UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2013

or

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

For the transition period from         to

Commission File Number: 001-35247

TANGOE, INC.

(Exact name of registrant as specified in its charter)

Delaware	06-1571143
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
35 Executive Blvd. Orange, Connecticut	06477
(Address of principal executive offices)	(Zip Code)

(203) 859-9300

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

Large accelerated filer o	Accelerated filer x	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

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

There were 37,537,092 shares of our common stock outstanding on August 2, 2013.

TABLE OF CONTENTS

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of December 31, 2012 and June 30, 2013	4
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2012 and 2013	5
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2012 and 2013	6
	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2013	7
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2013	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 6.	Exhibits	56
	Signatures	57

2

PRELIMINARY NOTES

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

Forward-Looking Statements

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

·     our estimates regarding expenses and future revenue;

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

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

·     our ability to attract and retain customers;

·     our financial performance;

·     our ability to establish and maintain intellectual property rights;

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

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

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

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

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

3

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

TANGOE, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

				June 30,
	December 31,			2013
	2012			(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	50,211		$	44,056
Accounts receivable, less allowances of $198 and $286, respectively	38,309			39,844
Prepaid expenses and other current assets	3,384			3,619
Total current assets	91,904			87,519
COMPUTERS, FURNITURE AND EQUIPMENT-NET	3,999			3,941
OTHER ASSETS:
Intangible assets-net	44,249			40,656
Goodwill	65,825			65,823
Security deposits and other non-current assets	1,291			1,178
TOTAL ASSETS	$	207,268		$	199,117
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	9,128		$	8,980
Accrued expenses	12,035			8,556
Deferred revenue-current portion	9,648			10,436
Notes payable-current portion	22,443			13,438
Other current liabilities	305			932
Total current liabilities	53,559			42,342
OTHER LIABILITIES:
Deferred rent and other non-current liabilities	3,543			3,298
Deferred revenue-less current portion	1,415			1,571
Notes payable-less current portion	131			178
Total liabilities	58,648			47,389
COMMITMENTS AND CONTINGENCIES (NOTE 12)
STOCKHOLDERS’ EQUITY
Common stock, par value $0.0001 per share-150,000,000 shares authorized as of December 31, 2012 and June 30, 2013; 37,613,327 and 37,464,839 shares issued and outstanding as of December 31, 2012 and June 30, 2013, respectively	4			4
Additional paid-in capital	191,581			194,173
Warrants for common stock	10,610			10,610
Accumulated deficit	(53,757		)	(52,083		)
Other comprehensive gain (loss)	182			(976		)
Total stockholders’ equity	148,620			151,728
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	207,268		$	199,117

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

4

TANGOE, INC.

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except per share amounts)

	Three Months EndedJune 30,						Six Months EndedJune 30,
	2012			2013			2012			2013
Revenue:
Recurring technology and services	$	32,075		$	41,385		$	62,831		$	81,433
Strategic consulting, software licenses and other	4,182			5,022			7,573			9,834
Total revenue	36,257			46,407			70,404			91,267
Cost of revenue:
Recurring technology and services	14,797			18,871			29,113			37,626
Strategic consulting, software licenses and other	1,789			1,965			3,247			4,026
Total cost of revenue	16,586			20,836			32,360			41,652
Gross profit	19,671			25,571			38,044			49,615
Operating expenses:
Sales and marketing	5,913			8,205			11,457			15,597
General and administrative	7,046			8,669			13,747			16,796
Research and development	4,174			4,804			7,863			9,749
Depreciation and amortization	1,996			2,548			3,871			5,037
Restructuring charge	—			499			—			654
Income from operations	542			846			1,106			1,782
Other income (expense), net
Interest expense	(192		)	(100		)	(427		)	(263		)
Interest income	21			16			38			35
Other income	—			203			—			766
Income before income tax provision	371			965			717			2,320
Income tax provision	33			415			187			646
Net income	$	338		$	550		$	530		$	1,674
Income per common share:
Basic	$	0.01		$	0.01		$	0.01		$	0.04
Diluted	$	0.01		$	0.01		$	0.01		$	0.04
Weighted average number of common shares:
Basic	36,987			37,391			35,406			37,468
Diluted	41,124			40,226			39,384			40,318

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

5

TANGOE, INC.

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(in thousands)

	For the Three Months ended							For the Six Months ended
	June 30,							June 30,
	2012			2013				2012				2013
Net income	$	338		$	550			$		530		$	1,674
Foreign currency translation adjustment	(224		)	(391			)	(247			)	(1,158		)
Total comprehensive income	$	114		$		159		$	283			$	516

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

6

TANGOE, INC.

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

For the Six Months Ended June 30, 2013

(in thousands, except share amounts)

	Common Stock				Additional			Common					Other			Total
	Number of				Paid-In			Stock		Accumulated			Comprehensive			Stockholders’
	Shares		Amount		Capital			Warrants		Deficit			Income (loss)			Equity
Balance December 31, 2012	37,480,710		$	4	$	191,581		$	10,610	$	(53,757	)	$	182		$	148,620
Net income	—		—		—			—		1,674			—			1,674
Foreign currency translation adjustment	—		—		—			—		—			(1,158		)	(1,158		)
Issuance of shares to employees and board of directors	64,966		—		149			—		—			—			149
Issuance of shares from exercise of stock options	203,439		—		625			—		—			—			625
Issuance of shares from exercise of stock warrants	14,907		—		34			—		—			—			34
Issuance of shares from vesting of restricted stock units	66,776		—		—			—		—			—			—
Repurchase of common stock	(365,959	)	—		(4,538		)	—		—			—			(4,538		)
Stock-based compensation	—		—		6,322			—		—			—			6,322
Balance June 30, 2013	37,464,839		$	4	$	194,173		$	10,610	$	(52,083	)	$	(976	)	$	151,728

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

7

TANGOE, INC.

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Six Months Ended June 30,
	2012			2013
Operating activities:
Net income	$	530		$	1,674
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of debt discount	358			216
Amortization of leasehold interest	(49		)	(49		)
Depreciation and amortization	3,871			5,037
Increase (decrease) in deferred rent liability	48			(39		)
Amortization of marketing agreement intangible assets	73			122
Allowance for doubful accounts	—			46
Deferred income taxes	14			225
Stock based compensation	3,784			6,471
Restructuring charge	—			654
Foreign exchange adjustment	(40		)	(138		)
Decrease in fair value of contingent consideration	—			(666		)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	25			(1,481		)
Prepaid expenses and other assets	550			(151		)
Other assets	(1		)	34
Accounts payable	105			(282		)
Accrued expenses	(938		)	(1,984		)
Deferred revenue	(788		)	961
Net cash provided by operating activities	7,542			10,650
Investing activities:
Purchases of computers, furniture and equipment	(750		)	(960		)
Cash paid in connection with acquisitions, net of cash received	(9,202		)	(9,642		)
Net cash used in investing activities	(9,952		)	(10,602		)
Financing activities:
Repayment of debt	(2,751		)	(400		)
Proceeds from repayment of notes receivable	93			—
Repurchase of common stock	—			(6,235		)
Proceeds from exercise of stock options and stock warrants	2,462			659
Proceeds from follow on offering, net of issuance costs	37,751			—
Net cash provided by (used in) financing activities	37,555			(5,976		)
Effect of exchange rate on cash	(110		)	(227		)
Net increase (decrease) in cash and cash equivalents	35,035			(6,155		)
Cash and cash equivalents, beginning of period	43,407			50,211
Cash and cash equivalents, end of period	$	78,442		$	44,056

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

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.      Organization, Description of Business

Nature of Operations

Tangoe, Inc. (the “Company”), a Delaware corporation, was incorporated on February 9, 2000 as TelecomRFQ, Inc. During 2001, the Company changed its name to Tangoe, Inc. The Company provides communications lifecycle management software and related services to a wide range of enterprises, including large and medium-sized businesses and other organizations. Communications lifecycle management encompasses the entire lifecycle of an enterprise’s communications assets and services, including planning and sourcing, procurement and provisioning, inventory and usage management, mobile device management, real-time telecommunications expense management, invoice processing, expense allocation and accounting, forward and reverse logistics and asset decommissioning and disposal. The Company’s Communications Management Platform is an on-demand suite of software designed to manage and optimize the complex processes and expenses associated with this lifecycle for both fixed and mobile communications assets and services. The Company’s customers can also engage the Company through its client services group to manage their communications assets and services through its Communications Management Platform.

Public Offerings

In August 2011, the Company completed its initial public offering whereby it sold 7,500,000 shares of common stock at a price to the public of $10.00 per share.  The Company received proceeds from its initial public offering of $66.0 million, net of underwriting discounts and commissions and other offering costs of $3.8 million.

As part of the initial public offering, an additional 2,585,500 shares of common stock were sold by certain existing stockholders at a price to the public of $10.00 per share, including 1,315,500 shares sold by such stockholders upon the exercise of the underwriters’ option to purchase additional shares.  The Company did not receive any proceeds from the sale of such shares by the selling stockholders.

In April 2012, the Company completed a public offering whereby it sold 2,200,000 shares of common stock at a price to the public of $18.50 per share.  The Company received proceeds from this public offering of $38.5 million, net of underwriting discounts and commissions but before offering costs of $0.7 million.

As part of this public offering, an additional 7,000,000 shares of common stock were sold by certain existing stockholders at a price to the public of $18.50 per share, including 1,200,000 shares sold by such stockholders upon the exercise of the underwriters’ option to purchase additional shares.  The Company did not receive any proceeds from the sale of such shares by the selling stockholders.

The Company’s common stock is traded on the NASDAQ Global Select Market.

Basis of Presentation of Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for the fair statement of the Company’s financial position and results of operations for the periods presented have been included. Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013, for any other interim period or for any other future year.

The consolidated balance sheet at December 31, 2012 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by GAAP. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 as filed with the Securities Exchange Commission (“SEC”) on March 18, 2013 (the “2012 Form 10-K”).

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2012 included in the 2012 Form 10-K.  Since the date of those financial statements, there have been no material changes to the Company’s significant accounting policies.

9

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

2.       Business Combinations

Anomalous Networks, Inc.

On January 10, 2012 (the “Anomalous Acquisition Date”), the Company entered into a Share Purchase Agreement (the “Anomalous Purchase Agreement”) with Anomalous Networks Inc., a corporation incorporated under the laws of Canada (“Anomalous”), and the shareholders of Anomalous, under which the Company agreed to purchase all of the outstanding equity of Anomalous (the “Anomalous Share Purchase”). This acquisition reflects the Company’s strategy to broaden its suite of offerings and to provide real-time telecommunication expense management capabilities. On the same day, the Anomalous Share Purchase was effected in accordance with the terms of the Anomalous Purchase Agreement with the Company acquiring all of the outstanding equity of Anomalous for aggregate consideration of (i) approximately $3,500,000 in cash paid at the closing, (ii) $979,000 in cash payable on the first anniversary of the closing, (iii) 165,775 unregistered shares of the Company’s common stock and (iv) 132,617 unvested and unregistered shares of the Company’s common stock with vesting based on achievement of revenue targets relating to sales of Anomalous products and services for periods through January 31, 2013. The Company paid the full $979,000 of deferred cash consideration in January 2013.  In March 2013, the 132,617 unvested and unregistered shares of the Company’s common stock were cancelled and retired because the revenue targets related to sales of Anomalous products and services were not achieved.

Anomalous Purchase Price Allocation

The allocation of the total purchase price of Anomalous’ net tangible and identifiable intangible assets was based upon the estimated fair value of those assets as of January 10, 2012. In accordance with Accounting Standards Classification (“ASC”) 805, Business Combinations, the Company valued the 165,775 of unregistered shares of common stock by using the closing price of the Company’s common stock on the NASDAQ Global Market on the acquisition date and applying a 20% marketability discount to the fair value of the unregistered shares.  The marketability discount was applied since the unregistered shares were subject to a lock-up period of one year.  The Company allocated the excess of purchase price over the identifiable intangible and net tangible assets to goodwill. The following table presents the breakdown between cash and deferred purchase price and the allocation of the total purchase price (in thousands):

Purchase consideration:
Cash	$	3,521
Common stock	1,984
Deferred cash consideration	1,495
	$	7,000
Allocation of Purchase Consideration:
Current assets	$	1,140
Property and equipment	47
Other assets	10
Identifiable intangible assets	2,857
Goodwill	4,477
Total assets acquired	8,531
Accounts payable and accrued expenses	(394		)
Deferred taxes	(767		)
Deferred revenue	(370		)
	$	7,000

10

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

The goodwill and identifiable intangible assets related to the Anomalous acquisition are not tax deductible. The Company estimated the fair value of intangible assets using the income, cost and market approaches to value the identifiable intangible assets, which are subject to amortization. The following table presents the Company’s estimates of fair value of the identifiable intangible assets acquired (in thousands):

Description	Fair Value		Weighted Average Useful Life (in years)
Technology	$	2,017	5.0
Non-compete covenants	553		2.0
Customer relationships	236		4.0
Tradenames	51		3.0
Total identifiable intangible assets	$	2,857

ttMobiles Limited

On February 21, 2012 (the “ttMobiles Acquisition Date”), the Company entered into a Share Purchase Agreement (the “ttMobiles Purchase Agreement”), with the holders of all of the issued share capital of ttMobiles Limited, a private limited company incorporated in England (“ttMobiles”), under which the Company agreed to purchase all of the issued share capital of ttMobiles (the “ttMobiles Share Purchase”). On the same day, the ttMobiles Share Purchase was effected in accordance with the terms of the ttMobiles Purchase Agreement, with the Company acquiring all of the outstanding equity of ttMobiles for aggregate consideration of (i) £4.0 million in cash paid at the closing, and (ii) £1.5 million in cash payable on the first anniversary of the closing (the “Deferred Consideration”).  The Company paid the full £1.5 million of Deferred Consideration in February 2013.

ttMobiles Purchase Price Allocation

The allocation of the total purchase price of ttMobiles’ net tangible and identifiable intangible assets was based upon the estimated fair value of those assets as of February 21, 2012. The Company allocated the excess of purchase price over the identifiable intangible and net tangible assets to goodwill. The following table presents the breakdown between cash and deferred purchase price and the allocation of the total purchase price (in thousands):

Purchase consideration:
Cash	$	6,359
Deferred cash consideration	2,315
	$	8,674
Allocation of Purchase Consideration:
Current assets	$	2,469
Property and equipment	188
Identifiable intangible assets	4,288
Goodwill	3,557
Total assets acquired	10,502
Accounts payable and accrued expenses	(848		)
Deferred taxes	(954		)
Deferred revenue	(26		)
	$	8,674

11

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

The goodwill and identifiable intangible assets related to the ttMobiles acquisition are not tax deductible. The Company estimated the fair value of intangible assets using the income, cost and market approaches to value the identifiable intangible assets, which are subject to amortization. The following table presents the Company’s estimates of fair value of the identifiable intangible assets acquired (in thousands):

Description	Fair Value		Weighted Average Useful Life (in years)
Customer relationships	$	2,606	9.0
Technology	1,178		5.0
Tradenames	388		4.0
Non-compete covenants	116		2.0
Total identifiable intangible assets	$	4,288

12

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

Symphony Teleca Services, Inc.

On August 8, 2012, the Company entered into an Asset Purchase Agreement (the “Symphony Purchase Agreement”) with Symphony Teleca Services, Inc., a Delaware corporation (“Symphony”), under which the parties agreed to the purchase by the Company of Symphony’s telecommunications expense management business (the “TEM Business”) through an asset purchase (the “Symphony Acquisition”).  As part of the Symphony Acquisition and also on August 8, 2012, a newly formed subsidiary of the Company, Tangoe India Softek Services Private Limited, an Indian private limited company (“Tangoe India”), entered into a Business Purchase Agreement (the “Indian Purchase Agreement”) with Symphony Services Corporation (India) Private Limited (“Symphony India”) with respect to the purchase of certain assets and hiring of employees of the acquired business located in India.  On the same day, the Symphony Acquisition was effected in accordance with the terms of the Symphony Purchase Agreement.  At the closing of the Symphony Acquisition, the Company acquired the TEM Business for net consideration of $40.2 million, subject to certain adjustments (the “Cash Purchase Price”), payable as described below, plus an earn-out payable in the amount of up to $4.0 million based on achievement of revenue targets for the acquired business for periods through June 30, 2013. The Cash Purchase Price, after giving effect to certain adjustments, is payable as follows: (i) approximately $29.2 million in cash paid at the closing, (ii) approximately $4.4 million in cash payable on the six-month anniversary of the closing, which includes $2.5 million related to the Indian Purchase Agreement, and (iii) approximately $6.4 million in cash payable on the one-year anniversary of the closing.  The Company made the six-month anniversary payment of $4.4 million in February 2013.  As part of the Symphony Acquisition, the Company acquired a balance sheet for the TEM Business, which included net assets of approximately $5.4 million.   The full installment due on August 8, 2013 of approximately $6.4 million, and amounts that become payable under the earn-out are subject to set-off  rights of the Company with respect to indemnities given by Symphony under the Symphony Purchase Agreement.  Among other things, these indemnity obligations relate to representations and warranties given by Symphony under the Symphony Purchase Agreement and by Symphony India under the Indian Purchase Agreement.  Certain of the indemnities are subject to limitations, including a threshold and deductible, certain caps and limited survival periods.  During a post-closing transition period that lasted through February 2013, Symphony and Symphony India provided to the Company certain transition services pending completion of the opening of certain Tangoe India facilities, the procurement of certain Indian tax registrations and the subsequent transfer to Tangoe India of the Indian assets and employees being hired.  These services included making available to the Company on a continuing basis the services previously provided by Symphony India to the TEM Business.

Symphony Purchase Price Allocation

The allocation of the total purchase price of Symphony’s net tangible and identifiable intangible assets was based upon estimated fair values of those assets as of August 8, 2012.  The Company allocated the excess of purchase price over the identifiable intangible and net tangible assets to goodwill. The following table presents the breakdown between cash and deferred purchase price and the allocation of the total purchase price (in thousands):

Purchase consideration:
Cash	$	29,208
Deferred cash consideration	10,793
	$	40,001
Allocation of Purchase Consideration:
Current assets	$	5,628
Property and equipment	602
Identifiable intangible assets	13,790
Goodwill	20,936
Total assets acquired	40,956
Accounts payable and accrued expenses	(335		)
Deferred revenue	(620		)
	$	40,001

13

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

The goodwill and identifiable intangible assets related to the Symphony acquisition are tax deductible. The Company estimated the fair value of intangible assets using the income, cost and market approaches to value the identifiable intangible assets, which are subject to amortization. The following table presents the Company’s estimates of fair value of the identifiable intangible assets acquired (in thousands):

Description	Fair Value		Weighted Average Useful Life (in years)
Customer relationships	$	9,680	9.0
Technology	4,050		5.0
Tradename	60		3.0
Total identifiable intangible assets	$	13,790

oneTEM GmbH

On April 18, 2013 (“oneTEM Closing Date”), the Company entered into a Share Purchase Agreement (the “oneTEM Purchase Agreement”), with the holders of all of the issued share capital of oneTEM GmbH, a private limited company incorporated in Germany (“oneTEM”), under which the Company agreed to purchase all of the issued share capital of oneTEM (the “oneTEM Share Purchase”).  This acquisition reflects the Company’s continued strategy to expand in the European marketplace.   On the oneTEM Closing Date, the oneTEM Share Purchase was effected in accordance with the terms of the oneTEM Purchase Agreement, with the Company acquiring all of the outstanding equity of oneTEM for aggregate consideration of (i) €0.9 million in cash paid at the closing, and (ii) deferred consideration of €0.4 million in cash payable on the first anniversary of the closing.  In addition, the Company is obligated to pay additional deferred cash consideration following the first four anniversaries of the oneTEM Closing Date, pursuant to an earn-out formula based upon year-over-year increases in annual recurring revenue from specified customers during the earn-out periods.  The earn-out period begins with the first full month after the oneTEM Closing Date and continues for four consecutive 12-month periods.  The Company valued this contingent consideration at €0.2 million. The purchase is subject to a net asset adjustment pursuant to which the purchase price would be increased or decreased to the extent the net asset position of oneTEM is more or less than a specified target.  The deferred consideration is subject to set-off rights of the Company with respect to certain indemnities given by the former holders of the issued share capital of oneTEM under the oneTEM Purchase Agreement until the deferred consideration is paid in full. The Company has included the operating results of oneTEM in its consolidated financial statements since the date of acquisition, including $0.1 million of strategic consulting, software licenses and other revenue.

14

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

oneTEM Purchase Price Allocation

The allocation of the total purchase price of oneTEM’s net tangible and identifiable intangible assets was based upon management’s preliminary estimate of the fair values of those assets taking into account all relevant information available.  Actual amounts for each of the fair values of the assets acquired and liabilities assumed may vary.  The Company allocated the excess of purchase price over the identifiable intangible and net tangible assets to goodwill. The following table presents the breakdown between cash and deferred purchase price and the allocation of the total purchase price (in thousands):

Purchase consideration:
Cash	$	1,221
Deferred cash consideration	433
Fair value of contingent consideration	183
	$	1,837
Allocation of Purchase Consideration:
Current assets	$	565
Property and equipment	10
Identifiable intangible assets	870
Goodwill	655
Total assets acquired	2,100
Accounts payable and accrued expenses	(152		)
Taxes payable	(111		)
	$	1,837

The goodwill and identifiable intangible assets related to the oneTEM acquisition are not tax deductible. The Company estimated the fair value of intangible assets using the income, cost and market approaches to value the identifiable intangible assets, which are subject to amortization. The following table presents the Company’s estimates of fair value of the identifiable intangible assets acquired (in thousands):

Description	Fair Value		Weighted Average Useful Life (in years)
Customer relationships	$	535	8.0
Covenants not to compete	298		2.0
Tradename	37		2.7
Total identifiable intangible assets	$	870

15

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

Unaudited Pro Forma Results

The following table presents the unaudited pro forma results of the Company for the three and six months ended June 30, 2012 and 2013 as if the acquisitions of Anomalous, ttMobiles and oneTEM occurred at the beginning of 2012.  Due to the inability of the Company to anticipate and estimate on a forward-looking basis incremental costs allocated to the Symphony TEM Business by Symphony and the uncertainty and difficulty of calculating the specific costs required to meaningfully present the effects of the acquisition and the costs of operating the Symphony TEM Business, the Company has not included the Symphony TEM Business in the unaudited pro forma results for the three and six months ended June 30, 2012 below.  The unaudited pro forma revenue for the Symphony TEM Business was $5.5 million and $10.6 million for the three and six months ended June 30, 2012, respectively.  The unaudited pro forma revenue for the Symphony TEM Business for the three and six months ended June 30, 2012 is not included in the unaudited pro forma results below.  These results are not intended to reflect the actual operations of the Company had these acquisitions occurred at January 1, 2012.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands, except per share amounts)	2012		2013		2012		2013
Revenue	$	36,577	$	46,515	$	72,878	$	91,518
Operating income	573		843		1,161		1,680
Net income	341		548		510		1,572
Basic income per common share	$	0.01	$	0.01	$	0.01	$	0.04
Diluted income per common share	$	0.01	$	0.01	$	0.01	$	0.04

16

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

3.Income per Share Applicable to Common Stockholders

The following table sets forth the computations of income per share applicable to common stockholders for the three and six months ended June 30, 2012 and 2013:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands, except per share amounts)	2012		2013		2012		2013
Basic net income per common share
Net income	$	338	$	550	$	530	$	1,674
Basic income per common share	$	0.01	$	0.01	$	0.01	$	0.04
Weighted-average common shares outstanding	36,987		37,391		35,406		37,468
Diluted net income per common share
Net income	$	338	$	550	$	530	$	1,674
Diluted income per common share	$	0.01	$	0.01	$	0.01	$	0.04
Weighted-average common shares used to compute diluted net income per share	41,124		40,226		39,384		40,318

Diluted income per common share for the periods presented does not reflect the following potential common shares as the effect would be anti-dilutive.

Outstanding stock options	1,909	2,742	1,987	2,742
Outstanding restricted stock units	162	726	132	574
Common stock warrants	5	10	5	10

17

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

4.Computers, Furniture and Equipment-Net

Computers, furniture and equipment-net consist of:

	As of
	December 31,			June 30,
(in thousands)	2012			2013
Computers and software	$	10,018		$	10,837
Furniture and fixtures	1,032			1,094
Leasehold improvements	1,166			1,235
	12,216			13,166
Less accumulated depreciation	(8,217		)	(9,225		)
Computers, furniture and equipment-net	$	3,999		$	3,941

Computers and software includes equipment under capital leases totaling approximately $2.5 million at December 31, 2012 and June 30, 2013. Accumulated depreciation on equipment under capital leases totaled approximately $2.0 million and $2.2 million as of December 31, 2012 and June 30, 2013, respectively. Depreciation and amortization expense associated with computers, furniture and equipment was $1.0 million for the six months ended June 30, 2012 and 2013.

5.Intangible Assets and Goodwill

The following table presents the components of the Company’s intangible assets as of December 31, 2012 and June 30, 2013:

							Weighted
	December 31,			June 30,			Average Useful
(in thousands)	2012			2013			Life (in years)
Patents	$	1,054		$	1,054		8.0
Less: accumulated amortization	(766		)	(831		)
Patents, net	288			223
Technological know-how	15,141			14,964			6.1
Less: accumulated amortization	(4,913		)	(6,354		)
Technological know-how, net	10,228			8,610
Customer relationships	37,358			37,723			8.7
Less: accumulated amortization	(10,793		)	(12,934		)
Customer relationships, net	26,565			24,789
Convenants not to compete	881			1,143			2.0
Less: accumulated amortization	(517		)	(698		)
Convenants not to compete, net	364			445
Strategic marketing agreement	6,203			6,203			10.0
Less: accumulated amortization	(293		)	(415		)
Strategic marketing agreement, net	5,910			5,788
Tradenames	843			853			3.8
Less: accumulated amortization	(196		)	(299		)
Tradenames, net	647			554
Trademarks	247			247			Indefinite
Intangible assets, net	$	44,249		$	40,656

18

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

The related amortization expense of intangible assets for the six months ended June 30, 2012 and 2013 was $2.9 million and $4.0 million, respectively.  The Company’s estimate of future amortization expense for acquired intangible assets that exist at June 30, 2013 is as follows:

(in thousands)
July 1, 2013 to December 31, 2013	$	4,215
2014	7,518
2015	6,050
2016	5,738
2017	5,951
Thereafter	10,937
Total	$	40,409

The following table presents the changes in the carrying amounts of goodwill for the six months ended June 30, 2013.

	Carrying
(in thousands)	Amount
Balance at December 31, 2012	$	65,825
oneTEM	655
Foreign exchange translation effect	(657		)
Balance at June 30, 2013	$	65,823

19

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

6.      Restructuring Charge

In September 2011, the Company recorded a restructuring charge as a result of the consolidation of office space in New Jersey. The consolidation of office space eliminated redundant office space acquired as part of the acquisition of substantially all of the assets and certain liabilities of HCL Expense Management Services, Inc. (“HCL-EMS”) in January 2011 and of certain assets and liabilities of Telwares, Inc. and its subsidiary Vercuity, Inc. (“Telwares”) in March 2011. The original charge reflected the fair value of the remaining rent payments for the office space the Company ceased using, net of estimated sublease income, plus real estate commissions and office relocation costs. During the three months ended March 31, 2013, the Company recorded an adjustment of $0.1 million to the original restructuring charge as a result of the Company’s inability to sublease the office space in the time period originally expected. During the three months ended June 30, 2013, the Company negotiated a lease termination agreement with the landlord of its New Jersey office space. The agreement terminates the remaining term of the lease effective June 30, 2013 for a settlement fee of $0.9 million. The Company recorded an adjustment of $0.5 million to the restructuring charge as a result of the lease termination agreement. The liability related to the restructuring charge is included in other current liabilities on the Company’s condensed consolidated balance sheet. The following table summarizes the activity in the liabilities related to the restructuring charge for the six months ended June 30, 2013:

	Lease costs, net
	of estimated
(in thousands)	sublease income			Other Costs			Total
Remaining liability at December 31, 2012	$	613		$	(8	)	$	605
Cash payments	(336		)	—			(336			)
Non-cash charges and other	1			8			9
Restructuring charge	654			—			654
Remaining liability at June 30, 2013	932			0			932
	less: current portion						(932			)
	Long-term portion						$		—

20

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

7.      Debt

As of December 31, 2012 and June 30, 2013, debt outstanding included the following:

	December 31,			June 30,
(in thousands)	2012			2013
HCL-EMS contingent consideration, net of unamortized discount of $12 and $0 at December 31, 2012 and June 30, 2013, respectively. Payable as described below.	$	2,046		$	1,891
Deferred Telwares purchase price, net of unamortized discount of $24 and $0 at December 31, 2012 and June 30, 2013, respectively.	1,226			—
Deferred ProfitLine purchase price, net of unamortized discount of $62 and $0 at December 31, 2012 and June 30, 2013, respectively.	4,438			4,500
Deferred Anomalous purchase price, net of unamortized discount of $1 and $0 at December 31, 2012 and June 30, 2013, respectively.	978			—
Deferred ttMobiles purchase price, net of unamortized discount of $10 and $0 at December 31, 2012 and June 30, 2013, respectively.	2,420			—
Deferred Symphony purchase price, net of unamortized discount of $128 and $21 at December 31, 2012 and June 30, 2013, respectively. Payable as decribed below.	10,662			6,206
Deferred oneTEM purchase price and contingent consideration, net of unamortized discount of $155 at June 30, 2013. Payable as described below.	—			616
Capital lease and other obligations	804			403
Total notes payable	$	22,574		$	13,616
Less current portion	$	(22,443	)	$	(13,438	)
Notes payable, less current portion	$	131		$	178

Contingent HCL-EMS Consideration

The purchase consideration for the acquisition of HCL-EMS includes deferred cash consideration. The deferred cash consideration includes contingent cash payments following each of the first and second anniversaries of the closing date of the HCL-EMS acquisition on January 25, 2011 (the “HCL-EMS Closing Date”), pursuant to an earn-out formula based upon specified revenues from specified customers acquired from HCL-EMS, subject to set-off rights of the Company with respect to indemnities given by HCL-EMS under the Asset Purchase Agreement entered into in December 2010 in connection with the HCL-EMS acquisition (the “HCL-EMS APA”). No interest accrues on the deferred cash consideration; however, the Company recorded imputed interest in the amount of $0.6 million based on the Company’s weighted average cost of debt as of the date of the acquisition. The obligation to pay the deferred cash consideration is unsecured. In 2012, the Company and HCL-EMS agreed that the gross amount of the first year earn-out would be $1.9 million and the Company paid that amount to HCL-EMS.  In April 2013, the Company and HCL-EMS agreed that the gross amount of the second year earn-out would be $1.9 million.  In early August 2013, the Company paid $1.0 million of the second year earn-out to HCL-EMS, and retained the balance of the second year earn-out in the amount of $0.9 million pending resolution of an outstanding indemnity matter.  The only adjustments to the balance during the six months ended June 30, 2013 were the accretion of imputed interest and adjustment of the second year earn-out estimate to actual.

Deferred Telwares Purchase Price

The purchase consideration for the acquisition of Telwares included deferred cash consideration. The deferred cash consideration included payments of $1.25 million on March 16, 2012 and $1.25 million on March 16, 2013, subject to set-off rights of the Company with respect to indemnities given by Telwares under an Asset Purchase Agreement entered into in March 2011 in connection with the Telwares acquisition.  The Company paid the first installment of $1.25 million on March 16, 2012.  The installment payable on March 16, 2013 was subject to a potential reduction of up to $0.5 million relating to the achievement of certain recurring revenue goals during the three months ended June 30, 2012.  The Company

21

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

and Telwares agreed that the amount of that reduction would be $0.4 million and the Company paid the resulting installment of deferred cash consideration of $0.9 million in March 2013.  No interest accrued on the deferred cash consideration; however, the Company recorded imputed interest in the amount of $0.3 million based on the Company’s weighted average cost of debt as of the date of the acquisition. The obligation to pay the deferred cash consideration was unsecured. The only adjustments to the balance in 2013 were the accretion of imputed interest, the reduction in deferred consideration as described above and the payment of the second installment.

Deferred ProfitLine Purchase Price

On December 19, 2011, the Company and Snow Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (the “Acquisition Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ProfitLine, Inc., a Delaware corporation  (“ProfitLine”), and Doug Carlisle, solely in his capacity as Stockholder Representative under the Merger Agreement, under which the parties agreed to the merger of the Acquisition Sub with and into ProfitLine (the “Merger”) with ProfitLine surviving the Merger as a wholly owned subsidiary of the Company.  The purchase consideration for the acquisition of ProfitLine includes deferred cash consideration.  The deferred cash consideration includes payments of $9.0 million in installments of $4.5 million each on December 19, 2012 and June 19, 2013, subject to set-off rights of the Company and the surviving corporation with respect to indemnities given by the former stockholders of ProfitLine under the Merger Agreement.  The Company paid $4.1 million in December 2012, which represented the first installment of $4.5 million less indemnity claims of $0.4 million. The Company paid $4.1 million in July 2013, which represented the second and final installment of $4.5 million less indemnity claims of $0.4 million.  No interest accrued on the deferred cash consideration; however, the Company recorded imputed interest in the amount of $0.3 million based on the Company’s weighted-average cost of debt as of the date of the acquisition.  The obligation to pay the deferred cash consideration was unsecured.  The only adjustment to the balance during the six months ended June 30, 2013 was the accretion of imputed interest.

Deferred Anomalous Purchase Price

As described in Note 2, the purchase consideration for the acquisition of Anomalous included deferred cash consideration.  The deferred cash consideration included a payment of $979,000 in cash on the first anniversary of the Anomalous Acquisition Date, subject to set-off rights of the Company with respect to indemnities given by the former shareholders of Anomalous under the Anomalous Purchase Agreement.  The Company paid the full $979,000 of deferred cash consideration in January 2013. No interest accrued on the deferred cash consideration; however, the Company recorded imputed interest in the amount of $29,000 based on the Company’s weighted average cost of debt as of the date of the acquisition.  The obligation to pay the deferred cash consideration was unsecured.  The only adjustments to the balance in 2013 were the accretion of imputed interest and the payment of the deferred cash consideration.

Deferred ttMobiles Purchase Price

As described in Note 2, the purchase consideration for the acquisition of ttMobiles included deferred cash consideration.  The deferred cash consideration included a payment of £1.5 million in cash payable on the first anniversary of the ttMobiles Acquisition Date. The Company paid this £1.5 million of deferred consideration in February 2013. No interest accrued on the deferred cash consideration; however, the Company recorded imputed interest in the amount of $0.1 million based on the Company’s weighted average cost of debt as of the date of the acquisition.  The obligation to pay the deferred cash consideration was unsecured.  The only adjustments to the balance in 2013 were the accretion of imputed interest, foreign exchange adjustment and payment of the deferred cash consideration.

Deferred Symphony Purchase Price

As described in Note 2, the purchase consideration for the acquisition of the Symphony TEM Business includes deferred cash consideration.  The deferred cash consideration includes payments of $4.4 million in cash payable on the six-month anniversary of the closing of the Symphony acquisition, which includes $2.5 million of consideration related to the Indian Purchase Agreement, and $6.4 million in cash payable on the twelve-month anniversary of closing of the Symphony Acquisition.  In addition, the acquisition consideration included an earn-out payable in the amount of up to $4.0 million based on achievement of revenue targets for the acquired business for periods through June 30, 2013.  The Company made the six-month anniversary payment of $4.4 million in February 2013.  No interest accrues on the deferred cash consideration; however, the Company recorded imputed interest in the amount of $0.2 million based on the Company’s weighted average cost of debt as of the date of the acquisition.  The obligation to pay the deferred cash consideration is unsecured.  The full installment due on August 8, 2013 of approximately $6.4 million and amounts that potentially could become payable under the earn-out are subject to set-off rights of the Company with respect to indemnities given by

22

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

Symphony under the Symphony Purchase Agreement.  Among other things, these indemnity obligations relate to representations and warranties given by Symphony under the Symphony Purchase Agreement and by Symphony India under the Indian Purchase Agreement.  Certain of the indemnities are subject to limitations, including a threshold and deductible, certain caps and limited survival periods.  The only adjustments to the balance in 2013 were the accretion of imputed interest and the payment of the six-month installment.

Deferred oneTEM Purchase Price

As described in Note 2, the purchase consideration for the acquisition of oneTEM includes deferred cash consideration.  The deferred cash consideration includes a payment of €0.4 million in cash payable on the first year anniversary of the closing of the oneTEM acquisition.  In addition, the acquisition consideration includes an earn-out payable pursuant to an earn-out formula based upon year-over-year increases in annual recurring revenue from specified customers during the earn out periods.  The earn-out period begins with the first full month after the oneTEM Closing Date and continues for four consecutive 12-month periods.  The Company valued this contingent consideration at €0.2 million.  No interest accrues on the deferred cash consideration; however, the Company recorded imputed interest in the amount of €0.1 million based on weighted average cost of capital as of the date of the acquisition.  The deferred consideration is subject to set-off rights of the Company with respect to certain indemnities given by the former holders of the issued share capital of oneTEM under the oneTEM Purchase Agreement until the deferred consideration is paid.

8.Stockholders’ Equity

Common Stock—As of December 31, 2012 and June 30, 2013, the number of authorized shares of common stock, par value $0.0001 per share, was 150,000,000, of which 37,613,327 and 37,464,839 were issued and outstanding, respectively.

During the six months ended June 30, 2012, the Company issued 165,775 unregistered shares of its common stock and 132,617 unvested and unregistered shares of its common stock as part of the Anomalous purchase consideration, as described in Note 2.  During the six months ended June 30, 2013, the Company cancelled and retired the 132,617 unvested and unregistered shares of its common stock.  Additionally, the Company issued 5,991 and 58,975 shares of its common stock to certain of its employees and members of its board of directors, respectively, during the six months ended June 30, 2013 under the provisions of the Company’s 2011 Stock Incentive Plan (the “2011 Plan”).

At the June 5, 2013 annual meeting of the Company’s stockholders, an amendment to the 2011 Plan to reserve an additional 1,000,000 shares of common stock for issuance under the 2011 Plan was approved by a majority of the Company’s stockholders.  The Company’s board of directors had previously approved such amendment.

In November 2012, the Company’s board of directors authorized a share repurchase program under which the Company may repurchase up to $20 million of its outstanding common stock on the open market or in privately negotiated transactions.  During the six months ended June 30, 2013, the Company repurchased 365,959 shares of common stock at an average price per share, including broker commissions, of $12.40, for an aggregate purchase price of $4.5 million.

Preferred Stock—As of December 31, 2012 and June 30, 2013, the number of authorized shares of preferred stock, par value $0.0001 per share, was 5,000,000, of which 0 were issued and outstanding.

Investor Rights Agreements—Holders of a substantial portion of the Company’s outstanding common stock and warrants to purchase common stock have rights to require the Company to register these shares under the Securities Act of 1933, as amended, under specified circumstances pursuant to the Company’s Eighth Amended and Restated Investor Rights Agreement, as amended.

Common Stock Warrants—During the six months ended June 30, 2013, warrant holders exercised warrants to purchase a total of 14,907 shares of common stock.  The Company received proceeds of $34,700 related to these warrant exercises.

23

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

On March 22, 2011, the Company issued a warrant to purchase up to 1,282,789 shares of its common stock to Dell Products, L.P. (“Dell”) in connection with the entry of the Company and Dell into a 49-month strategic relationship agreement. Under the terms of the warrant, the 1,282,789 shares of common stock may become exercisable upon the achievement of certain annual recurring revenue thresholds over the 49-month period. The warrant is exercisable at $5.987 per share. As of June 30, 2013, none of the shares that may become exercisable under this warrant were probable of being earned and becoming vested and accordingly no value was ascribed to this warrant. On a quarterly basis the Company reviews the actual annual recurring revenue related to the Dell strategic relationship agreement to determine if it is probable that Dell will reach any of the annual recurring revenue thresholds that would result in warrant shares being earned and becoming vested, and to the extent the Company deems it probable that any warrant shares will be earned and become vested, the Company will record the fair value of those shares to intangible assets and non-current liabilities using a Black-Scholes valuation model and mark to market each period thereafter until such time as the warrant shares are actually earned and vest.

On October 9, 2009, the Company issued a warrant to purchase up to 3,198,402 shares of its common stock to International Business Machines Corporation (“IBM”) in connection with the entry of the Company and IBM into a five-year strategic relationship agreement. Under the terms of the warrant, 890,277 shares of common stock were vested and exercisable immediately upon execution of the agreement. Up to an additional 2,308,125 shares of common stock were to become exercisable upon the achievement of certain billing thresholds over a three-year period. The warrant was exercisable at $4.148 per share. (Certain terms of this warrant were amended on June 8, 2011, as described in the paragraph below). The Company valued the initial 890,277 shares of common stock exercisable under the warrant at $1.7 million using the Black-Scholes valuation model at the time of the signing of the agreement. The Black-Scholes valuation assumptions included an expected term of seven years, volatility of 67.77% and a risk free interest rate of 2.93%. The Company recorded the $1.7 million value of the initial 890,277 shares of common stock as an increase to warrants for common stock and an increase to other non-current assets on the Company’s consolidated balance sheet. During the three months ended December 31, 2009, the Company determined that it was probable that IBM would reach certain of the billing thresholds to have an additional 947,103 shares of common stock become exercisable. The additional shares of common stock exercisable under the warrant were valued at $1.4 million using the Black-Scholes valuation model at the time the Company determined it was probable they would reach the billing thresholds. The Black-Scholes valuation assumptions included an expected term of 5.8 years, volatility of 61.15% and a risk free interest rate of 2.28%. The Company recorded the value of the additional shares of common stock to intangible assets and non-current liabilities.  In December 2010, the Company reviewed the actual billings to date related to the strategic relationship agreement and determined it was probable IBM would reach the billing thresholds to earn 624,755 shares of the additional 947,103 shares of common stock accrued. The Company reversed $920,000 of market value related to the 322,348 shares of common stock no longer deemed probable of being earned.

On June 8, 2011, certain terms of the common stock warrant described above were amended by the Company and IBM. Under the terms of the amended warrant agreement, an additional 624,755 shares of common stock were vested and exercisable immediately (in addition to the 890,277 shares previously vested and exercisable), the additional warrant shares that could be earned were reduced from 2,308,125 to 651,626 shares of common stock, and the methodology for earning the additional warrant shares was revised to be based on specified new contractual revenue commitments from IBM that could occur between June 8, 2011 and June 30, 2012. Based on this amendment, the maximum number of warrant shares (issued and issuable) to IBM was reduced from 3,198,402 to 2,166,658 shares of common stock. The fair value of the 624,755 warrant shares vested as a result of this amendment was determined to be $4.5 million using the Black-Scholes valuation model at the time of the amendment. The Black-Scholes valuation assumptions included an expected term of 5.3 years, volatility of 59.58% and a risk free interest rate of 1.64%. The Company recorded these vested warrant shares as an increase to warrants for common stock, reversed the non-current liability associated with the previous accrual for these warrant shares, and the difference was added to intangible assets and is being amortized in proportion to the expected revenue over the remainder of the original ten-year period noted below. On August 30, 2011, the Company issued 930,511 shares of its common stock to IBM upon the exercise by IBM of this warrant, pursuant to a cashless exercise feature.  As a result of the cashless exercise, 584,521 warrant shares were cancelled in lieu of the payment of cash consideration to the Company.  As of June 30, 2012, the vesting terms of the amended warrant agreement between the Company and IBM expired with IBM earning no additional warrant shares.  As a result, no further warrant shares are issuable under this warrant agreement.

The Company began to amortize the intangible asset in the first quarter of 2010, with the related charge recorded as contra-revenue. The related charge to revenue will be in proportion to expected revenue over approximately a ten-year period. For the six months ended June 30, 2012 and 2013, the Company recorded $72,936 and $122,189, respectively, of amortization as a contra-revenue charge related to the common stock warrant. The warrant value was marked to market on a quarterly basis until the warrant shares were earned and vested or expired unearned and unvested.

24

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

A summary of warrants exercised to purchase common stock during the six months ended June 30, 2013 is presented below:

	Number of
	Stock
Warrants	Warrants
Outstanding at beginning of the year	25,617
Exercised	(14,907		)
Issued	—
Cancelled	—
Outstanding at end of the period	10,710
Weighted average exercise price	$	13.26

Stock Options—As of June 30, 2013, the Company had five stock-based compensation plans, the Employee Stock Option/Stock Issuance Plan (the “Employee Plan”), the Executive Stock Option/Stock Issuance Plan (the “Executive Plan”), the 2005 Stock Incentive Plan (the “2005 Plan”), the Traq Amended and Restated 1999 Stock Plan (the “1999 Plan”) and the 2011 Plan.  In connection with the Company’s initial public offering, the Company’s board of directors determined that no future stock awards would be made under the Employee Plan, the Executive Plan, the 2005 Plan and the 1999 Plan.  The 2011 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards and other stock-based awards.

Under the provisions of the Employee Plan, the Executive Plan, the 2005 Plan, the 1999 Plan and the 2011 Plan (the “Plans”), the exercise price of each option is determined by the Company’s board of directors or by a committee appointed by the board of directors.  Under the 2011 Plan, the exercise price of all stock options must not be less than the fair market value of a share of common stock on the date of grant. The period over which options vest and become exercisable, as well as the term of the options, is determined by the board of directors or the committee appointed by the board of directors. The options generally vest over 4 years and expire 10 years after the date of the grant. During the six months ended June 30, 2013, the Company’s board of directors granted options to purchase an aggregate of 458,475 shares of common stock under the 2011 Plan to employees and non-employees, at a weighted average exercise price of $14.18 per share.

A summary of the status of stock options issued pursuant to the Plans during the six months ended June 30, 2013 is presented below:

Options	Number of Shares		Weighted Average Exercise Price		Weighted Average Contractual Life (years)
Outstanding at beginning of the year	6,854,369		$	7.92
Granted	458,475		$	14.18
Forfeited	(49,162	)	$	11.60
Exercised	(203,439	)	$	3.07
Outstanding at end of the period	7,060,243		$	8.44	7.2
Exercisable at end of the period	4,198,192		$	5.98	6.4
Available for future grants at June 30, 2013	961,528

The intrinsic values of options outstanding, vested and exercised during the six months ended June 30, 2013 were as follows:

25

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

	2013
	Number of	Intrinsic
	Options	Value
Outstanding	7,060,243	$	50,877,300
Vested	4,198,192	$	40,607,694
Exercised	203,439	$	2,272,707

During the six months ended June 30, 2013, employees and former employees of the Company exercised options to purchase a total of 203,439 shares of common stock at exercise prices ranging from $0.25 to $12.56 per share. Proceeds from the stock option exercises totaled $0.6 million.

Restricted Stock Units—During the six months ended June 30, 2013, the Company issued 620,034 restricted stock units to certain employees under the provisions of the 2011 Plan and 66,776 restricted stock units vested resulting in an equal number of shares of common stock being issued. The grants of restricted stock units made during the six months ended June 30, 2013 had an aggregate value of $9.2 million.  The value of a restricted stock unit award is determined based on the closing price of the Company’s common stock on the date of grant.  A restricted stock unit award entitles the holder to receive shares of the Company’s common stock as the award vests. The restricted stock units vest over periods that range from 2 to 4 years.  Stock-based compensation expense is amortized on a straight-line basis over the vesting period.

For the six months ended June 30, 2013, the Company recorded stock-based compensation expenses of $1.8 million related to restricted stock units.

As of June 30, 2013, there was $10.3 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested restricted stock units. This amount will be amortized on a straight-line basis over the requisite service period related to the restricted unit grants.

A summary of the status of restricted stock units issued pursuant to the Plans during the six months ended June 30, 2013 is presented below:

Restricted Stock Units	Number of Shares		Weighted Average Fair Value
Outstanding at beginning of the year	221,314		$	17.27
Granted	620,034		$	14.78
Vested	(66,776	)	$	17.78
Forfeited	(800	)	$	15.08
Outstanding at end of the period	773,772		$	15.24

In accordance with ASC 718, Share Based Payment (“ASC 718”), total compensation expense for stock-based compensation awards was $3.8 million and $6.5 million for the six months ended June 30, 2012 and 2013, respectively, which is included on the accompanying condensed consolidated statements of operations as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2013		2012		2013
Cost of goods sold	$	335	$	525	$	585	$	1,080
Sales and marketing expenses	503		956		869		1,769
General and administrative expenses	1,169		1,641		2,084		3,113
Research and development	153		249		246		509
Total stock-based employee compensation	$	2,160	$	3,371	$	3,784	$	6,471

26

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

Stock-based employee compensation expense for equity awards granted since January 1, 2006 will be recognized over the following periods as follows (in thousands):

Years Ending December 31,
2013	$	6,192
2014	11,401
2015	8,199
2016	2,354
2017	119
	$	28,265

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

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

The fair value of the options granted during 2013 was determined at the date of grant using the Black-Scholes valuation model with the following assumptions:

	2013
Expected dividend yield	0%
Risk-free interest rate	1.04% to 1.25%
Expected term (in years)	5.7 - 6.1 years
Expected volatility	56.34% - 56.84%

Based on the above assumptions, the weighted average fair value per share of stock options granted during the six months ended June 30, 2013 was approximately $7.49.

9.Income Taxes

The income tax provision differs from the expected tax provisions computed by applying the U.S. Federal statutory rate to income before income taxes primarily because the Company has historically maintained a full valuation allowance on its deferred tax assets, tax deductions related to stock-based compensation, and to a lesser extent because of the impact of state income taxes.  As described in the 2012 Form 10-K, the Company maintains a full valuation allowance in accordance with ASC 740, Accounting for Income Taxes, on its net deferred tax assets.  Until the Company achieves and sustains an appropriate level of profitability, it plans to maintain a valuation allowance on its net deferred tax assets.

27

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

10.Fair Value Measurement

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

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

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

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

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

The following table discloses the assets and liabilities measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012 and the basis for that measurement:

	Fair Value Measurement at June 30, 2013
(in thousands)	Total		Level 1		Level 2		Level 3
Money market	$	23,326	$	23,326	$	—	$	—
Contingent HCL-EMS acquisition consideration	1,891		—		—		1,891
Contingent oneTEM acquisition consideration	181						181
	$	25,398	$	23,326	$	—	$	2,072

	Fair Value Measurement at December 31, 2012
(in thousands)	Total		Level 1		Level 2		Level 3
Money market	$	28,094	$	28,094	$	—	$	—
Contingent HCL-EMS acquisition consideration	2,046		—		—		2,046
	$	30,140	$	28,094	$	—	$	2,046

The changes in the fair value of the Level 3 liability for the six months ended June 30, 2013 are as follows:

	Contingent acquisition consideration
	Six Months Ended June 30, 2013
(in thousands)	HCL-EMS			oneTEM
Balance, beginning of period	$	2,046		$	—
Initial earn-out consideration	—			181
Imputed Interest	12			—
Second year earn-out adjustment	(167		)	—
Balance, end of period	$	1,891		$	181

The Company’s investment in overnight money market institutional funds, which amounted to $28.1 million and $23.3 million at December 31, 2012 and June 30, 2013, respectively, is included in cash and cash equivalents on the accompanying condensed consolidated balance sheets and is classified as a Level 1 input.

The acquisition of HCL-EMS includes a contingent consideration agreement that requires additional consideration to be paid by the Company following each of the first and second anniversaries of the HCL-EMS Closing Date, pursuant to an earn-out formula ranging from 7.5% to 15% of specified revenues from specified customers acquired, subject to set-off rights of the Company with respect to indemnities given by HCL-EMS under the HCL-EMS APA.  The fair value of the contingent consideration recognized was $3.4 million which was estimated by applying the income approach. The key assumptions include (a) a discount rate of 10.5% and (b) probability adjusted levels of revenue between approximately $12.6 million and $13.9 million. As of June 30, 2013, there were no changes in the recognized amounts, except for the accretion of interest and adjustment of the second year earn-out estimate to actual.

28

Notes to Condensed Consolidated Financial Statements - continued (Unaudited)

The acquisition of oneTEM includes a contingent consideration agreement that requires additional consideration to be paid by the Company following each of the first four anniversaries of the oneTEM Closing Date, pursuant to an earn-out formula of 9% of the year-over-year increase in annual recurring revenue growth from specified customers during the earn-out periods.  The earn-out period begins with the first full month after the oneTEM Closing Date and continues for four consecutive 12- month periods.  The contingent consideration is subject to set-off rights of the Company with respect to indemnities given by the former holders of the issued share capital of oneTEM under the oneTEM Purchase Agreement.  The fair value of the contingent consideration recognized was $0.2 million, which was estimated by applying the income approach. The key assumptions include (a) a discount rate of 15% and (b) probability adjusted levels of increased annual recurring revenue between approximately $0.2 million and $0.3 million.

The carrying amounts of the Company’s other non-cash financial instruments including accounts receivable and accounts payable approximate their fair values due to the relatively short-term nature of these instruments. The carrying amounts of the Company’s deferred purchase price consideration to ProfitLine and Symphony approximate fair value as the effective interest rates approximate market rates.

11.      Supplemental Cash Flow Information

Information about other cash flow activities during the six months ended June 30, 2012 and 2013 is as follows:

	Six months ended June 30,
(in thousands)	2012		2013
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	66	$	41
Income tax payments	$	235	$	264
NON-CASH TRANSACTIONS:
Deferred purchase price in connection with Anomalous acquisition	$	950	$	—
Deferred purchase price in connection with ttMobiles acquisition	$	2,315	$	—
Deferred purchase price in connection with oneTEM acquisition	$	—	$	616
Issuance of common stock in payment of board of directors fees	$	20	$	—
Cashless exercise of warrants	$	479	$	—

12.     Commitments and Contingencies

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

The Company has entered into non-cancellable operating leases for the rental of office space in various locations that expire between 2013 and 2019.  Some of the leases provide for lower payments in the beginning of the term which gradually escalate during the term of the lease. The Company recognizes rent expense on a straight-line basis over the lease term, which gives rise to a deferred rent liability on the balance sheet.  The Company also has entered into agreements with third-party hosting facilities, which expire between 2013 and 2016.

The Company is also obligated under several leases covering computer equipment and software, which the Company has classified as capital leases.  Additionally, the Company has entered into several operating leases for various office equipment items, which expire between June 2013 and July 2015.

Rent expense, included in general and administrative expense, was approximately $2.4 million and $2.7 million for the six months ended June 30, 2012 and 2013, respectively.

29

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

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

Overview

Tangoe is a leading global provider of communications lifecycle management, or CLM, software and services to a wide range of large and medium-sized commercial enterprises and governmental agencies. CLM encompasses the entire lifecycle of an enterprise’s communications assets and services, including planning and sourcing, procurement and provisioning, inventory and usage management, mobile device management, real-time telecommunications expense management, invoice processing, expense allocation and accounting, forward and reverse logistics, and asset decommissioning and disposal. Our on-demand Communications Management Platform is a suite of software designed to manage and optimize the complex processes and expenses associated with this lifecycle for both fixed and mobile communications assets and services. Our customers can engage us through our client services group to manage their communications assets and services using our Communications Management Platform.

Our solution can provide a significant return on investment by enabling an enterprise to identify and resolve billing errors, to optimize communications service plans for its usage patterns and needs, and to manage used and unused communications assets and services. Our solution allows enterprises to improve the productivity of their employees by automating the provisioning of communications assets and services, and to reduce costs by controlling and allocating communications expenses. It also allows enterprises to enforce regulatory requirements and internal policies governing the use of communications assets and services.

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

Adjusted EBITDA.  We define Adjusted EBITDA as net income 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, for 2013 only, other income and interest income and also include in Adjusted EBITDA adjustments for other non-cash and non-recurring items applicable for the periods presented.  Our management uses Adjusted EBITDA to measure our operating performance because it does not include the impact of items not directly resulting from our core business and certain non-cash expenses such as depreciation and amortization and stock-based compensation. We believe that this measure provides us with additional useful information to measure and understand our performance on a consistent basis, particularly with respect to changes in performance from period to period. We use Adjusted EBITDA in the preparation of our annual operating budgets and to measure and evaluate the effectiveness of our business strategies. Adjusted EBITDA is not calculated in accordance with generally accepted accounting principles in the United States of America, or GAAP, and is not a substitute for or superior to financial measures determined in accordance with GAAP. Other companies in our industry may calculate Adjusted EBITDA in a manner differently from us, which reduces its usefulness as a comparative measure.  Our Adjusted EBITDA has increased annually for each fiscal year since 2007 and we expect it to continue to increase in our fiscal year ending December 31, 2013.

Recurring technology and services revenue growth.  In 2006, we began a strategic initiative to transition our business model from selling transactional software licenses to providing recurring technology-enabled services leveraging both our technology and communications industry experience. We further implemented this initiative with the acquisition of Traq Wireless, Inc., or Traq, as discussed below. Traq’s revenue base was primarily recurring, which substantially increased our 2007 recurring revenue. We regularly review our recurring revenue growth to measure our success.

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

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

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

30

·add a significant number of new customers.

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

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

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

Deferred revenue.  Our deferred revenue consists of the amounts that have been invoiced but that have not yet been recognized as revenue, including advanced billed and undelivered portions of our Communication Management Platform subscriptions and related services, maintenance on our software licenses and implementation fees. We invoice our services to many of our customers in advance, with the intervals ranging from 1 to 12 months. We monitor our deferred revenue balance as this balance represents revenue to be recognized over the next 12 months except for a portion of implementation and software subscription fees.  Implementation fees are recognized ratably over twice the term of the contract, which we estimate to be the expected life of the customer relationship.  Software subscription fees are recognized ratably over the service period.  As of June 30, 2013, implementation fees and software subscription fees represented $2.0 million and $0.2 million, respectively, of the $12.0 million deferred revenue balance.

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

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

Certain Trends and Uncertainties

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

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

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

·We continue to closely monitor current economic conditions, as any decline in the general economic environment that negatively affects the financial condition of our customers could have an adverse effect on our financial condition and results of operations. For example, during the most recent economic downturn, our customer cancellation rate during the first quarter of 2009 increased to a quarterly rate of over three times the average of the prior four quarters, partly as a result of customer bankruptcies. Although economic conditions have generally improved, there has not been a full recovery to the levels that generally existed prior to the downturn. If economic conditions in the United States and other countries do not continue to improve, we may face greater risks in operating our business.

31

Acquisitions

On January 10, 2012, we acquired all of the outstanding equity of Anomalous Networks Inc., or Anomalous, a provider of real-time telecommunications expense management solutions. The aggregate purchase price was approximately $9.0 million, which consisted of approximately $3.5 million in cash paid at the closing, approximately $1.0 million in cash payable on the first anniversary of the closing, 165,775 unregistered shares of our common stock and 132,617 unvested and unregistered shares of our common stock with vesting based on achievement of revenue targets relating to sales of Anomalous products and services for periods through January 31, 2013. We paid the full $1.0 million of deferred cash consideration in January 2013.  In March 2013, we cancelled and retired the 132,617 unvested and unregistered shares of our common stock due to the revenue targets related to the sales of Anomalous products and services not being achieved.  The transaction costs were immaterial and were expensed as incurred.

On February 21, 2012, we acquired all of the issued share capital of ttMobiles Limited, or ttMobiles, a provider of mobile communications management solutions and services based in the United Kingdom. The purchase price was £5.5 million, which consisted of £4.0 million in cash paid at the closing and £1.5 million in cash payable on the first anniversary of the closing. We paid the full £1.5 million of deferred cash consideration in February 2013.  The transaction costs were immaterial and were expensed as incurred.

On August 8, 2012, we acquired substantially all of the assets of the telecommunications expense management division of Symphony Teleca Services, Inc., or Symphony, pursuant to an asset purchase agreement, or the Symphony Purchase Agreement.  On the same date, a newly formed subsidiary of ours, Tangoe India Softek Services Private Limited, an Indian private limited company, or Tangoe India, entered into a business purchase agreement, or the Indian Purchase Agreement, with Symphony Services Corporation (India) Private Limited, or Symphony India, with respect to the purchase of certain assets and employees of the acquired business located in India.  The net purchase price was $40.2 million, which consisted of $29.2 million in cash paid at the closing, approximately $4.4 million in cash payable on the six-month anniversary of the closing, and approximately $6.4 million in cash payable on the one-year anniversary of the closing. In addition, the acquisition consideration included an earn-out payable in the amount of up to $4.0 million based on achievement of revenue targets for the acquired business for periods through June 30, 2013.  We made the six-month anniversary payment of $4.4 million in February 2013.  The full installment due on August 8, 2013 of approximately $6.4 million, and amounts that potentially become payable under the earn-out are subject to set-off rights that we have with respect to indemnities given by Symphony under the Symphony Purchase Agreement.  Among other things, these indemnity obligations relate to representations and warranties given by Symphony under the Symphony Purchase Agreement and by Symphony India under the Indian Purchase Agreement.  Certain of the indemnities are subject to limitations, including a threshold and deductible, certain caps and limited survival periods.  During a post-closing transition period that lasted through February 2013, Symphony and Symphony India provided to us certain transition services, pending completion of the opening of certain Tangoe India facilities, the procurement of certain Indian tax registrations and the subsequent transfer to Tangoe India of the Indian assets and employees being hired.  These services included making available to us on a continuing basis the services previously provided by Symphony India to Symphony.  The transaction costs were immaterial and were expensed as incurred.

On April 18, 2013, we acquired all of the issued share capital of oneTEM GmbH, or oneTEM, a provider of strategic consulting services based in Germany.  The purchase price was approximately €1.5 million, which consisted of €0.9 million in cash paid at the closing and €0.4 million in cash payable on the first anniversary of the closing. In addition, the acquisition consideration includes an earn-out payable pursuant to an earn-out formula based upon year-over-year increases in annual recurring revenue from specified customers during the earn out periods.  The earn-out period begins with the first full month after the closing and continues for four consecutive 12-month periods.  The fair value of the earn-out consideration was valued at €0.2 million, which was estimated by applying the income approach.  The transaction costs were immaterial and were expensed as incurred.

We continue to migrate to our platforms the customers of several of the businesses that we acquired during 2011 and 2012.  We have completed the migration of the Telwares customers, and the migrations of the HCL-EMS, ProfitLine and Symphony customers are in various stages of completion.  While to date we have successfully migrated a number of these customers, there can be no assurance that we will complete these migrations in a timely manner or at all and the cost of these migrations may be more significant than we have estimated.  We may pursue additional acquisitions of, or investments in, businesses, services and technologies that will expand the functionality of our solution, provide access to new markets or customers, or otherwise complement our existing operations.

Sources of Revenue

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

32

In 2006, we began a strategic initiative to transition our business model from selling non-recurring transactional software licenses to providing recurring technology and services leveraging both our technology and communications industry experience.

We license our on-demand software and sell related services primarily on a subscription basis under agreements that typically have terms ranging from 24 to 60 months. Our recurring technology and services revenue is driven by the amount of communications spend that we manage and the scope of the products and services that we provide to our customers.  Under our fixed line contracts, we typically charge our customers a percentage of managed communications spend that is determined based on the products and services that we provide.  Under our mobile contracts, we typically charge our customers fees that are based on the mobile products and services that we provide and the number of devices for which we provide those products and services.  As of June 30, 2013, we managed a total of approximately $26.0 million in annual communications expense as compared to approximately $18.6 million in annual communications expense as of June 30, 2012. Our customers are typically subject to a minimum charge for up to a specified threshold amount of communications spend or number of mobile devices under management and additional charges to the extent those specified thresholds are exceeded. Prior to 2010, as a result of limited history regarding customer renewals, implementation fees related to subscription agreements for our Communications Management Platform with terms equal to or less than 36 months were recognized over 36 months and implementation fees related to subscription agreements with terms exceeding 36 months were recognized over the life of the agreement. In 2010, due to having greater evidence regarding customer renewals, we believed it was appropriate to extend the estimated expected life of the customer relationship to be equal to twice the contract life calculated on a per-customer basis and to recognize implementation fees ratably over this period. This change did not have a material impact on our consolidated financial statements. Many of our subscription contracts are non-cancelable, although customers have the right to terminate for cause if we materially fail to perform.

In 2010, we began to amortize the value of a warrant to purchase common stock issued to IBM as part of a strategic relationship agreement. This related charge will be recorded as contra-revenue in proportion to total expected revenue from the agreement. We recorded $41,431 and $66,831 of amortization as a contra-revenue charge during the three months ended June 30, 2012 and 2013, respectively and $72,936 and $122,189 of amortization as a contra-revenue charge during the six months ended June 30, 2012 and 2013, respectively.

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

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

We expect our strategic consulting, software licenses and other revenue to remain relatively constant in absolute dollars, but to decrease as a percentage of total revenue, as we continue to focus our sales and marketing efforts on our recurring technology and services revenue model.

We historically have derived substantially all of our revenue from United States-based customers. We intend to build our international sales operations by increasing our direct sales force abroad. We expect our international revenue to increase in absolute dollars and as a percentage of total revenue.

Cost of Revenue and Gross Profit

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

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

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

33

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

Operating Expense

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

Sales and marketing.  Sales and marketing expense consists primarily of personnel-related costs, including salary, stock-based compensation and other compensation-related costs for our sales, marketing and business development employees, the cost of marketing programs such as on-line lead generation, promotional events, such as trade shows, user conferences, seminars and webinars, the cost of business development programs, travel related costs and sales commissions. Sales commission rates are calculated at the time a contract is signed. The sales commission rate is applied to the contract’s first year of revenue to calculate sales commission expense. Sales commission expense is accrued and expensed at the time we invoice the customer and is paid to the salesperson either when the invoice is collected or ratably over the next 5 quarters. Generally, new sales personnel require time to become familiar with our software and services and do not begin to generate sales immediately, which can result in increased sales and marketing expense without any immediate increase in revenue. We expect sales and marketing expense to increase in absolute dollars, but remain relatively constant as a percentage of revenue in the near term, with potential increases in the long term as a percentage of revenue, as we continue to hire sales and marketing personnel in the United States and internationally to expand our solution globally.

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

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

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

Other Income (Expense), Net

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

Income Tax Provision

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

34

As of December 31, 2012, we had U.S. federal net operating loss carryforwards of approximately $98.0 million, which, if unused, expire from 2020 to 2032, and U.S. federal research and development tax credit carryforwards of approximately $3.0 million, which expire through 2029. We have engaged in several transactions since our inception that have resulted in a change in control as defined by Section 382 of the Internal Revenue Code, which limits our ability to utilize these net operating loss and tax credit carryforwards in the future. As of December 31, 2012, $33.0 million of our net operating loss and tax credit carryforwards were so limited. At December 31, 2012, we recorded a valuation allowance against the full amount of our deferred tax assets, as management believes it is uncertain that they will be fully realized. If we determine in the future that we will be able to realize all or a portion of our net operating loss or tax credit carryforwards, an adjustment to our net operating loss or tax credit carryforwards would increase net income in the period in which we make such a determination.

Critical Accounting Policies

Our financial statements are prepared in accordance with GAAP. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. Our most critical accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2012 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the Securities and Exchange Commission, or the SEC, on March 18, 2013, which we refer to as the 2012 Form 10-K.  Since the date of those financial statements, there have been no material changes to our significant accounting policies.

35

Results of Operations for the Three and Six Month Periods Ended June 30, 2012 and 2013

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

	Three Months Ended June 30,								Six Months Ended June 30,
(in thousands, except percentages)	2012			% of revenue	2013			% of revenue	2012			% of revenue	2013			% of revenue
Revenue:
Recurring technology and services	$	32,075		88%	$	41,385		89%	$	62,831		89%	$	81,433		89%
Strategic consulting, software licenses and other	4,182			12%	5,022			11%	7,573			11%	9,834			11%
Total revenue	36,257			100%	46,407			100%	70,404			100%	91,267			100%
Cost of revenue:
Recurring technology and services	14,797			41%	18,871			41%	29,113			41%	37,626			41%
Strategic consulting, software licenses and other	1,789			5%	1,965			4%	3,247			5%	4,026			4%
Total cost of revenue(1)	16,586			46%	20,836			45%	32,360			46%	41,652			46%
Gross profit	19,671			54%	25,571			55%	38,044			54%	49,615			54%
Operating expense:
Sales and marketing (1)	5,913			16%	8,205			18%	11,457			16%	15,597			17%
General and administrative (1)	7,046			19%	8,669			19%	13,747			20%	16,796			18%
Research and development(1)	4,174			12%	4,804			10%	7,863			11%	9,749			11%
Depreciation and amortization	1,996			6%	2,548			5%	3,871			5%	5,037			6%
Restructuring charge	—			—	499			1%	—				654			1%
Income from operations	542			1%	846			2%	1,106			2%	1,782			2%
Other income (expense), net
Interest expense	(192		)	(1)%	(100		)	0%	(427		)	(1)%	(263		)	0%
Interest income	21			0%	16			0%	38			0%	35			0%
Other income	—			—	203			0%	—			—	766			1%
Income before income tax provision	371			1%	965			2%	717			1%	2,320			3%
Income tax provision	33			0%	415			1%	187			0%	646			1%
Net income	$	338		1%	$	550		1%	$	530		1%	$	1,674		2%

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

Cost of revenue	$	335	$	525	$	585	$	1,080
Sales and marketing	503		956		869		1,769
General and administrative	1,169		1,641		2,084		3,113
Research and development	153		249		246		509
	$	2,160	$	3,371	$	3,784	$	6,471

Revenue

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

	Three Months Ended June 30,				Increase				Six Months Ended  June 30,					Increase
(in thousands, except percentages)	2012		2013		$		%		2012		2013			$		%
Recurring technology and services	$	32,075	$	41,385	$	9,310	29	%	$	62,831	$	81,433		$	18,602	30	%
Strategic consulting, software licenses and other	4,182		5,022		840		20	%	7,573		9,834			2,261		30	%
Total revenue	$	36,257	$	46,407	$	10,150	28	%	$	70,404	$		91,267	$	20,863	30	%

Our recurring technology and services revenue increased $9.3 million, or 29%, for the three months ended June 30, 2013 as compared to the same period of 2012, primarily due to an increase in the volume of fixed and mobile communications assets and service offerings being managed or provided through our on-demand communication management platform for current existing and new customers, combined with revenue attributable to customers acquired through our Symphony strategic acquisition.

36

Our strategic consulting, software licenses and other revenue increased $0.8 million, or 20%, for the three months ended June 30, 2013 as compared to the same period of 2012, primarily due to increases in other revenues of $0.8 million and strategic sourcing and consulting revenue of $0.3 million.  These increases were partially offset by a $0.3 million decrease in software license fee revenue.

Our recurring technology and services revenue increased $18.6 million, or 30%, for the six months ended June 30, 2013 as compared to the same period of 2012, primarily due to an increase in the volume of fixed and mobile communications assets and service offerings being managed or provided through our on-demand communication management platform for current existing and new customers, combined with revenue attributable to customers acquired through our ttMobiles and Symphony strategic acquisitions.

Our strategic consulting, software licenses and other revenue increased $2.3 million, or 30%, for the six months ended June 30, 2013 as compared to the same period of 2012, primarily due to increases in strategic sourcing and consulting revenue of $2.1 million, and other revenues of $0.8 million.  These increases were partially offset by a $0.7 million decrease in software license fee revenue.

Costs and Expenses

Cost of Revenue

The following table presents our cost of revenue:

	Three Months Ended June 30,				Increase			Six Months Ended June 30,				Increase
(in thousands, except percentages)	2012		2013		$		%	2012		2013		$		%
Recurring technology and services	$	14,797	$	18,871	$	4,074	28%	$	29,113	$	37,626	$	8,513	29%
Strategic consulting, software licenses and other	1,789		1,965		176		10%	3,247		4,026		779		24%
Total cost of revenue	$	16,586	$	20,836	$	4,250	26%	$	32,360	$	41,652	$	9,292	29%
Gross profit	$	19,671	$	25,571	$	5,900	30%	$	38,044	$	49,615	$	11,571	30%
Gross margin	54%		55%					54%		54%

Our recurring technology and services cost of revenue increased $4.1 million for the three months ended June 30, 2013 as compared to the same period in 2012.  This increase is primarily due to an increase in personnel-related costs, including an increase in salary and other compensation-related costs, of $3.6 million and an increase in travel-related expenses and other infrastructure costs of $0.5 million.  The increases in personnel-related costs and travel-related expenses and other infrastructure costs were primarily attributable to providing support for customer growth in our recurring technology and services business.

Our strategic consulting, software licenses and other cost of revenue increased $0.2 million for the three months ended June 30, 2013 as compared to the same period in 2012, primarily due to an increase in personnel-related costs, including an increase in salary and other compensation-related costs, of $0.3 million.  The increases were related to an increase in strategic consulting revenue.

As a percentage of revenue, gross profit increased to 55% for the three months ended June 30, 2013 as compared to 54% for the same period in 2012.  This increase in gross margin was primarily due to the cost efficiencies gained from migrated customers operating on our platform and an increase in strategic consulting, software licenses and other revenues, which can have a higher gross margin than other sources of revenue.  The $5.9 million increase in gross profit in absolute dollars was primarily due to increased revenue.

Our recurring technology and services cost of revenue increased $8.5 million for the six months ended June 30, 2013 as compared to the same period in 2012.  This increase is primarily due to an increase in personnel-related costs, including an increase in salary and other compensation-related costs, of $7.6 million, an increase in travel-related expenses and other infrastructure costs of $0.7 million and an increase in outside contractor costs of $0.2 million.  The increases in personnel-related costs, travel-related expenses and other infrastructure costs and outside contractor costs were primarily attributable to providing support for customer growth in our recurring technology and services business.

Our strategic consulting, software licenses and other cost of revenue increased $0.8 million for the six months ended June 30, 2013 as compared to the same period in 2012, primarily as a result of a $0.4 million increase in salary and other compensation-related costs and a $0.4 million increase in the costs associated with our sales of telecommunication accessories related to our mobile business.  The increases were related to strategic consulting revenues and higher telecommunication accessories, respectively.

37

As a percentage of revenue, gross profit was 54% for each of the six months ended June 30, 2012 and 2013.  The $11.6 million increase in gross profit in absolute dollars was primarily due to increased revenue.

Operating Expense

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

	Three Months Ended June 30,									Six Months Ended June 30,
	2012			2013						2012			2013
			% of			% of	Change					% of			% of	Change
(in thousands, except percentages)	Amount		Revenue	Amount		Revenue	$		%	Amount		Revenue	Amount		Revenue	$		%
Sales and marketing	$	5,913	16%	$	8,205	18%	$	2,292	39%	$	11,457	16%	$	15,597	17%	$	4,140	36%
General and administrative	7,046		19%	8,669		19%	1,623		23%	13,747		20%	16,796		18%	3,049		22%
Research and development	4,174		12%	4,804		10%	630		15%	7,863		11%	9,749		11%	1,886		24%
Depreciation and amortization	1,996		6%	2,548		5%	552		28%	3,871		5%	5,037		6%	1,166		30%
Restructuring charge	—		0%	499		1%	499		*	—		0%	654		1%	654		*
Total operating expense	$	19,129	53%	$	24,725	53%	$	5,596	29%	$	36,938	52%	$	47,833	52%	$	10,895	29%

* = Not meaningful

Sales and marketing expense.  Our sales and marketing expense increased $2.3 million for the three months ended June 30, 2013 as compared to the same period of 2012, primarily due to an increase in personnel-related costs, including salary and other compensation-related costs, of $2.0 million, as we increased the number of global direct and indirect sales force employees to accommodate growth in sales opportunities, and an increase in travel expense of $0.3 million as a result of the increased headcount.

Our sales and marketing expense increased $4.1 million for the six months ended June 30, 2013 as compared to the same period of 2012, primarily due to an increase in personnel-related costs, including salary and other compensation-related costs, of $3.8 million, as we increased the number of global direct and indirect sales force employees to accommodate growth in sales opportunities, and an increase in travel and other expenses of $0.3 million as a result of the increased headcount.

General and administrative expense.  Our general and administrative expenses increased $1.6 million for the three months ended June 30, 2013 as compared to the same period of 2012, primarily as a result of increases in personnel-related costs, including salary and other compensation-related costs, of $0.8 million, including increased employee compensation and benefits of $0.3 million as a result of increased headcount and stock-based compensation expense of $0.5 million as a result of the increased value of the annual stock-based equity awards, facility and overhead costs of $0.4 million, primarily attributable to the overhead costs associated with additional facilities, and professional fees of $0.3 million, primarily due to legal fees related to the oneTEM acquisition and the class action lawsuit.

Our general and administrative expenses increased $3.0 million for the six months ended June 30, 2013 as compared to the same period of 2012, primarily as a result of increases in personnel-related costs, including salary and other compensation-related costs, of $1.8 million, including increased employee compensation and benefits of $0.8 million as a result of increased headcount and stock-based compensation expense of $1.0 million as a result of the increased value of the annual stock-based equity awards, facility and overhead costs of $1.0 million, primarily attributable to the overhead costs associated with additional facilities, and professional fees of $0.3 million, primarily due to legal fees related to the oneTEM acquisition and the class action lawsuit.

Research and development expense.  Our research and development expenses increased $0.6 million for the three months ended June 30, 2013 as compared to the same period of 2012, primarily due to increased personnel-related costs, including salary and other compensation-related costs, of $0.8 million primarily arising from increased headcount.  This increase in personnel-related costs was slightly offset by a $0.2 million decrease in third-party consultant expenses.  The higher costs were primarily the result of an initiative to enhance the functionality of our products and improve our ability to scale for increased demand.

Our research and development expenses increased $1.9 million for the six months ended June 30, 2013 as compared to the same period of 2012, primarily due to increased personnel-related costs, including salary and other compensation-related costs, of $1.7 million primarily arising from increased headcount.  In addition, we incurred a $0.2 million increase in third-party consultant expenses.  The higher costs were primarily the result of an initiative to enhance the functionality of our products and improve our ability to scale for increased demand.

Depreciation and amortization expense.  Depreciation and amortization expenses increased $0.6 million for the three months ended June 30, 2013 as compared to the same period of 2012, due to an increase in amortization expense of $0.6 million.  The increase in amortization expense was result of higher intangible assets as result of the Symphony acquisition and, to a lesser extent, the oneTEM acquisition. Depreciation expense of $0.5 million was comparable for the respective three-month periods ended June 30, 2013 and 2012.

38

Depreciation and amortization expenses increased $1.2 million for the six months ended June 30, 2013 as compared to the same period of 2012, due to an increase in amortization expense of $1.2 million.  The increase in amortization expense was result of higher intangible assets as result of the Anomalous, ttMobiles and Symphony acquisitions and, to a lesser extent, the oneTEM acquisition. Depreciation expense of $1.0 million was comparable for the respective six-month periods ended June 30, 2013 and 2012.

Restructuring charge. The restructuring charge recorded in the three months ended June 30, 2013 was a result of a lease termination agreement executed with the landlord of our NewJersey office space acquired as part of the acquisition of HCL-EMS. The agreement terminates the remaining term of the lease effective June 30, 2013 for a settlement fee of $0.9 million. We recorded an adjustment of $0.5 million to the restructuring charge as a result of the lease termination agreement.

The restructuring charge recorded during the six months ended June 30, 2013 was a result of a lease termination agreement executed with the landlord of our NewJersey office space acquired as part of the acquisition of HCL-EMS. The agreement terminates the remaining term of the lease effective June 30, 2013 for a settlement fee of $0.9 million. We recorded an adjustment of $0.5 million to the restructuring charge as a result of the lease termination agreement and $0.1 million restructuring charge as a result of the Company’s inability to sublease the office space in the time period originally expected.

Other Income (Expense), Net

The following table presents our components of other income (expense), net for the periods presented:

	Three Months Ended June 30,						Change		Six Months Ended June 30,						Change
(in thousands)	2012			2013			$		2012			2013			$
Interest expense	$	(192	)	$	(100	)	92		$	(427	)	$	(263	)	164
Interest income	21			16			(5	)	38			35			(3	)
Other income	—			203			203		—			766			766

Interest Expense.  The decrease in interest expense for the three and six months ended June 30, 2013 as compared to the same periods of 2012 was a result of the higher average debt balance in 2012 related to the HCL-EMS, Telwares, Anomalous and ttMobiles deferred consideration balances.

Interest Income.  Interest income was comparable for the respective three and six-month periods ended June 30, 2013 and 2012.

Other income.Other income for the three months ended June 30, 2013 primarily consisted of the $0.1 million reduction in the Symphony deferred cash consideration as a result of a net asset shortfall adjustment.

Other income for the six months ended June 30, 2013 primarily consisted of the $0.4 million reduction in the Telwares deferred cash consideration as a result of not achieving certain recurring revenue targets, a $0.2 million adjustment of the HCL-EMS year two earn-out estimate to actual and a $0.1 million reduction in the Symphony deferred cash consideration as a result of a net asset shortfall adjustment.

Income Tax Provision

Income tax provision.  Our income tax provision increased $0.4 million and $0.5 million for the three and six months ended June 30, 2013, respectively, as compared to the same periods of 2012, due to an increase in deferred income taxes related to tax amortization taken on indefinite-lived intangible assets from the Symphony acquisition, a reduction of Tangoe Canada’s R&D tax credit reserve and income tax expense related to our Indian subsidiary.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have funded our operations primarily from cash from operations, private placements of preferred stock, subordinated notes, term loans, revolving credit facilities and public offerings of equity. As of June 30, 2013, we had cash and cash equivalents of $44.1 million and accounts receivable of $39.8 million and amounts due under various debts and credit facilities of $13.6 million. In April 2012, we raised $37.8 million in net proceeds through a follow-on public offering of our common stock.    We intend to use the proceeds from this offering for working capital and other general corporate purposes, which may include financing our growth, developing new solutions and funding capital expenditures, acquisitions and investments. Our remaining outstanding debt relates to the deferred consideration for the HCL-EMS, ProfitLine, Symphony and oneTEM acquisitions and capital lease and other financing obligations.

We believe that our existing cash and cash equivalents and our cash flow from operating activities will be sufficient to meet our anticipated cash needs for at least the next twelve months. To the extent our cash and cash equivalents and cash flow from operating activities are insufficient to fund our future activities, we may need to raise additional funds through bank credit arrangements or public or private

39

equity or debt financings. We also may need to raise additional funds in the event we determine in the future to effect one or more acquisitions of, or investments in, businesses, services or technologies. If additional funding is required, we may not be able to obtain bank credit arrangements or to effect an equity or debt financing on terms acceptable to us or at all.

The following table sets forth our cash and cash equivalents and the major sources and uses of cash for each of the periods set forth below:

	As of
	December 31,		June 30,
(in thousands)	2012		2013
Cash and cash equivalents	$	50,211	$	44,056

	Six Months Ended June 30,
(in thousands)	2012			2013
Net cash provided by operating activities	$	7,542		$	10,650
Net cash used in investing activities	(9,952		)	(10,602		)
Net cash provided by (used in) financing activities	37,555			(5,976		)
Effect of exchange rate on cash	(110		)	(227		)
Net increase (decrease) in cash and cash equivalents	$	35,035		$	(6,155	)

Cash Flows from Operating Activities

Operating activities provided $10.7 million of net cash during the six months ended June 30, 2013, which resulted from our net income of $1.7 million for the six months ended June 30, 2013 principally supplemented by non-cash charges of stock-based compensation of $6.5 million, depreciation and amortization of $5.0 million and other non-cash charges of $1.0 million and cash provided by an increase in deferred revenue of $1.0 million.  Cash provided by operating activities was adversely impacted by a $2.3 million decrease in accounts payable and accrued expenses, a $1.5 million increase in accounts receivable and a $0.7 million decrease in fair value of contingent consideration during the six months ended June 30, 2013.

Operating activities provided $7.5 million of net cash during the six months ended June 30, 2012, which resulted from our net income of $0.5 million for the six months ended June 30, 2012 principally supplemented by non-cash charges of depreciation and amortization of $3.9 million,  stock-based compensation of $3.8 million and other non-cash charges of $0.4 million and cash provided by a decrease in prepaid expenses and other assets of $0.6 million. Cash provided by operating activities was adversely impacted by a $0.9 million decrease in accrued liabilities and a $0.8 million decrease in deferred revenue during the six months ended June 30, 2012.

Cash Flows from Investing Activities

Cash used in investing activities totaled $10.6 million during the six months ended June 30, 2013 and consisted of $9.6 million paid in connection with the Telwares, Anomalous, ttMobiles, Symphony and oneTEM acquisitions, net of cash acquired and capital expenditures of $1.0 million primarily related to the purchase of computer equipment and software.

Cash used in investing activities totaled $10.0 million during the six months ended June 30, 2012 and consisted of $9.2 million paid in connection with the 2012 acquisitions, net of cash acquired and capital expenditures of $0.8 million primarily related to the purchase of computer equipment and software.

Cash Flows from Financing Activities

Cash flows used in financing activities totaled $6.0 million during the six months ended June 30, 2013 primarily consisting of $6.2 million of cash used to repurchase our common stock, which includes $1.7 million of cash paid for shares repurchased in trades entered in 2012 which settled in 2013, and debt repayments of $0.4 million partially offset by proceeds from the exercise of stock options and stock warrants of $0.7 million.

Cash flows provided by financing activities totaled $37.6 million during the six months ended June 30, 2012 primarily due to $37.8 million of net proceeds from our follow-on offering, net of underwriting discounts and commissions and offering costs, and $2.5 million in proceeds from the exercise of stock options and stock warrants.  Cash provided by financing activities was adversely impacted by debt repayments of $2.8 million.

40

Contractual Obligations

The following table summarizes our material contractual obligations at June 30, 2013 and the effect such obligations are expected to have on our liquidity and cash flows in future periods.

	Payments due by period
	Less than								More than
(dollars in thousands)	Total		1 year		1-3 years		3-5 years		5 years
Operating lease obligations	$	21,546	$	6,728	$	12,636	$	2,092	$	90
Capital lease and other obligations	403		381		22		—		—
Interest on capital lease obligations	16		15		1		—		—
Symphony deferred purchase price	6,206		6,206
ProfitLine deferred purchase price	4,500		4,500		—		—		—
HCL-EMS contingent consideration	1,891		1,891		—		—		—
oneTEM deferred purchase price	616		460		104		52
	$	34,562	$	20,181	$	12,763	$	2,144	$	90

·Operating lease obligations include minimum lease obligations with remaining terms in excess of one year primarily related to office space as well as certain equipment.

·Capital lease and other obligations include minimum lease obligations with remaining terms in excess of one year related to computer hardware and software.

·Symphony deferred purchase price consists of $6.4 million of deferred cash consideration payable on August 8, 2013.

·ProfitLine deferred purchase price consists of $4.5 million of deferred cash consideration payable on June 19, 2013, which was paid in July 2013.

·HCL-EMS contingent consideration consists of a payment payable following the second anniversary of the HCL-EMS closing date of January 25, 2011.

·oneTEM deferred purchase price consists of $0.6 million, which includes $0.4 million of deferred purchase price payable on the April 18, 2014 and contingent consideration totaling $0.2 million payable following the next 4 anniversaries of the oneTEM closing date of April 18, 2013.

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet financing activities, nor do we have any interest in entities referred to as variable interest entities.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, refer to Note 3 to our financial statements included in the 2012 Form 10-K.

41

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates as well as, to a lesser extent, inflation. We may also face exchange rate risk in the future, as we expand our business internationally.

Interest Rate Risk

At June 30, 2013, we had unrestricted cash and cash equivalents totaling $44.1 million. These amounts were held for working capital purposes and were invested primarily in deposits and money market funds. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce future investment income.

Foreign Exchange Risk

We sell our solution worldwide. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Since our sales are currently denominated in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets and our accounts receivable more difficult to collect. We do not currently hedge our exposure to foreign currency exchange rate fluctuations and we believe that we do not have any material exposure to changes in foreign currency exchange rates. We may, however, hedge such exposure to foreign currency exchange rate fluctuations in the future.

Inflation Risk

Inflation and changing prices have not had a material effect on our business, and we do not expect that they will materially affect our business in the foreseeable future. However, the impact of inflation on replacement costs of equipment, cost of revenue and operating expenses, especially employee compensation costs, may not be readily recoverable in the pricing of our offerings.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2013, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of such date.

Changes in Internal Controls

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

42

PART II -OTHER INFORMATION

Item 1. Legal Proceedings

We are from time to time subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, our management does not believe that the outcome of any of these legal matters will have a material adverse effect on our consolidated financial statements.

On March 1, 2013, Lewis Stein, a purported purchaser of our common stock, filed a complaint in the United States District Court for the District of Connecticut against us, our President and Chief Executive Officer and our Chief Financial Officer, Stein v. Tangoe, Inc., Albert R. Subbloie, Jr. and Gary R. Martino.  The plaintiff alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated under the Exchange Act. The plaintiff seeks to represent a class of purchasers of our common stock from December 20, 2011 through September 5, 2012 and alleges that during this period the market price of our common stock was inflated by false or misleading statements principally concerning the results of our business.  On April 30, 2013, Mr. Stein and another purported purchaser of our common stock, James Gibson, filed a motion to be appointed as lead plaintiffs in connection with this putative class action and to have their attorneys approved as lead counsel.  The court held a hearing on May 13, 2013 to appoint a lead plaintiff and lead counsel for all of the cases consolidated with this action.  The court denied without prejudice Mr. Stein’s and Mr. Gibson’s motion to be appointed as lead plaintiffs in connection with this putative class action and to have their attorneys approved as lead counsel.  On May 17, 2013, Mr. Gibson withdrew his request to be appointed as lead plaintiff in connection with this putative class action, and Mr. Stein filed a renewed request to be appointed as lead plaintiff in connection with this putative class action and to have his attorneys approved as lead counsel.  The court has not yet ruled on Mr. Stein’s renewed motion.  The outcome of this matter is not presently determinable.

On March 15, 2013, Calvin Rector, a purported purchaser of our common stock, filed a complaint in the United States District Court for the District of Connecticut against us, our President and Chief Executive Officer and our Chief Financial Officer, Rector v. Tangoe, Inc., Albert R. Subbloie, Jr. and Gary R. Martino.  The plaintiff alleges violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated under the Exchange Act. The plaintiff seeks to represent a class of purchasers of our common stock from December 20, 2011 through September 5, 2012 and alleges that during this period the market price of our common stock was inflated by false or misleading statements principally concerning the results of our business.  On April 3, 2013, the Court consolidated this case with the Stein case discussed above.  Mr. Rector has not moved to be appointed lead plaintiff in the consolidated Stein case.  The outcome of this matter is not presently determinable.

On April 12, 2013, Timothy Kelley, a purported purchaser of our common stock, filed a complaint in the United States District Court for the District of Connecticut against us, our President and Chief Executive Officer and our Chief Financial Officer, Kelley v. Tangoe, Inc., Albert R. Subbloie, Jr. and Gary R. Martino.  The plaintiff alleges violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated under the Exchange Act. The plaintiff seeks to represent a class of purchasers of our common stock from December 20, 2011 through September 5, 2012 and alleges that during this period the market price of our common stock was inflated by false or misleading statements principally concerning the results of our business.  On April 26, 2013, the court consolidated the case with the Stein case discussed above.  Mr. Kelley has not moved to be appointed lead plaintiff in the consolidated Stein case. The outcome of this matter is not presently determinable.

Item 1A. Risk Factors

Risks Related to Our Business and Our Industry

We have had a history of losses since our incorporation in February 2000.

We were incorporated in February 2000.  We experienced net losses of $2.6 million in 2009, $1.8 million in 2010 and $3.0 million in 2011. Although we were profitable for the year ended December 31, 2012 and the six months ended June 30, 2013 with net income of $3.0 million and $1.7 million, respectively, we cannot predict if we will be able to maintain profitability in the future. We expect to continue making significant future expenditures to develop and expand our business.   As a result of these increased expenditures, we will have to generate and sustain substantially increased revenue to maintain profitability, which we may be unable to do. We may also encounter unforeseen difficulties, complications, product delays and other unknown factors that require additional expenditures. In addition, the percentage growth rates we achieved in prior periods may not be sustainable and we may not be able to increase our revenue sufficiently in absolute dollars to maintain profitability and we may incur significant losses for the foreseeable future.

If the market for communications lifecycle management services does not grow as we expect, our business will be harmed.

The market for communications lifecycle management, or CLM, services is developing, and it is not certain whether these services will achieve market acceptance and sustain high demand. Some businesses have invested substantial personnel and financial resources into

43

developing internal solutions for CLM, so they may not perceive the benefit of our external solution. If businesses do not perceive the benefits of outsourced CLM services, the CLM market may not continue to develop or may develop more slowly than we expect, either of which would reduce our revenue and profitability.

Our quarterly operating results may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of research analysts or investors, which could cause our stock price to decline.

Our quarterly operating results may fluctuate as a result of a variety of factors, many of which are outside of our control. If our quarterly operating results or guidance fall below the expectations of research analysts or investors, the price of our common stock could decline substantially. Fluctuations in our quarterly operating results or guidance may be due to a number of factors, including, but not limited to:

·our ability to attract new customers, obtain renewals from existing customers and increase sales to existing customers;

·the purchasing and budgeting cycles of our customers;

·changes in our pricing policies or those of our competitors;

·the amount and timing of operating costs and capital expenditures related to the operation, maintenance and expansion of our business;

·service outages or security breaches;

·the timing and success of new service introductions and upgrades by us or our competitors;

·the timing of costs related to the development or acquisition of technologies, services or businesses;

·the timing of collection of payments from channel partners;

·the financial condition of our customers; and

·general economic, industry and market conditions.

In addition, the accounting treatment of the warrant shares that may become issuable to Dell could have an impact on our quarterly operating results. We currently value the warrant shares that are deemed probable of becoming exercisable on a mark-to-market basis until they are earned. Increases or decreases in our stock price will affect the mark-to-market adjustments of the common stock warrant shares, which will increase or decrease contra-revenue charges. The value of the warrant shares will fluctuate until the warrant shares are deemed exercisable and the value is fixed. This accounting treatment is applicable whether or not our Dell-related revenue actually increases or decreases in line with the market value of our common stock, and thus could cause significant fluctuations in our quarterly operating results.

Because we collect and recognize revenue over the terms of our customer agreements, the lack of customer renewals or new customer agreements may not be immediately reflected in our operating results.

We collect and recognize revenue from our customers over the terms of their customer agreements with us. As a result, the aggregate effect of a decline in new or renewed customer agreements in any one quarter would not be fully recognized in our revenue for that quarter and would negatively affect our revenue in future quarters. Consequently, the aggregate effect of significant downturns in sales of our solution would not be fully reflected in our results of operations until future periods. For instance, as a result of the financial crisis in the second half of 2008, we experienced a higher-than-normal cancellation rate in the first three months of 2009, much of which was attributable to customers that had gone out of business. As a result of such cancellations, our total revenue for the following periods was negatively affected. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers is generally collected and recognized over the applicable contract term.

If we are unable to retain our existing customers, our revenue and results of operations would grow more slowly than expected or decline and results of operations would be impaired.

We sell our on-demand software products and related services pursuant to agreements that are generally two to five years  in duration, and have in some cases acquired businesses with  customer contracts with shorter  terms. Our customers have no obligation to renew their agreements after their terms expire and some of our customers may terminate their agreements for convenience. These agreements may not be maintained or renewed on the same or on more profitable terms. As a result, our ability to both maintain and grow our revenue depends in part on customer renewals. We may not be able to accurately predict future trends in customer renewals, and our

44

customers’ renewal rates may decline or fluctuate because of several factors, including their satisfaction or dissatisfaction with our software products, the prices of our software products, the prices of products and services offered by our competitors or reductions in our customers’ spending levels. In addition, customers that are acquired by companies using competing service offerings may be required to begin using those competing service offerings, rather than renew their license arrangements with us. If our customers do not renew their agreements for our software products, renew on less favorable terms, or do not purchase additional functionality, our revenue may grow more slowly than expected or decline.

We face intense competition, and our failure to compete successfully would make it difficult for us to add and retain customers and would impede the growth of our business.

The CLM market is highly fragmented, competitive and rapidly evolving. We compete with other technology and outsourced service providers selling telecommunications expense management and/or mobile device management solutions as well as with solutions developed internally by enterprises seeking to manage their communications expenses and assets. We compete with other technology and outsourced service providers primarily on the basis of customer references, ability to deliver, breadth of solution and pricing. We and other technology and outsourced service providers compete with internally developed CLM solutions primarily on the basis of the relative cost of implementing a third-party solution as compared to inefficiencies or lack of functionality in internally developed CLM solutions.

The intensity of competition in the CLM market has resulted in pricing pressure as the market has developed. We expect the intensity of competition to increase in the future as existing competitors develop their capabilities and as new companies, which could include mobile technology and solution providers and one or more large communications carriers, enter our market. Some of these competitors, such as large communications carriers, may offer telecommunications expense management and/or mobile device management solutions as part of a broad outsource offering for mobile communications services. Increased competition could result in additional pricing pressure, reduced sales, shorter term lengths for customer contracts, lower margins or the failure of our solution to achieve or maintain broad market acceptance. If we are unable to compete effectively, it will be difficult for us to maintain our pricing rates and add and retain customers, and our business, financial condition and results of operations will be harmed.

Some of our actual and potential competitors may enjoy competitive advantages over us, such as greater name recognition, longer operating histories, more varied services and larger marketing budgets, as well as greater financial, technical and other resources. As a result, our competitors may be able to respond more quickly than we can to new or changing opportunities, technologies, standards or customer requirements or devote greater resources to the promotion and sale of their products and services than we can.

Industry consolidation may result in increased competition.

The CLM market is highly fragmented, and we believe that it is likely that some of our existing competitors will consolidate or will be acquired. Some of our competitors have made or may make acquisitions or may enter into partnerships or other strategic relationships to offer a more comprehensive solution than they individually had offered. In addition, new entrants not currently considered to be competitors may enter the market through acquisitions, partnerships or strategic relationships, such as with Vodafone’s acquisitions of TnT Expense Management and Quickcomm in October 2010, Emptoris’ acquisition of Rivermine in January 2011 and the subsequent acquisition of Emptoris/Rivermine by IBM in February 2012 and Dimension Data’s acquisition of Xigo in December 2012. We expect these trends to continue as companies attempt to strengthen or maintain their market positions. The companies resulting from such combinations may create more compelling service offerings and may offer greater pricing flexibility than we can or may engage in business practices that make it more difficult for us to compete effectively, including on the basis of price, sales and marketing programs, technology or service functionality. In addition, combinations such as IBM’s acquisition of Emptoris/Rivermine may result in situations in which we may begin to compete in some CLM offerings with companies with which we have partnerships or strategic relationships.  Any of the competitive pressures described above could result in a substantial loss of customers or a reduction in our revenue.

We are currently migrating to our platforms the customers of several businesses that we recently acquired and we may in the future expand by acquiring or investing in other businesses, which may divert our management’s attention and consume resources that are necessary to sustain our business.

We are currently migrating the customers of HCL-EMS, ProfitLine and Symphony, which we acquired during 2011 and 2012.   While to date we have successfully migrated a number of these customers, there can be no assurance that we will complete the migration in a timely manner or at all and the cost of such migration may be more significant than we have estimated.   Our business strategy includes the potential future acquisition of, or investment in, complementary businesses, services or technologies. These acquisitions, investments or new business relationships may result in unforeseen difficulties and expenditures. We may encounter difficulties assimilating or integrating the businesses, technologies, products, services, personnel or operations of companies we have acquired or companies that we may in the future acquire. These difficulties may arise if the key personnel of the acquired company choose not to work for us, the company’s technology or services do not easily integrate with ours or we have difficulty retaining the acquired company’s customers due to changes in its management or for other reasons. These acquisitions may also disrupt our business, divert our resources and require significant management attention that

45

would otherwise be available for development of our business. Moreover, the anticipated benefits of any acquisition, investment or business relationship may not be realized or we may be exposed to unknown liabilities. In addition, any future acquisition may require us to:

·issue additional equity securities that would dilute our stockholders;

·use cash that we may need in the future to operate our business;

·incur debt on terms unfavorable to us or that we are unable to repay;

·incur large charges or substantial liabilities; or

·become subject to adverse tax consequences, substantial depreciation or deferred compensation charges.

If any of these risks materializes, our business and operating results would be harmed.

Our sales cycles can be long, unpredictable and require considerable time and expense, which may cause our operating results to fluctuate.

Our sales cycle, which is the time between initial contact with a potential customer and the ultimate sale, is often lengthy and unpredictable. Some of our potential customers already have partial CLM solutions in place under fixed-term contracts, which limits their ability to commit to purchase our solution in a timely fashion. In addition, our potential customers typically undertake a significant evaluation process that can last six to nine months or more, and which requires us to expend substantial time, effort and money educating them about the capabilities of our offerings and the potential cost savings they can bring to an organization. Furthermore, the purchase of our solution typically also requires coordination and agreement across many departments within a potential customer’s organization, which further contributes to our lengthy sales cycle. As a result, we have limited ability to forecast the timing and size of specific sales. Any delay in completing, or failure to complete, sales in a particular quarter or year could harm our business and could cause our operating results to vary significantly.

If a communications carrier prohibits customer disclosure of communications billing and usage data to us, the value of our solution to customers of that carrier would be impaired, which may limit our ability to compete for their business.

Certain of the software functionality and services we offer depend on our ability to access a customer’s communications billing and usage data. For example, our ability to offer outsourced or automated communications bill auditing, billing dispute resolution, bill payment, cost allocation and expense optimization depends on our ability to access this data. If a communications carrier were to prohibit its customers from disclosing this information to us, those enterprises would only be able to use these billing-related aspects of our solution on a self-serve basis, which would impair the value of our solution to those enterprises. This in turn could limit our ability to compete with the internally developed CLM solutions of those enterprises, require us to incur additional expenses to license access to that billing and usage data from the communications carrier, if such a license is made available to us at all, or put us at a competitive disadvantage against any third-party CLM service provider that licenses access to that data.

Our long-term success depends, in part, on our ability to expand the sales of our solution to customers located outside of the United States, and thus our business is susceptible to risks associated with international sales and operations.

We are currently expanding our international sales and operations, including particularly in the United Kingdom, the Netherlands, Germany, other parts of Europe, Canada, India, China, Australia and Latin America. This international expansion will subject us to new risks that we have not faced in the United States and the countries in which we currently conduct business. These risks include:

·continued geographic localization of our software products, including translation into foreign languages and adaptation for local practices and regulatory requirements;

·lack of familiarity with and unexpected changes in foreign regulatory requirements;

·longer accounts receivable payment cycles and difficulties in collecting accounts receivable;

·difficulties in managing and staffing international implementations and operations;

·challenges in integrating our software with multiple country-specific billing or communications support systems for international customers;

·challenges in providing procurement, help desk and fulfillment capabilities for our international customers;

46

·fluctuations in currency exchange rates;

·potentially adverse tax consequences, including the complexities of foreign value added or other tax systems and restrictions on the repatriation of earnings;

·the burdens of complying with a wide variety of foreign laws and legal standards;

·increased financial accounting and reporting burdens and complexities;

·potentially slower adoption rates of CLM services internationally;

·political, social and economic instability abroad, terrorist attacks and security concerns in general; and

·reduced or varied protection for intellectual property rights in some countries.

Operating in international markets also requires significant management attention and financial resources. The investment and additional resources required to establish operations and manage growth in other countries may not produce desired levels of revenue or profitability.

Further expansion into international markets could require us to comply with additional billing, invoicing, communications, data privacy and similar regulations, which could make it costly or difficult to operate in these markets.

Many international regulatory agencies have adopted regulations related to where and how communications bills may be sent and how the data on such bills must be handled and protected. For instance, certain countries, such as Germany, restrict communications bills from being sent outside of the country, either physically or electronically, and certain countries, such as Brazil, Germany, Italy and Spain, require that certain information be encrypted or redacted before bills may be transmitted electronically. These regulations vary from jurisdiction to jurisdiction and international expansion of our business could subject us to additional similar regulations. Failure to comply with these regulations could result in significant monetary penalties and compliance with these regulations could require expenditure of significant financial and administrative resources.

In addition, personally identifiable information is increasingly subject to legislation and regulations in numerous jurisdictions around the world, the intent of which is to protect the privacy of personal information that is collected, processed and transmitted in or from the governing jurisdiction. Our failure to comply with applicable privacy laws and regulations or any security breakdown that results in the unauthorized release of personally identifiable information or other customer data could result in fines or proceedings by governmental agencies or private individuals, which could harm our results of operations.

If we fail to effectively manage and develop our strategic relationships with our channel partners, or if those third parties choose not to market and sell our solution, our operating results would suffer.

The successful implementation of our strategic goals is dependent in part on strategic relationships with our channel partners to offer our solution to a larger customer base than we can reach through our current direct sales and marketing efforts. Some of our strategic relationships are relatively new and, therefore, it is uncertain whether these third parties will be able to market and sell our solution successfully or provide the volume and quality of customers that we currently expect.

Our success depends in part on the ultimate success of our channel partners and their ability to market and sell our solution. Some of these third parties have previously entered, and may in the future enter, into strategic relationships with our competitors. For example, IBM acquired Emptoris in February 2012, and Rivermine is a subsidiary of Emptoris. Further, many of our channel partners have multiple strategic relationships and they may not regard us as significant to their businesses. Our channel partners may terminate their respective relationships with us, pursue other partnerships or relationships, or attempt to develop or acquire products or services that compete with our solution. Our channel partners also may interfere with our ability to enter into other desirable strategic relationships.

If we are unable to manage and develop our strategic relationships, our potential customer base may grow more slowly than we anticipate and we may have to devote substantially more resources to the distribution, sales and marketing of our solution, which would increase our costs and decrease our earnings.

We have experienced rapid growth in recent periods. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service or address competitive challenges adequately.

We increased our number of full-time employees from 347 at December 31, 2008, to 439 at December 31, 2009, to 541 at December 31, 2010, to 1,004 at December 31, 2011 and to 1,383 at December 31, 2012, and our total revenue from $37.5 million in 2008, to

47

$55.9 million in 2009, to $68.5 million in 2010, to $104.9 million in 2011 and to $154.5 million in 2012. Our growth has placed, and may continue to place, a significant strain on our managerial, administrative, operational, financial and other resources. We intend to further expand our overall business, customer base, headcount and operations both domestically and internationally. Growing and managing a global organization and a geographically dispersed workforce will require substantial management effort and significant additional investment in our infrastructure. We will be required to continue to improve our operational, financial and management controls and our reporting procedures and we may not be able to do so effectively.

The loss of key personnel or an inability to attract and retain additional personnel may impair our ability to grow our business.

We are highly dependent upon the continued service and performance of our senior management team and key technical and sales personnel, including our founder, President and Chief Executive Officer, and none of these individuals is party to an employment agreement with us. The replacement of these individuals likely would involve expenditure of significant time and financial resources, and their loss might significantly delay or prevent the achievement of our business objectives.

We plan to continue to expand our work force both domestically and internationally to increase our customer base and revenue. We face intense competition for qualified individuals from numerous technology, software and communications companies. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of personnel to support our growth. New hires may require significant training and may take significant time before they achieve full productivity. Our recent hires and planned hires may not become as productive as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals. If our recruiting, training and retention efforts are not successful or do not generate a corresponding increase in revenue, our business will be harmed.

Our software manages and interfaces with our customers’ mission-critical networks and systems. Disruptions in the functioning of these networks and systems caused by our software could subject us to substantial liability and damage our reputation.

We assist our customers in the management of their mission-critical communications networks and systems and our software directly interfaces with these networks and systems as well as with enterprise resource planning and other enterprise software and systems. Failures of software could result in significant interruptions in our customers’ communications capabilities and enterprise operations. For example, unknown defects in our mobile device management software, or unknown incompatibilities of this software with our customers’ mobile devices, could result in losses of functionality of these devices. If such interruptions occur, we may not be able to remedy them in a timely fashion and our customers’ ability to operate their enterprises could be severely compromised. Such interruptions could cause our customers to lose revenue and could damage their reputations. In turn, these disruptions could subject us to substantial liabilities and result in irreparable damage to our reputation, delays in payments from our customers or refusals by our customers to make such payments, any of which could harm our business, financial condition or results of operations.

The emergence of one or more widely used, standardized communications devices or billing or operational support systems could limit the value and operability of our solution and our ability to compete with the manufacturers of such devices or the carriers using such systems in providing CLM services.

Our solution derives its value in significant part from our software’s ability to interface with and support the interoperation of diverse communications devices, billing systems and operational support systems. The emergence of a single or a small number of widely used communications devices, billing systems or operational support systems using consolidated, consistent sets of standardized interfaces for the interaction between communications service providers and their enterprise customers could significantly reduce the value of our solution to our customers and potential customers. Furthermore, any such communications device, billing system or operational support system could make use of proprietary software or technology standards that our software might not be able to support. In addition, the manufacturer of such device, or the carrier using such billing system or operational support system, might actively seek to limit the interoperability of such device, billing system or operational support system with our software products for competitive or other reasons. The resulting lack of compatibility of our software products would put us at a significant competitive disadvantage, or entirely prevent us from competing, in that segment of the potential CLM market if such manufacturer or carrier, or its authorized licensees, were to develop one or more CLM solutions competitive with our solution.

A continued proliferation and diversification of communications technologies or devices could increase the costs of providing our software products or limit our ability to provide our software products to potential customers.

Our ability to provide our software products is dependent on the technological compatibility of our systems with the communications infrastructures and devices of our customers and their communications service providers. The development and introduction of new communications technologies and devices requires us to expend significant personnel and financial resources to develop and maintain interoperability of our software products with these technologies and devices. The communications industry has recently been characterized by rapid change and diversification in both product and service offerings. Continued proliferation of communications products and services could significantly increase our research and development costs and increase the lag time between the initial release of new technologies and

48

products and our ability to provide support for them in our software products, which would limit the potential market of customers that we have the ability to serve.

We may not successfully develop or introduce new and enhanced software and service offerings, and as a result we may lose existing customers or fail to attract new customers and our revenue may suffer.

Our future financial performance and revenue growth depend upon the successful development, introduction and customer acceptance of new and enhanced versions of our software and service offerings. We are continually seeking to develop and acquire enhancements to our solution as well as new offerings to supplement our existing solution and we are subject to all of the risks inherent in the development and integration of new technologies, including unanticipated performance, stability, and compatibility problems, any of which could result in material delays in introduction and acceptance, significantly increased costs, adverse publicity and loss of sales. If we are unable to deliver new solutions or upgrades or other enhancements to our existing solution on a timely and cost-effective basis, our business will be harmed.

We may not be able to respond to rapid technological changes with new software products and services, which could harm our sales and profitability.

The CLM market is characterized by rapid technological change and frequent new product and service introductions, driven in part by frequent introductions of new technologies and devices in the communications industry, frequent changes in, and resulting inconsistencies between, the billing platforms utilized by major communications carriers and the changing demands of customers regarding the means of delivery of CLM solutions. To achieve and maintain market acceptance for our solution, we must effectively anticipate these changes and offer software products and services that respond to them in a timely manner. Customers may require features and capabilities that our current solution does not have. If we fail to develop software products and services that satisfy customer preferences in a timely and cost-effective manner, our ability to renew our agreements with existing customers and our ability to create or increase demand for our solution will be harmed.

Actual or perceived breaches of our security measures could diminish demand for our solution and subject us to substantial liability.

In the processing of communications transactions, we receive, transmit and store a large volume of sensitive customer information, including call records, billing records, contractual terms, and financial and payment information, including credit card information, and we have entered into contractual obligations to maintain the confidentiality of certain of this information. Any person who circumvents our security measures could steal proprietary or confidential customer information or cause interruptions in our operations and any such lapse in security could expose us to litigation, substantial contractual liabilities, loss of customers or damage to our reputation or could otherwise harm our business. We incur significant costs to protect against security breaches and may incur significant additional costs to alleviate problems caused by any breaches.

If customers believe that our systems and software products do not provide adequate security for the storage of confidential information or its transmission over the Internet or corporate extranets, or are otherwise inadequate for Internet or extranet use, our business will be harmed. Customers’ concerns about security could deter them from using the Internet to conduct transactions that involve confidential information, including transactions of the types included in our solution, so our failure to prevent security breaches, or the occurrence of well-publicized security breaches affecting the Internet in general, could significantly harm our business and financial results.

If we are unable to protect our intellectual property rights and other proprietary information, it will reduce our ability to compete for business.

If we are unable to protect our intellectual property rights and other proprietary information, our competitors could use our intellectual property to market software products similar to our own, which could decrease demand for our solution. We rely on a combination of patent, copyright, trademark, service mark and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our intellectual property rights and proprietary information, all of which provide only limited protection.  We have fifteen issued patents and sixteen patent applications pending. We cannot assure you that our issued patents, any patents that may issue from our patent applications pending or any other intellectual property rights that we currently hold or may in the future acquire will prove to be enforceable in actions against alleged infringers or otherwise provide sufficient protection of any competitive advantages that we may have.  In addition, any action that we take to enforce our patents or other intellectual property rights may be costly, time-consuming and a significant diversion of management attention from the continued growth and development of our business.

We endeavor to enter into agreements with our employees and contractors and agreements with parties with whom we do business to limit access to and disclosure of our proprietary information. The steps we have taken, however, may not prevent unauthorized use or the reverse engineering of our technology. Moreover, others may independently develop technologies that are competitive with ours or infringe our intellectual property. Enforcement of our intellectual property rights also depends on our successful legal actions against these infringers, but these actions may not be successful, even when our rights have been infringed.

49

Furthermore, effective patent, copyright, trademark, service mark and trade secret protection may not be available in every country in which we offer our software products.

Assertions by a third party that our software products or technology infringes its intellectual property, whether or not correct, could subject us to costly and time-consuming litigation or expensive licenses.

There is frequent litigation in the communications and technology industries based on allegations of infringement or other violations of intellectual property rights. As we face increasing competition and become increasingly visible as a publicly traded company, the possibility of intellectual property rights claims against us may grow. These claims, whether or not successful, could:

·divert management’s attention;

·result in costly and time-consuming litigation;

·require us to enter into royalty or licensing agreements, which may not be available on acceptable terms, or at all; or

·require us to redesign our software products to avoid infringement.

As a result, any third-party intellectual property claims against us could increase our expenses and impair our business.

In addition, although we have licensed proprietary technology, we cannot be certain that the owners’ rights in such technology will not be challenged, invalidated or circumvented. Furthermore, many of our customer agreements require us to indemnify our customers for certain third-party intellectual property infringement claims, which could increase our costs as a result of defending such claims and may require that we pay damages if there were an adverse ruling related to any such claims. These types of claims could harm our relationships with our customers, may deter future customers from purchasing our software products or could expose us to litigation for these claims. Even if we are not a party to any litigation between a customer and a third party, an adverse outcome in any such litigation could make it more difficult for us to defend our intellectual property in any subsequent litigation in which we are a named party.

We outsource certain of our research and development activities to third-party contractors, and a loss of or deterioration in these relationships could adversely affect our ability to introduce new software products or enhancements in a timely fashion.

Certain of our research and development activities are carried out by third-party contractors, located both in the United States and abroad. The loss of or deterioration in any of these relationships for any reason could require us to establish alternative relationships or to complete these research and development activities using our internal research and development staff, either of which could result in increased costs to us and impair our ability to introduce new software products or enhancements in a timely fashion. Our use of such third-party contractors also increases the risk that our intellectual property could be misappropriated or otherwise disclosed to our competitors, either of which could harm our competitiveness and harm our future revenue.

Defects or errors in our software products could harm our reputation, impair our ability to sell our products and result in significant costs to us.

Our software products are highly complex and may contain undetected defects or errors, including defects and errors arising from the work of our outsourced development teams, that may result in product failures or otherwise cause our software products to fail to perform in accordance with customer expectations. Because our customers use our software products for important aspects of their businesses, any defects or errors in, or other performance problems with, our software products could hurt our reputation and may damage our customers’ businesses. If that occurs, we could lose future sales or our existing customers could elect to not renew their customer agreements with us. Product performance problems could result in loss of market share, failure to achieve market acceptance and the diversion of development resources from software enhancements. If our software products fail to perform or contain a technical defect, a customer might assert a claim against us for damages. We may not have contractual limitations on damages claims that could be asserted against us. Whether or not we are responsible for our software’s failure or defect, we could be required to spend significant time and money in litigation, arbitration or other dispute resolution, and potentially pay significant settlements or damages.

We use a limited number of data centers to deliver our software products. Disruption of service at these facilities could harm our business.

We host our software products and serve all of our customers from twelve third-party data center facilities. We do not control the operation of these facilities. American Internet Services operates our data center in San Diego, California; AT&T operates our data centers in Secaucus, New Jersey and the Netherlands; Data Foundry operates our data center in Austin, Texas; iWeb Technologies operates our data center in Montreal, Canada; NTT Communications operates one of our data centers in Slough, United Kingdom and our data center in London, United Kingdom; FireHost operates our other data center in Slough, United Kingdom; Amazon Web Services operates our data center in Sydney, Australia and our data center in Dublin, Ireland; Verizon Business operates our data center in Billerica, Massachusetts; and

50

SunGard operates our data center in Nashville, Tennessee.  Our agreements for the use of these data center facilities vary in term length, some being month-to-month and others expiring at various dates from 2013 through 2016. The owners of these facilities have no obligation to continue such arrangements beyond their current terms, which are as short as the current month in the case of month-to-month arrangements, nor are they obligated to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to continue such arrangements or renew these agreements on commercially reasonable terms, we may be required to transfer to new data center facilities and we may incur significant costs in connection with doing so. Any changes in third-party service levels at our data centers or any errors, defects, disruptions or other performance problems with our software products could harm our reputation and damage our business. Interruptions in the availability of our software products might reduce our revenue, cause us to issue credits to customers, subject us to potential liability, cause customers to terminate their subscriptions or harm our renewal rates.

While we take precautions such as data redundancy, back-up and disaster recovery plans to prevent service interruptions, our data centers are vulnerable to damage or interruption from human error, intentional bad acts, pandemics, earthquakes, hurricanes, floods, fires, war, terrorist attacks, power losses, hardware failures, systems failures, communications failures and similar events. The occurrence of a natural disaster or an act of terrorism, or vandalism or other misconduct, a decision to close the facilities without adequate notice or other unanticipated problems could result in lengthy interruptions in the availability of our software products.

If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.

Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be evaluated frequently. Our internal control over financial reporting constitutes a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States of America.  Under Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, our management is required to evaluate the effectiveness of our internal control over financial reporting as of the end of each fiscal year and to report on this evaluation in our Annual Report on Form 10-K for the year.  In addition, so long as we remain an accelerated filer or a large accelerated filer under the rules of the Securities and Exchange Commission, or the SEC, our independent registered public accounting firm will be required to audit our management’s annual evaluation of internal control over financial reporting and report on this audit in our Annual Report on Form 10-K for the year. If we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material, the market price of our stock may decline and we could be subject to sanctions or investigations by the NASDAQ Stock Market, the SEC or other regulatory authorities.

The technologies in our software products may be subject to open source licenses, which may restrict how we can use or distribute our software products or require that we release the source code of our software products subject to those licenses.

Certain of our software products incorporate so-called “open source” software, and we may incorporate further open source software into our software products in the future. Such open source software is generally licensed by its authors or other third parties under open source licenses. If we fail to comply with these licenses, we may be subject to certain conditions, including requirements that we offer our software products that incorporate the open source software for no cost, that we make available the source code for modifications or derivative works we create based upon, incorporating or using the open source software and that we license such modifications or derivative works under the terms of the particular open source license. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our software products that contain the open source software and required to comply with the foregoing conditions.

We provide minimum service-level commitments to many of our customers, and our inability to meet those commitments could result in significant loss of customers, harm to our reputation and costs to us.

Many of our customer agreements currently, and may in the future, require that we meet minimum service level commitments regarding items such as platform availability, invoice processing speed and order processing speed. If we are unable to meet the stated service level commitments under these agreements many of our customers will have the right to terminate their agreements with us and we may be contractually obligated to provide our customers with credits or pay other penalties. If our software products are unavailable for significant periods of time we may lose a substantial number of our customers as a result of these contractual rights, we may suffer harm to our reputation and we may be required to provide our customers with significant credits or pay our customers significant contractual penalties, any of which could harm our business, financial condition, results of operations.

51

Risks Related to Ownership of Our Common Stock

Insiders have substantial control over us and will be able to influence corporate matters.

As of August 2, 2013, our directors and executive officers and their affiliates beneficially owned, in the aggregate, approximately 20.2% of our outstanding common stock.  As a result, these stockholders will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or its assets. This concentration of ownership could limit your ability to influence corporate matters and may have the effect of delaying or preventing a third party from acquiring control over us.

Our failure to raise additional capital or generate the cash flows necessary to expand our operations and invest in our software products could reduce our ability to compete successfully.

We may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all. If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests, and the per-share value of our common stock could decline. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness and force us to maintain specified liquidity or other ratios. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:

·develop or enhance our software products;

·continue to expand our research and development and sales and marketing efforts;

·acquire complementary technologies, products or businesses;

·expand our operations, in the United States or internationally;

·hire, train and retain employees; or

·respond to competitive pressures or unanticipated working capital requirements.

An active trading market for our common stock may not be sustained, and investors may not be able to resell their shares at or above the price at which such shares were purchased.

Although we have listed our common stock on The NASDAQ Global Select Market, an active trading market for our shares may not be sustained. In the absence of an active trading market for our common stock, investors may not be able to sell their common stock at or above the prices at which they acquired their shares or at the time that they would like to sell.

Our stock price may be volatile, and the market price of our common stock may decrease.

The market price of our common stock may be subject to significant fluctuations. Our stock price is volatile, and from July 27, 2011, the first day of trading of our common stock, to August 2, 2013, the trading prices of our stock have ranged from $8.01 to $23.05 per share. As a result of this volatility, investors may not be able to sell their common stock at or above the price they paid for it. Some of the factors that may cause the market price of our common stock to fluctuate include:

·fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

·changes in estimates of our financial results or recommendations by securities analysts;

·failure of any of our software products to achieve or maintain market acceptance;

·changes in market valuations of similar companies;

·success of competitive products or services;

·changes in our capital structure, such as future issuances of securities or the incurrence of debt;

·announcements by us or our competitors of significant products, services, contracts, acquisitions or strategic alliances;

52

·regulatory developments in the United States, foreign countries or both;

·litigation involving our company, our general industry or both;

·additions or departures of key personnel;

·general perception of the future of the CLM market or our software products;

·investors’ general perception of us; and

·changes in general economic, industry and market conditions.

In addition, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to class action lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

A significant portion of our total outstanding shares may be sold into the public market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time.  Our outstanding shares of common stock may be freely sold in the public market at any time to the extent permitted by Rules 144 and 701 under the Securities Act of 1933, as amended, which we refer to as the Securities Act, or to the extent such shares have already been registered under the Securities Act and are held by non-affiliates of ours.

In addition, as of August 2, 2013, there were 6,972,247 shares subject to outstanding options and 772,365 shares subject to issuance on vesting of outstanding restricted stock units, all of which we have registered under the Securities Act on a registration statement on Form S-8. These shares will be able to be freely sold in the public market upon issuance as permitted by any applicable vesting requirements, to the extent applicable. Furthermore, as of August 2, 2013, there were 10,710 shares subject to outstanding warrants. These shares will become eligible for sale in the public market to the extent such warrants are exercised as permitted by any applicable vesting requirements and Rules 144 and 701 under the Securities Act.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations regarding our stock or if others publish or disseminate unfavorable reports or analyses regarding us, our business, our market or our stock, our stock price could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us adversely change their recommendations regarding our stock, or provide relatively more favorable recommendations about our competitors, our stock price would likely decline. If any analyst who covers us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. If others publish or disseminate unfavorable reports or analyses about us, our business, our markets or our stock, our stock price could decline.

Our management will have broad discretion over the use of our cash reserves and might not use such funds in ways that increase the value of your investment.

Our management will have broad discretion to use our cash reserves, if any, and you will be relying on the judgment of our management regarding the application of these funds. Our management might not apply these funds in ways that increase the value of your investment. Our management might not be able to yield a significant return, if any, on any investment of these cash reserves. You will not have the opportunity to influence our decisions on how to use our cash reserves.

We do not expect to declare any dividends in the foreseeable future.

We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.

53

Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

Our certificate of incorporation, bylaws and Delaware law contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions:

·authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;

·limiting the liability of, and providing indemnification to, our directors and officers;

·limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;

·requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;

·controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings;

·limiting the determination of the number of directors on our board of directors and the filling of vacancies or newly created seats on the board to our board of directors then in office; and

·providing that directors may be removed by stockholders only for cause.

These provisions, alone or together, could delay hostile takeovers and changes in control of our company or changes in our management.

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

54

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

Set forth below is information regarding our issuance of shares of common stock upon the exercise of warrants during the three months ended June 30, 2013, to the extent such transactions were not registered under the Securities Act of 1933, as amended, which we refer to as the Securities Act, including the consideration, if any, received by us in connection with these transactions.  The shares issued upon these warrant exercises were issued in reliance upon the exemption from the registration requirements of the Securities Act provided by Section 4(2) of the Securities Act.  No underwriters were involved in any such issuances.

(1)On April 7, 2013, we issued 3,187 shares of common stock to Christopher Fraser, pursuant to an exercise of a warrant we had granted to him on May 23, 2006.  We received proceeds of $3,187 related to this warrant exercise.

(2)On April 27, 2013, we issued 10,647 shares of common stock to Denise Nesi, pursuant to the exercise of a warrant for 7,098 shares of common stock we had granted to her on May 23, 2006 and the exercise of a warrant for 3,549 shares of common stock we had granted to her on June 30, 2009.  We received proceeds of $25,186 related to these warrant exercises.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information about our repurchases of equity securities during the periods indicated that are registered by us pursuant to Section 12 of the Securities Exchange Act of 1934, as amended:

					(d)
				(c)	Maximum Number (or
	(a)	(b)		Total Number of	Approximate Dollar
	Total Number	Average		Shares Purchased	Value) of Shares that May
	of Shares	Price Paid		as Part of Publicly	Yet Be Purchased
Period	Purchased (1)	per Share (2)		Announced Programs	Under the Program (1)
					$	14,065,753
April 1, 2013 - April 30, 2013	245,959	$	12.20	245,959	$	11,065,932
May 1, 2013 - May 31, 2013	—	$	0.00	—	$	11,065,932
June 1, 2013 - June 30, 2013	—	$	0.00	—	$	11,065,932
Total	245,959	$	12.20	245,959	$	11,065,932

(1)       On November 28, 2012, we announced that our board of directors had authorized a share repurchase program under which we may repurchase up to $20 million of our outstanding common stock on the open market or in privately negotiated transactions.

(2)       The Average Price Paid per Share includes broker commissions.

55

Item 6.   Exhibits

Exhibit
No.	Description of Exhibit
10.1	2011 Stock Incentive Plan, as amended (incorporated by reference to Appendix A to the Definitive proxy Statement on Schedule 14A filed by the registrant on April 22, 2013)
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS†XBRL Instance Document

101.SCH†XBRL Taxonomy Extension Schema Document

101.CAL†XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†XBRL Taxonomy Extension Definition Linkbase Document

101.LAB†XBRL Taxonomy Extension Label Linkbase Document

101.PRE†XBRL Taxonomy Extension Presentation Linkbase Document

†       XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not otherwise subject to liability under these sections.

56

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Tangoe, Inc.
Date: August 9, 2013	/s/ Gary R. Martino
	Gary R. Martino
	Chief Financial Officer

57