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Fleetmatics Reports Third Quarter 2014 Financial Results

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Fleetmatics Group PLC (NYSE:FLTX) , a leading global provider of mobile workforce solutions for service-based businesses of all sizes delivered as software-as-a-service (SaaS), today announced financial results for its third quarter ended September 30, 2014 and updated management’s guidance for 2014.

“We are delighted to be reporting strong third quarter results highlighted by record revenue and earnings,” said Jim Travers, Chairman and Chief Executive Officer of Fleetmatics. “Our results reflect strong new customer adoption of our software platform particularly among mid-market fleet operators, continued progress in new international markets, and cross selling of complimentary products such as Fleetmatics WORK. Looking ahead, we remain focused on increasing our penetration in North America, driving continued growth in international markets and delivering additional value to our customers with our growing portfolio of products.”

Results for the Third Quarter of 2014

Total revenue for the third quarter of 2014 was $60.4 million, an increase of 30.5% compared to $46.3 million for the third quarter of 2013. GAAP net income for the third quarter of 2014 was $8.2 million, or $0.21 per diluted share, compared to $5.6 million, or $0.15 per diluted share, for the third quarter of 2013. Non-GAAP adjusted earnings for the third quarter of 2014 was $11.3 million, or $0.29 per diluted share, compared to $9.3 million, or $0.25 per diluted share, for the third quarter of 2013. Non-GAAP adjusted earnings excludes share-based compensation, amortization of intangible assets and other items as defined below in “Non-GAAP Financial Measures”. Adjusted EBITDA for the third quarter of 2014 was $21.0 million, an increase of 39.3% compared to $15.1 million for the third quarter of 2013. Adjusted EBITDA margin for the third quarter of 2014 was 34.7%, compared to 32.5% for the third quarter of 2013. Adjusted EBITDA is defined as net income (loss) plus (benefit) provision for income taxes; interest (income) expense, net; foreign currency transaction (gain) loss, net; depreciation and amortization of property and equipment; amortization of capitalized in-vehicle devices owned by customers; amortization of intangible assets; share-based compensation; and other items as defined below in “Non-GAAP Financial Measures.” As of September 30, 2014, the Company had cash of $161.0 million, an increase of $5.5 million from June 30, 2014. During the third quarter of 2014, the Company generated $13.7 million in net cash from operations and invested $11.7 million in purchases of property and equipment and capitalization of internally developed software, resulting in free cash flow of positive $2.0 million. During the third quarter of 2013, the Company generated $16.6 million in net cash from operations and invested $8.7 million in capital expenditures and capitalization of internally developed software, resulting in free cash flow of positive $7.9 million. A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”

Company Issues Fourth Quarter Guidance and Raises Full Year Guidance

The Company today issued guidance for the fourth quarter of 2014 and revised its previously issued guidance for the full year. The Company’s guidance is based on the current indications for its business, which may change at any time.

  • Fourth Quarter 2014 Guidance: The Company expects total revenue to be in the range of $63.5 million to $64.5 million. Adjusted EBITDA is expected to be in the range of $20.5 million to $21.5 million. Non-GAAP adjusted earnings per share is expected to be in the range of $0.29 to $0.30 based on approximately 38.7 million weighted average diluted shares outstanding.
  • Full Year 2014 Guidance: The Company expects total revenue to be in the range of $231.0 million to $232.0 million, which represents growth of 30.5% year-over-year at the midpoint. Adjusted EBITDA is expected to be in the range of $70.5 million to $71.5 million. Non-GAAP adjusted earnings per share is expected to be in the range of $0.95 to $0.96 based on approximately 38.4 million weighted average diluted shares outstanding.

“We remain on track to deliver strong results across the Company as we close the year,” said Steve Lifshatz, Chief Financial Officer of Fleetmatics. “Looking ahead to 2015, our preliminary estimates call for full year revenue growth in the range of 25%. While we will continue to invest for growth in 2015, we do not expect to do so as aggressively as in 2014. We will look to balance the growth we forecast in the business with the investments we have made to drive modest expansion in full year adjusted EBITDA margins. We will provide formal detailed 2015 guidance when we release results for the fourth quarter of 2014.”

Recent Operational Highlights

  • Fleetmatics ended the third quarter of 2014 with approximately 523,000 active vehicles under subscription, up 25.4% compared to over 417,000 during the third quarter of 2013.
  • Quarterly net churn1 during the third quarter of 2014 was 0.4%, compared to 1.1% during the third quarter of 2013.
  • The Company announced the introduction of Logbook, a new product feature for its Fleetmatics REVEALTM platform, which allows fleet-based businesses to remove the manual step from Hours of Service (HOS) paper processing. Logbook seamlessly tracks HOS information by obtaining the vehicle information through the engine and communicating directly to the Fleetmatics driver log mobile application, providing managers with visibility into HOS for any driver.

Company to Host Live Conference Call and Webcast

The Company’s management team plans to host a live conference call and webcast at 5:00 p.m. Eastern Time today to discuss the financial results as well as management’s outlook for the business and other matters. The conference call may be accessed in the United States by dialing 1.800.230.1096 and using access code “FLTX”. The conference call may be accessed outside of the United States by dialing +1.612.332.0226 and using access code “FLTX”. The conference call will be simultaneously webcast on the Company’s investor relations website, which can be accessed at http://ir.fleetmatics.com. A replay of the conference call will be available approximately two hours after the call by dialing 1.800.475.6701 or +1.320.365.3844 and using access code 339681 or by accessing the webcast replay on the Company’s investor relations website. The Company has used, and intends to continue to use, the investor relations portion of its website as a means of disclosing material non-public information and for complying with disclosure obligations under Regulation FD.

About Fleetmatics Group PLC

Fleetmatics Group PLC is a leading global provider of mobile workforce solutions for service-based businesses of all sizes delivered as software-as-a-service (SaaS). Our solutions enable businesses to meet the challenges associated with managing local fleets, and improve the productivity of their mobile workforces, by extracting actionable business intelligence from real-time and historical vehicle and driver behavioral data. Fleetmatics Group’s intuitive, cost-effective Web-based solutions provide fleet operators with visibility into vehicle location, fuel usage, speed and mileage, and other insights into their mobile workforce, enabling them to reduce operating and capital costs, as well as increase revenue. An integrated, full-featured mobile workforce management product provides additional efficiencies related to job management by empowering the field worker and speeding the job completion process – quote through payment. As of September 30, 2014, Fleetmatics served over 24,000 customers, with approximately 523,000 subscribed vehicles worldwide. To learn more about Fleetmatics, visit www.fleetmatics.com.

1Non-GAAP Financial Measures

In this release, Fleetmatics’ non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income, non-GAAP adjusted earnings, non-GAAP diluted adjusted earnings per share, adjusted EBITDA and adjusted EBITDA margin are not presented in accordance with generally accepted accounting principles (GAAP) and are not intended to be used in lieu of GAAP presentations of results of operations. Non-GAAP gross profit and non-GAAP gross margin exclude share-based compensation and amortization of intangible assets. Non-GAAP operating income, non-GAAP adjusted earnings and non-GAAP diluted adjusted earnings per share exclude share-based compensation; amortization of intangible assets; foreign currency transaction (gain) loss; certain non-recurring litigation and settlement costs; certain non-recurring secondary public offering costs; acquisition-related transaction costs; the tax effects related to these items, and the tax reserve component of the income tax provision.

Adjusted EBITDA is defined as net income (loss) plus (benefit) provision for income taxes; interest (income) expense, net; foreign currency transaction (gain) loss, net; depreciation and amortization of property and equipment; amortization of capitalized in-vehicle devices owned by customers; amortization of intangible assets; share-based compensation; certain non-recurring litigation and settlement costs; certain non-recurring secondary public offering costs; and acquisition-related transaction costs.

We calculate our net churn for a period by dividing (i) the number of vehicles under subscription added from existing customers less vehicles under subscription lost from existing customers over that period by (ii) the total vehicles under subscription at the beginning of that period. A positive net churn in each period means we added more vehicles from existing customers than we lost from those customers during the particular period.

Management presents these non-GAAP financial measures because it considers them to be important supplemental measures of performance. Management uses the non-GAAP financial measures for planning purposes, including analysis of the company’s performance against prior periods, the preparation of operating budgets and to determine appropriate levels of operating and capital investments. Management also believes that the non-GAAP financial measures provide additional insight for analysts and investors in evaluating the company’s financial and operational performance. However, these non-GAAP financial measures have limitations as an analytical tool and are not intended to be an alternative to financial measures prepared in accordance with GAAP. We intend to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. A reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release.

The Company’s earnings press releases containing such non-GAAP reconciliations can be found on the Investors section of the Company’s web site at ir.fleetmatics.com.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about our future market share in North America and internationally, the addition of new products and our expected financial results for the fourth quarter of 2014, the full year of 2014, as well as our preliminary outlook for 2015. These forward-looking statements include, but are not limited to: plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” or words of similar meaning. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, risks associated with our ability to effectively and efficiently attract, sell to and retain SMB customers; our ability to attract customers on a cost-effective basis; our dependence on enterprise customers; our dependence on various lead generation programs; our ability to retain and increase sales to our existing customers; our ability to successfully complete and integrate acquisitions; expectations regarding the widespread adoption of fleet management solutions; our ability to expand the sales of our products to customers located outside the U.S.; our ability to continue to compete in a highly fragmented market and the risk of future competitors by way of recent and future acquisitions or otherwise; keeping up with the rapid technological change required to remain competitive in our industry; our ability to migrate customers to newer technologies; and the impact of adverse economic conditions on information technology spending by SMB businesses, collection of our accounts receivable and other risks set forth under the caption “Risk Factors” in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2014, as updated by our subsequently filed quarterly reports on Form 10-Q, annual reports on Form 10-K and other filings that we make with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

FLEETMATICS GROUP PLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2014 2013 2014 2013
Subscription revenue $ 60,421 $ 46,314 $ 167,586 $ 127,262
Cost of subscription revenue 15,056 11,498 42,336 32,329
Gross profit 45,365 34,816 125,250 94,933
Operating expenses:
Sales and marketing 19,153 14,266 59,564 40,467
Research and development 4,259 3,130 13,049 7,685
General and administrative 10,623 10,506 31,381 25,526
Total operating expenses 34,035 27,902 103,994 73,678
Income from operations 11,330 6,914 21,256 21,255
Interest income (expense), net (149 ) (373 ) (522 ) (1,111 )
Foreign currency transaction gain (loss), net 316 (118 ) 670 (774 )
Other income (expense), net (42 ) (1 )
Income before income taxes 11,455 6,423 21,403 19,370
Provision for income taxes 3,260 845 6,347 5,150
Net income $ 8,195 $ 5,578 $ 15,056 $ 14,220
Net income per share:
Basic $ 0.22 $ 0.15 $ 0.40 $ 0.40
Diluted $ 0.21 $ 0.15 $ 0.39 $ 0.39
Weighted average ordinary shares outstanding:
Basic 37,575,672 36,313,259 37,373,705 35,311,648
Diluted 38,532,609 37,618,615 38,424,555 36,777,137

FLEETMATICS GROUP PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

September 30,
2014

December 31,
2013

(Unaudited)
Assets
Current assets:
Cash $ 161,008 $ 137,171
Restricted cash 64

Accounts receivable, net of allowances of $1,726 and $1,395 at September 30, 2014 and
December 31, 2013, respectively

15,165 20,240
Deferred tax assets 6,715 6,505
Prepaid expenses and other current assets 22,413 13,675
Total current assets 205,301 177,655
Property and equipment, net 77,265 61,732
Goodwill 30,207 28,706
Intangible assets, net 7,088 7,765
Deferred tax assets, net 955 1,282
Other assets 10,035 9,399
Total assets $ 330,851 $ 286,539
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 6,751 $ 9,952
Accrued expenses and other current liabilities 21,736 14,855
Deferred revenue 22,733 21,163
Total current liabilities 51,220 45,970
Deferred revenue 11,233 9,029
Accrued income taxes 3,508 2,094
Long-term debt 23,750 23,750
Other liabilities 4,875 3,888
Total liabilities 94,586 84,731
Total shareholders’ equity 236,265 201,808
Total liabilities and shareholders’ equity $ 330,851 $ 286,539

FLEETMATICS GROUP PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended
September 30,
2014 2013
Cash flows from operating activities:
Net income $ 15,056 $ 14,220
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment 15,951 9,404
Amortization of capitalized in-vehicle devices owned by customers 896 715
Amortization of intangible assets 1,902 1,570
Amortization of deferred commissions, other deferred costs and debt discount 5,955 4,670
Provision for (benefit from) deferred tax assets

(277

)

213
Provision for accounts receivable allowances 1,672 1,109
Unrealized foreign currency transaction (gain) loss (735 ) 753
Loss on disposal of property and equipment and other assets 1,315 2,428
Share-based compensation 9,717 4,535
Excess tax benefits on share-based awards (13,056 )
Changes in operating assets and liabilities:
Accounts receivable 3,440 (3,731 )
Prepaid expenses and other current and long-term assets (2,277 ) (6,459 )
Accounts payable, accrued expenses and other current liabilities 2,751 6,400
Accrued income taxes 1,415 408
Deferred revenue 3,797 3,552
Net cash provided by operating activities 47,522 39,787
Cash flows from investing activities:
Purchases of property and equipment (28,908 ) (25,673 )
Capitalization of internal-use software costs (2,491 ) (1,496 )
Proceeds from sale of property and equipment 41
Payment for business acquired, net of cash acquired (2,274 ) (6,851 )
Net decrease in restricted cash 64
Net cash used in investing activities (33,568 ) (34,020 )
Cash flows from financing activities:
Payments of Term Loan (938 )
Proceeds from secondary public offering, net of offering costs 32,060
Proceeds from exercise of stock options 1,967 4,685

Payments of previously accrued initial public offering costs

(1,355 )
Taxes paid related to net share settlement of equity awards (3,703 )
Excess tax benefits from share-based awards 13,056
Payments of capital lease obligations (620 ) (276 )
Payments of notes payable (365 )
Net cash provided by financing activities 10,335 34,176
Effect of exchange rate changes on cash (452 ) (183 )
Net increase in cash 23,837 39,760
Cash, beginning of period 137,171 100,087
Cash, end of period $ 161,008 $ 139,847
Supplemental disclosure of cash flow information:
Cash paid for interest $ 525 $ 876
Cash paid (refunds received), net for income taxes $ 1,234 $ 1,204
Supplemental disclosure of non-cash financing and investing activities:
Acquisition of property and equipment and software through capital leases and note payable $ 2,647 $

Additions to property and equipment included in accounts payable or accrued expenses at the
balance sheet dates

$ 2,167 $ 2,177
Issuance of ordinary shares under employee share purchase plan $ 441 $

RECONCILIATION OF GAAP TO NON-GAAP GROSS PROFIT AND OPERATING INCOME

(In thousands)

(Unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2014 2013 2014 2013
Gross Profit GAAP $ 45,365 $ 34,816 $ 125,250 $ 94,933
Share-based compensation 176 132 495 275
Amortization of intangible assets 345 221 894 326
Gross Profit Non-GAAP $ 45,886 $ 35,169 $ 126,639 $ 95,534
Subscription revenue $ 60,421 $ 46,314 $ 167,586 $ 127,262
Gross Margin Percentages:
GAAP 75.1 % 75.2 % 74.7 % 74.6 %
Non-GAAP 75.9 % 75.9 % 75.6 % 75.1 %
Three Months Ended
September 30,
Nine Months Ended
September 30,
2014 2013 2014 2013
Operating income GAAP $ 11,330 $ 6,914 $ 21,256 $ 21,255
Share-based compensation 3,290 2,330 9,717 4,535
Amortization of intangible assets 681 636 1,902 1,570
Secondary public offering costs 392 1,285
Litigation and settlements (364 ) 915 (147 ) 1,203
Acquisition-related transaction costs 258 218 372
Operating income Non-GAAP $ 14,937 $ 11,445 $ 32,946 $ 30,220

RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA

(In thousands)

(Unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2014 2013 2014 2013
Reconciliation of Net Income to Adjusted EBITDA:
Net income $ 8,195 $ 5,578 $ 15,056 $ 14,220
Provision for income taxes 3,260 845 6,347 5,150
Interest (income) expense, net 149 373 522 1,111
Foreign currency transaction (gain) loss, net (316 ) 118 (670 ) 774
Depreciation and amortization of property and equipment 5,835 3,339 15,951 9,404

Amortization of capitalized in-vehicle devices owned by
customers

238 269 896 715
Amortization of intangible assets 681 636 1,902 1,570
Share-based compensation 3,290 2,330 9,717 4,535
Secondary public offering costs 392 1,285
Litigation and settlements (364 ) 915 (147 ) 1,203
Acquisition-related transaction costs 258 218 372
Adjusted EBITDA $ 20,968 $ 15,053 $ 49,792 $ 40,339
Subscription revenue $ 60,421 $ 46,314 $ 167,586 $ 127,262
Adjusted EBITDA margin 34.7 % 32.5 % 29.7 % 31.7 %

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP ADJUSTED EARNINGS AND EPS

(In thousands, except share and per share data)

(Unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2014 2013 2014 2013
Net income $ 8,195 $ 5,578 $ 15,056 $ 14,220
Amortization of intangible assets 681 636 1,902 1,570
Share-based compensation 3,290 2,330 9,717 4,535
Foreign currency transaction (gain) loss, net (316 ) 118 (670 ) 774
Secondary public offering costs 392 1,285
Litigation and settlements (364 ) 915 (147 ) 1,203
Acquisition-related transaction costs 258 218 372
Tax effect of non-GAAP adjustments above at 15% (494 ) (697 ) (1,653 ) (1,461 )
Tax reserve component of income tax provision 266 (260 ) 791 560
Adjusted earnings $ 11,258 $ 9,270 $ 25,214 $ 23,058
Weighted average ordinary shares outstanding – diluted 38,532,609 37,618,615 38,424,555 36,777,137
Non-GAAP adjusted EPS $ 0.29 $ 0.25 $ 0.66 $ 0.63

RECONCILIATION TO NON-GAAP INCOME

(In thousands)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2014 2013 2014 2013
Cost of subscription revenue
Share-based compensation $ 176 $ 132 $ 495 $ 275
Amortization of intangible assets 345 221 894 326
Subtotal cost of subscription revenue 521 353 1,389 601

Sales and marketing

Share-based compensation 1,113 909 3,615 1,712
Amortization of intangible assets 336 415 1,008 1,244
Subtotal sales and marketing 1,449 1,324 4,623 2,956

Research and development

Share-based compensation 519 367 1,384 675
Subtotal research and development 519 367 1,384 675

General and administrative

Share-based compensation 1,482 922 4,223 1,873
Secondary public offering costs 392 1,285
Litigation and settlements (364 ) 915 (147 ) 1,203
Acquisition-related transaction costs 258 218 372
Subtotal general and administrative 1,118 2,487 4,294 4,733
Foreign currency transaction (gain) loss, net (316 ) 118 (670 ) 774
Tax effect of non-GAAP adjustments, net of tax reserve component of income tax provision (228 ) (957 ) (862 ) (901 )
Total expense add-backs $ 3,063 $ 3,692 $ 10,158 $ 8,838

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