The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
(Unaudited)
1. Nature of the Business
Fleetmatics Group PLC (the Company) is a public limited company incorporated in the Republic of Ireland. The Company is a
leading global provider of mobile workforce solutions for service-based businesses of all sizes delivered as software-as-a-service (SaaS). Its mobile software platform enables businesses to meet the challenges associated with managing
their local fleets of commercial vehicles and improve productivity by extracting actionable business intelligence from real-time and historical vehicle and driver behavioral data. The Company offers intuitive, cost-effective Web-based and mobile
solutions that 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 expediting the job completion process from quote through payment.
2. Summary of Significant Accounting Policies
Basis of Presentation
The
accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles (GAAP) in the United States of America and include the accounts of the Company and its wholly owned
subsidiaries after elimination of all intercompany accounts and transactions. All dollar amounts in the financial statements and in the notes to the consolidated financial statements, except share and per share amounts, are stated in thousands of
U.S. Dollars unless otherwise indicated.
The accompanying consolidated balance sheet as of June 30, 2016, the consolidated
statements of operations and the consolidated statements of comprehensive income for the three and six months ended June 30, 2016 and 2015, and the consolidated statements of cash flows for the six months ended June 30, 2016 and 2015 are
unaudited. The interim unaudited financial statements have been prepared on the same basis as the annual audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments,
necessary for the fair statement of the Companys financial position as of June 30, 2016, the results of its operations and its comprehensive income for the three and six months ended June 30, 2016 and 2015, and its cash flows for the
six months ended June 30, 2016 and 2015. The consolidated financial data and other information disclosed in these notes related to the three and six months ended June 30, 2016 and 2015 are also unaudited. The results for the three and six
months ended June 30, 2016 are not necessarily indicative of results to be expected for the year ending December 31, 2016 or for any other interim periods or future year.
Certain information and footnote disclosures normally included in the Companys annual audited consolidated financial statements and
accompanying notes have been condensed or omitted in these interim financial statements. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the Companys audited consolidated financial
statements and notes thereto for the year ended December 31, 2015 included in its Annual Report on Form 10-K (Annual Report) filed with the Securities and Exchange Commission on February 26, 2016.
Fair Value Measurements
Certain
assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value
hierarchy based on three levels of inputs, of which the first two are considered observable and the last is considered unobservable, is used to measure fair value:
|
|
|
Level 1Quoted prices in active markets for identical assets or liabilities. The Company did not have any financial assets or liabilities as of June 30, 2016 designated as Level 1.
|
|
|
|
Level 2Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets
or liabilities, or other inputs that are observable or can be corroborated by observable market data. The Company did not have any financial assets or liabilities as of June 30, 2016 designated as Level 2.
|
7
|
|
|
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow
methodologies and similar techniques. The Company has a contingent consideration liability assumed as a result of the acquisition of Ornicar SAS (Ornicar) of $907 as of June 30, 2016 designated as Level 3. The Companys
contingent purchase consideration is valued by probability weighting expected payment scenarios and then applying a discount based on the present value of the future cash flow streams. This liability is classified as Level 3 because the probability
weighting of future payment scenarios is based on assumptions developed by management. The Company determined a probability weighting that is weighted towards Ornicar achieving certain unit sales and pricing targets at the time of acquisition and
the discount rate that is based on the Companys weighted average cost of capital which is then adjusted for the time value of money. The probability weighting will be adjusted as the actual results provide the Company with more reliable
information to weight the probability scenarios.
|
The carrying values of accounts receivable, accounts payable and accrued
expenses and other liabilities approximate fair value due to the short-term nature of these assets and liabilities. As of June 30, 2016 and December 31, 2015, the Company had no other assets or liabilities that would be classified under
this fair value hierarchy. The fair value of the Companys long-term debt related to the Credit Facility (as defined in Note 9 to the consolidated financial statements) approximates its carrying value due to its variable interest rate, which
approximates a market interest rate.
Deferred Commissions
The Company capitalizes commission costs that are incremental and directly related to the acquisition of new customer contracts with a term of
greater than one year. For the majority of its customer contracts, the Company pays commissions in full when it receives the initial customer contract for a new subscription or a renewal subscription. For all other customer contracts, the Company
pays commissions in full when it receives the initial customer payment for a new subscription or a renewal subscription. Commission costs are capitalized upon payment and are amortized as expense ratably over the term of the related non-cancelable
customer contract, in proportion to the recognition of the subscription revenue. If a subscription agreement is terminated, the unamortized portion of any deferred commission cost is recognized as expense immediately.
Commission costs capitalized during the three months ended June 30, 2016 and 2015 totaled $3,142 and $3,089, respectively, and during the
six months ended June 30, 2016 and 2015 totaled $6,948 and $5,638, respectively. Amortization of deferred commissions totaled $2,981 and $2,508 for the three months ended June 30, 2016 and 2015, respectively, and totaled $5,903 and $4,947
for the six months ended June 30, 2016 and 2015, respectively, and is included in sales and marketing expense in the consolidated statements of operations. Deferred commission costs, net of amortization, are included in other current and
long-term assets in the consolidated balance sheets and totaled $18,511 and $17,518 as of June 30, 2016 and December 31, 2015, respectively. Foreign exchange differences also contribute to changes in the net amount of these deferred
commission costs.
Capitalized In-Vehicle Device Costs
For in-vehicle devices of which the Company retains ownership after they are installed in a customers fleet, the cost of the in-vehicle
devices (including installation and shipping costs) is capitalized as property and equipment. The Company depreciates these costs over the minimum estimated useful life of the devices or over the estimated average customer relationship period, which
are both currently six years, beginning upon completion of installation. Related depreciation expense is recorded in cost of subscription revenue. If a customer subscription agreement is canceled or expires prior to the end of the expected useful
life of the in-vehicle device, the carrying value of the asset is depreciated in full with expense immediately recorded as cost of subscription revenue. Before installation in a customers fleet, in-vehicle devices of which the Company retains
ownership are recorded within property and equipment (referred to as In-vehicle devicesuninstalled), but are not depreciated.
For
the limited number of customer arrangements in which title to the in-vehicle devices transfers to the customer upon delivery or installation of the in-vehicle device (for which the Company receives an up-front fee from the customer), the Company
defers the costs of the installed in-vehicle devices (including installation and shipping costs) as they are directly related to the revenue that the Company derives from the sale of the devices and that it recognizes ratably over the estimated
average customer relationship period of six years. The Company capitalizes these in-vehicle device costs and amortizes the deferred costs as expense ratably over the estimated average customer relationship period, in proportion to the recognition of
the up-front fee revenue.
Costs of in-vehicle devices owned by customers that were capitalized during the three and six months ended
June 30, 2015 totaled $1 and $13, respectively. Amortization of these capitalized costs totaled $91 and $517 for the three and six months ended June 30, 2015, respectively, and is included in cost of subscription revenue in the
consolidated statements of operations. Generally, the Company does not enter into customer arrangements whereby title to the in-vehicle devices transfers to the customer upon delivery or installation of the in-vehicle device.
8
Recently Issued and Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09,
Improvements to Employee Share-Based Payment Accounting
(ASU 2016-09), which amends Accounting Standards Codification (ASC) Topic 718,
Compensation Stock Compensation
. ASU 2016-09 simplifies several
aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal
years beginning after December 15, 2016, and interim periods within those fiscal years and early adoption is permitted. The Company is currently assessing the potential impact of ASU 2016-09 on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
(ASU 2016-02). ASU 2016-02 requires organizations that lease assets
to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additionally, ASU 2016-02 modifies current guidance for lessors accounting. The standard will be effective for the first
interim period within annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the potential impact of ASU 2016-02 on its consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16,
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period
Adjustment
(ASU 2015-16). ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.
Prior to the issuance of the standard, entities were required to retrospectively apply adjustments made to provisional amounts recognized in a business combination. The standard was effective for fiscal years, and interim periods within those years,
beginning after December 15, 2015. Early adoption is permitted. The Company adopted this standard in the first quarter of 2016 and it did not have a material impact on the Companys consolidated financial position, results of operations or
cash flows.
In April 2015, the FASB issued ASU 2015-03,
Interest Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs
(ASU 2015-03). ASU 2015-03 requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the
presentation of a debt discount. Prior to the issuance of the standard, debt issuance costs were required to be presented in the balance sheet as an asset. The standard was effective for the first interim period within annual reporting periods
beginning after December 15, 2015. Early adoption is permitted. The Company adopted this standard in the first quarter of 2016 and it did not impact the Companys consolidated financial position, results of operations or cash flows.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
(ASU 2014-09), which supersedes nearly
all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to
be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing
GAAP. The standard requires either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or
(ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). In August 2015, the FASB issued ASU 2015-14 which deferred the
effective date of the new accounting guidance related to revenue recognition by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also proposed permitting early adoption of the standard, but not
before the original effective date of December 15, 2016. In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
, which clarifies certain aspects of
identifying performance obligations and licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12,
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,
related to disclosures
of remaining performance obligations, as well as other amendments to guidance on collectibility, non-cash consideration and the presentation of sales and other similar taxes collected from customers. These standards have the same effective date and
transition date of December 15, 2017 for annual reporting periods beginning after that date. The Company is in the process of evaluating the impact, if any, that the adoption of the new revenue recognition standard will have on its consolidated
financial statements and footnote disclosures.
9
3. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following at June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Deferred commission costs
|
|
$
|
9,934
|
|
|
$
|
9,296
|
|
Prepaid software license fees and support
|
|
|
2,145
|
|
|
|
1,113
|
|
Prepaid taxes/taxes receivable
|
|
|
1,770
|
|
|
|
1,190
|
|
Parts and accessories
|
|
|
730
|
|
|
|
633
|
|
Prepaid insurance
|
|
|
278
|
|
|
|
696
|
|
Other
|
|
|
1,526
|
|
|
|
1,502
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,383
|
|
|
$
|
14,430
|
|
|
|
|
|
|
|
|
|
|
4. Property and Equipment
Property and equipment consisted of the following at June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
In-vehicle devicesinstalled
(1)
|
|
$
|
137,633
|
|
|
$
|
133,753
|
|
In-vehicle devicesuninstalled
|
|
|
6,270
|
|
|
|
6,829
|
|
Computer equipment
|
|
|
17,717
|
|
|
|
14,580
|
|
Internal-use software
|
|
|
15,419
|
|
|
|
11,791
|
|
Furniture and fixtures
|
|
|
2,344
|
|
|
|
2,667
|
|
Leasehold improvements
|
|
|
6,148
|
|
|
|
5,954
|
|
Land and building
|
|
|
1,023
|
|
|
|
1,001
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
186,554
|
|
|
|
176,575
|
|
Less: Accumulated depreciation and
amortization
(1)
|
|
|
(80,037
|
)
|
|
|
(72,069
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
106,517
|
|
|
$
|
104,506
|
|
|
|
|
|
|
|
|
|
|
(1)
|
During the six months ended June 30, 2016 and the year ended December 31, 2015, the Company removed $9,921 and $11,978, respectively, of fully depreciated in-vehicle devices no longer in service, which
included decommissioned 2G devices.
|
Depreciation and amortization expense related to property and equipment totaled $9,160
and $6,567 for the three months ended June 30, 2016 and 2015, respectively, and totaled $18,458 and $13,133 for the six months ended June 30, 2016 and 2015, respectively. Of those amounts, $8,220 and $5,907 for the three months ended
June 30, 2016 and 2015, respectively, and $16,545 and $11,881 for the six months ended June 30, 2016 and 2015, respectively, was recorded in cost of subscription revenue primarily related to depreciation of installed in-vehicle devices and
amortization of internal-use software and the remaining costs were included in various operating expenses. The carrying value of installed in-vehicle devices (including shipping and installation costs), net of accumulated depreciation, was $77,559
and $76,835 at June 30, 2016 and December 31, 2015, respectively.
During the six months ended June 30, 2016 and 2015, the
Company capitalized costs of $3,406 and $1,942, respectively, associated with the development of its internal-use software related to its SaaS software offerings accessed by customers as well as customization and development of its internal business
systems. Amortization expense of the internal-use software totaled $1,050 and $472 during the three months ended June 30, 2016 and 2015, respectively, and $1,903 and $950 during the six months ended June 30, 2016 and 2015, respectively.
The carrying value of capitalized internal-use software was $8,765 and $7,125 as of June 30, 2016 and December 31, 2015, respectively. Foreign exchange differences also contribute to changes in the carrying value of internal-use software.
As of June 30, 2016 and December 31, 2015, the gross amount of assets under capital leases totaled $7,771 and $6,749,
respectively, and related accumulated amortization totaled $3,644 and $2,564, respectively.
During the three months ended June 30,
2016 and 2015, the Company expensed $905 and $660, respectively, and during the six months ended June 30, 2016 and 2015 expensed $1,741 and $1,219, respectively, primarily in conjunction with installed in-vehicle devices requiring replacement.
The expense was recorded in cost of subscription revenue and is included in loss on disposal of property and equipment and other assets in the consolidated statements of cash flows.
10
5. Goodwill and Intangible Assets
As of June 30, 2016 and December 31, 2015, the carrying amount of goodwill was $54,869 and $54,178, respectively, and resulted from
historical acquisitions. In the first quarter of 2016, the Company recorded $72 as a purchase price adjustment resulting from the final minimum working capital requirement pursuant to the Ornicar purchase and sale agreement. In the second quarter of
2016, the Company recorded $619 as a purchase price adjustment resulting from the final minimum working capital requirement pursuant to the Visirun purchase and sale agreement. No impairment of goodwill was recorded during the six months ended
June 30, 2016 or the year ended December 31, 2015.
Intangible assets consisted of the following as of June 30, 2016 and
December 31, 2015, with gross and net amounts of foreign currency-denominated intangible assets reflected at June 30, 2016 and December 31, 2015 exchange rates, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Carrying
Value
|
|
Customer relationships
|
|
$
|
20,420
|
|
|
$
|
(10,043
|
)
|
|
$
|
10,377
|
|
Acquired developed technology
|
|
|
6,761
|
|
|
|
(4,761
|
)
|
|
|
2,000
|
|
Trademarks
|
|
|
819
|
|
|
|
(482
|
)
|
|
|
337
|
|
Patent
|
|
|
201
|
|
|
|
(95
|
)
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,201
|
|
|
$
|
(15,381
|
)
|
|
$
|
12,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Carrying
Value
|
|
Customer relationships
|
|
$
|
20,420
|
|
|
$
|
(8,837
|
)
|
|
$
|
11,583
|
|
Acquired developed technology
|
|
|
6,761
|
|
|
|
(3,956
|
)
|
|
|
2,805
|
|
Trademarks
|
|
|
819
|
|
|
|
(427
|
)
|
|
|
392
|
|
Patent
|
|
|
196
|
|
|
|
(87
|
)
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,196
|
|
|
$
|
(13,307
|
)
|
|
$
|
14,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to intangible assets was $1,026 and $614 for the three months ended June 30,
2016 and 2015, respectively. Of those amounts, amortization expense of $403 and $308 for the three months ended June 30, 2016 and 2015, respectively, was included in the cost of subscription revenue in the consolidated statements of operations,
and amortization expense of $623 and $306 for the three months ended June 30, 2016 and 2015, respectively, was included in sales and marketing expense in the consolidated statements of operations.
Amortization expense related to intangible assets was $2,036 and $1,199 for the six months ended June 30, 2016 and 2015, respectively. Of
those amounts, amortization expense of $774 and $608 for the six months ended June 30, 2016 and 2015, respectively, was included in the cost of subscription revenue in the consolidated statements of operations, and amortization expense of
$1,262 and $591 for the six months ended June 30, 2016 and 2015, respectively, was included in sales and marketing expense in the consolidated statements of operations.
We currently expect to amortize the following remaining amounts of intangible assets held at June 30, 2016 in the fiscal periods as
follows:
|
|
|
|
|
Year ending December 31,
|
|
|
|
2016
|
|
$
|
2,237
|
|
2017
|
|
|
3,152
|
|
2018
|
|
|
2,541
|
|
2019
|
|
|
2,010
|
|
2020
|
|
|
1,065
|
|
Thereafter
|
|
|
1,815
|
|
|
|
|
|
|
|
|
$
|
12,820
|
|
|
|
|
|
|
11
6. Other Assets
Other assets (non-current) consisted of the following as of June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Deferred commission costs
|
|
$
|
8,577
|
|
|
$
|
8,222
|
|
Other
|
|
|
1,339
|
|
|
|
1,408
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,916
|
|
|
$
|
9,630
|
|
|
|
|
|
|
|
|
|
|
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following as of June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Accrued payroll and related expenses
|
|
$
|
10,851
|
|
|
$
|
11,740
|
|
Accrued professional fees
|
|
|
2,951
|
|
|
|
2,635
|
|
Capital lease obligations
|
|
|
2,182
|
|
|
|
1,898
|
|
Accrued settlements
|
|
|
2,102
|
|
|
|
|
|
Accrued marketing expense
|
|
|
1,322
|
|
|
|
1,324
|
|
Contingent consideration
|
|
|
907
|
|
|
|
1,366
|
|
Accrued rent and lease incentives
|
|
|
683
|
|
|
|
688
|
|
Other
|
|
|
5,642
|
|
|
|
4,796
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,640
|
|
|
$
|
24,447
|
|
|
|
|
|
|
|
|
|
|
8. Other Liabilities
Other liabilities (non-current) consisted of the following as of June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Deferred tax liabilities
|
|
$
|
3,646
|
|
|
$
|
3,486
|
|
Accrued rent and lease incentives
|
|
|
3,012
|
|
|
|
3,331
|
|
Capital lease obligations
|
|
|
2,389
|
|
|
|
2,738
|
|
Contingent consideration
|
|
|
62
|
|
|
|
1,154
|
|
Other
|
|
|
200
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,309
|
|
|
$
|
10,856
|
|
|
|
|
|
|
|
|
|
|
9. Long-term Debt
Credit Facility
On
January 21, 2015, the Company entered into a Credit Agreement with Citibank, N.A., as administrative agent, and the lenders party thereto, for a senior, first-priority secured financing comprised of revolving loans, letters of credit and swing
line loans in a total maximum amount of $125,000 (the Credit Facility). The Credit Facility is collateralized by a senior first lien by certain assets and property of the Company. The Credit Facility consists of a five-year
multi-currency revolving credit facility in a dollar amount of up to $125,000 which includes a sublimit of $5,000 for letters of credit and a $10,000 swing line facility. The Credit Facility also includes an accordion feature that allows the Company
to increase the Credit Facility to a total of $200,000, subject to securing additional commitments from existing lenders or new lending institutions. The Company used the net proceeds of borrowings under the Credit Facility to repay the $23,750
outstanding under the Companys previously existing revolving credit facility with Wells Fargo Capital Finance, LLC (Amended Revolving Credit Facility), and for working capital and other general corporate purposes. As a result of
the early repayment of the Amended Revolving Credit Facility, in the first quarter of 2015, the Company recorded a loss on extinguishment of debt of $107, comprised of the write-off of unamortized debt issuance costs.
At the Companys election, loans made under the Credit Facility bear interest at either (1) a rate per annum equal to the highest of
the Administrative Agents prime rate, or 0.5% in excess of the Federal Funds Effective Rate or 2.0% in excess of one-month LIBOR (the Base Rate), plus an applicable margin, or (2) the one-, two-, three-, or six-month per annum
LIBOR for deposits in U.S. Dollars, plus an applicable margin. The applicable margin for the revolving loans depends on the Companys leverage ratio and varies
12
from 0.5% to 1.25%, in the case of Base Rate loans, and from 1.50% to 2.25%, in the case of LIBOR loans. Swing line loans bear interest at the Base Rate. Commitment fees on the average daily
unused portion of the Credit Facility (excluding swing line loans) are payable at rates per annum ranging from 0.2% to 0.3%, depending on the Companys leverage ratio.
On the issuance date of January 21, 2015, the Credit Facility was recorded in the consolidated balance sheet net of discount of $708,
related to fees assessed by the lender at the time. During the second quarter of 2015, the Company recorded additional fees related to the debt of $159. The carrying value of this debt is being accreted to the principal amount of the debt by charges
to interest expense using the effective-interest method over the five-year term of the Credit Facility to the maturity date. At June 30, 2016 and December 31, 2015, the debt discount balance totaled $629 and $717, respectively. Accretion
amounts recognized as interest expense for the three months ended June 30, 2016 and 2015 totaled $44 and $36, respectively, and for the six months ended June 30, 2016 and 2015, totaled $88 and $63, respectively. On the issuance date, the
Company also capitalized deferred financing costs of $501 related to third-party fees incurred in connection with the Credit Facility. These deferred costs are being amortized through charges to interest expense using the effective-interest method
over the five-year term of the Credit Facility to the expiration date. At June 30, 2016, deferred financing cost recorded in other current assets and other assets (non-current) were $100 and $257, respectively, and totaled $357. Amortization
amounts recognized as interest expense for the three months ended June 30, 2016 and 2015 totaled $25 and $25, respectively, and for the six months ended June 30, 2016 and 2015 totaled $50 and $45, respectively.
As of June 30, 2016, the Company had outstanding borrowings of $23,750 under the Credit Facility with an interest rate of 2.03% per
annum. The fair value of the Companys long-term debt related to the Credit Facility approximates its carrying value due to its variable interest rate, which approximates a market interest rate.
The Credit Facility contains certain customary financial, affirmative and negative covenants including a maximum leverage ratio and minimum
interest coverage ratio and negative covenants that limit or restrict, among other things, dividends, secured indebtedness, mergers and fundamental changes, asset dispositions and sales, investments and acquisitions, liens and encumbrances,
transactions with affiliates, and other matters customarily restricted in such agreements. Amounts borrowed under the Credit Facility may be repaid and, subject to customary terms and conditions, re-borrowed at any time during and up to the maturity
date. Any outstanding balance under the Credit Facility is due and payable no later than January 21, 2020. As of June 30, 2016, the Company was in compliance with all such covenants.
10. Income Taxes
The Companys
effective income tax rate for the three and six months ended June 30, 2016 was 27.9% and (22.5)%, respectively, on pre-tax income of $4,642 and $7,272, respectively. The effective tax rate for three months ended June 30, 2016 was higher
than the statutory Irish rate of 12.5% primarily due to income being generated in a jurisdiction that has a higher tax rate than the Irish statutory rate offset by the Irish research and development tax credit. The effective tax rate for the six
months ended June 30, 2016 was lower than the statutory Irish rate of 12.5% primarily due to the release of reserves related to uncertain tax positions upon the expiration of a statute of limitation in Ireland, income being generated in a
jurisdiction that has a lower tax rate than the Irish statutory rate and the Irish research and development tax credit.
The
Companys effective income tax rate for the three and six months ended June 30, 2015 was 16.1% and 13.2%, respectively, on pre-tax income of $6,432 and $19,760, respectively. The effective tax rate for the three and six months ended
June 30, 2015 was higher than the statutory Irish rate of 12.5% primarily due to the recording of uncertain tax positions including interest and penalties. The increase associated with these items was partially offset by research and
development tax credits in Ireland and income being generated in jurisdictions that have a lower tax rate than the Irish statutory rate. The Company made a change to its organizational structure in the fourth quarter of 2014 that impacted the
jurisdictional mix of profits and was beneficial to our income tax rate for the three and six months ended June 30, 2015.
It is
reasonably possible that within the next 12 months the Companys unrecognized tax benefits, inclusive of interest, may decrease by up to $328. This is primarily due to statute of limitations expiring for the recognition of these tax benefits of
one of the Companys Irish subsidiaries in 2017.
11. Share-Based Awards
2011 Stock Option and Incentive Plan
In September 2011, the Board of Directors adopted and the Companys shareholders approved the 2011 Stock Option and Incentive Plan (the
2011 Plan). The 2011 Plan permits the Company to make grants of incentive stock options, non-qualified stock options, restricted stock units and cash-based awards at an exercise price no less than the fair market value per share of the
Companys ordinary shares on the grant date and with a maximum term of seven years. These awards may be granted to the Companys
13
employees and non-employee directors. Pursuant to the terms of the 2011 Plan, the number of ordinary shares reserved for issuance under the 2011 Plan automatically increases by 4.75% of the
outstanding ordinary shares issued and outstanding on an annual basis as of January 31. As of June 30, 2016, the number of ordinary shares reserved for issuance under the 2011 Plan was 7,282,645. This number is subject to adjustment in the
event of a stock split, stock dividend or other change in our capitalization.
The Company grants share-based awards with employment
service conditions only (service-based awards) and share-based awards with both employment service and performance conditions (performance-based awards). The Company applies the fair value recognition provisions for all
share-based awards granted or modified and records compensation costs over the requisite service period of the award based on the grant-date fair value. The straight-line method is applied to all service-based awards granted, while the
graded-vesting method is applied to all performance-based awards granted. The requisite service period for service-based awards is generally four years, with restrictions lapsing evenly over the period.
Stock Option Activity
Stock
option activity during the six months ended June 30, 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
Under
Option
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at December 31, 2015
|
|
|
362,940
|
|
|
$
|
5.54
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(47,557
|
)
|
|
$
|
7.36
|
|
Forfeited and canceled
|
|
|
(1,250
|
)
|
|
$
|
10.01
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2016
|
|
|
314,133
|
|
|
$
|
5.25
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at June 30, 2016
|
|
|
314,109
|
|
|
$
|
5.25
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2016
|
|
|
311,215
|
|
|
$
|
5.18
|
|
|
|
|
|
|
|
|
|
|
2012 Employee Share Purchase Plan
In September 2012, the Companys Board of Directors adopted and its shareholders approved the 2012 Employee Share Purchase Plan, which
became effective upon the closing of the Companys initial public offering (IPO) in October 2012. The 2012 Employee Share Purchase Plan authorizes the issuance of up to 400,000 ordinary shares to participating employees.
Employees of certain subsidiaries of the Company who have been employed for at least 30 days and whose customary employment is for more than
20 hours per week are eligible to participate in the 2012 Employee Share Purchase Plan. Any employee who owns 5% or more of the voting power or value of ordinary shares is not eligible to purchase shares under the 2012 Employee Share Purchase Plan.
The Company will make one or more offerings each year to its employees to purchase shares under the 2012 Employee Share Purchase Plan. The first offering began during 2013 and subsequent offerings will usually begin on each May 1st and
November 1st and will continue for six-month periods, referred to as offering periods. Each eligible employee may elect to participate in any offering by submitting an enrollment form at least 15 days before the relevant offering date.
Each employee who is a participant in the 2012 Employee Share Purchase Plan may purchase shares by authorizing payroll deductions of up to 15%
of his or her base compensation during an offering period. Unless the participating employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchase ordinary shares on the last business day of
the offering period at a price equal to 85% of the fair market value of the ordinary shares on the first business day or the last business day of the offering period, whichever is lower, provided that no more than 2,500 ordinary shares may be
purchased by any one employee during each offering period. Under applicable tax rules, an employee may purchase no more than $25 worth of ordinary shares, valued at the start of the purchase period, under the 2012 Employee Share Purchase Plan in any
calendar year.
The accumulated payroll deductions of any employee who is not a participant on the last day of an offering period will be
refunded. An employees rights under the 2012 Employee Share Purchase Plan terminate upon voluntary withdrawal from the plan or when the employee ceases employment with the Company for any reason.
The 2012 Employee Share Purchase Plan may be terminated or amended by the Board of Directors at any time. An amendment that increases the
number of ordinary shares that are authorized under the 2012 Employee Share Purchase Plan and certain other amendments require the approval of the Companys shareholders.
14
Restricted Stock Unit Awards
In the six months ended June 30, 2016, the Company granted service-based restricted stock units (RSUs) for the purchase of
1,004,346 ordinary shares and performance-based restricted stock units (PSUs) for the purchase of 411,804 ordinary shares with a weighted average grant-date fair value of $41.30. The RSUs have restrictions which lapse four years from the
date of grant. Restrictions on the PSUs will lapse based upon the achievement of certain financial performance targets during the applicable performance period, which ends on December 31, 2016. The grant date fair value of the shares is
recognized over the requisite period of performance once achievement of criteria is deemed probable. Periodically throughout the performance period, the Company estimates the likelihood of achieving performance goals. Actual results, and future
changes in estimates, may differ substantially from the Companys current estimates. If the targets are not achieved, the shares will be forfeited by the employee.
The following table summarizes unvested RSUs and PSUs activity for the six months ended June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
Number of
Unvested RSUs and PSUs
|
|
|
Weighted Average
Grant-Date Fair
Value
|
|
Unvested balance at December 31, 2015
|
|
|
2,199,652
|
|
|
$
|
36.17
|
|
Granted
|
|
|
1,416,150
|
|
|
$
|
41.30
|
|
Vested
|
|
|
(646,461
|
)
|
|
$
|
33.03
|
|
Forfeited
|
|
|
(186,097
|
)
|
|
$
|
37.06
|
|
|
|
|
|
|
|
|
|
|
Unvested balance at June 30, 2016
|
|
|
2,783,244
|
|
|
$
|
39.44
|
|
|
|
|
|
|
|
|
|
|
Share-based Compensation
The Company recognized share-based compensation expense from all awards in the following expense categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Cost of subscription revenue
|
|
$
|
445
|
|
|
$
|
308
|
|
|
$
|
855
|
|
|
$
|
559
|
|
Sales and marketing
|
|
|
2,931
|
|
|
|
1,960
|
|
|
|
5,831
|
|
|
|
3,784
|
|
Research and development
|
|
|
1,456
|
|
|
|
788
|
|
|
|
2,693
|
|
|
|
1,461
|
|
General and administrative
|
|
|
3,725
|
|
|
|
2,741
|
|
|
|
7,445
|
|
|
|
4,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,557
|
|
|
$
|
5,797
|
|
|
$
|
16,824
|
|
|
$
|
10,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
12. Net Income per Share
Basic and diluted net income per share attributable to ordinary shareholders was calculated as follows for the three and six months ended
June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,349
|
|
|
$
|
5,395
|
|
|
$
|
8,910
|
|
|
$
|
17,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstandingbasic
|
|
|
39,080,829
|
|
|
|
38,322,263
|
|
|
|
38,925,205
|
|
|
|
38,156,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per sharebasic
|
|
$
|
0.09
|
|
|
$
|
0.14
|
|
|
$
|
0.23
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,349
|
|
|
$
|
5,395
|
|
|
$
|
8,910
|
|
|
$
|
17,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstandingbasic
|
|
|
39,080,829
|
|
|
|
38,322,263
|
|
|
|
38,925,205
|
|
|
|
38,156,595
|
|
Dilutive effect of ordinary share equivalents
|
|
|
614,491
|
|
|
|
890,141
|
|
|
|
738,249
|
|
|
|
878,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstandingdiluted
|
|
|
39,695,320
|
|
|
|
39,212,404
|
|
|
|
39,663,454
|
|
|
|
39,034,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per sharediluted
|
|
$
|
0.08
|
|
|
$
|
0.14
|
|
|
$
|
0.22
|
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Commitments and Contingencies
Lease Commitments
The Company
leases its office space under non-cancelable operating leases, some of which contain payment escalations. The Company recognizes rent expense on a straight-line basis over the non-cancelable lease term and records the difference between cash rent
payments and rent expense recognized in the consolidated statements of operations as accrued rent within accrued expenses (current) and other liabilities (non-current).
Future minimum lease payments under non-cancelable operating and capital leases at June 30, 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ending December 31,
|
|
Operating Leases
|
|
|
Capital Leases
|
|
|
Total
|
|
2016
|
|
$
|
5,422
|
|
|
$
|
1,248
|
|
|
$
|
6,670
|
|
2017
|
|
|
9,689
|
|
|
|
1,963
|
|
|
|
11,652
|
|
2018
|
|
|
4,928
|
|
|
|
778
|
|
|
|
5,706
|
|
2019
|
|
|
3,747
|
|
|
|
124
|
|
|
|
3,871
|
|
2020
|
|
|
3,434
|
|
|
|
92
|
|
|
|
3,526
|
|
Thereafter
|
|
|
1,735
|
|
|
|
451
|
|
|
|
2,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,955
|
|
|
|
4,656
|
|
|
$
|
33,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
|
|
|
$
|
4,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Center Agreements
The Company has agreements with various vendors to provide specialized space and services for the Company to host its software application.
Future minimum payments under non-cancelable data center agreements at June 30, 2016 totaled $2,554 of which $917, $1,572, and $65 is due in the years ending December 31, 2016, 2017, and 2018, respectively.
16
Purchase Commitments
As of June 30, 2016, the Company had non-cancelable purchase commitments related to telecommunications, subscription fees for third-party
data (such as Internet maps and posted speed limits) and subscription fees for software services totaling $6,102, of which $1,786, $3,346, $951, and $19 will become payable in the years ending December 31, 2016, 2017, 2018, and 2019,
respectively.
Indemnification Agreements
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to customers, vendors, lessors, business
partners, and other parties with respect to certain matters including, but not limited to, losses arising out of breach of agreements, from services to be provided by the Company, or from intellectual property infringement claims made by third
parties. In addition, the Company has entered into indemnification agreements with members of its Board of Directors and certain of its officers that will require the Company, among other things, to indemnify them against certain liabilities that
may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company
has not incurred any material costs as a result of such indemnifications. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its consolidated financial position, results of
operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of June 30, 2016 and December 31, 2015.
Litigation
From time to time, the
Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive notification alleging infringement of patent or other intellectual property rights. Except as
noted below, the Company is not a party to any material legal proceedings nor is the Company aware of any pending or threatened litigation that, in its opinion, would have a material adverse effect on its business or its consolidated financial
position, results of operations or cash flows should such litigation be resolved unfavorably. The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.
On October 27, 2015, Orthosie Systems, LLC filed a complaint against the Company (Orthosie Systems, LLC v. Fleetmatics USA, LLC
et al.
, Civil Action No. 2:15-cv-1681) in the United States District Court for the Eastern District of Texas alleging infringement of U.S. Patent No. 7,430,471 entitled Method and System for Monitoring a Vehicle
(the 471 Patent). The complaint seeks unspecified damages and an injunction. On March 9, 2016, the Company filed its answer to the complaint and asserted counterclaims of noninfringement and invalidity. At this stage of the
litigation, the Company is unable to estimate whether a loss is reasonably possible. While the Company does not believe that this litigation will have a material adverse effect on its business, financial condition, operating results, or cash flows,
the Company cannot be assured that this will be the case.
On January 12, 2016, David Gillard and Jaclyn Stramiello, individually and
on behalf all others similarly situated, filed a complaint against the Company (Gillard
et al.
v. Fleetmatics USA, LLC,
et al.,
Civil Action No. 8:16-cv-81-T-27MAP) in the United States District Court for the Middle District of
Florida alleging the Companys U.S. subsidiaries violated certain provisions of the Fair Labor Standards Act (the FLSA) by failing to pay overtime, among other things. On February 8, 2016, the plaintiffs filed an amended
complaint, which added another named party plaintiff, Troy Pate. On February 10, 2016 the Court struck the amended complaint and the plaintiffs filed their second amended complaint on February 12, 2016. The second amended complaint alleges
essentially the same claims as previously alleged. The plaintiffs are seeking certification of the matter as a collective action under the FLSA. The FLSA permits an aggrieved person to recover as damages back pay, an equal amount of money as
liquidated damages, interest and attorneys fees and costs. The Company filed its answer to the second amended complaint on March 11, 2016. On June 13, 2016, the parties reached an agreement in principle to a settlement in the total
amount of $2,102,250 consisting of the payment of $1,575,000 in back pay and liquidated damages to the class of business development representatives (also known as web sales representatives) in all of the Companys U.S. offices, and a total of
$7,500 in incentive fees for the three named plaintiffs. In the settlement agreement, the Company also agreed to not object to plaintiffs attorneys fees up to $519,750. The settlement agreement is subject to Court approval. The parties
will be filing a joint motion for Court approval of the settlement agreement and for class certification following the parties execution of the settlement agreement, as well as seeking distribution of notice to additional potential class
members. In the event the settlement agreement is not approved, and, given the inherent uncertainties of litigation, we are unable to estimate a reasonably possible range of additional losses, if any, at this time, but there can be no assurance that
this matter will not have a material adverse effect on our business, financial condition, operating results, and cash flows.
14. Subsequent Event
On July 30, 2016, the Company entered into a definitive agreement to be acquired by Verizon Communications Inc.
(Verizon) for $60.00 per ordinary share in cash. The transaction is valued at approximately $2.4 billion. The Board of Directors has unanimously approved the transaction. The transaction is expected to close in 2016, subject to,
among other conditions, the Companys shareholder approval, certain regulatory approvals and other customary closing conditions.