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Tangoe, Inc. Announces Fourth Quarter and Full Year 2014 Financial Results

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Tangoe, Inc. (NASDAQ:TNGO) , a leading global provider of Connection Lifecycle Management (CLM) software and related services, today announced financial results for its fourth quarter and full year ended December 31, 2014.

“During the fourth quarter, we made progress on a number of key initiatives and were pleased with our ability to exceed profitability expectations,” stated Al Subbloie, president and CEO of Tangoe. “During 2014, Tangoe delivered a solid combination of growth and profitability while enhancing its market leadership with the launch and rollout of our new Matrix Connection Lifecycle Management suite. Looking forward, we believe that the company is well positioned to gain market share as the Matrix suite adds several new connection types and spend categories to our existing core fixed and mobile telecom spend, including Cloud, IT, M2M assets and expense management.”

Fourth Quarter 2014 Financial Highlights

  • Revenue: Total revenue for the fourth quarter was $54.9 million, an increase of 10% on a year-over-year basis. Recurring technology and services revenue was $48.2 million, an increase of 9% on a year-over-year basis. Strategic consulting, software licenses and other services revenue contributed the remaining $6.7 million of total revenue for the fourth quarter of 2014.
  • Operating Income: GAAP operating income for the fourth quarter was $3.3 million, compared to $2.0 million for the fourth quarter of 2013. Non-GAAP operating income for the fourth quarter was $9.0 million, compared to $7.6 million for the fourth quarter of 2013.
  • Net Income: GAAP net income for the fourth quarter was $2.7 million, compared to $1.7 million for the same period last year. GAAP diluted net income per share for the fourth quarter was $0.07, based on 41.0 million weighted-average diluted shares outstanding, compared to $0.04 per share, based on 41.3 million weighted-average diluted shares outstanding, for the same period last year.

    Non-GAAP net income for the fourth quarter was $8.3 million compared to $7.3 million for the fourth quarter of 2013. Non-GAAP diluted net income per share for the fourth quarter was $0.20 based on 41.0 million weighted-average diluted shares outstanding compared to $0.18 per share based on 41.3 million weighted-average diluted shares outstanding for the same period last year.

  • Adjusted EBITDA: Adjusted EBITDA for the fourth quarter was $9.7 million, compared to $8.4 million for the fourth quarter of 2013. Adjusted EBITDA margin was 17.7% for the fourth quarter of 2014, compared to a 16.8% margin for the same period last year.
  • Cash and Cash Flow: As of December 31, 2014, Tangoe had cash and cash equivalents of $51.3 million, an increase of $2.4 million from the end of the prior quarter, primarily due to the cash generated during the quarter, partially offset by the repurchase of common stock during the quarter.

    The company generated $7.3 million in net cash from operations for the fourth quarter of 2014, compared to $4.8 million during the fourth quarter of 2013. The company generated $6.5 million in unlevered free cash flow for the quarter, compared to $4.0 million during the fourth quarter of 2013.

Full Year 2014 Financial Highlights

  • Revenue: Total revenue for the full year 2014 was $212.5 million, an increase of 12% on a year-over-year basis. Recurring technology and services revenue was $189.5 million, an increase of 12% on a year-over-year basis. Strategic consulting, software licenses and other services contributed the remaining $23.0 million of total revenue for 2014.
  • Operating Income: GAAP operating income for the full year 2014 was $5.2 million, compared to GAAP operating income of $5.1 million for 2013. Non-GAAP operating income was $31.3 million, compared to $27.3 million for 2013.
  • Net Income: GAAP net income for the full year 2014 was $2.9 million, compared to $5.0 million for 2013. GAAP diluted net income per share was $0.07 based on 41.2 million weighted-average diluted shares outstanding for the full year 2014, compared to $0.12 based on 40.5 million weighted-average diluted shares outstanding for 2013.

    Non-GAAP net income for the full year 2014 was $28.9 million, compared to $26.3 million for 2013. Non-GAAP diluted net income per share for 2014 was $0.70 based on 41.2 million weighted-average diluted shares outstanding, compared to $0.65 per share based on 40.5 million weighted-average diluted shares outstanding for 2013.

  • Adjusted EBITDA: Adjusted EBITDA for the full year 2014 was $33.9 million, compared to $29.7 million for 2013. Adjusted EBITDA margin was 15.9% for 2014, an increase compared to a 15.7% margin for 2013.
  • Cash Flow: The company generated $19.5 million in net cash from operations during the full year 2014, compared to $21.4 million in 2013. The company generated $16.0 million in unlevered free cash flow for 2014, compared to $18.9 million for 2013.

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.”

Financial Outlook

As of February 12, 2015, Tangoe is providing guidance for its first quarter and full year 2015.

  • First Quarter 2015 Guidance: Total revenue is expected to be in the range of $55.2 million to $55.9 million. Adjusted EBITDA is expected to be in the range of $8.0 million to $8.4 million. Non-GAAP net income per share is expected to be in the range of $0.16 to $0.17 based on approximately 41.2 million weighted-average diluted shares outstanding.
  • Full Year 2015 Guidance: Total revenue is expected to be in the range of $238.0 million to $243.0 million. Adjusted EBITDA is expected to be in the range of $38.0 million to $40.0 million. Non-GAAP net income per share is expected to be in the range of $0.77 to $0.82 based on approximately 42.0 million weighted-average diluted shares outstanding.

Quarterly Conference Call

Tangoe will host a conference call today at 5:00 p.m. EST to review the company’s financial results for the fourth quarter and full year 2014 as well as its business outlook. To access this call, dial 888.455.2260 (United States), or 719.325.2495 (international), with conference ID #3595191. A live webcast of the conference call will be accessible from the investor relations page of Tangoe’s website at http://investor.tangoe.com, and a recording will be archived and accessible at http://investor.tangoe.com/events.cfm. A recording of this conference call will also be available through February 26, 2015, by dialing 877.870.5176 (United States), or 858.384.5517 (international). The recording access code is #3595191.

About Tangoe

Tangoe (NASDAQ:TNGO) is a leading global provider of Connection Lifecycle Management software and services to a wide range of global enterprises and service providers. The company’s Connection Lifecycle Management platform, Matrix, is an on-demand suite of software and services designed to turn on, track, manage, secure, and support various connections in an enterprise’s connection lifecycle, including mobile, fixed, machine-to-machine, cloud software and services, enterprise social, and IT connections. Additional information about Tangoe can be found at www.tangoe.com.

Tangoe is a registered trademark of Tangoe, Inc.

Non-GAAP Financial Measures

Adjusted EBITDA discussed in this press release is defined as net income plus interest expense, income tax provision, depreciation and amortization, amortization of marketing agreement intangible assets, stock-based compensation expense and, for 2013 only, restructuring charge; less amortization of leasehold interest, interest income and other income. Non-GAAP operating income excludes stock-based compensation expense, amortization of intangible assets and, for 2013 only, restructuring charge. Non-GAAP net income excludes stock-based compensation expense, amortization of intangible assets, amortization of debt discount, other income, and, for 2013 only, restructuring charge. Unlevered free cash flow is defined as net cash provided by operating activities plus net interest payments, less capital expenditures. 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 determination of 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. A reconciliation of these non-GAAP measures to GAAP is provided in the accompanying tables.

Forward-Looking Statements

This press release contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this press release 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 ability to gain market share and our estimates regarding future revenue and financial performance. We may not actually achieve the 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 expectations disclosed in the forward-looking statements we make. More information about potential factors that could affect our business and financial results is contained in our Quarterly Report on Form 10-Q as filed with the Securities and Exchange Commission on November 10, 2014. Additional information will also be set forth in our future 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 do not intend, and undertake no duty, to release publicly any updates or revisions to any forward-looking statements contained herein.

TANGOE, INC.
Consolidated Statements of Operations (unaudited)
(in thousands, except per share amounts)

Three Months Ended

Twelve Months Ended
December 31, December 31,
2013 2014 2013 2014
Revenue:
Recurring technology and services $ 44,428 $ 48,215 $ 168,484 $ 189,467
Strategic consulting, software licenses and other 5,599 6,712 20,430 23,009
Total revenue 50,027 54,927 188,914 212,476
Cost of revenue:
Recurring technology and services 19,583 21,877 76,228 88,510
Strategic consulting, software licenses and other 2,397 2,194 8,750 8,954
Total cost of revenue 21,980 24,071 84,978 97,464
Gross profit 28,047 30,856 103,936 115,012
Operating expenses:
Sales and marketing 9,281 9,812 33,382 39,433
General and administrative 9,016 9,413 34,765 37,963
Research and development 4,914 5,943 19,570 22,633
Depreciation and amortization 2,829 2,353 10,452 9,779
Restructuring charge 654
Income from operations 2,007 3,335 5,113 5,204
Other income, net
Interest expense (49 ) (22 ) (401 ) (103 )
Interest income 10 9 60 35
Other income 108 35 1,201 114
Income before income tax provision 2,076 3,357 5,973 5,250
Income tax provision 343 686 1,011 2,314
Net income $ 1,733 $ 2,671 $ 4,962 $ 2,936
Net income per common share:
Basic $ 0.05 $ 0.07 $ 0.13 $ 0.08
Diluted $ 0.04 $ 0.07 $ 0.12 $ 0.07
Weighted average number of common share:
Basic 38,184 38,743 37,706 38,642
Diluted 41,272 41,011 40,472 41,157
TANGOE, INC.
Consolidated Balance Sheets
(in thousands)
December 31,
2013 2014
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 43,182 $ 51,279
Accounts receivable 43,273 56,948
Prepaid expenses and other current assets 4,537 5,901
Total current assets 90,992 114,128
COMPUTERS, FURNITURE AND EQUIPMENT-NET 4,317 5,217
OTHER ASSETS:
Intangible assets-net 36,637 28,753
Goodwill 65,963 65,348
Security deposits and other non-current assets 935 1,566
TOTAL ASSETS $ 198,844 $ 215,012
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,570 $ 10,733
Accrued expenses 8,871 8,283
Deferred revenue-current portion 9,063 10,858
Notes payable-current portion 1,831 1,400
Other current liabilities 160
Total current liabilities 29,495 31,274
OTHER LIABILITIES:
Deferred taxes and other non-current liabilities 3,598 4,372
Deferred revenue-less current portion 1,536 1,030
Notes payable-less current portion 203 166
Total liabilities 34,832 36,842
COMMITMENT AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common Stock 4 4
Additional paid-in capital 202,808 215,491
Warrants for common stock 10,610 10,610
Accumulated deficit (48,795 ) (45,859 )
Other comprehensive loss (615 ) (2,076 )
Total stockholders’ equity 164,012 178,170
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 198,844 $ 215,012
TANGOE, INC.
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
For the Twelve Months Ended
December 31,
2013 2014
Operating activities:
Net income $ 4,962 $ 2,936
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of debt discount 305 50
Amortization of leasehold interest (99 ) (99 )
Depreciation and amortization 10,452 9,779
Decrease in deferred rent liability (47 ) (36 )
Amortization of marketing agreement intangible assets 305 493
Allowance for doubtful accounts 106 261
Deferred income taxes 400 989
Stock based compensation expense 13,259 18,498
Restructuring charge 654
Foreign exchange adjustment (138 ) 39
Decrease in fair value of contingent consideration (1,041 )
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (5,089 ) (14,283 )
Prepaid expenses and other current assets (407 ) (1,029 )
Other assets 191 (450 )
Accounts payable 32 1,595
Accrued expenses and other current liabilities (2,409 ) (514 )
Deferred revenue (23 ) 1,317
Net cash provided by operating activities 21,413 19,546
Investing activities:
Purchases of computers, furniture and equipment (2,643 ) (3,569 )
Cash paid in connection with acquisitions, net of cash received (20,845 ) (881 )

Net cash used in investing activities

(23,488 ) (4,450 )
Financing activities:
Borrowings of debt 177
Repayment of debt (1,006 ) (858 )
Repurchase of common stock (8,590 ) (7,915 )
Proceeds from exercise of stock options and stock warrants 4,861 2,100
Net cash used in financing activities (4,735 ) (6,496 )
Effect of exchange rate on cash (219 ) (503 )
Net (decrease) increase in cash and cash equivalents (7,029 ) 8,097
Cash and cash equivalents, beginning of period 50,211 43,182
Cash and cash equivalents, end of period $ 43,182 $ 51,279
TANGOE, INC.
Calculation of Non-GAAP Operating Income (Unaudited)
(in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
2013 2014 2013 2014
% of % of % of % of
Amount Revenue Amount Revenue Amount Revenue Amount Revenue
Income from operations $ 2,007 4.0 % $ 3,335 6.1 % $ 5,113 2.7 % $ 5,204 2.4 %
Add:
Stock based compensation expense 3,486 7.0 % 3,893 7.1 % 13,259 7.0 % 18,498 8.7 %
Amortization of intangibles 2,133 4.3 % 1,814 3.3 % 8,309 4.4 % 7,550 3.6 %
Restructuring charge 0.0 % 0.0 % 654 0.3 % 0.0 %
Non-GAAP income from operations $ 7,626 15.2 % $ 9,042 16.5 % $ 27,335 14.5 % $ 31,252 14.7 %
TANGOE, INC.
Reconciliation of Net income to Adjusted EBITDA (Unaudited)
(in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
2013 2014 2013 2014
% of % of % of % of
Amount Revenue Amount Revenue Amount Revenue Amount Revenue
Net income $ 1,733 3.5 % $ 2,671 4.9 % $ 4,962 2.6 % $ 2,936 1.4 %
Interest expense 49 0.1 % 22 0.0 % 401 0.2 % 103 0.0 %
Other income (108 ) -0.2 % (35 ) -0.1 % (1,201 ) -0.6 % (114 ) -0.1 %
Interest income (10 ) 0.0 % (9 ) 0.0 % (60 ) 0.0 % (35 ) 0.0 %
Income tax provision 343 0.7 % 686 1.2 % 1,011 0.5 % 2,314 1.1 %
Depreciation and amortization 2,829 5.7 % 2,353 4.3 % 10,452 5.5 % 9,779 4.6 %
Amortization of marketing agreement intangible assets 111 0.2 % 161 0.3 % 305 0.2 % 493 0.2 %
Amortization of leasehold interest (25 ) 0.0 % (25 ) 0.0 % (99 ) -0.1 % (99 ) 0.0 %
Stock based compensation expense 3,486 7.0 % 3,893 7.1 % 13,259 7.0 % 18,498 8.7 %
Restructuring charge 0.0 % 0.0 % 654 0.3 % 0.0 %
Adjusted EBITDA $ 8,408 16.8 % $ 9,717 17.7 % $ 29,684 15.7 % $ 33,875 15.9 %
TANGOE, INC.
Calculation of Non-GAAP Net Income and Non-GAAP Net Income per Share (Unaudited)
(in thousands, except per share data)
Three Months Ended Twelve Months Ended
December 31, December 31,
2013 2014 2013 2014
Net income $ 1,733 $ 2,671 $ 4,962 $ 2,936
Add:
Stock based compensation expense 3,486 3,893 13,259 18,498
Restructuring charge 654
Amortization of intangibles 2,133 1,814 8,309 7,550
Amortization of debt discount 25 5 305 50
Other income (108 ) (35 ) (1,201 ) (114 )
Non-GAAP net income $ 7,269 $ 8,348 $ 26,288 $ 28,920
Non-GAAP net income per share: diluted $ 0.18 $ 0.20 $ 0.65 $ 0.70
Fully diluted weighted average shares outstanding 41,272 41,011 40,472 41,157
TANGOE, INC.
Stock Based Compensation Expense (Unaudited)
(in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
2013 2014 2013 2014
Cost of revenue $ 499 $ 535 $ 2,108 $ 3,873
Sales and marketing 1,194 1,052 3,941 5,065
General and administrative 1,556 1,598 6,220 6,802
Research and development 237 708 990 2,758
Total $ 3,486 $ 3,893 $ 13,259 $ 18,498
TANGOE, INC.
Calculation of Unlevered Free Cash Flow (Unaudited)
(in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
2013 2014 2013 2014
Net cash provided by operating activities $ 4,830 $ 7,342 $ 21,413 $ 19,546
Add:
Interest payments, net 21 8 86 31
Subtract:
Capital expenditures 843 870 2,643 3,569
Unlevered Free Cash Flow $ 4,008 $ 6,480 $ 18,856 $ 16,008

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