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Tangoe, Inc. Announces First Quarter 2015 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 first quarter ended March 31, 2015.

“We continued to enhance our market leadership position during the first quarter with the launch and rollout of new Matrix Connection Lifecycle Management software and services,” stated Al Subbloie, president and CEO of Tangoe. “During the quarter, our total revenues were below expectations primarily due to quarter-to-quarter variability of non-recurring revenue, which is the less strategic component of our business. We remain optimistic about the company’s future which is supported by continued expansion within our large and growing customer base, expanding relationships with key strategic alliance partners, and the strength of our new customer adds.”

Subbloie added, “We are very excited about our pending acquisition of IBM’s Rivermine TEM business, which we expect will improve the overall scale of our company, as well as increase our global customer base and spend under management. We also expect the acquisition will further accelerate the expansion of our global presence and bolster our relationship with IBM. We anticipate the acquisition to be accretive during 2016.”

First Quarter 2015 Financial Highlights

  • Revenue: Total revenue for the first quarter was $53.5 million, an increase of 6% on a year-over-year basis. Recurring technology and services revenue was $48.9 million, an increase of 6% on a year-over-year basis. Strategic consulting, software licenses and other services revenue contributed the remaining $4.6 million of total revenue for the first quarter of 2015.
  • Operating Income: GAAP operating income for the first quarter was $0.9 million, compared to $0.2 million for the first quarter of 2014. Non-GAAP operating income for the first quarter was $7.5 million, compared to $6.4 million for the first quarter of 2014.
  • Net Income (Loss): GAAP net income for the first quarter was $0.3 million, compared to a net loss of $0.3 million for the same period last year. GAAP diluted net income per share for the first quarter was $0.01, based on 40.7 million weighted-average diluted shares outstanding, compared to a loss of $0.01 per share, based on 38.4 million weighted-average shares outstanding, for the same period last year.

    Non-GAAP net income for the first quarter was $6.8 million compared to $6.0 million for the first quarter of 2014. Non-GAAP diluted net income per share for the first quarter was $0.17 based on 40.7 million weighted-average diluted shares outstanding compared to $0.15 per share based on 41.0 million weighted-average diluted shares outstanding for the same period last year.

  • Adjusted EBITDA: Adjusted EBITDA for the first quarter was $8.2 million, compared to $7.1 million for the first quarter of 2014. Adjusted EBITDA margin was 15.2% for the first quarter of 2015, compared to a 14.1% margin for the same period last year.
  • Cash and Cash Flow: As of March 31, 2015, Tangoe had cash and cash equivalents of $52.5 million, an increase of $1.3 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 $4.0 million in net cash from operations for the first quarter of 2015, compared to $3.1 million during the first quarter of 2014. The company generated $3.2 million in unlevered free cash flow for the quarter, compared to $1.9 million during the first quarter of 2014.

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 May 7, 2015, Tangoe is providing guidance for its second quarter and full year 2015 both including and excluding the expected financial impact from the expected acquisition of IBM’s Rivermine TEM Division.

  • Second Quarter 2015 Guidance: Total revenue is expected to be in the range of $56.5 million to $57.5 million. Adjusted EBITDA is expected to be in the range of $8.8 million to $9.3 million. Non-GAAP net income per share is expected to be in the range of $0.18 to $0.19 based on approximately 41.2 million weighted-average diluted shares outstanding.

    Second quarter 2015 guidance includes the expected approximate contribution of approximately $1.0 million to total revenue and $0.01 of dilution to non-GAAP net income per share from the acquisition of IBM’s Rivermine TEM Division.

  • Full Year 2015 Guidance: Total revenue is expected to be in the range of $245.0 million to $250.0 million. Adjusted EBITDA is expected to be in the range of $36.0 million to $38.0 million. Non-GAAP net income per share is expected to be in the range of $0.73 to $0.78 based on approximately 42.0 million weighted-average diluted shares outstanding.

    Full year 2015 guidance includes the expected approximate contribution of $10.0 million to total revenue and $0.04 of dilution to non-GAAP net income per share from the acquisition of IBM’s Rivermine TEM Division.

Quarterly Conference Call

Tangoe will host a conference call today at 5:00 p.m. EDT to review the company’s financial results for the first quarter 2015 as well as its business outlook. To access this call, dial 888.417.8516 (United States), or 719.457.2648 (international), with conference ID #5523598. 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 May 21, 2015, by dialing 877.870.5176 (United States), or 858.384.5517 (international). The recording access code is #5523598.

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 (loss) plus interest expense, income tax provision, depreciation and amortization, amortization of marketing agreement intangible assets, stock-based compensation expense and, for 2015 only, other expense; less amortization of leasehold interest, interest income and, for 2014 only, other income. Non-GAAP operating income excludes stock-based compensation expense and amortization of intangible assets. Non-GAAP net income excludes stock-based compensation expense, amortization of intangible assets, amortization of debt discount, and other income. 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,” “pending,” “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 anticipated acquisition of IBM’s Rivermine TEM Division, which is subject to the satisfaction of certain conditions to closing, 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 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 16, 2015. 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

March 31,
2014 2015
Revenue:
Recurring technology and services $ 45,999 $ 48,916
Strategic consulting, software licenses and other 4,395 4,553
Total revenue 50,394 53,469
Cost of revenue:
Recurring technology and services 21,398 21,630
Strategic consulting, software licenses and other 2,334 2,245
Total cost of revenue 23,732 23,875
Gross profit 26,662 29,594
Operating expenses:
Sales and marketing 9,945 10,374
General and administrative 8,788 10,103
Research and development 5,129 6,127
Depreciation and amortization 2,607 2,052
Income from operations 193 938
Other income (expense), net
Interest expense (37 ) (64 )
Interest income 9 9
Other income (expense) 13 (2 )
Income before income tax provision 178 881
Income tax provision 445 629
Net (loss) income $ (267 ) $ 252
Net (loss) income per common share:
Basic $ (0.01 ) $ 0.01
Diluted $ (0.01 ) $ 0.01
Weighted average number of common share:
Basic 38,364 38,724
Diluted 38,364 40,715
TANGOE, INC.
Consolidated Balance Sheets
(in thousands)
December 31, March 31,
2014 2015
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 51,279 $ 52,543
Accounts receivable 56,948 58,695
Prepaid expenses and other current assets 5,901 10,769
Total current assets 114,128 122,007
COMPUTERS, FURNITURE AND EQUIPMENT-NET 5,217 5,280
OTHER ASSETS:
Intangible assets-net 28,753 27,063
Goodwill 65,348 64,857
Security deposits and other non-current assets 1,566 1,480
TOTAL ASSETS $ 215,012 $ 220,687
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,733 $ 9,584
Accrued expenses 8,283 8,931
Deferred revenue-current portion 10,858 10,925
Notes payable-current portion 1,400 2,288
Total current liabilities 31,274 31,728
OTHER LIABILITIES:
Deferred taxes and other non-current liabilities 4,372 4,529
Deferred revenue-less current portion 1,030 797
Notes payable-less current portion 166 2,555
Total liabilities 36,842 39,609
COMMITMENT AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common Stock 4 4
Additional paid-in capital 215,491 219,180
Warrants for common stock 10,610 10,610
Accumulated deficit (45,859 ) (45,607 )
Other comprehensive loss (2,076 ) (3,109 )
Total stockholders’ equity 178,170 181,078
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 215,012 $ 220,687
TANGOE, INC.
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
For the Three Months Ended
March 31,
2014 2015
Operating activities:
Net (loss) income $ (267 ) $ 252
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Amortization of debt discount 25 7
Amortization of leasehold interest (24 ) (24 )
Depreciation and amortization 2,607 2,052
(Decrease) increase in deferred rent liability (31 ) 71
Amortization of marketing agreement intangible assets 108 161
Allowance for doubtful accounts 30 90
Deferred income taxes 307 131
Stock based compensation expense 4,197 5,024
Loss on disposal of fixed assets 17
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (1,593 ) (2,002 )
Prepaid expenses and other current assets (1,035 ) (1,458 )
Other assets (340 ) 86
Accounts payable 183 (1,120 )
Accrued expenses and other current liabilities (807 ) 852
Deferred revenue (283 ) (138 )
Net cash provided by operating activities 3,077 4,001
Investing activities:
Purchases of computers, furniture and equipment (1,218 ) (794 )
Net cash used in investing activities (1,218 ) (794 )
Financing activities:
Borrowings of debt 177
Repayment of debt (276 ) (226 )
Repurchase of common stock (2,000 )
Proceeds from exercise of stock options and stock warrants 1,172 665
Net cash provided by (used in) financing activities 1,073 (1,561 )
Effect of exchange rate on cash (35 ) (382 )
Net increase in cash and cash equivalents 2,897 1,264
Cash and cash equivalents, beginning of period 43,182 51,279
Cash and cash equivalents, end of period $ 46,079 $ 52,543
TANGOE, INC.
Calculation of Non-GAAP Operating Income (Unaudited)
(in thousands)
Three Months Ended
March 31,
2014 2015
% of % of
Amount Revenue Amount Revenue
Income from operations $ 193 0.4 % $ 938 1.8 %
Add:
Stock based compensation expense 4,197 8.3 % 5,024 9.4 %
Amortization of intangibles 2,036 4.0 % 1,489 2.8 %
Non-GAAP income from operations $ 6,426 12.8 % $ 7,451 13.9 %
TANGOE, INC.
Reconciliation of Net (loss) income to Adjusted EBITDA (Unaudited)
(in thousands)
Three Months Ended
March 31,
2014 2015
% of % of
Amount Revenue Amount Revenue
Net (loss) income $ (267 ) -0.5 % $ 252 0.5 %
Interest expense 37 0.1 % 64 0.1 %
Other (income) expense (13 ) 0.0 % 2 0.0 %
Interest income (9 ) 0.0 % (9 ) 0.0 %
Income tax provision 445 0.9 % 629 1.2 %
Depreciation and amortization 2,607 5.2 % 2,052 3.8 %
Amortization of marketing agreement intangible assets 108 0.2 % 161 0.3 %
Amortization of leasehold interest (24 ) 0.0 % (24 ) 0.0 %
Stock based compensation expense 4,197 8.3 % 5,024 9.4 %
Adjusted EBITDA $ 7,081 14.1 % $ 8,151 15.2 %
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
March 31,
2014 2015
Net (loss) income $ (267 ) $ 252
Add:
Stock based compensation expense 4,197 5,024
Amortization of intangibles 2,036 1,489
Amortization of debt discount 25 7
Other (income) expense (13 ) 2
Non-GAAP net income $ 5,978 $ 6,774
Non-GAAP net income per share: diluted $ 0.15 $ 0.17
Fully diluted weighted average shares outstanding 40,969 40,715
TANGOE, INC.
Stock Based Compensation Expense (Unaudited)
(in thousands)
Three Months Ended
March 31,
2014 2015
Cost of revenue $ 1,488 $ 910
Sales and marketing 1,256 1,367
General and administrative 1,035 2,066
Research and development 418 681
Total $ 4,197 $ 5,024
TANGOE, INC.
Calculation of Unlevered Free Cash Flow (Unaudited)
(in thousands)
Three Months Ended
March 31,
2014 2015
Net cash provided by operating activities $ 3,077 $ 4,001
Add:
Interest payments, net 9 15
Subtract:
Capital Expenditures 1,218 794
Unlevered Free Cash Flow $ 1,868 $ 3,222

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