidated statements of
operations.
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. The components of accumulated other comprehensive
income are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Foreign currency translation adjustment
|
|
|
524
|
|
|
|
299
|
|
Unrealized net gain on
available-for-sale
securities, net of tax
|
|
|
40
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
564
|
|
|
$
|
305
|
|
|
|
|
|
|
|
|
|
|
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, hosting services, content and
content updates, customer support 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
F-9
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
commences on the start date specified in the subscription
arrangement or the date access to the software is provided to
the customer.
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.
Deferred
Revenue
Deferred revenue consists of payments received from or billings
to customers in advance of revenue recognition. Deferred revenue
to be recognized in the succeeding
12-month
period is included in current deferred revenue with the
remaining amounts included in noncurrent deferred revenue.
Sales
Commissions
Sales commissions are expensed when a subscription agreement is
executed by the customer.
Advertising
Costs
The Company expenses advertising costs as incurred. Advertising
costs for the years ended December 31, 2007, 2008 and 2009
were $2,686,000, $3,925,000 and $4,955,000, respectively.
Stock-Based
Compensation
The Company recognizes compensation expense for its equity
awards on a straight-line basis over the requisite service
period of the award based on the estimated portion of the award
that is expected to vest and applies estimated forfeiture rates
based on analyses of historical data, including termination
patterns and other factors. Estimated forfeiture rates are
applied based on analyses of historical data, including
termination patterns and other factors. The Company uses the
quoted closing market price of its common stock on the grant
date to measure the fair value of restricted stock awards and
the Black-Scholes option pricing model to measure the fair value
of 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 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. The Company has not
paid dividends and does not anticipate paying a cash dividend in
the foreseeable future and, accordingly, use an expected
dividend yield of zero.
Concentrations
of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
cash equivalents, investments and accounts receivable. The
Company generally maintains its cash and cash equivalents with
various nationally recognized financial institutions.
Investments consist of investment grade, interest bearing
securities.
Customers are granted credit on an unsecured basis. Management
monitors the creditworthiness of its customers and believes that
it has adequately provided for any exposure to potential credit
losses.
The Company provides on-demand software and services to various
customers across several industries. As of December 31,
2008 and 2009, no individual customer accounted for 10% or more
of net accounts receivable. For the years ended
December 31, 2007, 2008 and 2009, no individual customer
accounted for 10% or more of revenue. As of December 31,
2008 and 2009, total assets located outside the United States
were approximately 1% and 2%, of total assets, respectively.
Revenues from sales to customers outside the United States were
approximately 9% of
F-10
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
total revenues for the years ended December 31, 2007 and
2009 and 10% of total revenues for the year ended
December 31, 2008.
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 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 a 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 Company had no material uncertain tax positions at
December 31, 2008 and 2009. The Companys policy is to
recognize interest and penalties accrued on any unrecognized tax
positions as a component of income tax expense. No interest and
penalties related to uncertain income tax positions were accrued
at December 31, 2008 and 2009. The Company does not believe
its unrecognized tax positions will materially change over the
next twelve months. 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 2002
to 2009.
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 per
share until vested. Diluted net income 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 per share also includes the
dilutive effect of nonvested shares of restricted stock. The
following summarizes the calculation of basic and diluted net
income (loss) per share (dollars in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Net income (loss)
|
|
$
|
999
|
|
|
$
|
6,928
|
|
|
$
|
(2,024
|
)
|
Weighted average shares outstanding, basic
|
|
|
17,147,889
|
|
|
|
17,997,123
|
|
|
|
18,077,616
|
|
Dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
1,046,643
|
|
|
|
961,377
|
|
|
|
|
|
Warrants to purchase common stock
|
|
|
72,488
|
|
|
|
|
|
|
|
|
|
Nonvested shares of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, diluted
|
|
|
18,267,020
|
|
|
|
18,958,500
|
|
|
|
18,077,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
|
$
|
0.38
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.05
|
|
|
$
|
0.37
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2007 and 2008, diluted
earnings per share excluded 22,000 and 65,540 outstanding stock
options, respectively, because the exercise prices exceeded the
average market price of the Companys common stock during
the periods and, as a result, the impact of their inclusion
would be anti-dilutive. For the year ended December 31,
2008, diluted earnings per share excluded 676,450 nonvested
shares of restricted stock, as the impact of their inclusion
would be anti-dilutive. For the year ended December 31,
2009, the Company incurred net losses and, therefore, the effect
of the Companys outstanding stock options and nonvested
shares of
F-11
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
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 year ended December 31, 2009, diluted
earnings per share excluded 2,134,979 outstanding stock options
and 1,229,358 nonvested shares of restricted stock.
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 of its business.
Recent
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. However, early adoption is permitted. The Company is
currently evaluating the 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 short-term investments at
December 31, 2008 are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
4,056
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,056
|
|
Commercial paper
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-12
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The components of cash equivalents and investments at
December 31, 2009 are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
7,045
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,045
|
|
Commercial paper
|
|
|
37,144
|
|
|
|
|
|
|
|
|
|
|
|
37,144
|
|
Certificates of deposit
|
|
|
2,900
|
|
|
|
|
|
|
|
|
|
|
|
2,900
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
6,497
|
|
|
|
2
|
|
|
|
|
|
|
|
6,499
|
|
Government-sponsored agency debt securities
|
|
|
8,746
|
|
|
|
5
|
|
|
|
|
|
|
|
8,751
|
|
Certificates of deposit
|
|
|
700
|
|
|
|
|
|
|
|
|
|
|
|
700
|
|
Corporate notes and bonds
|
|
|
1,900
|
|
|
|
1
|
|
|
|
|
|
|
|
1,901
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored agency debt securities
|
|
|
1,000
|
|
|
|
1
|
|
|
|
|
|
|
|
1,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
65,932
|
|
|
$
|
9
|
|
|
$
|
|
|
|
$
|
65,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
December 31, 2009, long-term investments have original
maturity dates between one and two years.
|
|
4.
|
Fair
Value Measurements
|
The fair value measurements of the Companys financial
assets measured on a recurring basis at December 31, 2009
are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Cash equivalents
|
|
$
|
47,089
|
|
|
$
|
9,945
|
|
|
$
|
37,144
|
|
|
$
|
|
|
Short-term investments
|
|
|
17,851
|
|
|
|
11,352
|
|
|
|
6,499
|
|
|
|
|
|
Long-term investments
|
|
|
1,001
|
|
|
|
1,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
65,941
|
|
|
$
|
22,298
|
|
|
$
|
43,643
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 alternative
pricing sources that utilize market observable inputs.
F-13
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
5.
|
Property,
Equipment and Software
|
Property, equipment and software consisted of the following
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Purchased software, computer and office equipment
|
|
$
|
4,440
|
|
|
$
|
5,474
|
|
Office furniture
|
|
|
965
|
|
|
|
1,117
|
|
Leasehold improvements
|
|
|
1,117
|
|
|
|
1,317
|
|
Equipment under capital lease obligations
|
|
|
534
|
|
|
|
603
|
|
Capitalized software development costs
|
|
|
865
|
|
|
|
1,025
|
|
Information database costs
|
|
|
2,565
|
|
|
|
2,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,486
|
|
|
|
12,101
|
|
Less accumulated depreciation and amortization
|
|
|
(5,871
|
)
|
|
|
(7,435
|
)
|
|
|
|
|
|
|
|
|
|
Property, equipment and software, net
|
|
$
|
4,615
|
|
|
$
|
4,666
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense on equipment under capital leases was
$32,000, $136,000 and $80,000 for the years ended
December 31, 2007, 2008 and 2009, respectively.
Intangible assets at December 31, 2008 consisted of the
following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
Carrying
|
|
|
|
|
|
Net Carrying
|
|
|
|
Period
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Customer relationships
|
|
|
5.0
|
|
|
$
|
3,041
|
|
|
$
|
(1,747
|
)
|
|
$
|
1,294
|
|
Trade name
|
|
|
7.0
|
|
|
|
3,946
|
|
|
|
(1,356
|
)
|
|
|
2,590
|
|
Agreements
not-to-compete
|
|
|
5.0
|
|
|
|
3,913
|
|
|
|
(1,891
|
)
|
|
|
2,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
10,900
|
|
|
$
|
(4,994
|
)
|
|
$
|
5,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets at December 31, 2009 consisted of the
following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
Carrying
|
|
|
|
|
|
Net Carrying
|
|
|
|
Period
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Customer relationships
|
|
|
5.0
|
|
|
$
|
3,041
|
|
|
$
|
(2,326
|
)
|
|
$
|
715
|
|
Trade name
|
|
|
7.0
|
|
|
|
3,946
|
|
|
|
(1,920
|
)
|
|
|
2,026
|
|
Agreements
not-to-compete
|
|
|
5.0
|
|
|
|
3,913
|
|
|
|
(2,674
|
)
|
|
|
1,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
10,900
|
|
|
$
|
(6,920
|
)
|
|
$
|
3,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future expected amortization of intangible assets at
December 31, 2009 was as follows (dollars in thousands):
|
|
|
|
|
2010
|
|
$
|
1,821
|
|
2011
|
|
|
1,260
|
|
2012
|
|
|
564
|
|
2013
|
|
|
335
|
|
|
|
|
|
|
|
|
$
|
3,980
|
|
|
|
|
|
|
F-14
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Term
Loans and Equipment Line of Credit
The Company has a secured revolving equipment line of credit
(the Equipment Line) that provides for borrowings up to
$2,000,000. In May 2008, the Company modified the Equipment Line
to extend the expiration date to June 30, 2010. Outstanding
borrowings under the Equipment Line convert to term loans with
principal and interest payments payable monthly over a maximum
period of 36 months depending on the date of the borrowing
and asset purchased. Borrowings bear interest at the banks
prime rate, and interest is payable monthly. Borrowings are
collateralized by the equipment purchased under the Equipment
Line. There were no outstanding borrowings under the term loans
at December 31, 2009.
Public
Offerings of Common Stock
On April 4, 2007, the Company completed the sale of
1,217,137 shares of common stock, at an offering price of
$19.50 per share. A total of $23,734,000 in gross proceeds was
raised by the Company in the public offering. After deducting
the underwriters commissions and offering expenses of
$2,077,000, net proceeds of the offering to the Company were
$21,657,000.
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 year
ended December 31, 2008 and 2009, the Company purchased an
aggregate of 404,960 and 224,192 shares of its common stock
for $7,500,000 and $3,500,000, respectively. During the year
ended December 31, 2009, the Company also purchased
41,212 shares of restricted stock for $631,000 that were
withheld from employees to satisfy the minimum statutory tax
withholding obligations upon the vesting of their restricted
stock awards during 2009.
|
|
9.
|
Stock-Based
Compensation
|
The Companys 1999 Stock Option Plan and 2005 Stock Award
Plan (the Plans) provide for the grant of stock
options, restricted stock, stock appreciation rights and other
equity awards to employees, consultants, officers and directors.
The 2005 Stock Award Plan was adopted by the Board of Directors
and stockholders in November 2005 in conjunction with the
Companys initial public offering. Under the 2005 Stock
Award Plan, 5,233,663 shares have been reserved for future
issuance, subject to annual increases. The Plans are
administered by the Compensation Committee of the Board of
Directors, which has the authority, among other things, to
determine which individuals receive awards pursuant to the
Plans, and the terms of the awards. Stock options granted under
the Plans have a
10-year term
and generally vest annually over a four-year period. The
Companys outstanding equity awards include stock option
awards and restricted stock awards. At December 31, 2009,
983,424 shares were available for future grants. All shares
available for future grant are restricted to the 2005 Stock
Award Plan.
F-15
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The following table sets forth the stock-based compensation
expense for equity awards recorded in the consolidated
statements of operations for the years ended December 31,
2007, 2008 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Cost of revenues
|
|
$
|
581
|
|
|
$
|
1,262
|
|
|
$
|
1,453
|
|
Sales and marketing
|
|
|
1,498
|
|
|
|
3,212
|
|
|
|
3,753
|
|
Research and development
|
|
|
548
|
|
|
|
769
|
|
|
|
989
|
|
General and administration
|
|
|
3,025
|
|
|
|
5,929
|
|
|
|
6,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,652
|
|
|
$
|
11,172
|
|
|
$
|
12,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Option Awards
The following weighted-average assumptions were used in
calculating stock-based compensation for stock option awards
granted during the years ended December 31, 2007, 2008 and
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Stock price volatility
|
|
|
52
|
%
|
|
|
54
|
%
|
|
|
62
|
%
|
Expected term (years)
|
|
|
6.2
|
|
|
|
6.1
|
|
|
|
6.2
|
|
Risk-free interest rate
|
|
|
4.8
|
%
|
|
|
3.0
|
%
|
|
|
2.5
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
The summary of stock option activity for the year ended
December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
Aggregate Intrinsic
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Value as of
|
|
|
|
Number of
|
|
|
Range of
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
December 31,
|
|
|
|
Options
|
|
|
Exercise Prices
|
|
|
per Share
|
|
|
Term
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance outstanding at January 1, 2009
|
|
|
2,567,074
|
|
|
$
|
0.30 - $35.98
|
|
|
$
|
14.05
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
62,689
|
|
|
|
16.64 - 19.78
|
|
|
|
17.23
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(264,133
|
)
|
|
|
0.30 - 18.65
|
|
|
|
9.10
|
|
|
|
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
(230,651
|
)
|
|
|
0.30 - 34.53
|
|
|
|
17.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at December 31, 2009
|
|
|
2,134,979
|
|
|
$
|
0.30 - 35.98
|
|
|
$
|
14.35
|
|
|
|
6.6
|
|
|
$
|
9,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2009
|
|
|
2,053,774
|
|
|
$
|
0.30 - $35.98
|
|
|
$
|
14.17
|
|
|
|
6.6
|
|
|
$
|
9,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance exercisable at December 31, 2009
|
|
|
1,441,223
|
|
|
$
|
0.30 - $35.98
|
|
|
$
|
12.24
|
|
|
|
6.3
|
|
|
$
|
8,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of stock options
granted during the years ended December 31, 2007, 2008 and
2009 was $11.30, $15.19 and $10.17, respectively. The fair value
of stock options that vested during the years ended
December 31, 2007, 2008 and 2009 was $2,600,000, $5,973,000
and $5,355,000, respectively. As of December 31, 2009,
$5.0 million of total unrecognized stock-based compensation
cost is related to nonvested stock option awards and is expected
to be recognized over a weighted-average period of
1.1 years.
The aggregate intrinsic value in the table above represents the
difference between the exercise price of the underlying equity
awards and the quoted closing price of the Companys common
stock at the last day of the year
F-16
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
multiplied by the number of shares that would have been received
by the stock option holders had all holders exercised their
stock options on the last day of each respective year. The
aggregate intrinsic value of options exercised during the years
ended December 31, 2007, 2008 and 2009 was $4,890,000,
$16,066,000 and $2,092,000, respectively.
The following details the outstanding stock options at
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Range of
|
|
Outstanding
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Exercisable
|
|
|
Exercise
|
|
Exercise
|
|
as of
|
|
|
Contractual
|
|
|
Price per
|
|
|
as of
|
|
|
Price per
|
|
Prices
|
|
12/31/09
|
|
|
Term
|
|
|
Share
|
|
|
12/31/09
|
|
|
Share
|
|
|
$ 0.30 - $ 3.59
|
|
|
9,710
|
|
|
|
2.3
|
|
|
$
|
2.09
|
|
|
|
9,710
|
|
|
$
|
2.09
|
|
$ 3.60 - $ 7.19
|
|
|
102,303
|
|
|
|
5.0
|
|
|
|
4.77
|
|
|
|
102,303
|
|
|
|
4.77
|
|
$ 7.20 - $10.78
|
|
|
786,241
|
|
|
|
5.9
|
|
|
|
9.00
|
|
|
|
786,241
|
|
|
|
9.00
|
|
$10.79 - $14.38
|
|
|
141,250
|
|
|
|
6.5
|
|
|
|
13.10
|
|
|
|
71,250
|
|
|
|
13.11
|
|
$14.39 - $17.99
|
|
|
84,689
|
|
|
|
8.3
|
|
|
|
16.49
|
|
|
|
20,750
|
|
|
|
16.09
|
|
$18.00 - $21.58
|
|
|
922,496
|
|
|
|
7.1
|
|
|
|
18.80
|
|
|
|
415,957
|
|
|
|
18.78
|
|
$21.59 - $35.98
|
|
|
88,290
|
|
|
|
7.8
|
|
|
|
27.92
|
|
|
|
35,012
|
|
|
|
27.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,134,979
|
|
|
|
6.6
|
|
|
$
|
14.35
|
|
|
|
1,441,223
|
|
|
$
|
12.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 year
ended December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Weighted-Average
|
|
|
|
Underlying Stock
|
|
|
Grant Date Fair
|
|
|
|
Awards
|
|
|
Value
|
|
|
Balance nonvested at January 1, 2009
|
|
|
676,450
|
|
|
$
|
29.46
|
|
Awarded
|
|
|
867,433
|
|
|
|
16.73
|
|
Vested
|
|
|
(209,586
|
)
|
|
|
28.27
|
|
Forfeited
|
|
|
(104,939
|
)
|
|
|
26.36
|
|
|
|
|
|
|
|
|
|
|
Balance nonvested at December 31, 2009
|
|
|
1,229,358
|
|
|
$
|
20.94
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, $19.0 million of total
unrecognized stock-based compensation cost is related to
nonvested shares of restricted stock and is expected to be
recognized over a weighted-average period of 2.7 years.
|
|
10.
|
Employee
Benefit Plans
|
The Company sponsors defined-contribution and profit-sharing
plans in the United States and the United Kingdom. Total
expenses for the plans for the years ended December 31,
2007, 2008 and 2009 were approximately $283,000, $355,000 and
$370,000, respectively.
F-17
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
A reconciliation of the Companys effective income tax rate
on income before taxes with the federal statutory rate is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Current expense
|
|
$
|
220
|
|
|
$
|
2,035
|
|
|
$
|
4,677
|
|
Deferred expense (benefit)
|
|
|
454
|
|
|
|
(7,154
|
)
|
|
|
(1,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
$
|
674
|
|
|
$
|
(5,119
|
)
|
|
$
|
2,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2007, 2008 and 2009, the
provision for income taxes differs from the expected tax
provision computed by applying the U.S. Federal statutory
rate to income before taxes as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Statutory federal tax rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
State income taxes
|
|
|
7
|
|
|
|
9
|
|
|
|
29
|
|
Effect of foreign losses
|
|
|
8
|
|
|
|
13
|
|
|
|
24
|
|
Non-deductible compensation
|
|
|
11
|
|
|
|
30
|
|
|
|
145
|
|
Other non-deductible expenses
|
|
|
4
|
|
|
|
4
|
|
|
|
14
|
|
Changes in valuation allowance
|
|
|
(25
|
)
|
|
|
(374
|
)
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
%
|
|
|
(283
|
)%
|
|
|
344
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes for the year ended
December 31, 2009 differed 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, non-deductible compensation, and to a lesser extent,
state income taxes and certain other non-deductible expenses.
Historically, the Company maintained a full valuation allowance
on its deferred tax assets because it was unable to conclude
that it was more likely than not that it would realize the tax
benefits of these deferred tax assets. During 2008, the Company
concluded that it was more likely than not that it would not
have future taxable income sufficient to realize certain of its
deferred tax assets and reversed its valuation allowance against
its U.S. deferred tax assets. For the year ended
December 31, 2008, the 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. As of December 31, 2009, the Company maintained
a full valuation against its foreign deferred tax assets.
During the fourth quarter of 2009, the Company identified an
error in its accounting for income taxes that affected certain
prior periods. The cumulative effect of the error was corrected
in the three months ended December 31, 2009 resulting in a
$773,000 increase to income tax expense. The Company concluded
that the impact of the error was not material to the
consolidated financial statements for any prior interim or
annual period.
F-18
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The Companys deferred tax components consisted of the
following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
NOL carryforwards
|
|
$
|
1,921
|
|
|
$
|
2,728
|
|
Allowance for doubtful accounts
|
|
|
96
|
|
|
|
66
|
|
Deferred revenue
|
|
|
105
|
|
|
|
226
|
|
Accrued expenses
|
|
|
165
|
|
|
|
239
|
|
Depreciation
|
|
|
258
|
|
|
|
303
|
|
Intangible asset amortization
|
|
|
3,088
|
|
|
|
3,339
|
|
Stock-based compensation
|
|
|
4,478
|
|
|
|
5,572
|
|
Other
|
|
|
189
|
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
10,300
|
|
|
|
13,106
|
|
Valuation allowance
|
|
|
(1,921
|
)
|
|
|
(2,728
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
8,379
|
|
|
|
10,378
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Capitalized software development
|
|
|
(810
|
)
|
|
|
(743
|
)
|
Goodwill
|
|
|
(1,054
|
)
|
|
|
(1,487
|
)
|
Other
|
|
|
(24
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(1,888
|
)
|
|
|
(2,234
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
6,491
|
|
|
$
|
8,144
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, the Company had net operating loss
(NOL) carryforwards for federal tax purposes of approximately
$2.3 million which will begin to expire in 2024. For the
year ended December 31, 2009, the loss before income taxes
from foreign operations totaled $3.8 million.
The exercise and vesting of equity awards has generated income
tax deductions in excess of amounts recorded for financial
reporting purposes. In 2007, the Company did not realize a
significant tax benefit from the exercise of stock options as it
had incurred cumulative losses for federal and certain state
income tax purposes. In 2008 and 2009, the Company realized a
tax benefit from the utilization of NOLs related to stock-based
compensation and the exercise and vesting of equity awards. The
Company recorded a tax benefit from equity awards to additional
paid-in capital for the years ended December 31, 2007, 2008
and 2009. The Company has elected to use the with and
without method for recognition of excess tax benefits
related to equity awards.
|
|
12.
|
Commitments
and Contingencies
|
Leases
The Company has various non-cancelable operating leases,
primarily related to office real estate, that expire through
2020 and generally contain renewal options for up to five years.
Rent expense was $1,065,000, $1,364,000 and $1,666,000 for the
years ended December 31, 2007, 2008, and 2009,
respectively. The Company also leases computer and office
equipment under non-cancelable capital leases and other
financing arrangements that expire through 2011.
F-19
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Future minimum lease payments under non-cancelable operating and
capital leases at December 31, 2009 are as follows (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Capital
|
|
|
|
Leases
|
|
|
Leases
|
|
|
2010
|
|
$
|
1,485
|
|
|
$
|
221
|
|
2011
|
|
|
670
|
|
|
|
36
|
|
2012
|
|
|
431
|
|
|
|
13
|
|
2013
|
|
|
443
|
|
|
|
4
|
|
2014
|
|
|
432
|
|
|
|
|
|
2015 and thereafter
|
|
|
906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total future minimum payments
|
|
$
|
4,367
|
|
|
|
274
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
|
|
|
|
(29
|
)
|
Less current portion
|
|
|
|
|
|
|
(197
|
)
|
|
|
|
|
|
|
|
|
|
Long-term capital lease obligations
|
|
|
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
Purchase
Commitments
The Company has entered into various agreements with vendors
primarily for the hosting of and content used in its on-demand
software services. As of December 31, 2009, minimum
required payments in future years under these arrangements are
$2,300,000, $584,000, $177,000 and $44,000 in 2010, 2011, 2012
and 2013, respectively.
Letter
of Credit
The Company has established a letter of credit in favor of its
landlord. The letter of credit is collateralized by a $270,000
certificate of deposit. The certificate of deposit matures in
2011 and the balance plus accrued interest is included in other
assets in the accompanying consolidated balance sheets. As of
December 31, 2009, the letter of credit remained
outstanding; however, no amounts had been drawn against it. The
letter of credit renews annually through April 2011.
Litigation
and Claims
The Company 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 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.
F-20
Vocus,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
13.
|
Quarterly
Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008(1)
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009(2)
|
|
|
Summary consolidated statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
17,867
|
|
|
$
|
19,085
|
|
|
$
|
19,953
|
|
|
$
|
20,615
|
|
|
$
|
20,411
|
|
|
$
|
21,079
|
|
|
$
|
21,042
|
|
|
$
|
22,047
|
|
Gross profit
|
|
|
14,435
|
|
|
|
15,458
|
|
|
|
16,252
|
|
|
|
16,700
|
|
|
|
16,504
|
|
|
|
17,232
|
|
|
|
17,181
|
|
|
|
18,201
|
|
Net income (loss)
|
|
|
(403
|
)
|
|
|
5,664
|
|
|
|
218
|
|
|
|
1,449
|
|
|
|
(478
|
)
|
|
|
(343
|
)
|
|
|
(382
|
)
|
|
|
(821
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
|
$
|
0.32
|
|
|
$
|
0.01
|
|
|
$
|
0.08
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
0.30
|
|
|
$
|
0.01
|
|
|
$
|
0.08
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
Weighted average shares outstanding used in computing per share
amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
17,682,504
|
|
|
|
17,868,247
|
|
|
|
18,193,456
|
|
|
|
18,239,463
|
|
|
|
18,026,397
|
|
|
|
18,051,243
|
|
|
|
18,092,595
|
|
|
|
18,138,830
|
|
Diluted
|
|
|
17,682,504
|
|
|
|
18,957,313
|
|
|
|
19,349,935
|
|
|
|
18,523,210
|
|
|
|
18,026,397
|
|
|
|
18,051,243
|
|
|
|
18,092,595
|
|
|
|
18,138,830
|
|
|
|
|
(1)
|
|
During the three months ended
June 30, 2008, the Company reversed the valuation allowance
against its U.S. deferred tax assets in the amount of
$8.0 million.
|
|
(2)
|
|
See Note 11 for discussion of
certain items impacting the provision for income taxes.
|
F-21
Vocus,
Inc.
Schedule II
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Charged to
|
|
|
|
|
|
End of
|
|
|
|
Period
|
|
|
Expense
|
|
|
Deductions(1)
|
|
|
Period
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007
|
|
$
|
280
|
|
|
$
|
75
|
|
|
$
|
(104
|
)
|
|
$
|
251
|
|
Year ended December 31, 2008
|
|
|
251
|
|
|
|
224
|
|
|
|
(181
|
)
|
|
|
294
|
|
Year ended December 31, 2009
|
|
|
294
|
|
|
|
265
|
|
|
|
(347
|
)
|
|
|
212
|
|
Deferred tax valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007
|
|
$
|
10,021
|
|
|
$
|
(977
|
)
|
|
$
|
|
|
|
$
|
9,044
|
|
Year ended December 31, 2008
|
|
|
9,044
|
|
|
|
(7,123
|
)
|
|
|
|
|
|
|
1,921
|
|
Year ended December 31, 2009
|
|
|
1,921
|
|
|
|
807
|
|
|
|
|
|
|
|
2,728
|
|
|
|
|
(1) |
|
Includes actual write-off of accounts written-off, net of
recoveries. |
II-1
Index to
Exhibits
|
|
|
|
|
Exhibit
|
|
|
Numbers
|
|
Exhibits
|
|
|
3
|
.1(6)
|
|
Fifth Amended and Restated Certificate of Incorporation.
|
|
3
|
.2(6)
|
|
Amended and Restated Bylaws.
|
|
4
|
.1(4)
|
|
Specimen common stock certificate.
|
|
10
|
.1(1)
|
|
1999 Stock Option Plan.
|
|
10
|
.2(1)
|
|
Form of Option Agreement under Registrants 1999 Stock
Option Plan.
|
|
10
|
.3(5)
|
|
2005 Stock Award Plan.
|
|
10
|
.4(10)
|
|
Form of Option Agreement for executive officers under
Registrants 2005 Stock Award Plan.
|
|
10
|
.5(10)
|
|
Form of Option Agreement for non-employee directors under
Registrants 2005 Stock Award Plan.
|
|
10
|
.6(1)
|
|
Agreement of Lease, dated December 21, 2000, between MOR
FORBES LLLP and Registrant as amended.
|
|
10
|
.7(5)
|
|
Form of Indemnification Agreement entered into by the Registrant
and each of its executive officers and directors.
|
|
10
|
.8(2)
|
|
License Agreement between the Registrant and PR Newswire
Association LLC, dated August 1, 2003, as amended.
|
|
10
|
.9(10)
|
|
Amended and Restated Agreement between the Registrant and PR
Newswire Association, Inc., dated August 1, 2006.
|
|
10
|
.10(3)
|
|
OEM License Agreement between the Registrant and Moreover
Technologies, Inc., dated March 1, 2006, as amended.
|
|
10
|
.11(7)
|
|
Form of Employment Agreement for Richard Rudman and Stephen
Vintz, and schedule of details omitted therefrom.
|
|
10
|
.12(7)
|
|
Form of Employment Agreement for Norman Weissberg, and schedule
of details omitted therefrom.
|
|
10
|
.13(8)
|
|
Employment Agreement for William Wagner dated July 17, 2006.
|
|
10
|
.14(8)
|
|
Indemnification Agreement for William Wagner dated July 17,
2006.
|
|
10
|
.15(9)
|
|
Asset Purchase Agreement, dated August 4, 2006, among the
Registrant, Vocus PRW Holdings LLC, PRWeb, LLC and the sole
stockholder of PRWeb International, Inc. and sole owner of
PRWeb, LLC.
|
|
10
|
.16(11)
|
|
Form of Restricted Stock Agreement for executive officers under
Registrants 2005 Stock Award Plan.
|
|
10
|
.17(11)
|
|
Form of Restricted Stock Agreement for non-employee directors
under Registrants 2005 Stock Award Plan.
|
|
10
|
.18(11)
|
|
Summary of board of directors compensation.
|
|
21
|
.1*
|
|
List of subsidiaries.
|
|
23
|
.1*
|
|
Consent of Ernst & Young LLP.
|
|
24
|
.1*
|
|
Power of Attorney (included on the signature page to this
report).
|
|
31
|
.1*
|
|
Certification of Chief Executive Officer pursuant to
Rules 13a-14
and 15d-14 promulgated under the Securities Exchange Act of 1934.
|
|
31
|
.2*
|
|
Certification of Chief Financial Officer pursuant to
Rules 13a-14
and 15d-14 promulgated under the Securities Exchange Act of 1934.
|
|
32
|
.1**
|
|
Certification of 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 |
|
** |
|
Furnished herewith |
|
(1) |
|
Incorporated by reference to an exhibit to the Registration
Statement on
Form S-1
of Vocus, Inc. (Registration
No. 333-125834)
filed with the Securities and Exchange Commission on
June 15, 2005. |
|
(2) |
|
Incorporated by reference to an exhibit to Amendment No. 2
to the Registration Statement on
Form S-1
of Vocus, Inc. (Registration No.
333-125834)
filed with the Securities and Exchange Commission on
August 5, 2005. |
II-2
|
|
|
(3) |
|
Incorporated by reference to an exhibit to the Current Report on
Form 8-K of
Vocus, Inc. filed with the Securities and Exchange Commission on
March 1, 2006. |
|
(4) |
|
Incorporated by reference to an exhibit to Amendment No. 5
to the Registration Statement on
Form S-1
of Vocus, Inc. (Registration No.
333-125834)
filed with the Securities and Exchange Commission on
November 9, 2005. |
|
(5) |
|
Incorporated by reference to an exhibit to Amendment No. 6
to the Registration Statement on
Form S-1
of Vocus, Inc. (Registration No.
333-125834)
filed with the Securities and Exchange Commission on
December 6, 2005. |
|
(6) |
|
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. |
|
(7) |
|
Incorporated by reference to an exhibit to the Current Report on
Form 8-K of
Vocus, Inc. filed with the Securities and Exchange Commission on
December 12, 2005. |
|
(8) |
|
Incorporated by reference to an exhibit to the Current Report on
Form 8-K of
Vocus, Inc. filed with the Securities and Exchange Commission on
July 20, 2006. |
|
(9) |
|
Incorporated by reference to an exhibit to the Registrants
Quarterly Report on
Form 10-Q
filed with the Securities and Exchange Commission on
August 14, 2006. |
|
(10) |
|
Incorporated by reference to an exhibit to the Registrants
Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on
March 2, 2007. |
|
(11) |
|
Incorporated by reference to an exhibit to the Registrants
Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on
March 14, 2008. |
|
(12) |
|
Incorporated by reference to an exhibit to the Registrants
Quarterly Report on
Form 10-Q
filed with the Securities and Exchange Commission on
May 12, 2008. |
II-3