Tangoe
TANGOE INC (Form: 10-Q, Received: 11/09/2015 16:59:14)

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 


 

FORM 10-Q

 


 

(Mark One)

 

x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2015

 

or

 

o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from          to         

 

Commission File Number: 001-35247

 


 

TANGOE, INC.

(Exact name of registrant as specified in its charter)

 

Delaware
(State or other jurisdiction of
incorporation or organization)

 

06-1571143
(I.R.S. Employer
Identification Number)

 

35 Executive Blvd.
Orange, Connecticut
(Address of principal executive offices)

 

06477
(Zip Code)

 

(203) 859-9300

(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer x

 

Non-accelerated filer o

 

Smaller reporting company o

 

 

 

 

 

 

 

 

 

(Do not check if a smaller reporting
company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

There were 39,430,820 shares of our common stock outstanding on October 31, 2015.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

 

 

 

 

 

Condensed Consolidated Balance Sheets as of December 31, 2014 and September 30, 2015

4

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2015

5

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (loss) for the Three and Nine Months Ended September 30, 2014 and 2015

6

 

 

 

 

Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2015

7

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2015

8

 

 

 

 

Notes to Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

 

 

 

Item 4.

Controls and Procedures

34

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

35

 

 

 

Item 1A.

Risk Factors

36

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48

 

 

 

Item 6.

Exhibits

49

 

 

 

 

Signatures

50

 

2



Table of Contents

 

PRELIMINARY NOTES

 

When we use the terms “Tangoe,” the “Company,” “we,” “us” and “our,” we mean Tangoe, Inc. and its consolidated subsidiaries.

 

Forward-Looking Statements

 

This quarterly report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this quarterly report regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:

 

·                   our estimates regarding expenses and future revenue;

 

·                   our plans to develop, improve and market our products and services;

 

·                   the advantages of our products and services as compared to those of others;

 

·                   our ability to attract and retain customers;

 

·                   our financial performance;

 

·                   our ability to establish and maintain intellectual property rights;

 

·                   our ability to retain and hire necessary employees and appropriately staff our operations; and

 

·                   our estimates regarding capital requirements and needs for additional financing.

 

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. The important factors discussed below under Part II “Other Information”, Item 1A. “Risk Factors”, among others, could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 

You should read this quarterly report and the documents that we have filed as exhibits to this quarterly report with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

We expressly qualify in their entirety all forward-looking statements attributable to us or any person acting on our behalf by the cautionary statements contained or referred to in this section.

 

3



Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

 

TANGOE, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

 

 

 

 

September 30,

 

 

 

December 31,

 

2015

 

 

 

2014

 

(unaudited)

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

51,279

 

$

36,559

 

Accounts receivable, less allowances of $588 and $1,007, respectively

 

56,948

 

60,716

 

Prepaid expenses and other current assets

 

5,901

 

12,472

 

Total current assets

 

114,128

 

109,747

 

 

 

 

 

 

 

COMPUTERS, FURNITURE AND EQUIPMENT-NET

 

5,217

 

5,803

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

Intangible assets-net

 

28,753

 

34,455

 

Goodwill

 

65,348

 

75,767

 

Security deposits and other non-current assets

 

1,566

 

1,900

 

TOTAL ASSETS

 

$

215,012

 

$

227,672

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

10,733

 

$

11,898

 

Accrued expenses

 

8,283

 

11,328

 

Deferred revenue-current portion

 

10,858

 

11,699

 

Notes payable-current portion

 

1,400

 

2,419

 

Total current liabilities

 

31,274

 

37,344

 

 

 

 

 

 

 

OTHER LIABILITIES:

 

 

 

 

 

Deferred taxes and other non-current liabilities

 

4,372

 

4,854

 

Deferred revenue-less current portion

 

1,030

 

461

 

Notes payable-less current portion

 

166

 

2,621

 

Total liabilities

 

36,842

 

45,280

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (NOTE 12)

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Common stock, par value $0.0001 per share-150,000,000 shares authorized as of December 31, 2014 and September 30, 2015; 38,621,169 and 39,398,240 shares issued and outstanding as of December 31, 2014 and September 30, 2015, respectively

 

4

 

4

 

Additional paid-in capital

 

215,491

 

227,954

 

Warrants for common stock

 

10,610

 

10,610

 

Accumulated deficit

 

(45,859

)

(52,645

)

Accumulated other comprehensive loss

 

(2,076

)

(3,531

)

Total stockholders’ equity

 

178,170

 

182,392

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

215,012

 

$

227,672

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4



Table of Contents

 

TANGOE, INC.

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except per share amounts)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2014

 

2015

 

2014

 

2015

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

Recurring technology and services

 

$

48,184

 

$

52,638

 

$

141,252

 

$

151,491

 

Strategic consulting, software licenses and other

 

6,297

 

3,935

 

16,297

 

13,029

 

Total revenue

 

54,481

 

56,573

 

157,549

 

164,520

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

Recurring technology and services

 

23,035

 

25,969

 

66,633

 

71,184

 

Strategic consulting, software licenses and other

 

2,419

 

2,223

 

6,760

 

6,539

 

Total cost of revenue

 

25,454

 

28,192

 

73,393

 

77,723

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

29,027

 

28,381

 

84,156

 

86,797

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Sales and marketing

 

9,494

 

11,164

 

29,621

 

32,373

 

General and administrative

 

9,918

 

11,289

 

28,550

 

32,102

 

Research and development

 

5,767

 

6,954

 

16,690

 

19,894

 

Depreciation and amortization

 

2,347

 

2,558

 

7,426

 

7,051

 

Income (loss) from operations

 

1,501

 

(3,584

)

1,869

 

(4,623

)

 

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

 

 

 

 

 

 

 

 

Interest expense

 

(33

)

(75

)

(81

)

(172

)

Interest income

 

8

 

2

 

26

 

18

 

Other income (expense)

 

94

 

(151

)

79

 

(152

)

Income (loss) before income tax provision

 

1,570

 

(3,808

)

1,893

 

(4,929

)

Income tax provision

 

635

 

694

 

1,628

 

1,857

 

Net income (loss)

 

$

935

 

$

(4,502

)

$

265

 

$

(6,786

)

 

 

 

 

 

 

 

 

 

 

Income (loss) per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.02

 

$

(0.11

)

$

0.01

 

$

(0.17

)

Diluted

 

$

0.02

 

$

(0.11

)

$

0.01

 

$

(0.17

)

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

Basic

 

38,799

 

39,314

 

38,609

 

39,042

 

Diluted

 

41,109

 

39,314

 

41,134

 

39,042

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

 

TANGOE, INC.

Condensed Consolidated Statements of Comprehensive Income (loss) (unaudited)

(in thousands)

 

 

 

For the Three Months ended

 

For the Nine Months ended

 

 

 

September 30,

 

September 30,

 

 

 

2014

 

2015

 

2014

 

2015

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

935

 

$

(4,502

)

$

265

 

$

(6,786

)

Foreign currency translation adjustment

 

(926

)

(903

)

(700

)

(1,455

)

Total

 

$

9

 

$

(5,405

)

$

(435

)

$

(8,241

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6



Table of Contents

 

TANGOE, INC.

Condensed Consolidated Statement of Changes in Stockholders’ Equity (unaudited)

For the Nine Months Ended September 30, 2015

(in thousands, except share amounts)

 

 

 

Common Stock

 

Additional

 

Common

 

 

 

Accumulated Other

 

Total

 

 

 

Number of

 

 

 

Paid-In

 

Stock

 

Accumulated

 

Comprehensive

 

Stockholders’

 

 

 

Shares

 

Amount

 

Capital

 

Warrants

 

Deficit

 

Loss

 

Equity

 

Balance December 31, 2014

 

38,621,169

 

$

4

 

$

215,491

 

$

10,610

 

$

(45,859

)

$

(2,076

)

$

178,170

 

Net loss

 

 

 

 

 

(6,786

)

 

(6,786

)

Foreign currency translation adjustment

 

 

 

 

 

 

(1,455

)

(1,455

)

Issuance of shares to certain employees

 

260,394

 

 

2,513

 

 

 

 

2,513

 

Issuance of shares from exercise of stock options

 

224,855

 

 

855

 

 

 

 

855

 

Issuance of shares from vesting of restricted stock units

 

466,098

 

 

 

 

 

 

 

Repurchase of common stock

 

(174,276

)

 

(2,000

)

 

 

 

(2,000

)

Stock-based compensation

 

 

 

11,095

 

 

 

 

11,095

 

Balance September 30, 2015

 

39,398,240

 

$

4

 

$

227,954

 

$

10,610

 

$

(52,645

)

$

(3,531

)

$

182,392

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7



Table of Contents

 

TANGOE, INC.

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

 

 

Nine Months Ended
September 30,

 

 

 

2014

 

2015

 

Operating activities:

 

 

 

 

 

Net income (loss)

 

$

265

 

$

(6,786

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Amortization of debt discount

 

45

 

18

 

Amortization of leasehold interest

 

(74

)

(74

)

Depreciation and amortization

 

7,426

 

7,051

 

Decrease in deferred rent liability

 

(29

)

(12

)

Amortization of marketing agreement intangible assets

 

332

 

464

 

Allowance for doubful accounts

 

90

 

590

 

Deferred income taxes

 

733

 

528

 

Foreign exchange adjustment

 

32

 

 

Stock based compensation

 

14,605

 

13,798

 

Loss on disposal of fixed asset

 

 

27

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

Accounts receivable

 

(9,167

)

(4,768

)

Prepaid expenses and other assets

 

(1,260

)

(1,210

)

Other assets

 

(357

)

128

 

Accounts payable

 

(204

)

1,206

 

Accrued expenses

 

(323

)

3,198

 

Deferred revenue

 

90

 

(1,037

)

Net cash provided by operating activities

 

12,204

 

13,121

 

Investing activities:

 

 

 

 

 

Purchases of computers, furniture and equipment

 

(2,699

)

(2,804

)

Cash paid in connection with acquisitions, net of cash received

 

(881

)

(22,541

)

Net cash used in investing activities

 

(3,580

)

(25,345

)

Financing activities:

 

 

 

 

 

Borrowings of debt

 

177

 

608

 

Repayment of debt

 

(658

)

(1,578

)

Repurchase of common stock

 

(4,000

)

(2,000

)

Proceeds from exercise of stock options and stock warrants

 

1,897

 

855

 

Net cash used in financing activities

 

(2,584

)

(2,115

)

 

 

 

 

 

 

Effect of exchange rate on cash

 

(304

)

(381

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

5,736

 

(14,720

)

Cash and cash equivalents, beginning of period

 

43,182

 

51,279

 

Cash and cash equivalents, end of period

 

$

48,918

 

$

36,559

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

8



Table of Contents

 

TANGOE, INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

1.      Organization, Description of Business

 

Nature of Operations

 

Tangoe, Inc. (the “Company”), a Delaware corporation, was incorporated on February 9, 2000 as TelecomRFQ, Inc.  During 2001, the Company changed its name to Tangoe, Inc.  The Company provides connection lifecycle management software and related services to a wide range of global enterprises and service providers.  Connection lifecycle management encompasses the entire spectrum of an enterprise’s connection-based assets and services, such as voice and data services, mobile devices and usage, cloud software, infrastructure and services, machine-to-machine connections, enterprise social and information technology connections,  including planning and sourcing, procurement and provisioning, inventory and usage management, mobile device management, real-time telecommunication expense management, invoice processing and payment, expense allocation and accounting and asset decommissioning and disposal.  The Company’s on-demand Matrix Solution Suite is a suite of software designed to manage IT expenses and to manage and optimize the complex processes and expenses associated with this connection lifecycle.  The Company’s Matrix Solution Suite and related services have historically focused on enterprises’ fixed and mobile connections and related assets, usage, expenses and analytics.  The Company continues to enhance and expand its software and service offerings by developing and implementing additional capabilities, including capabilities designed to manage the entire range of an enterprise’s IT expenses, and to turn on, track, manage, secure and support various connections in an enterprise’s connection lifecycle, such as cloud software, infrastructure and services, machine-to-machine, enterprise social and information technology connections.   The Company refers to its Matrix Solution Suite and related service offerings as Matrix.

 

Basis of Presentation of Interim Financial Statements

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for the fair statement of the Company’s financial position and results of operations for the periods presented have been included. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015, for any other interim period or for any other future year.

 

The consolidated balance sheet at December 31, 2014 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by GAAP. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 as filed with the Securities Exchange Commission (“SEC”) on March 16, 2015 (the “2014 Form 10-K”).

 

Significant Accounting Policies

 

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2014 included in the 2014 Form 10-K.  Since the date of those financial statements, there have been no material changes to the Company’s significant accounting policies.

 

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Table of Contents

 

TANGOE, INC

Notes to Condensed Consolidated Financial Statements continued (Unaudited)

 

2.     Business Combination

 

Rivermine

 

On May 6, 2015, the Company entered into an Asset Purchase Agreement with International Business Machines Corporation (“IBM”), a Delaware corporation, pursuant to which the parties agreed to the purchase by the Company of certain assets and liabilities of  IBM’s Rivermine Telecommunications Expense Management business (“Rivermine”) through an asset purchase (the “Rivermine Acquisition”).  The Rivermine Acquisition closed on May 31, 2015.  At the closing of the Rivermine Acquisition, the Company acquired Rivermine for aggregate consideration of $22.0 million payable at closing.  As part of this acquisition, IBM is paying the Company $1.2 million related to Rivermine’s deferred revenue balance.  The Company has included the operating results of Rivermine in its condensed consolidated financial statements since the date of acquisition through September 30, 2015, including recurring technology and services revenue of $7.4 million.

 

Rivermine Purchase Price Allocation

 

The preliminary allocation of the total purchase price of Rivermine’s net tangible and identifiable intangible assets was based upon the Company’s estimated fair value of those assets as of May 31, 2015.   The Company is in the process of analyzing the valuation of the Rivermine net tangible and identifiable intangible assets and once complete any adjustments will be recorded in the fourth quarter of 2015. The Company allocated the excess of purchase price over the identifiable intangible and net tangible assets to goodwill. The following table presents the cash purchase consideration and the preliminary allocation of the total purchase price (in thousands):

 

Purchase consideration:

 

 

 

Cash

 

$

22,000

 

Less: Due from Seller

 

(1,167

)

 

 

$

20,833

 

 

Preliminary allocation of purchase consideration:

 

 

 

Property and equipment

 

97

 

Identifiable intangible assets

 

11,000

 

Goodwill

 

11,097

 

Total assets acquired

 

22,194

 

Deferred revenue

 

(1,361

)

 

 

$

20,833

 

 

The goodwill and identifiable intangible assets related to the Rivermine Acquisition are tax deductible. The Company estimated the fair value of intangible assets using the income, cost and market approaches to value the identifiable intangible assets, which are subject to amortization. The following table presents the Company’s preliminary allocation of the estimated fair value of the identifiable intangible assets acquired:

 

Description

 

Fair Value
(in thousands)

 

Weighted Average
Useful Life
(in years)

 

Customer relationships

 

$

9,000

 

9.0

 

Technology

 

2,000

 

3.0

 

Total identifiable intangible assets

 

$

11,000

 

 

 

 

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Table of Contents

 

TANGOE, INC

Notes to Condensed Consolidated Financial Statements continued (Unaudited)

 

3. Unaudited Pro Forma Results

 

The following table presents the unaudited pro forma results of the Company for the three and nine months ended September 30, 2014 and 2015 as if the acquisition of Rivermine occurred at the beginning of 2014.  These results are not intended to reflect the actual operations of the Company had this acquisition occurred at January 1, 2014.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(in thousands, except per share amounts)

 

2014

 

2015

 

2014

 

2015

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

61,336

 

$

56,573

 

$

178,115

 

$

175,900

 

Operating income (loss)

 

742

 

(3,584

)

(409

)

(6,600

)

Net income (loss)

 

176

 

(4,502

)

(2,013

)

(8,763

)

Basic income (loss) per common share

 

$

0.00

 

$

(0.11

)

$

(0.05

)

$

(0.22

)

 

 

 

 

 

 

 

 

 

 

Diluted income (loss) per common share

 

$

0.00

 

$

(0.11

)

$

(0.05

)

$

(0.22

)

 

4. Income (loss) per Share Applicable to Common Stockholders

 

The following table sets forth the computations of income (loss) per share applicable to common stockholders for the three and nine months ended September 30, 2014 and 2015:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(in thousands, except per share amounts)

 

2014

 

2015

 

2014

 

2015

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net income (loss) per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

935

 

$

(4,502

)

$

265

 

$

(6,786

)

 

 

 

 

 

 

 

 

 

 

Basic weighted-average common shares used to compute basic net income (loss) per share

 

38,799

 

39,314

 

38,609

 

39,042

 

 

 

 

 

 

 

 

 

 

 

Outstanding stock options

 

2,241

 

 

2,374

 

 

Outstanding restricted stock units

 

69

 

 

150

 

 

Common stock warrants

 

 

 

1

 

 

Diluted weighted-average common shares used to compute diluted net income (loss) per share

 

41,109

 

39,314

 

41,134

 

39,042

 

 

 

 

 

 

 

 

 

 

 

Basic income (loss) per common share

 

$

0.02

 

$

(0.11

)

$

0.01

 

$

(0.17

)

 

 

 

 

 

 

 

 

 

 

Diluted income (loss) per common share

 

$

0.02

 

$

(0.11

)

$

0.01

 

$

(0.17

)

 

Diluted income (loss) per common share for the periods presented does not reflect the following potential common shares as the effect would be anti-dilutive either because the proceeds under the treasury stock method were in excess of the average fair market value for the period or because the Company had a net loss in the period.

 

Outstanding stock options

 

3,434

 

3,559

 

3,302

 

3,297

 

Outstanding restricted stock units

 

1,177

 

1,248

 

1,096

 

1,091

 

Common stock warrants

 

10

 

10

 

9

 

10

 

 

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TANGOE, INC

Notes to Condensed Consolidated Financial Statements continued (Unaudited)

 

5. Computers, Furniture and Equipment-Net

 

Computers, furniture and equipment-net consist of:

 

 

 

As of

 

 

 

December 31,

 

September 30,

 

(in thousands)

 

2014

 

2015

 

 

 

 

 

 

 

Computers and software

 

$

14,386

 

$

17,054

 

Furniture and fixtures

 

1,345

 

1,294

 

Leasehold improvements

 

1,595

 

1,646

 

 

 

17,326

 

19,994

 

Less accumulated depreciation

 

(12,109

)

(14,191

)

Computers, furniture and equipment-net

 

$

5,217

 

$

5,803

 

 

Computers and software includes equipment under capital leases totaling approximately $2.5 million and $2.6 million at December 31, 2014 and September 30, 2015, respectively. Accumulated depreciation on equipment under capital leases totaled approximately $2.5 million at each of December 31, 2014 and September 30, 2015.  Depreciation and amortization expense associated with computers, furniture and equipment for the nine months ended September 30, 2014 and 2015 was $1.9 million and $2.4 million, respectively.

 

6.     Intangible Assets and Goodwill

 

The following table presents the components of the Company’s intangible assets as of December 31, 2014 and September 30, 2015:

 

 

 

 

 

 

 

Weighted

 

 

 

December 31,

 

September 30,

 

Average Useful

 

(in thousands)

 

2014

 

2015

 

Life (in years)

 

 

 

 

 

 

 

 

 

Patents

 

$

1,054

 

$

1,054

 

8.0

 

Less: accumulated amortization

 

(1,029

)

(1,054

)

 

 

Patents, net

 

25

 

0

 

 

 

Technological know-how

 

14,802

 

16,533

 

5.7

 

Less: accumulated amortization

 

(10,245

)

(11,609

)

 

 

Technological know-how, net

 

4,557

 

4,924

 

 

 

Customer relationships

 

37,758

 

46,660

 

8.8

 

Less: accumulated amortization

 

(19,208

)

(22,081

)

 

 

Customer relationships, net

 

18,550

 

24,579

 

 

 

Convenants not to compete

 

1,094

 

1,026

 

2.0

 

Less: accumulated amortization

 

(1,049

)

(1,026

)

 

 

Convenants not to compete, net

 

45

 

0

 

 

 

Strategic marketing agreement

 

6,203

 

6,203

 

10.0

 

Less: accumulated amortization

 

(1,090

)

(1,554

)

 

 

Strategic marketing agreement, net

 

5,113

 

4,649

 

 

 

Tradenames

 

857

 

841

 

3.8

 

Less: accumulated amortization

 

(641

)

(785

)

 

 

Tradenames, net

 

216

 

56

 

 

 

Trademarks

 

247

 

247

 

Indefinite

 

Intangible assets, net

 

$

28,753

 

$

34,455

 

 

 

 

12



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TANGOE, INC

Notes to Condensed Consolidated Financial Statements continued (Unaudited)

 

The related amortization expense of intangible assets for the nine months ended September 30, 2014 and 2015 was $5.5 million and $4.7 million, respectively.  The Company’s estimate of future amortization expense for acquired intangible assets that exist at September 30, 2015 is as follows:

 

(in thousands)

 

 

 

October 1, 2015 to December 31, 2015

 

$

1,732

 

2016

 

7,187

 

2017

 

6,608

 

2018

 

5,852

 

2019

 

4,509

 

Thereafter

 

8,320

 

Total

 

$

34,208

 

 

The following table presents the changes in the carrying amounts of goodwill for the nine months ended September 30, 2015.

 

 

 

Carrying

 

(in thousands)

 

Amount

 

 

 

 

 

Balance at December 31, 2014

 

$

65,348

 

Rivermine acquisition

 

11,097

 

Foreign exchange translation effect

 

(678

)

Balance at September 30, 2015

 

$

75,767

 

 

7.      Debt

 

As of December 31, 2014 and September 30, 2015, debt outstanding included the following:

 

 

 

December 31,

 

September 30,

 

(in thousands)

 

2014

 

2015

 

 

 

 

 

 

 

HCL-EMS contingent consideration. Payable as described below.

 

$

541

 

$

 

 

 

 

 

 

 

Deferred oneTEM purchase price, net of unamortized discount of $37 and $21 at December 31, 2014 and September 30, 2015, respectively.

 

 

 

 

 

Payable as described below.

 

235

 

252

 

 

 

 

 

 

 

Capital lease and other obligations

 

790

 

4,788

 

Total notes payable

 

$

1,566

 

$

5,040

 

Less current portion

 

$

(1,400

)

$

(2,419

)

Notes payable, less current portion

 

$

166

 

$

2,621

 

 

Line of Credit

 

The Company had a line of credit of up to $8.0 million based upon 80% of the Company’s eligible accounts receivable with JP Morgan Chase Bank, N.A., which line of credit the Company had not utilized following its initial public offering in August 2011.  The line of credit bore interest at the London Inter-Bank Offered Rate plus a 2.0% spread.  The

 

13



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TANGOE, INC

Notes to Condensed Consolidated Financial Statements continued (Unaudited)

 

line of credit matured in September 2015.  The Company is currently in negotiations to renew the line of credit for an additional year.  As of December 31, 2014 and September 30, 2015, there were no balances outstanding on the line of credit.  The line of credit had a financial covenant relative to minimum cash balance requirements and was secured by all of the Company’s tangible and intangible property.

 

Contingent HCL-EMS Consideration

 

The purchase consideration for the Company’s acquisition of substantially all of the assets and certain liabilities of HCL Expense Management Services, Inc. (“HCL-EMS”) in January 2011 included deferred cash consideration. The deferred cash consideration included contingent cash payments following each of the first and second anniversaries of the closing date of the HCL-EMS acquisition on January 25, 2011 (the “HCL-EMS Closing Date”), pursuant to an earn-out formula based upon specified revenues from specified customers acquired from HCL-EMS, subject to set-off rights of the Company with respect to indemnities given by HCL-EMS under the Asset Purchase Agreement entered into in December 2010 in connection with the HCL-EMS acquisition (the “HCL-EMS APA”). No interest accrued on the deferred cash consideration; however, the Company recorded imputed interest in the amount of $0.6 million based on the Company’s weighted average cost of debt as of the date of the acquisition. The obligation to pay the deferred cash consideration is unsecured. In 2012, the Company and HCL-EMS agreed that the gross amount of the first year earn-out would be $1.9 million and the Company paid that amount to HCL-EMS.  In April 2013, the Company and HCL-EMS agreed that the gross amount of the second year earn-out would be $1.9 million.  In early August 2013, the Company paid $1.0 million of the second year earn-out to HCL-EMS, and retained the balance of the second year earn-out in the amount of $0.9 million pending resolution of an outstanding indemnity matter.  In September 2014, the Company paid $0.4 million in satisfaction of the third-party claim that triggered the indemnity matter and the contingent consideration balance was reduced by this amount.  In September 2015, the Company paid in full the remaining $0.5 million of contingent consideration and the outstanding indemnity matter has been settled.

 

Deferred oneTEM Purchase Price

 

The purchase consideration for the Company’s acquisition of oneTEM GMBH, a private limited company incorporated in Germany (“oneTEM”), on April 18, 2013 (the “oneTEM Closing Date”) includes deferred cash consideration and contingent earn-out cash consideration.  The deferred cash consideration consists of a payment of €0.4 million in cash payable on the first anniversary of the oneTEM Closing Date.  The contingent earn-out cash consideration is payable pursuant to an earn-out formula based upon the business, whose historic revenue had been one-time consulting revenue, beginning to generate annual recurring revenue from specified customers and then year-over-year increases in annual recurring revenue from those specified customers during the earn-out periods.  The earn-out period begins with the first full month after the oneTEM Closing Date and continues for four consecutive 12-month periods.  The Company valued this contingent earn-out cash consideration at €0.2 million.  No interest accrues on the deferred cash consideration or contingent earn-out consideration; however, the Company recorded imputed interest in the amount of €0.1 million based on weighted average cost of capital as of the date of the acquisition.  The deferred consideration was and the contingent earn-out cash consideration is subject to set-off rights of the Company with respect to certain indemnities given by the former holders of the issued share capital of oneTEM under the Share Purchase Agreement by and between the Company and oneTEM (the “oneTEM Purchase Agreement”). In April 2014, the Company paid the full €0.4 million of deferred consideration which was payable on the first anniversary of the oneTEM Closing Date.  This payment did not include any amounts related to the 2014 earn-out period.  No amounts have become payable under the earn-out terms for the 12-month periods of May 2013 to April 2014 and May 2014 to April 2015.

 

Capital Lease and Other Obligations

 

The Company is party to an installment payment agreement with a vendor under which the Company financed $3.5 million of software license fees.  The term of this agreement began in April 2015 and continues for three years with twelve quarterly installment payments.

 

14



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TANGOE, INC

Notes to Condensed Consolidated Financial Statements continued (Unaudited)

 

8.      Stockholders’ Equity

 

Common Stock

 

As of December 31, 2014 and September 30, 2015, the number of authorized shares of common stock, par value $0.0001 per share, was 150,000,000, of which 38,621,169 and 39,398,240 were issued and outstanding, respectively.

 

At the June 5, 2015 annual meeting of the Company’s stockholders, an amendment to the Company’s 2011 Stock Incentive Plan (the “2011 Plan”) to reserve an additional 2,200,000 shares of common stock for issuance under the 2011 Plan was approved by the Company’s stockholders.  The Company’s board of directors had previously approved such amendment.  The Company registered these shares by filing a Form S-8 with the SEC on July 13, 2015.

 

During the nine months ended September 30, 2015, the Company issued 260,394 shares of its common stock to certain of its employees under the provisions of the 2011 Plan in the form of stock awards, as well as additional shares of common stock upon the exercise of stock options and the vesting of restricted stock units as described below.  For the nine months ended September 30, 2015, the recorded stock-based compensation expenses of $2.5 million related to common stock issuances to certain of its employees and members of its board of directors.

 

In November 2014, the Company’s board of directors authorized a share repurchase program under which the Company may repurchase up to $30 million of its outstanding common stock on the open market or in privately negotiated transactions.  The $30 million includes $2.3 million of unused funds from a previous $20 million share repurchase program announced in 2012.  During the nine months ended September 30, 2015, the Company repurchased 174,276 shares of common stock at an average price per share, including broker commissions, of $11.48, for an aggregate purchase price of $2.0 million.

 

Preferred Stock

 

As of December 31, 2014 and September 30, 2015, the number of authorized shares of preferred stock, par value $0.0001 per share, was 5,000,000, of which 0 were issued and outstanding.

 

Common Stock Warrants

 

On March 22, 2011, the Company issued a warrant to purchase up to 1,282,789 shares of its common stock to Dell Products, L.P. (“Dell”) in connection with the entry of the Company and Dell into a 49-month strategic relationship agreement. Under the terms of the warrant, the 1,282,789 shares of common stock were eligible to become exercisable upon the achievement of certain annual recurring revenue thresholds over the 49-month period that ended on December 31, 2014. The warrant was exercisable at $5.987 per share. As of December 31, 2014, the vesting term of the warrant expired with Dell earning no warrant shares.

 

A summary of activity with respect to warrants to purchase common stock during the nine months ended September 30, 2015 is presented below:

 

 

 

Common

 

 

 

Stock

 

 

 

Warrants

 

 

 

 

 

Outstanding at beginning of the year

 

10,000

 

Exercised

 

 

Issued

 

 

Cancelled

 

 

Outstanding at end of the period

 

10,000

 

 

 

 

 

Weighted average exercise price

 

$

14.02

 

 

15



Table of Contents

 

TANGOE, INC

Notes to Condensed Consolidated Financial Statements continued (Unaudited)

 

Stock Options

 

As of September 30, 2015, the Company had five stock-based compensation plans, the Employee Stock Option/Stock Issuance Plan (the “Employee Plan”), the Executive Stock Option/Stock Issuance Plan (the “Executive Plan”), the 2005 Stock Incentive Plan (the “2005 Plan”), the Traq Amended and Restated 1999 Stock Plan (the “1999 Plan”) and the 2011 Plan.  In connection with the Company’s initial public offering, the Company’s board of directors determined that no future stock awards would be made under the Employee Plan, the Executive Plan, the 2005 Plan and the 1999 Plan.   The 2011 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards and other stock-based awards.

 

Under the provisions of the Employee Plan, the Executive Plan, the 2005 Plan, the 1999 Plan and the 2011 Plan (the “Plans”), the exercise price of each option is determined by the Company’s board of directors or by a committee appointed by the board of directors.  Under the 2011 Plan, the exercise price of all stock options must not be less than the fair market value of a share of common stock on the date of grant. The period over which options vest and become exercisable, as well as the term of the options, is determined by the board of directors or the committee appointed by the board of directors. The options generally vest over 4 years and expire 10 years after the date of the grant.

 

For the nine months ended September 30, 2015, the Company recorded stock-based compensation expense of $3.6 million related to stock options.

 

As of September 30, 2015, there was $2.4 million of total unrecognized stock-based compensation cost, net of estimated forfeitures, related to stock options. This amount will be amortized on a straight-line basis over the requisite service period related to the stock option grants.

 

A summary of the status of stock options issued pursuant to the Plans during the nine months ended September 30, 2015 is presented below:

 

Options

 

Number of Shares

 

Weighted
Average
Exercise
Price

 

Weighted
Average
Contractual
Life (years)

 

 

 

 

 

 

 

 

 

Outstanding at beginning of the year

 

5,603,892

 

$

9.04

 

 

 

Granted

 

 

$

 

 

 

Forfeited

 

(169,733

)

$

14.71

 

 

 

Exercised

 

(224,855

)

$

3.83

 

 

 

Outstanding at end of the period

 

5,209,304

 

$

9.07

 

5.2

 

 

 

 

 

 

 

 

 

Exercisable at end of the period

 

4,886,691

 

$

8.68

 

5.1

 

 

 

 

 

 

 

 

 

Available for future grants at September 30, 2015

 

2,252,798

 

 

 

 

 

 

                The intrinsic values of options outstanding, vested and exercised during the nine months ended September 30, 2015 were as follows:

 

 

 

Number of

 

Intrinsic

 

 

 

Options

 

Value

 

Outstanding

 

5,209,304

 

$

9,261,405

 

Vested

 

4,886,691

 

$

9,261,376

 

Exercised

 

224,855

 

$

1,894,996

 

 

                During the nine months ended September 30, 2015, employees and former employees of the Company exercised options to purchase a total of 224,855 shares of common stock at exercise prices ranging from $0.25 to $12.86 per share. Proceeds from the stock option exercises totaled $0.9 million.

 

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TANGOE, INC

Notes to Condensed Consolidated Financial Statements continued (Unaudited)

 

Restricted Stock Units

 

During the nine months ended September 30, 2015, the Company issued 961,305 restricted stock units to certain employees under the provisions of the 2011 Plan, of which 172,000 were performance-based restricted stock units, and 466,098 restricted stock units vested resulting in an equal number of shares of common stock being issued. The grants of restricted stock units made during the nine months ended September 30, 2015 had an aggregate value of $11.2 million.  The value of a restricted stock unit award is determined based on the closing price of the Company’s common stock on the date of grant.  A restricted stock unit award entitles the holder to receive shares of the Company’s common stock as the award vests. The restricted stock units vest over periods that range from three months to three years.  The performance-based restricted stock units vest based on achievement of a specified financial metric, with the resulting number of shares earned then subject to further time-based vesting, with 20% vesting on the first anniversary of the grant date of February 19, 2015 and 20% each subsequent quarter until fully vested on the second anniversary of the grant date.  As of September 30, 2015, the Company deemed it improbable that the specified financial metric would be achieved in an amount sufficient to earn any portion of the performance-based restricted stock units.  As a result, $0.6 million of previously recorded stock-based compensation related to these performance-based restricted stock units was reversed.  Stock-based compensation expense is amortized on a straight-line basis over the vesting period.

 

For the nine months ended September 30, 2015, the Company recorded stock-based compensation expenses of $7.7 million, related to restricted stock units.

 

As of September 30, 2015, there was $14.2 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested restricted stock units. This amount will be amortized on a straight-line basis over the requisite service period related to the restricted unit grants.

 

A summary of the status of restricted stock units issued pursuant to the Plans during the nine months ended September 30, 2015 is presented below:

 

Restricted Stock Units

 

Number of Shares

 

Weighted
Average Fair
Value

 

Outstanding at beginning of the year

 

1,172,505

 

$

17.36

 

Granted

 

961,305

 

$

11.66

 

Forfeited

 

(250,870

)

$

13.18

 

Vested

 

(466,098

)

$

17.34

 

Outstanding at end of the period

 

1,416,842

 

$

14.28

 

 

In accordance with ASC 718, Share Based Payment (“ASC 718”), total compensation expense for stock-based compensation awards was $14.6 million and $13.8 million for the three and nine months ended September 30, 2014 and 2015, respectively, which is included on the accompanying condensed consolidated statements of operations as follows (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2014

 

2015

 

2014

 

2015

 

Cost of goods sold

 

$

641

 

$

526

 

$

3,338

 

$

1,990

 

Sales and marketing expenses

 

1,275

 

1,207

 

4,013

 

3,875

 

General and administrative expenses

 

2,069

 

1,740

 

5,204

 

6,029

 

Research and development

 

765

 

527

 

2,050

 

1,904

 

Total stock-based employee compensation

 

$

4,750

 

$

4,000

 

$

14,605

 

$

13,798

 

 

            Stock-based compensation expense for equity awards outstanding as of September 30, 2015 will be recognized over the following periods as follows (in thousands):

 

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Table of Contents

 

TANGOE, INC

Notes to Condensed Consolidated Financial Statements continued (Unaudited)

 

Years Ending December 31,

 

 

 

October 1, 2015 to December 31, 2015

 

$

4,115

 

2016

 

9,014

 

2017

 

3,536

 

2018

 

603

 

 

 

$

17,268

 

 

Stock-based compensation costs for stock options are generally based on the fair value calculated from the Black-Scholes valuation model on the date of grant. The Black-Scholes valuation model requires the Company to estimate key assumptions such as expected volatility, expected terms, risk-free interest rates and dividend yields. The Company determined the assumptions in the Black-Scholes valuation model as follows: expected volatility is a combination of the Company’s competitors’ historical volatility; expected term is calculated using the “simplified” method prescribed in ASC 718 ; and the risk free rate is based on the U.S. Treasury yield on 5 and 7-year instruments in effect at the time of grant. A dividend yield is not used, as the Company has never paid cash dividends and does not currently intend to pay cash dividends. The Company periodically reviews the assumptions and modifies the assumptions accordingly.

 

As part of the requirements of ASC 718, the Company is required to estimate potential forfeitures of stock option and restricted stock unit grants and adjust compensation cost recorded accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of stock-based compensation expense to be recognized in future periods. The fair values of stock option and restricted stock unit grants are amortized as compensation expense on a straight-line basis over the vesting period of the grants. Compensation expense recognized is shown in the operating activities section of the statement of cash flows.

 

9.     Income Taxes

 

The income tax provision differs from the expected tax provisions computed by applying the U.S. Federal statutory rate to loss before income taxes primarily because the Company has historically maintained a full valuation allowance on its deferred tax assets and to a lesser extent because of the impact of state income taxes.  As described in the 2014 Form 10-K, the Company maintains a full valuation allowance in accordance with ASC 740, Accounting for Income Taxes , on its net deferred tax assets.  Until the Company achieves and sustains an appropriate level of profitability, it plans to maintain a valuation allowance on its net deferred tax assets.

 

10.    Fair Value Measurement

 

The Company records certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair values based on that price it would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability.

 

The prescribed fair value hierarchy and related valuation methodologies are as follows:

 

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

 

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, directly or indirectly, such as a quoted price for similar assets or liabilities in active markets.

 

Level 3—Inputs are unobservable and are only used to measure fair value when observable inputs are not available. The inputs reflect the entity’s own assumptions and are based on the best information available. This allows for the fair value of an asset or liability to be measured when no active market for that asset or liability exists.

 

18



Table of Contents

 

TANGOE, INC

Notes to Condensed Consolidated Financial Statements continued (Unaudited)

 

The following tables disclose the assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and September 30, 2015 and the basis for that measurement:

 

 

 

Fair Value Measurement at December 31, 2014

 

(in thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Money market

 

$

18,372

 

$

18,372

 

$

 

$

 

Contingent HCL-EMS acquisition consideration

 

541

 

 

 

541

 

Contingent oneTEM acquisition consideration

 

235

 

 

 

235

 

 

 

$

19,148

 

$

18,372

 

$

 

$

776

 

 

 

 

Fair Value Measurement at September 30, 2015

 

(in thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Money market

 

$

4,386

 

$

4,386

 

$

 

$

 

Contingent oneTEM acquisition consideration

 

252

 

 

 

252

 

 

 

$

4,638

 

$

4,386

 

$

 

$

252

 

 

The changes in the fair value of the Level 3 liability for the nine months ended September 30, 2015 are as follows:

 

 

 

Contingent Acquisition Consideration

 

 

 

Nine Months Ended September 30, 2015

 

(in thousands) 

 

HCL-EMS

 

oneTEM

 

Balance, Beginning of Period

 

$

541

 

$

235

 

Payments

 

$

(541

)

$

 

Imputed interest

 

 

17

 

Balance, End of Period

 

$

 

$

252

 

 

The Company’s investment in overnight money market institutional funds, which amounted to $18.4 million and $4.4 million at December 31, 2014 and September 30, 2015, respectively, is included in cash and cash equivalents on the accompanying condensed consolidated balance sheets and is classified as a Level 1 input.

 

The acquisition of HCL-EMS included a contingent consideration agreement that required additional consideration to be paid by the Company following each of the first and second anniversaries of the HCL-EMS Closing Date, pursuant to an earn-out formula ranging from 7.5% to 15% of specified revenues from specified customers acquired, subject to set-off rights of the Company with respect to indemnities given by HCL-EMS under the HCL-EMS APA.  The fair value of the contingent consideration recognized was $3.4 million which was estimated by applying the income approach.  The key assumptions include (a) a discount rate of 10.5% and (b) probability adjusted levels of revenue between approximately $12.6 million and $13.9 million. As of September 30, 2015, there were no changes in the recognized amounts from December 31, 2014 except for the final payment of the contingent consideration upon resolution of the outstanding indemnity matter.

 

The acquisition of oneTEM includes a contingent earn-out cash consideration agreement that requires additional consideration to be paid by the Company following each of the first four anniversaries of the oneTEM Closing Date. Historically, the oneTEM business had generated one-time consulting revenue. Under the earn-out formula, the earn-out consideration is equal to 9% of annual recurring revenue that the business begins to generate from specified customers in the first year and then 9% of year-over-year increases in annual recurring revenue growth from those specified customers during the earn-out periods.  The earn-out period begins with the first full month after the oneTEM Closing Date and continues for four consecutive 12- month periods.  The contingent earn-out cash consideration is subject to set-off rights of the Company with respect to indemnities given by the former holders of the issued share capital of oneTEM under the oneTEM Purchase Agreement.  The fair value of the contingent earn-out cash consideration recognized was $0.2 million, which was estimated by applying the income approach. The key assumptions include (a) a discount rate of 15% and (b) probability adjusted levels of initial and then increased annual recurring revenue between approximately $0.2 million

 

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TANGOE, INC

Notes to Condensed Consolidated Financial Statements continued (Unaudited)

 

and $0.3 million. As of September 30, 2015, there were no changes in the recognized amounts from December 31, 2014, except for the accretion of imputed interest.

 

The carrying amounts of the Company’s other non-cash financial instruments including accounts receivable and accounts payable approximate their fair values due to the relatively short-term nature of these instruments.

 

11.      Supplemental Cash Flow Information:

 

Information about other cash flow activities during the nine months ended September 30, 2014 and 2015 are as follows:

 

 

 

Nine Months Ended September 30,

 

(in thousands) 

 

2014

 

2015

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest

 

$

23

 

$

194

 

Income tax payments

 

$

379

 

$

883

 

 

 

 

 

 

 

NON CASH FINANCING ACTIVITIES:

 

 

 

 

 

Software acquired with financing agreement

 

$

 

$

3,500

 

Computer, furniture and equipment acquired with capital lease

 

$

 

$

698

 

 

12.     Commitments and Contingencies

 

During the normal course of business, the Company becomes involved in various routine legal proceedings including issues pertaining to patent and trademark infringement, customer disputes, employee matters and acquisition-related post-closing disputes.  The Company does not believe that the outcome of these matters will have a material adverse effect on its financial condition.

 

The Company has entered into non-cancellable operating leases for the rental of office space in various locations that expire between 2016 and 2023.  Some of the leases provide for lower payments in the beginning of the term which gradually escalate during the term of the lease. The Company recognizes rent expense on a straight-line basis over the lease term, which gives rise to a deferred rent liability on the balance sheet.  The Company also has entered into agreements with third-party hosting facilities, which expire between 2016 and 2017.

 

The Company is also obligated under several leases covering computer equipment and software, which the Company has classified as capital leases and other obligations.  Additionally, the Company has entered into several operating leases for various office equipment items, which expire between 2016 and 2018.

 

Rent expense, included in general and administrative expense, was approximately $4.5 million and $5.0 million for the nine months ended September 30, 2014 and 2015, respectively.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this quarterly report. Some of the information contained in this discussion and analysis or set forth elsewhere in this quarterly report, including information with respect to our plans and strategy for our business and related financing, include forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” and “Forward-Looking Statements” sections of this quarterly report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

Overview

 

Tangoe is a leading global provider of connection lifecycle management, or CLM, software and services to a wide range of global enterprises and service providers. CLM covers the entire spectrum of an enterprise’s connection-based assets and services, such as voice and data services, mobile devices and usage, cloud software, infrastructure and services, machine-to-machine connections, enterprise social and information technology connections,  and encompasses the entire lifecycle of these assets and services, including planning and sourcing, procurement and provisioning, inventory and usage management, mobile device management,  real-time telecommunications expense management,  invoice processing and payment, expense allocation and accounting, and asset decommissioning and disposal. Our on-demand Matrix Solution Suite is a suite of software designed to manage IT expenses and to manage and optimize the complex processes and expenses associated with this connection lifecycle management. Our Matrix Solution Suite and related services have historically focused on enterprises’ fixed and mobile connections, and related assets, usage, expenses and analytics.  We continue to enhance and expand our software and service offerings by developing and implementing additional capabilities, including capabilities designed to manage the entire range of an enterprise’s IT expenses, and to turn on, track, manage, secure and support various connections in an enterprise’s connection lifecycle, such as cloud software, infrastructure and services, machine-to-machine, enterprise social and information technology connections.  We refer to our Matrix Solution Suite and related service offerings as Matrix.

 

Our solution can provide a significant return on investment by enabling an enterprise to identify and resolve billing errors, to optimize service plans, licenses and contracts based on usage patterns and needs, to manage used and unused connection assets and services, to proactively monitor usage, to conveniently and accurately pay vendors and to prevent bill overages. Our solution allows enterprises to improve the productivity of their employees by automating the provisioning of connection assets and services, and to reduce costs by controlling and allocating connection expenses. It also allows enterprises to enforce regulatory requirements and internal policies governing the use of connection assets and services.   Further, our solution allows enterprises to manage their connection assets and services and helps them improve end user productivity.

 

We designed our business model to sell recurring technology and services leveraging our Matrix Solution Suite. We review three key business metrics to help us monitor the performance of our business model and to identify trends affecting our business. The measures that we believe are the primary indicators of our quarterly and annual performance are as follows:

 

Adjusted EBITDA .  We define Adjusted EBITDA as net income (loss) plus interest expense, income tax provision, depreciation and amortization, amortization of marketing agreement intangible assets, stock-based compensation expense and other expense less amortization of leasehold interest, interest income and other income.  Our management uses Adjusted EBITDA to measure our operating performance because it does not include the impact of items not directly resulting from our core business and certain non-cash expenses such as depreciation and amortization and stock-based compensation. We believe that this measure provides us with additional useful information to measure and understand our performance on a consistent basis, particularly with respect to changes in performance from period to period. We use Adjusted EBITDA in the preparation of our annual operating budgets and to measure and evaluate the effectiveness of our business strategies. Adjusted EBITDA is not calculated in accordance with generally accepted accounting principles in the United States of America, or GAAP, and is not a substitute for or superior to financial measures determined in accordance with GAAP. Other companies in our industry may calculate Adjusted EBITDA in a manner differently from us, which reduces its usefulness as a comparative measure.  Our Adjusted EBITDA has increased annually for each fiscal year since 2007 and we expect it to continue to increase in our fiscal year ending December 31, 2015.

 

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Recurring technology and services revenue growth.   We provide recurring technology-enabled services leveraging both our technology and communications industry experience.  We regularly review our recurring revenue growth to measure our success.

 

We intend to continue to focus our sales and marketing efforts on increasing our recurring technology and services-related customer base, and we expect that our recurring technology and services revenue will increase in absolute dollars and remain consistent as a percentage of total revenue over the next 12 months due to our expectation that we will be able to:

 

·                   retain a high percentage of the revenue we currently derive from our existing customers;

 

·                   sell additional product and service offerings to our existing customers; and

 

·                   add a significant number of new customers.

 

We believe that we will be able to retain a high percentage of our existing recurring technology and services revenue due to our revenue retention rates, and the current levels of customer usage of our products and services, which we review on a monthly basis to provide an indication of impending increases or decreases in billed revenue for future periods.

 

We believe that we will be able to sell additional product and service offerings to our existing customers in the next year based on our analysis of revenue on a per-customer basis for the last 12 months, which indicates that our customers on an aggregate basis have generally increased their usage of our solution on a quarterly basis.

 

We believe that we will be able to add a significant number of new customers over the next 12 months as we continue to expand internationally and increase our share of the domestic market.

 

Revenue retention rates.   In addition, we consider our revenue retention rates. Since we began to fully realize the benefits of our recurring revenue model in 2009, our revenue retention rates have been higher than 90%. We measure revenue retention rates by assessing on a dollar basis the recurring technology and services revenue we retain for the same customer and product set in a given period versus the prior year period. We cannot predict our revenue retention rates in future periods. Our use of a revenue retention rate has limitations as an analytical tool, and you should not consider it in isolation. Other companies in our industry may calculate revenue retention rates differently, which reduces its usefulness as a comparative measure.

 

We also review a number of other quantitative and qualitative trends in monitoring our performance, including our share of the CLM market, our customer satisfaction rates, our ability to attract, hire and retain a sufficient number of talented employees to staff our growing business and the development and performance of our solutions. Our review of these factors can affect aspects of our business and operations on an on-going basis, including potential acquisition strategies and investment in specific areas of product development or service support.

 

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Certain Trends and Uncertainties

 

The following represents a summary of certain trends and uncertainties, which could have a significant impact on our financial condition and results of operations. This summary is not intended to be a complete list of potential trends and uncertainties that could impact our business in the long or short term. This summary, however, should be considered along with the factors identified in the “Risk Factors” section of this Quarterly Report on Form 10-Q.

 

·                   The CLM market is characterized by rapid technological change and frequent new product and service introductions, including frequent introductions of new technologies and devices. To achieve and maintain market acceptance for our solution, and to generate additional revenue from existing and new customers, we must effectively anticipate these changes and offer software products and services that respond to them in a timely manner.  If we fail to develop software products and services that satisfy customer preferences in a timely and cost-effective manner, or if we fail to effectively convert existing customers to these new products and services or add new customers, our ability to renew our agreements with existing customers and our ability to create or increase demand for our solution and generate additional revenue will be harmed.

 

·                   We believe that competition will continue to increase. Increased competition could result from existing competitors or new competitors that enter the market because of the potential opportunity. We will continue to closely monitor competitive activity and respond accordingly. Increased competition could have an adverse effect on our financial condition and results of operations.

 

·                   We continue to closely monitor current economic conditions, as any decline in the general economic environment that negatively affects the financial condition of our customers could have an adverse effect on our financial condition and results of operations. For example, during the most recent economic downturn, our customer cancellation rate during the first quarter of 2009 increased to a quarterly rate of over three times the average of the prior four quarters, partly as a result of customer bankruptcies.  If economic conditions in the United States and other countries decline, we may face greater risks in operating our business.

 

Acquisitions

 

On May 31, 2015, we acquired the assets comprising IBM’s Rivermine Telecommunications Expense Management business, a leading provider of telecom expense management solutions.  The purchase price was $22.0 million in cash paid at the closing.  The transaction costs were immaterial and were expensed as incurred.

 

We continue to migrate to our platforms the customers of several of the businesses that we acquired during 2011 and 2012.  We generally expect to migrate the Rivermine customers to our Matrix platform following the release of the components of Matrix required for these customers.  While, to date, we have successfully migrated a number of the customers acquired in 2011 and 2012, there can be no assurance that we will complete these and the Rivermine customer migrations in a timely manner or at all and the cost of these migrations may be more significant than we have estimated.  We may pursue additional acquisitions of, or investments in, businesses, services and technologies that will expand the functionality of our solution, provide access to new markets or customers, or otherwise complement our existing operations.

 

Sources of Revenue

 

Recurring technology and services revenue.   We derive our recurring technology and services revenue primarily from subscriptions and services related to our Matrix Solution Suite. We recognize revenue for software and related services when all of the following conditions are met: (a) there is persuasive evidence of an arrangement; (b) the service has been provided to the customer; (c) the collection of the contracted fee is probable; and (d) the amount of the fees to be paid by the customer or partner is fixed or determinable. These services include help desk, asset procurement and provisioning, and carrier dispute resolution. The recurring technology and services revenue is recognized ratably over the contract term.

 

We license our on-demand software and sell related services primarily on a subscription basis under agreements that typically have terms ranging from 24 to 60 months.  Our recurring technology and services revenue is driven by the amount of communications spend that we manage and the scope of the products and services that we provide to our customers.  Under our fixed line contracts, we typically charge our customers a percentage of managed communications spend that is determined based on the products and services that we provide.  Under our mobile contracts, we typically charge our customers fees that are based on the mobile products and services that we provide and the number of devices for which we provide those products and services.  We also derive recurring technology and services revenue from payment processing through MxPay, our bill pay solution.  As of September 30, 2015, we managed a total of approximately $34.2 billion in annual communications expense as compared to approximately $29.2 billion in annual communications expense as of September 30, 2014.  Our customers are typically subject to a minimum charge for up to a specified threshold amount of communications spend, transactional

 

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volume or number of mobile devices under management and additional charges to the extent the specified thresholds are exceeded.  Any implementation fees associated with recurring technology and services engagements are recognized over the estimated expected life of the customer relationship, which we estimate to be equal to twice the contract life, and we recognize implementation fees ratably over this period.  Many of our subscription contracts are non-cancelable, although customers have the right to terminate for cause if we materially fail to perform.

 

Strategic consulting, software licenses and other revenue.   In addition to our subscription fees, revenue is generated to a lesser extent by strategic consulting, software licenses, mobile device activation fees and sales of mobile telecommunication accessories. Strategic consulting consists primarily of fees charged for contract negotiations and bill audits. Contract negotiation fees include both fixed project fees and incentive fees driven by the amount of savings that we are able to generate over the customer’s existing communications rates. These fees are recognized when fixed or determinable, usually when the carrier issues an executed proposal. Bill audit fees are driven by the amount of savings that we are able to generate by reviewing current and prior communications invoices against the customer’s existing contracts. These fees are recognized when fixed or determinable, usually when the savings have been calculated and documented in our Matrix Solutions Suite.

 

On occasion, we license our Matrix Solution Suite to our customers on a perpetual basis. If we are able to derive vendor-specific objective evidence on the undelivered elements, the software portion is recognized when the revenue recognition criteria is met; otherwise the contract is recognized ratably over the contract life. Other professional services are recognized as the services are performed. We have an agreement with a carrier whereby we receive an activation fee for procuring a mobile device. The activation revenue is recognized upon confirmation from the carrier that the device has been procured.  The revenue related to the sale of mobile telecommunication accessories is recognized upon shipment of the accessories to the customer.

 

We expect our strategic consulting, software licenses and other revenue to increase in absolute dollars and remain relatively constant as a percentage of total revenue over the next 12 months.

 

We historically have derived primarily all of our revenue from United States-based customers. We have been building our international sales operations by increasing our direct sales force abroad and expect to continue this expansion.  We expect our international revenue to increase in absolute dollars and as a percentage of total revenue over the next 12 months.

 

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Table of Contents

 

Cost of Revenue and Gross Profit

 

Cost of recurring technology and services revenue.   Cost of recurring technology and services revenue consists primarily of costs associated with our data center operations, customer product support centers and client services group. This includes personnel-related costs such as salary, stock-based compensation and other compensation-related costs, subcontractor fees, hosting fees, communications costs and royalties related to third-party software included in our solution when our solution is licensed on a non-perpetual basis.

 

Cost of strategic consulting, software licenses and other revenue.   Cost of strategic consulting, software licenses and other revenue consists primarily of personnel-related costs, including salary, stock-based compensation and other compensation-related costs and subcontractor fees directly related to delivering the service and to a lesser extent, the cost of the mobile telecommunications accessories sold.

 

As our customer base continues to grow, we expect our cost of revenue to increase in absolute dollars as we expand our data center and customer support operations to support our continued growth. Our cost of revenue could fluctuate as a percentage of revenue on a quarterly basis but remain relatively stable on an annual basis based on the mix of software and services sold and average contractual selling price.

 

Gross profit.   Gross profit as a percentage of revenue is affected by two main factors—the mix of software and services sold and the average contractual selling price. We expect our gross profit in absolute dollars to increase, but that our gross profit as a percentage of revenue will be affected as we integrate the businesses of our recent acquisitions, which have historically operated with lower margins than our business. We believe that over time we will achieve improvements in those margins as we integrate the acquired operations and capture the operating efficiencies of the overall business.

 

Operating Expense

 

Operating expense consists of sales and marketing, general and administrative, research and development and depreciation and amortization. Other than for depreciation and amortization expense, personnel-related costs are the most significant component of all of these operating expenses. We expect to continue to hire a significant number of new employees in order to support our overall growth. In any particular period, the timing of additional hires could materially affect our operating results, both in absolute dollars and as a percentage of revenue.

 

Sales and marketing.   Sales and marketing expense consists primarily of personnel-related costs, including salary, stock-based compensation and other compensation-related costs for our sales, marketing and business development employees, the cost of outside marketing programs such as on-line lead generation, promotional events, such as trade shows, user conferences, seminars and webinars, the cost of business development programs, travel-related costs and sales commissions. Sales commission rates are calculated at the time a contract is signed. The sales commission rate is applied to the contract’s first year of revenue to calculate sales commission expense.  Sales commission expense is accrued and expensed at the time we invoice the customer and is paid to the salesperson either when the invoice is collected or ratably over the next five quarters. Generally, new sales personnel require time to become familiar with our software and services and do not begin to generate sales immediately, which can result in increased sales and marketing expense without any immediate increase in revenue. We expect sales and marketing expense to increase in absolute dollars and as a percentage of revenue in the near term, as we continue to hire sales and marketing personnel in the United States and internationally to expand our solution globally.

 

General and administrative.   General and administrative expense consists of personnel-related costs, including salary, stock-based compensation and other compensation-related costs for finance and accounting, executive, human resources, legal and information technology personnel, rent and facility costs, legal and other professional fees, and other corporate expenses. We are incurring and will continue to incur costs associated with being a public company, including corporate insurance costs as well as certain personnel costs and professional fees, including legal and accounting fees as they relate to financial reporting and maintaining compliance with Section 404 of the Sarbanes-Oxley Act. We expect general and administrative expense to increase in absolute dollars and to decrease as a percentage of revenue over the next several years.

 

Research and development.   Research and development expense primarily consists of personnel-related costs, including salary, stock-based compensation and other compensation-related costs for development personnel, and fees to our outside contract development vendors. We anticipate that our research and development team will continue to focus on expanding our software and services and increasing the functionality of our current offerings. We expect research and development expense to increase in absolute dollars, but remain relatively constant as a percentage of revenue in the near term.

 

Depreciation and amortization.   Depreciation and amortization expense primarily consists of the non-cash write-down of tangible and intangible assets over their expected economic lives. We expect this expense to remain relatively constant in absolute dollars and decrease as a percentage of revenue as we continue to grow and incur capital expenditures to improve our technological infrastructure and acquire assets through potential future acquisitions.

 

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Other Income (Expense), Net

 

Other income (expense), net consists primarily of interest expense on our short and long-term debt, interest income on our cash and cash equivalents balance.  We have historically invested our cash in money market investments. We expect our interest income to vary in each reporting period depending on our average cash balances and interest rates.

 

Income Tax Provision

 

Income tax provision consists of federal and state corporate income taxes resulting from our operations in the United States, as well as operations in various foreign jurisdictions. We expect income tax expense to vary each reporting period depending upon taxable income fluctuations and the availability of tax benefits from net loss carryforwards.

 

As of December 31, 2014, we had U.S. federal net operating loss carryforwards of approximately $30.5 million, which, if unused, expire from 2022 to 2032.  In addition to this amount, we have approximately $44.7 million of federal income tax loss carryforwards resulting from tax deductions related to stock options awarded to employees, which will be realized only when these deductions reduce income taxes payable.  We also have U.S. federal research and development tax credit carryforwards of approximately $3.8 million, which expire through 2032. We have engaged in several transactions since our inception that have resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code, which limits our ability to utilize these net operating loss and tax credit carryforwards in the future.  As of December 31, 2014, $25.2 million of our net operating loss and tax credit carryforwards were so limited. At December 31, 2014, we had a valuation allowance against the full amount of our deferred tax assets, as management believes it is uncertain that they will be fully realized. If we determine in the future that we will be able to realize all or a portion of our net operating loss or tax credit carryforwards, an adjustment to our recorded valuation allowance would increase net income in the period in which we make such a determination.

 

Critical Accounting Policies

 

Our financial statements are prepared in accordance with GAAP. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. Our most critical accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2014 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 filed with the Securities and Exchange Commission, or the SEC, on March 16, 2015, which we refer to as the 2014 Form 10-K.  Since the date of those financial statements, there have been no material changes to our significant accounting policies.

 

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Table of Contents

 

Results of Operations for the Three and Nine Month Periods Ended September 30, 2014 and 2015 (unaudited)

 

The following table presents selected consolidated statements of operations data for the periods indicated.  These consolidated results of operations are not necessarily indicative of the consolidated results of operations that will be achieved in any future period.

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(in thousands, except percentages)

 

2014

 

% of revenue

 

2015

 

% of
revenue

 

2014

 

% of
revenue

 

2015

 

% of
revenue

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring technology and services

 

$

48,184

 

88%

 

$

52,638

 

93%

 

$

141,252

 

90%

 

$

151,491

 

92%

 

Strategic consulting, software licenses and other

 

6,297

 

12%

 

3,935

 

7%

 

16,297

 

10%

 

13,029

 

8%

 

Total revenue

 

54,481

 

100%

 

56,573

 

100%

 

157,549

 

100%

 

164,520

 

100%

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring technology and services

 

23,035

 

42%

 

25,969

 

46%

 

66,633

 

42%

 

71,184

 

43%

 

Strategic consulting, software licenses and other

 

2,419

 

4%

 

2,223

 

4%

 

6,760

 

4%

 

6,539

 

4%

 

Total cost of revenue (1)

 

25,454

 

47%

 

28,192

 

50%

 

73,393

 

47%

 

77,723

 

47%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

29,027

 

53%

 

28,381

 

50%

 

84,156

 

53%

 

86,797

 

53%

 

Operating expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing (1)

 

9,494

 

17%

 

11,164

 

20%

 

29,621

 

19%

 

32,373

 

20%

 

General and administrative (1)

 

9,918

 

18%

 

11,289

 

20%

 

28,550

 

18%

 

32,102

 

20%

 

Research and development (1)

 

5,767

 

11%

 

6,954

 

12%

 

16,690

 

11%

 

19,894

 

12%

 

Depreciation and amortization

 

2,347

 

4%

 

2,558

 

5%

 

7,426

 

5%

 

7,051

 

4%

 

Income (loss) from operations

 

1,501

 

3%

 

(3,584

)

-6%

 

1,869

 

1%

 

(4,623

)

-3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(33

)

0%

 

(75

)

0%

 

(81

)

0%

 

(172

)

0%

 

Interest income

 

8

 

0%

 

2

 

0%

 

26

 

0%

 

18

 

0%

 

Other income (expense)

 

94

 

0%

 

(151

)

0%

 

79

 

0%

 

(152

)

0%

 

Income (loss) before income tax provision

 

1,570

 

3%

 

(3,808

)

-7%

 

1,893

 

1%

 

(4,929

)

-3%

 

Income tax provision

 

635

 

1%

 

694

 

1%

 

1,628

 

1%

 

1,857

 

1%

 

Net income (loss)

 

$

935

 

2%

 

$

(4,502

)

-8%

 

$

265

 

0%

 

$

(6,786

)

-4%

 

 


(1) Amounts in table above include stock-based compensation expense, as follows:

 

Cost of revenue

 

$

641

 

 

 

$

526

 

 

 

$

3,338

 

 

 

$

1,990

 

 

 

Sales and marketing

 

1,275

 

 

 

1,207

 

 

 

4,013

 

 

 

3,875

 

 

 

General and administrative

 

2,069

 

 

 

1,740

 

 

 

5,204

 

 

 

6,029

 

 

 

Research and development

 

765

 

 

 

527

 

 

 

2,050

 

 

 

1,904

 

 

 

 

 

$

4,750

 

 

 

$

4,000

 

 

 

$

14,605

 

 

 

$

13,798

 

 

 

 

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Table of Contents

 

Revenue

 

The following table presents our components of revenue for the periods presented:

 

(unaudited)

 

Three Months Ended
September 30,

 

Increase (Decrease)

 

Nine Months Ended
September 30,

 

Increase (Decrease)

 

(in thousands, except percentages)

 

2014

 

2015

 

$

 

%

 

2014

 

2015

 

$

 

%

 

Recurring technology and services

 

$

48,184

 

$

52,638

 

$

4,454

 

9%

 

$

141,252

 

$

151,491

 

$

10,239

 

7%

 

Strategic consulting, software licenses and other

 

6,297

 

3,935

 

(2,362

)

-38%

 

16,297

 

13,029

 

(3,268

)

-20%

 

Total revenue

 

$

54,481

 

$

56,573

 

$

2,092

 

4%

 

$

157,549

 

$

164,520

 

$

6,971

 

4%

 

 

Our recurring technology and services revenue increased $4.5 million, or 9%, for the three months ended September 30, 2015 as compared to the same period in 2014.  This increase was partly attributable to $2.5 million in increased revenue from increases in the volume of fixed and mobile communications assets and service offerings being managed or provided through our on-demand communication management platform for existing and new customers, excluding customers acquired in acquisitions since January 1, 2011 except to the extent such acquisition customers purchased new products or services following the applicable acquisition.  The increase was driven in part by a 3% increase in our total number of recurring revenue customers to 789 as of September 30, 2015, which amount excludes 362 acquisition customers for total recurring revenue customers of 1,151 as of September 30, 2015, from 765 as of September 30, 2014, which amount excludes 304 acquisition customers for total recurring revenue customers of 1,069 as of September 30, 2014.  The $2.0 million balance of our increase for the three months ended September 30, 2015, as compared to the same period of 2014, was attributable to an increase in revenue from customers acquired in connection with acquisitions since January 1, 2011, to $15.0 million for the three months ended September 30, 2015 from $13.0 million for the three months ended September 30, 2014, including for purposes of this calculation revenue from acquisition customers who renewed their contracts with us after the applicable acquisition but excluding revenues from post-acquisition sales of new products and services.  This increase was principally attributable to revenues from customers acquired in connection with our acquisition of Rivermine during the nine months ended September 30, 2015.  Our recurring technology and services revenue includes contra-revenue related to the amortization of the value of a warrant to purchase common stock issued to IBM as part of a strategic marketing agreement.  We recorded $113,413 and $153,886 of amortization as a contra-revenue charge during the three months ended September 30, 2014 and 2015, respectively, related to the warrant.

 

Our strategic consulting, software licenses and other revenue decreased $2.4 million, or 38%, for the three months ended September 30, 2015 as compared to the same period of 2014, primarily due to decreases of $1.6 million in consulting revenue, $0.4 million in mobile telecommunication accessories sales revenue, $0.2 million in strategic sourcing revenue, $0.1 million in other revenue and $0.1 million in software license fee revenue.

 

Our recurring technology and services revenue increased $10.2 million, or 7%, for the nine months ended September 30, 2015 as compared to the same period in 2014.  This increase was primarily attributable to $11.5 million in increased revenue from increases in the volume of fixed and mobile communications assets and service offerings being managed or provided through our on-demand communication management platform for existing and new customers, excluding customers acquired in acquisitions since January 1, 2011 except to the extent such acquisition customers purchased new products or services following the applicable acquisition.  The increase was driven in part by the increase in our total number of recurring revenue customers between September 30, 2014 and September 30, 2015 described above.  This increase in revenue was partially offset by a $1.3 million decrease for the nine months ended September 30, 2015, as compared to the same period in 2014, in revenue from customers acquired in connection with acquisitions since January 1, 2011, to $37.5 million for the nine months ended September 30, 2015 from $38.8 million for the nine months ended September 30, 2014, including for purposes of this calculation revenue from acquisition customers who renewed their contracts with us after the applicable acquisition but excluding revenues from post-acquisition sales of new products and services.  This decrease was principally attributable to normal and customary attrition in acquisition customers the effects of which were partially offset by revenues from customers acquired in connection with our acquisition of Rivermine during the nine months ended September 30, 2015.  Our recurring technology and services revenue includes contra-revenue related to the amortization of the value of a warrant to purchase common stock issued to IBM as part of a strategic marketing agreement.  We recorded $332,236 and $463,624 of amortization as a contra-revenue charge during the nine months ended September 30, 2014 and 2015, respectively, related to the warrant.

 

Our strategic consulting, software licenses and other revenue decreased $3.3 million, or 20%, for the nine months ended September 30, 2015 as compared to the same period of 2014, primarily due to decreases of $1.7 million in consulting revenue, $0.9 million in other revenue, $0.5 million in mobile telecommunication accessories sales revenue, $0.1 million in strategic sourcing revenue and $0.1 million in software license fee revenue.

 

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Table of Contents

 

Costs and Expenses

 

Cost of Revenue

 

The following table presents our cost of revenue:

 

(unaudited)

 

Three Months Ended
September 30,

 

Increase (Decrease)

 

Nine Months Ended
September 30,

 

Increase (Decrease)

 

(in thousands, except percentages)

 

2014

 

2015

 

$

 

%

 

2014

 

2015

 

$

 

%

 

Recurring technology and services

 

$

23,035