F-1/A 1 d552410df1a.htm F-1/A F-1/A
Table of Contents

As filed with the Securities and Exchange Commission on July 22, 2013.

Registration no. 333-189699

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1

to

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

FLEETMATICS GROUP PLC

(Exact Name of Registrant as Specified in Its Charter)

N/A

(Translation of Registrant’s Name into English)

 

Ireland   7372   27-3112485
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

Fleetmatics Group plc

Block C, Cookstown Court

Belgard Road

Tallaght

Dublin 24

Ireland

(Address, Including ZIP Code, and Telephone Number,

Including Area Code, of Registrant’s Principal Executive Offices)

FleetMatics USA, LLC

70 Walnut Street

Wellesley Hills, MA 02481

(Name, Address, Including ZIP Code, and Telephone Number,

Including Area Code, of Agent for Service)

Copies to:

James Travers

Chief Executive Officer

70 Walnut Street

2nd Floor

Wellesley Hills, MA 02481

(866) 844-2235

Kenneth J. Gordon, Esq.

Joseph C. Theis Jr., Esq.

Goodwin Procter LLP

Exchange Place

53 State Street

Boston, MA 02109

(617) 570-1000

 

Alan F. Denenberg, Esq.

Davis Polk & Wardwell LLP

1600 El Camino Real

Menlo Park, CA 94025

(650) 752-2000

Approximate date of commencement of proposed offering to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one):

 

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

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we and the selling stockholders are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JULY 22, 2013

PROSPECTUS

8,000,000 Shares

 

LOGO

Ordinary Shares

 

 

Fleetmatics Group PLC is offering 1,000,000 ordinary shares and the selling shareholders identified in this prospectus are offering 7,000,000 ordinary shares. We will not receive any proceeds from the sale of shares to be offered by the selling shareholders. The selling shareholders include our principal shareholder and certain of our officers, including our chief executive officer.

Our ordinary shares are listed on the New York Stock Exchange under the symbol “FLTX.” On July 19, 2013, the last reported sale price of our ordinary shares on the New York Stock Exchange was $33.63 per share.

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and have elected to adopt certain reduced public company reporting requirements. Investing in the ordinary shares involves risks that are described in the “Risk Factors” section beginning on page 13 of this prospectus.

 

 

 

    

Per Share

      

Total

 

Public offering price

   $                      $                

Underwriting discount

   $           $     

Proceeds, before expenses, to Fleetmatics Group PLC (1)

   $           $     

Proceeds, before expenses, to the selling shareholders (1)

   $           $     

 

 

 

  (1) We have agreed to reimburse the underwriters for certain FINRA related expenses. See “Underwriting.”

The underwriters may also exercise their option to acquire up to an additional 1,200,000 ordinary shares from our principal shareholder at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares will be ready for delivery on or about                     , 2013.

 

 

 

Barclays   BofA Merrill Lynch

 

 

 

RBC Capital Markets   Stifel   William Blair   Pacific Crest Securities

 

 

Prospectus dated                     , 2013.


Table of Contents

TABLE OF CONTENTS

 

Business

    78   

Government Regulation

    92   

Management

    94   

Related Party Transactions

    109   

Principal and Selling Shareholders

    112   

Description Of Share Capital

    115   

Taxation

    141   

Underwriting

    149   

Enforcement of Civil Liabilities

    157   

Legal Matters

    157   

Experts

    157   

Where You Can Find More Information

    157   

Index to Consolidated Financial Statements

    F-1   
 

 

Neither we, the selling shareholders, nor the underwriters have authorized anyone to provide you with any additional information or information that is different from the information contained in this prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus and any free writing prospectus prepared by us or on our behalf may only be used where it is legal to sell these securities. The information in this prospectus or any free writing prospectus prepared by us or on our behalf is only accurate as of the date of this prospectus or such free writing prospectus.

Unless otherwise indicated, all references in this prospectus to “FleetMatics” or the “Company,” “we,” “our,” “us” or similar terms refer to Fleetmatics Group PLC and its subsidiaries.

No action is being taken in any jurisdiction outside the United States to permit a public offering of our ordinary shares or possession or distribution of this prospectus in any such jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus applicable to those jurisdictions.

This document has been prepared on the basis that any offer of shares in any relevant European Economic Area member state will be made pursuant to an exemption under European prospectus law from the requirement to publish a prospectus for offers of shares and does not constitute an offer or solicitation to anyone to purchase shares in any jurisdiction in which such offer or solicitation is not authorized nor to any person to whom it is unlawful to make such an offer or solicitation.


Table of Contents

Prospectus Summary

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our ordinary shares. You should read this entire prospectus carefully, especially the “Risk Factors” section of this prospectus and our consolidated financial statements and related notes appearing elsewhere in this prospectus, before making an investment decision.

Overview

FleetMatics is a leading global provider of fleet management solutions delivered as software-as-a-service, or SaaS. Our mobile software platform enables businesses to meet the challenges associated with managing their local fleets of commercial vehicles and improve productivity by extracting actionable business intelligence from vehicle and driver behavioral data. We offer intuitive, cost-effective Web-based and mobile application solutions that provide fleet operators with visibility into vehicle location, fuel usage, speed and mileage and other insights into their mobile workforce, enabling them to reduce operating and capital costs, as well as increase revenue. As of March 31, 2013, we had more than 19,000 customers who collectively deployed our solutions in over 356,000 vehicles worldwide. The substantial majority of our customers are small and medium-sized businesses, or SMBs, each of which deploy our solutions in 1,000 or fewer vehicles. During the three months ended March 31, 2013, we collected an average of approximately 41 million data points per day from subscribers, and we have aggregated over 38 billion data points since our inception, which we believe provides valuable information that we may consider in the development of complementary solutions and additional sources of revenue.

We believe that the addressable market for our fleet management solutions is large, growing and underpenetrated. Frost and Sullivan, an independent research firm, reported that in 2010 there were approximately 18.5 million local commercial fleet vehicles in the U.S. and Canada, 11.3% of which utilized a fleet management solution. We believe that the global market opportunity is much larger and we estimate it to be in excess of 61 million vehicles. Our multi-tenant SaaS solutions are designed to meet the needs of SMBs, overcome existing barriers to adoption, and leverage the volumes of data transmitted to us from in-vehicle devices over cellular networks that we aggregate and analyze from our large and growing subscriber base.

We have grown our customer base, the number of vehicles using our solutions and our revenue in each year since our incorporation in 2004. We have developed a differentiated, cost-effective customer acquisition sales model based on leads sourced through both Web-based digital advertising and targeted outbound sales efforts. The following chart shows the aggregate number of vehicles under subscription for our fleet management solution as of December 31 for each of the years presented and as of March 31, 2013:

 

LOGO

The chart above includes the number of vehicles under subscription with our subsidiary SageQuest, Inc., or SageQuest, before and after our acquisition of SageQuest in July 2010.

 

 

1


Table of Contents

Our subscription revenue in 2012 grew 38.1% to $127.5 million compared to $92.3 million in 2011, and in the three months ended March 31, 2013 grew 38.0% to $38.4 million compared to $27.8 million in the three months ended March 31, 2012. We reported net income in 2012 of $5.4 million compared to net income of $2.9 million in 2011, and we reported net income of $3.0 million in the three months ended March 31, 2013 compared to net income of $1.0 million in the three months ended March 31, 2012. Our Adjusted EBITDA in 2012 grew 55.8% to $33.9 million compared to $21.7 million in 2011 and in the three months ended March 31, 2013 grew 81.1% to $11.1 million compared to $6.1 million in the three months ended March 31, 2012. For a definition of Adjusted EBITDA and a reconciliation to net income (loss), see the section entitled “Summary Consolidated Financial Data—Adjusted EBITDA.”

Industry Background

Most small and medium-sized local service and distribution businesses rely on their fleet of commercial vehicles and mobile workforce to deliver products and services. These SMB fleet operators face significant operational challenges. Without knowing the location of each vehicle in a fleet, dispatchers often do not have the information necessary to optimally route their vehicles, resulting in lost time in route to a job location, increased fuel consumption, excessive vehicle mileage, and unnecessary wear and tear. Fleet operators lack oversight of their drivers which makes it more difficult for operators to validate hours worked, discourage unproductive worker behavior and incentivize greater efficiency.

Many fleet management alternatives do not adequately address the challenges faced by operators or are poorly suited for SMB adoption given their high up-front costs, technical complexity and difficulty of implementation and use. Fleet operators often use discrete point-to-point solutions, such as cellular phones, to monitor their fleet and mobile workers. These solutions do not enable continuous monitoring, making it difficult to validate hours worked and manage other day-to-day fleet activities. Additionally, paper-based techniques, spreadsheets and other manual processes used to manage fleet data tend to be inefficient and generate minimal business intelligence. Fleet management solutions targeting long-haul fleet carriers are not well-suited to SMB customers as these offerings typically feature complex functionality built into proprietary hardware devices and require high up-front costs associated with implementation.

Our Solutions

Our SaaS solutions enable businesses to meet the challenges associated with managing their local fleets by extracting actionable business intelligence from vehicle and driver behavioral data. We believe that our solutions benefit customers in the following ways:

Reduced operating costs. Businesses that use our solutions can monitor and manage route efficiency and reduce idle time, resulting in lower fuel costs and labor expenses, such as overtime pay. In addition, our software helps companies to monitor vehicle speeds, identify unauthorized usage, minimize fleet wear and tear as well as the likelihood of fines, and increase the prospects of recovering stolen vehicles.

Increased worker productivity and revenues. Our solutions enable our customers to enhance worker productivity by minimizing wasted time on and traveling to job sites, detecting extended breaks and unauthorized detours, and provide our customers with the ability to better align compensation with productivity.

Designed for SMBs. Our FleetMatics branded product is a competitively-priced solution that is easily accessed and used via a Web browser or mobile application and that can be quickly implemented with the assistance of our large network of third-party installers.

A robust platform for data aggregation. We aggregate data that is generated from the use of our solutions with data provided through partnerships, integration with third-party products, commercial or publicly

 

 

2


Table of Contents

available sources, and from our customers. This capability provides us with an opportunity to recognize trends and provide insights that complement our core product reports to help our customers optimize the performance of their fleet.

Highly scalable, reliable and cost-effective SaaS platform. We utilize a SaaS delivery model, which lowers operators’ costs by eliminating their need to own and support software or associated technology infrastructure. We have built our solutions to scale and support geographically-distributed fleets of any size as they grow.

Ability to integrate third-party products and services. Our software architecture facilitates integration with third-party applications and services, such as fuel cards, mapping and work order integration solutions, and other value-added software and services.

Device and network agnostic. Our fleet management solutions can be accessed over personal computers, tablets or smart phones, providing our customers with significant flexibility in how they access the business insights we provide.

Our Key Competitive Strengths

We believe that the following competitive strengths differentiate us from our competitors and are key to our success:

Efficient and scalable customer acquisition model. We have developed a scalable sales and marketing model that is focused on the efficient generation of a large number of customer leads, largely through digital advertising, such as search engine marketing and optimization and email marketing as well as targeted outbound sales efforts. These techniques provide us with a flow of low-cost, qualified leads, both in the U.S. and internationally. We believe our marketing approach provides us with a cost-efficient and highly effective means of targeting and accessing the vast and geographically diverse SMB market and converting leads into paying subscribers.

Business intelligence approach to fleet management. Our approach to fleet management is based on our proprietary business intelligence software that enables our customers to analyze large volumes of complex vehicle and driver behavioral data by accessing over 40 pre-built reports online through an intuitive dashboard. Our technology platform enables users to consolidate large, disparate data sets and identify relationships and long-term historical trends within data through proactive prompts or when requested by the user. We believe that our solutions provide our customers with insights that help them make more informed and timely business decisions.

Software-as-a-Service model. Our SaaS-based solutions are offered through a subscription over the Internet and use a multi-tenant architecture, which enables us to run a single instance of our software code, add subscribers with minimal incremental expense and deploy new applications and upgrades quickly and efficiently.

Deep domain expertise. From inception, we have focused on small and medium-sized fleet markets. This focus enables us to understand the specific needs of SMB fleet operators as they evolve. We possess significant experience and expertise in fleet management solutions, which enable us to develop, implement and sell SaaS solutions purpose-built for our existing and prospective customers.

Large and growing ecosystem of fleets and vehicles. As of March 31, 2013, we had more than 19,000 customers who deployed our solutions in over 356,000 vehicles worldwide. In addition, our customers ran approximately 2.1 million reports and generated over one billion data points in March 2013. This vast

 

 

3


Table of Contents

amount of data not only provides valuable information for our business intelligence offerings, but also provides us with opportunities for increased revenue. Our large deployment footprint also provides us with an audience to whom we can market and sell incremental solutions, such as integration with fuel cards and global positioning system, or GPS, navigation devices, or third-party complementary products and services.

Our Growth Strategy

Our objective is to be the world’s leading provider of SaaS-based fleet management solutions. To accomplish this, we intend to:

Acquire new customers. We intend to acquire new customers by continuing to execute on our efficient sales model, leveraging our marketing efforts, capitalizing on word-of-mouth referrals and expanding our direct sales force.

Increase sales to existing customers. We believe that there are numerous opportunities to increase the penetration of our existing client base by selling our customers additional fleet management solutions, such as work order management, fuel card capabilities and GPS navigation device integration. We also expect our customers will acquire additional subscriptions as they add vehicles.

Continue to innovate and partner. We collaborate with our customers to build functionality that addresses their needs and requirements. We plan to continue to use our expertise in fleet management and strong relationships with our customers to invest in our software solutions and develop new applications, features and functionality which will enhance our solution and expand our addressable market. We also intend to pursue industry partnerships that can leverage our mobile platform to deliver increased value to our customers.

Capitalize on big data opportunity. In 2012, we collected an average of approximately 33 million data points per day from customers’ vehicles and during the three months ended March 31, 2013, we collected an average of approximately 41 million data points per day from subscribers, and through March 31, 2013, we have aggregated over 38 billion data points since our inception. We believe this represents a significant asset from which we are developing complementary solutions and deriving incremental revenue opportunities.

Continue to expand internationally. In 2012 and in the first three months of 2013, 10.0% and 9.4% respectively, of our revenue was generated outside of North America. We believe that a significant opportunity exists to increase our sales internationally.

Pursue strategic acquisitions. We may pursue acquisitions that complement our existing business, represent a strong strategic fit and are consistent with our overall growth strategy.

Risks That We Face

You should carefully consider the risks described under the “Risk Factors” section beginning on page 13, and elsewhere in this prospectus. Some of these risks are:

 

   

failure to effectively and efficiently attract, sell to and retain SMB customers would adversely affect our operating results;

 

   

we have identified material weaknesses in our internal control over financial reporting, some of which have led to a restatement of certain statements of cash flows, and we may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate one or both of

 

 

4


Table of Contents
 

our material weaknesses or if we fail to establish and maintain effective control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected;

 

   

we may not be able to retain and increase sales to our existing customers, which could negatively impact our financial results;

 

   

failure of local service and distribution businesses to adopt fleet management solutions could negatively impact our revenue;

 

   

our inability to adapt to rapid technological change in our industry and related industries could impair our ability to remain competitive and adversely affect our results of operations;

 

   

we face many risks associated with our plans to expand internationally, which could harm our business, financial condition, and operating results;

 

   

any significant disruption in service on our websites or in our computer systems could damage our reputation and result in a loss of customers, which would harm our business and operating results; and

 

   

our directors, executive officers, and holders of more than 5% of our ordinary shares prior to this offering, together with their affiliates, will continue to have substantial control over us after this offering and will beneficially own, in the aggregate, approximately 14,680,383 of our outstanding ordinary shares (assuming no exercise of the underwriters’ option to acquire additional ordinary shares), which could delay or prevent a change in corporate control.

These risks could materially and adversely impact our business, financial condition, operating results and cash flow, which could cause the trading price of our ordinary shares to decline and could result in a loss of your investment.

Recent Vehicles Under Subscription Data and Preliminary Financial Results

Our number of vehicles under subscription rose to 388,000 as of June 30, 2013 compared to 281,000 as of June 30, 2012 and 356,000 as of March 31, 2013. We estimate that, for the three months ended June 30, 2013, subscription revenue will be between $42.0 million and $42.5 million, an increase of 37.3% to 38.9% compared to $30.6 million for the second quarter of 2012 and an increase of 9.4% to 10.7% compared to $38.4 million for the three months ended March 31, 2013. This revenue growth was primarily driven by the increase in the average number of vehicles under subscription, which grew by approximately 38.1% from the three months ended June 30, 2012 to the three months ended June 30, 2013 and approximately 9.0% from the three months ended March 31, 2013 to the three months ended June 30, 2013. We estimate that, for the three months ended June 30, 2013, we will report net income of between $5.0 million and $5.5 million, compared to a net loss of $1.4 million for the second quarter of 2012 and an increase of 66.7% to 83.3% compared to net income of $3.0 million for the three months ended March 31, 2013. Additionally, we estimate that, for the three months ended June 30, 2013, we will report Adjusted EBITDA of between $13.3 million and $14.0 million, an increase of 125.4% to 137.3% compared to $5.9 million for the second quarter of 2012 and an increase of 19.8% to 26.1% compared to $11.1 million for the three months ended March 31, 2013. For a definition of Adjusted EBITDA and a reconciliation to net income (loss), see the section entitled “Summary Consolidated Financial Data—Adjusted EBITDA.

The estimates above are preliminary and may change. We have provided an estimated range for each of subscription revenue, net income (loss) and Adjusted EBITDA described above primarily because our financial

 

 

5


Table of Contents

closing procedures for the quarter ended June 30, 2013 are not yet complete. There can be no assurance that our final subscription revenue, net income (loss) and Adjusted EBITDA for this period will not differ from these estimates, including as a result of quarterly closing and review procedures or adjustments and any such changes could be material. The preliminary subscription revenue, net income (loss) and Adjusted EBITDA for the quarter ended June 30, 2013, as well as the number of vehicles under subscription, are not necessarily indicative of the results to be achieved for any future period, and our interim results are not indicative of results that should be expected for the full year.

The preliminary financial data included in this prospectus has been prepared by, and is the responsibility of, FleetMatics. Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has not audited, reviewed, compiled or performed any procedures with respect to this preliminary financial data and, accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.

Our Corporate Information

The legal and commercial name of our company is Fleetmatics Group PLC. We were incorporated in Ireland on October 28, 2004 as a private limited company. Before our October 2012 initial public offering, we changed our corporate structure from a private limited company to a public limited company. A public limited company known as Fleetmatics Group PLC became the holding company of the FleetMatics group by way of a share-for-share exchange in which the shareholders of FleetMatics Group Limited exchanged their shares in FleetMatics Group Limited for identical shares in Fleetmatics Group PLC. Upon the exchange, the historical consolidated financial statements of FleetMatics Group Limited became the historical consolidated financial statements of Fleetmatics Group PLC included in this prospectus. Our registered and principal office is located at Block C, Cookstown Court, Belgard Road, Tallaght, Dublin 24, Ireland. Our U.S. headquarters office is located at 70 Walnut Street, Wellesley Hills, Massachusetts and our telephone number is (866) 844-2235.

Our website address is www.fleetmatics.com. Information contained on, or accessible through, our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference.

 

 

6


Table of Contents

THE OFFERING

 

Issuer

Fleetmatics Group PLC

 

Ordinary shares offered by us

1,000,000 ordinary shares

 

Ordinary shares offered by selling shareholders

7,000,000 ordinary shares

 

Ordinary shares to be outstanding immediately after this offering

35,637,805 ordinary shares

 

Offering price

$         per ordinary share

 

New York Stock Exchange symbol

“FLTX”

 

Option to acquire additional shares

Fleetmatics Investor Holdings, L.P. has granted to the underwriters an option, which is exercisable within 30 days from the date of this prospectus, to acquire an aggregate of up to an additional 1,200,000 ordinary shares at the public offering price, less the underwriting discount. See “Underwriting” for more information.

 

Use of proceeds

We estimate that we will receive net proceeds from this offering of $31.9 million based upon an assumed public offering price of $33.63 per ordinary share, the last reported sale price of our ordinary shares on the New York Stock Exchange on July 19, 2013, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. As of the date of this prospectus, we have no specific plans for the use for the net proceeds of this offering. We anticipate that we will use the net proceeds we will receive from this offering for working capital and other general corporate purposes, including funding of our sales and marketing activities and further investment in the development of our proprietary technologies. We will not receive any of the proceeds from sales of ordinary shares by the selling shareholders. See “Use of Proceeds” for additional information.

 

Risk factors

See “Risk Factors” and other information included in this prospectus for a discussion of risks you should carefully consider before investing in our ordinary shares.

The number of ordinary shares to be outstanding after this offering is based on 34,637,805 ordinary shares outstanding as of March 31, 2013 and excludes:

 

   

2,898,743 ordinary shares issuable upon the exercise of stock options outstanding as of March 31, 2013 at a weighted average exercise price of $4.70 per share;

 

   

1,628,688 additional ordinary shares reserved for future issuance of stock options and other share-based awards under the 2004 Share Option Plan (the “2004 Plan”) and the 2011 Stock Option and Incentive Plan (the “2011 Plan”);

 

 

7


Table of Contents
   

250,000 additional ordinary shares proposed to be reserved for future issuance under our 2011 Plan, subject to the approval of an amendment and restatement of the 2011 Plan by the shareholders of the Company at the Company’s annual general meeting to be held on August 19, 2013. See “Management—Compensation—Share Options” for more information; and

 

   

400,000 ordinary shares reserved for future issuance under our 2012 Employee Share Purchase Plan, which became effective upon the closing of our initial public offering.

Except as otherwise indicated, the information in this prospectus assumes no exercise by the underwriters of their option to acquire up to an additional 1,200,000 ordinary shares from our principal shareholder in this offering.

 

 

8


Table of Contents

SUMMARY CONSOLIDATED FINANCIAL DATA

The following tables summarize certain consolidated financial and other data for our business. You should read the following summary consolidated financial data in conjunction with “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

We derived the consolidated statements of operations data for the years ended December 31, 2010, 2011 and 2012 from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the three months ended March 31, 2012 and 2013 and the consolidated balance sheet data as of March 31, 2013 are derived from our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited financial data on the same basis as the audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that should be expected in any future period, and our interim results are not necessarily indicative of results that should be expected for the full year.

 

     Year Ended December 31,     Three
Months Ended
March 31,
 
         2010             2011             2012         2012     2013  
                       (unaudited)  
     (in thousands, except per share data)  

Consolidated Statements of Operations Data:

        

Subscription revenue

   $ 64,690      $ 92,317      $ 127,451      $ 27,839      $ 38,419   

Cost of subscription revenue

     22,941        28,631        35,507        8,443        9,997   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     41,749        63,686        91,944        19,396        28,422   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Sales and marketing

     20,447        33,391        41,138        9,934        12,601   

Research and development

     4,061        6,021        7,379        1,617        2,094   

General and administrative

     14,628        18,309        31,047        5,696        7,940   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     39,136        57,721        79,564        17,247        22,635   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     2,613        5,965        12,380        2,149        5,787   

Interest income (expense), net

     (1,012     (2,386     (2,075     (623     (366

Foreign currency transaction gain (loss), net

     (907     155        (24     216        (356

Loss on extinguishment of debt

                   (934              

Other income (expense), net

                   (32              
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     694        3,734        9,315        1,742        5,065   

Provision for (benefit from) income taxes

     1,430        865        3,907        718        2,105   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (736     2,869        5,408        1,024        2,960   

Accretion of redeemable convertible preferred shares to redemption value

     (418     (446     (335     (111       

Modification of redeemable convertible preferred shares

     (6,542                            

Net income attributable to participating securities

            (2,294            (864       
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ordinary shareholders

   $ (7,696   $ 129      $ 5,073      $ 49      $ 2,960   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share attributable to ordinary shareholders(1):

          

Basic

   $ (0.77   $ 0.09      $ 0.58      $ 0.03      $ 0.09   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ (0.77   $ 0.08      $ 0.50      $ 0.03      $ 0.08   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares outstanding(1):

          

Basic

     10,051        1,497        8,822        1,505        34,612   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     10,051        2,078        10,085        2,551        36,245   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

9


Table of Contents
     Year Ended December 31,     Three Months Ended
March 31,
 
         2010             2011             2012         2012     2013  
                       (unaudited)  
     (dollars in thousands)  

Other Financial and Operating Data (unaudited):

        

Total vehicles under subscription(2)

     172,000        237,000        331,000        256,000        356,000   

Adjusted EBITDA(3)

   $ 11,171      $ 21,748      $ 33,886      $ 6,105      $ 11,059   

Net churn(4)

     (1.3 )%      3.2     6.2     0.8     1.3

 

     As of March 31, 2013  
     Actual      As  Adjusted(5)  
     (in thousands)  

Consolidated Balance Sheet Data:

     

Cash

   $ 102,018         $133,920   

Working capital(6)

     87,987         119,889   

Total assets

     216,937         248,839   

Total debt (net of discount), including capital lease obligations

     24,382         24,382   

Total shareholders’ equity

     124,790         156,692   

 

(1) See Note 16 to our consolidated financial statements for further details on the calculation of basic and diluted net income (loss) per share attributable to ordinary shareholders.

 

(2) This metric represents the number of vehicles under subscription by our customers utilizing one or more of our SaaS solutions at the end of the period presented. This number includes the number of vehicles under subscription with SageQuest before and after our acquisition of SageQuest in July 2010. Since our revenue is primarily driven by the number of vehicles under subscription to our SaaS solutions, we believe that total vehicles under subscription is an important metric to monitor.

 

(3) We present Adjusted EBITDA in this prospectus to provide investors with a supplemental measure of our operating performance. Adjusted EBITDA is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) plus provision for income taxes, interest (income) expense, net, foreign currency transaction gain (loss), net, depreciation and amortization of property and equipment, amortization of capitalized in-vehicle devices owned by customers, amortization of intangible assets, share-based compensation, certain non-recurring secondary public offering costs, certain non-recurring litigation and settlement costs, transaction costs related to acquired businesses, expenses incurred under our Management Services Agreement dated November 23, 2010, or Management Services Agreement, with Privia Enterprises Limited, or Privia (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Privia Management Services Agreement”), and loss on extinguishment of debt. See “—Adjusted EBITDA” below for more information and for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with U.S. generally accepted accounting principles, or GAAP.

 

(4) We calculate our net churn for a period by dividing (i) the number of vehicles under subscription added from existing customers less vehicles under subscription lost from existing customers over that period by (ii) the total vehicles under subscription at the beginning of that period. When the number of vehicles under subscription added from existing customers exceeds the number of vehicles under subscription lost from existing customers in the period, this formula generates a positive number. SageQuest vehicles under subscription and vehicles under subscription lost are not reflected as part of the churn calculation prior to July 2010 when we acquired it.

 

(5) Gives effect to the issuance by us of 1,000,000 ordinary shares in this offering at an assumed public offering price of $33.63 per ordinary share, the last reported sale price of our ordinary shares on the New York Stock Exchange on July 19, 2013, after deducting estimated underwriting discounts and commissions and estimated offering expenses paid by us.

 

(6) We define working capital as current assets less current liabilities.

 

 

10


Table of Contents

Adjusted EBITDA

To provide investors with additional information regarding our financial results, we have disclosed in the table above and within this prospectus Adjusted EBITDA, a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) plus provision for income taxes, interest (income) expense, net, foreign currency transaction gain (loss), net, depreciation and amortization of property and equipment, amortization of capitalized in-vehicle devices owned by customers, amortization of intangible assets, share-based compensation, certain non-recurring secondary public offering costs, certain non-recurring litigation and settlement costs, transaction costs related to acquired businesses, expenses incurred under our Management Services Agreement with Privia, and loss on extinguishment of debt. We have provided a reconciliation below of Adjusted EBITDA to net income (loss), the most directly comparable financial measure presented in accordance with GAAP.

We have included Adjusted EBITDA in this prospectus because it is a key measure used by our management and Board of Directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short—and long-term operational plans, and to allocate resources to expand our business. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Additionally, Adjusted EBITDA is a key financial measure used by the compensation committee of our Board of Directors in connection with the payment of bonuses to our executive officers. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors.

Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

 

   

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

   

Adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;

 

   

Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;

 

   

Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest payments on our debt or any losses on the extinguishment of our debt;

 

   

Adjusted EBITDA does not reflect the costs of certain non-recurring litigation and settlement payments;

 

   

Adjusted EBITDA does not reflect certain non-recurring secondary public offering costs;

 

   

Adjusted EBITDA does not include foreign currency transaction gains and losses; and

 

   

other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

 

 

11


Table of Contents

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income (loss) and our other GAAP results. The following unaudited table presents a reconciliation from net income (loss) to Adjusted EBITDA for each of the periods indicated:

 

     Year Ended December 31,      Three Months Ended
March 31,
     Three Months Ended
June 30,
 
     2010     2011     2012          2012             2013              2012         Preliminary  2013(1)  
                        (unaudited)      (unaudited)  
     (in thousands)     From      To  

Reconciliation of Net Income (Loss) to Adjusted EBITDA:

                   

Net income (loss)

   $ (736   $ 2,869      $ 5,408       $ 1,024      $ 2,960       $ (1,390   $ 5,000       $ 5,500   

Provision for income taxes

     1,430        865        3,907         718        2,105         739        2,250         1,925   

Interest (income) expense, net

     1,012        2,386        2,075         623        366         481        360         375   

Foreign currency transaction (gain) loss, net

     907        (155     24         (216     356         358        275         350   

Depreciation and amortization of property and equipment

     7,397        7,581        9,547         2,134        2,992         2,342        3,000         3,100   

Amortization of capitalized in-vehicle devices owned by customers

     36        344        668         139        213         170        200         250   

Amortization of intangible assets

     317        3,349        2,332         583        467         583        450         475   

Share-based compensation

     149        2,292        2,422         547        604         421        1,550         1,625   

Secondary public offering costs

                                  636                200         300   

Litigation and settlements

                   1,216                360                        100   

Transaction costs related to acquired businesses

     428                                                       

Management Services Agreement expense

     231        2,217        5,353         553                1,247                  

Loss on extinguishment of debt

                   934                        934                  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Adjusted EBITDA (unaudited)

   $ 11,171      $ 21,748      $ 33,886       $ 6,105      $ 11,059       $ 5,885      $ 13,285       $ 14,000   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) These estimates are preliminary and may change because our financial closing procedures for the quarter ended June 30, 2013 are not yet complete. The preliminary financial information for the quarter ended June 30, 2013 has been prepared by, and is the responsibility of, FleetMatics. Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has not audited, reviewed, complied or performed any procedures with respect to this preliminary financial data and, accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.

 

 

12


Table of Contents

RISK FACTORS

Investing in our ordinary shares involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus and any free writing prospectus we may provide you before deciding to invest in our ordinary shares. The risks and uncertainties described below and elsewhere in this prospectus, including in the section headed “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” could materially adversely affect our business. Any of the following risks could adversely affect our business, financial condition, cash flow and results of operations. In such case, the trading price of our ordinary shares could decline, and you could lose some or all of your investment.

Risks Related to Our Business

Failure to effectively and efficiently attract, sell to and retain SMB customers would adversely affect our operating results.

We primarily market and sell our solutions to SMBs. SMB customers are challenging to reach, acquire and retain in a cost-effective manner. To grow our revenue, we must add new customers, sell additional functionality to existing customers and encourage existing customers to renew their subscriptions. Selling to and retaining SMB customers is more difficult than selling to and retaining enterprise customers because SMB customers generally:

 

   

have high failure rates;

 

   

are price sensitive;

 

   

are difficult to reach with targeted sales campaigns;

 

   

have high churn rates in part because of the scale of their businesses and the ease of switching services; and

 

   

generate less revenue per customer and per transaction.

If we are unable to market and sell our solutions to SMBs with competitive pricing and in a cost-effective manner, our ability to grow our revenue and maintain and grow our profitability will be harmed.

We may not be able to retain and increase sales to our existing customers, which could negatively impact our financial results.

We generally license our solutions pursuant to customer agreements with an initial term of 36 months. Most agreements provide for renewal automatically for one-year intervals unless the customer elects otherwise, although our customers have no obligation to renew these agreements after their term expires. We also actively seek to sell additional solutions to our existing customers. If our efforts to satisfy our existing customers are not successful, we may not be able to retain them or sell additional functionality to them and, as a result, our revenue and ability to grow would be adversely affected. We track our historical data with respect to customer renewal rates, particularly by measuring the number of new subscriptions added, less the number of subscriptions terminated, divided by the total average customers during a period, which we refer to as net churn. However, we may not be able to accurately predict future trends in customer renewals and the resulting churn. Customers may choose not to renew their subscriptions for many reasons, including the belief that our service is not required for their business needs or is otherwise not cost-effective, a desire to reduce discretionary spending, or a belief that our competitors’ services provide better value. Additionally, our customers may not renew for reasons entirely out of our control, such as the dissolution of their business, which is particularly common for SMB customers. A significant increase in our churn would have an adverse effect on our business, financial condition, and operating results.

 

13


Table of Contents

A part of our growth strategy is to sell additional new features to our existing customers. Our ability to sell new features to customers will depend in significant part on our ability to anticipate industry evolution, practices and standards and to continue to enhance existing solutions, such as integration with fuel cards and GPS navigation devices, or introduce or acquire new solutions on a timely basis to keep pace with technological developments both within our industry and in related industries. However, we may prove unsuccessful either in developing new features or in expanding the third-party software and products with which our solutions integrate. In addition, the success of any enhancement or new feature depends on several factors, including the timely completion, introduction and market acceptance of the enhancement or feature. Any new solutions we develop or acquire might not be introduced in a timely or cost-effective manner and might not achieve the broad market acceptance necessary to generate significant revenue. If any of our competitors implements new technologies before we are able to implement them or better anticipates the innovation and integration opportunities in related industries, those competitors may be able to provide more effective or cheaper solutions than ours.

Another part of our growth strategy is to sell additional subscriptions to existing customers as their fleet sizes increase. We cannot be assured that our customers’ fleet sizes will continue to increase. A significant decrease in our ability to sell existing customers additional functionality or subscriptions would have an adverse effect on our business, financial condition, and operating results.

Adverse economic conditions or reduced spending on information technology solutions, particularly by small and medium-sized local service and distribution businesses, may adversely impact our revenue and profitability.

Uncertainty about future economic conditions makes it difficult for us to forecast operating results and to make decisions about future investments. We are unable to predict the likely duration and severity of the current adverse economic conditions in the U.S. and other countries, particularly in Europe, but the longer the duration, the greater risks we face in operating our business. Furthermore, our solutions are designed predominately for small and medium-sized local service and distribution businesses, which frequently have limited budgets and may be more likely to be significantly affected by economic downturns and other macroeconomic factors affecting spending behavior than larger enterprises. SMB customers may choose to spend the limited funds that they have on items other than our solutions and may experience higher failure and bankruptcy rates, which would negatively affect the overall demand for our products, increase customer attrition and could cause our revenue to decline. We cannot assure you that current economic conditions, worsening economic conditions or prolonged poor economic conditions will not have a significant adverse impact on the demand for our solutions, and consequently on our results of operations and prospects.

Failure of local service and distribution businesses to adopt fleet management solutions could negatively impact our revenue.

We derive, and expect to continue to derive, substantially all of our revenue from the sale of subscriptions to our fleet management solutions. As a result, widespread acceptance and use of fleet management solutions is critical to our future revenue growth and success. If the market for fleet management solutions fails to grow or grows more slowly than we currently anticipate, demand for our solutions could be negatively affected.

Changes in customer preferences for fleet management solutions may have a disproportionately greater impact on us than if we offered multiple products and services. The market for fleet management solutions is subject to changing customer demand and trends in preferences. Some of the potential factors that could affect interest in and demand for our fleet management solutions include:

 

   

awareness of our brand and fleet management solutions generally;

 

   

the reliability of our solutions;

 

14


Table of Contents
   

actual and perceived fuel and vehicle maintenance costs, including decreases in fuel prices;

 

   

assumptions regarding general mobile workforce inefficiency;

 

   

the price, performance, features, and availability of products and services that compete with ours;

 

   

our ability to maintain high levels of customer satisfaction; and

 

   

the rate of growth in online solutions generally.

Our dependence on various lead generation programs could adversely affect our operating results if we need to pay more for such programs or we are unable to attract new customers at the same rate.

We use a number of lead generation programs to promote our solutions. Significant increases in the pricing of one or more of our lead generation channels would increase our overall lead generation costs or cause us to choose less expensive and perhaps less effective channels. For example, a portion of our potential customers locate our website through search engines, such as Google, Bing, and Yahoo!, representing one of the most efficient means for generating cost-effective SMB customer leads. If search engine companies modify their search algorithms in a manner that reduces the prominence of our listing, or if our competitors’ search engine optimization efforts are more successful than ours, fewer potential customers may click through to our website. In addition, the cost of purchased listings has increased in the past and may continue to increase in the future. As we add to or change the mix of our lead generation strategies, we may need to expand into channels with significantly higher costs than our current programs, which could adversely affect our operating results. If we are unable to maintain effective advertising programs, our ability to attract new customers could be adversely affected, our advertising and marketing expenses could increase substantially, and our operating results may suffer.

If we are unable to successfully convert customer sales leads into customers on a cost-effective basis, our revenue and operating results would be adversely affected.

We generate substantially all of our revenue from the sale of subscriptions to our solutions. In order to grow, we must continue to efficiently convert customer leads, many of whom have not previously used fleet management solutions, into customers. Our Web-based sales team is the primary driver of cost-effective conversion of customer leads into customers, particularly in the case of SMB customers who are more difficult to reach with targeted sales campaigns and who tend to generate less revenue per transaction. Our Web-based sales team is able to sell our solutions to the geographically-disparate SMB market much more efficiently than a traditional field-based direct sales force. To execute our growth plan, we must continue to attract and retain highly qualified Web-based sales personnel. We may experience difficulty in hiring and retaining highly skilled Web-based sales and marketing employees. An inability to convert customer sales leads into customers on a cost-effective basis could adversely affect our revenue and operating results.

Our quarterly operating results have fluctuated in the past and may fluctuate in the future, which could cause declines or volatility in the price of our ordinary shares.

Our quarterly operating results have fluctuated in the past and may fluctuate in the future 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 ordinary shares could decline substantially. The following factors, among others, could cause fluctuations in our quarterly operating results:

 

   

our ability to attract new customers and retain existing customers;

 

   

our ability to accurately forecast revenue and appropriately plan our expenses;

 

15


Table of Contents
   

our ability to introduce new features, including integration of our existing solutions with third-party software and devices;

 

   

the actions of our competitors, including consolidation within the industry, pricing changes or the introduction of new services;

 

   

our ability to effectively manage our growth;

 

   

our ability to successfully manage any future acquisitions of businesses, solutions, or technologies;

 

   

our ability to successfully sell into additional geographies utilizing our current lead generation and sales model;

 

   

the timing and cost of developing or acquiring technologies, services, or businesses;

 

   

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

 

   

service outages or security breaches and any related occurrences which could impact our reputation;

 

   

the impact of worldwide economic, industry, and market conditions, including disruptions in financial markets and the deterioration of the underlying economic conditions in some countries, and those conditions specific to Internet usage and online businesses;

 

   

trade protection measures (such as tariffs and duties) and import or export licensing requirements;

 

   

fluctuations in currency exchange rates;

 

   

costs associated with defending intellectual property infringement and other claims; and

 

   

changes in government regulation affecting our business.

We believe that our quarterly revenue and operating results may vary significantly in the future and that period-to-period comparisons of our operating results may not be meaningful. You should not rely on the results of one quarter as an indication of future performance.

We have identified material weaknesses in our internal control over financial reporting, some of which have led to a restatement of certain statements of cash flows, and we may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate one or both of our material weaknesses or if we fail to establish and maintain effective control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.

Prior to the completion of our October 2012 initial public offering, we had been a private company with limited accounting personnel and other resources to address our internal control over financial reporting. During the course of preparing for our October 2012 initial public offering, our independent registered public accounting firm undertook audits of our financial statements for the years ended December 31, 2010 and December 31, 2011, which were completed simultaneously. During the course of these audits, material adjustments to various

 

16


Table of Contents

accounts were necessary. These adjustments led our independent registered public accounting firm to communicate that we had material weaknesses as of December 31, 2010 and December 31, 2011. In addition, there were certain errors we identified in late 2012 in our consolidated statements of cash flows for the periods ended June 30, 2011 and 2012 and September 30, 2011 and 2012 which caused us to restate the consolidated statements of cash flows for these periods. As of December 31, 2012, the Company had remediated two previously determined material weaknesses, but it was determined that the following two material weaknesses remained:

 

   

we did not have sufficient formalized policies and procedures to ensure that complete and accurate, consolidated financial information was prepared and reviewed timely in accordance with U.S. GAAP; and

 

   

we lacked sufficient and timely formalized monthly, quarterly and annual financial data reviews and analysis.

Our remediation efforts are ongoing. For a discussion of our remediation plan, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Controls and Procedures.” The actions we will take are subject to continued review supported by confirmation and testing by management as well as audit committee oversight. While we are implementing a plan to remediate these weaknesses, we cannot assure you that we will be able to remediate these weaknesses, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows. If we are unable to successfully remediate these material weaknesses, and if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected and we may be unable to maintain compliance with applicable stock exchange listing requirements.

Our failure to remediate the material weaknesses that existed as of December 31, 2012 or the identification of additional material weaknesses in the future, could adversely affect our ability to report financial information, including our filing of quarterly or annual reports with the Securities and Exchange Commission, or SEC, on a timely and accurate basis. Moreover, our failure to remediate the identified material weaknesses or the identification of additional material weaknesses, could prohibit us from complying with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, such as (i) our annual management assessment of the effectiveness of our internal control over financial reporting and (ii) a report by our independent registered public accounting firm regarding the effectiveness of such internal control for the year beginning January 1, 2013 if we do not take advantage of an exemption contained in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. If we do take advantage of this exemption contained in the JOBS Act, our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until the later of January 1, 2014 or the date we are no longer an “emerging growth company.” At such time, which could begin as late as our annual report on Form 20-F for the year ending December 31, 2017, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. If we are unable to comply with Section 404 or otherwise are unable to produce timely and accurate financial statements, our stock price may be adversely affected and we may be unable to maintain compliance with exchange listing requirements.

We are migrating to a new accounting system and, if this new system proves ineffective, we may be unable to timely or accurately prepare financial reports.

We are in the process of upgrading our accounting systems to provide us with the necessary accounting controls needed for our financial reporting requirements as a public company. Any problems or delays associated with the implementation of our new and enhanced accounting platform or the failure to complete such implementation on a timely basis could adversely affect our ability to report financial information as our company grows, including the filing of our quarterly or annual reports with the SEC on a timely and accurate basis. After converting from prior systems and processes, we may discover data integrity problems or other issues that, if not corrected, could impact our business or financial results.

 

17


Table of Contents

We have an accumulated deficit and may not be able to sustain profitability, which may negatively impact our ability to achieve our business objectives.

We reported a net loss of $0.7 million for 2010, net income of $2.9 million for 2011, net income of $5.4 million in 2012 and net income of $3.0 million for the first three months of 2013. We cannot predict if we will be able to sustain profitability. We expect to continue making significant expenditures to develop and expand our business. In addition, as a public company, we will continue to incur additional significant accounting, legal and other expenses that we did not incur as a private company. These increased expenditures make it harder for us to sustain profitability. The recent growth in our revenue and customer base may not be sustainable, and we may not generate sufficient revenue to sustain profitability. We may incur significant losses in the future for a number of reasons, including the other risks described in this section, and we may encounter unforeseen expenses, difficulties, complications and delays and other unknown events. Accordingly, we may not be able to sustain profitability and the failure to fund our capital requirements may negatively impact our ability to achieve our business objectives.

The market in which we participate is highly fragmented and competitive, with low barriers to entry. If we do not compete effectively, our operating results may be harmed.

The market for fleet management solutions is highly fragmented, consisting of a significant number of vendors, competitive and rapidly changing, with relatively low barriers to entry. Competition in our market is based primarily on the level of difficulty in installing, using and maintaining solutions, total cost of ownership, product performance, functionality, interoperability, brand and reputation, distribution channels, industries and the financial resources of the vendor. We expect competition to intensify in the future with the introduction of new technologies and market entrants. Mobile service and software providers, such as Google and makers of GPS navigation devices, such as Garmin, provide limited services at lower prices or no charge, such as basic GPS-based mapping, tracking and turn-by-turn directions that could be expanded or further developed to more directly compete with our solutions. We primarily compete with Teletrac, a Trafficmaster Plc Company, and Trimble Navigation Limited, and, to a lesser extent, other companies. Competition could result in reduced operating margins, increased sales and marketing expenses and the loss of market share, any of which would likely cause serious harm to our operating results.

Industry consolidation may result in increased competition, which could result in a loss of customers or a reduction in revenue.

Some of our competitors have made or may make acquisitions or may enter into partnerships or other strategic relationships to offer more comprehensive services than they individually had offered or achieve greater economies of scale. In addition, new entrants not currently considered to be competitors may enter our market through acquisitions, partnerships or strategic relationships. For example, CalAmp Corp., our primary supplier of in-vehicle devices, recently announced the acquisition of Wireless Matrix Corporation, which offers fleet management applications. We expect these trends to continue as companies attempt to strengthen or maintain their market positions. Many of the potential entrants, particularly those providing enterprise-level solutions and those who historically focused on the long-haul industry, may have 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. The companies resulting from combinations or that expand or vertically integrate their business to include the SMB market that we address 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. These pressures could result in a substantial loss of our customers or a reduction in our revenue.

 

18


Table of Contents

Our inability to adapt to rapid technological change in our industry and related industries could impair our ability to remain competitive and adversely affect our results of operations.

The industry in which we compete and related industries are characterized by rapid technological change, frequent introductions of new products and evolving industry standards. In addition to the fleet management solutions industry, we are subject to changes in the automotive, mobile handset, GPS navigation device and work flow software industries. As the technology used in each of these industries evolves, we will face new integration and competition challenges. For example, as automobile manufacturers evolve in-vehicle technology, GPS tracking devices may become standard equipment and compete against our solutions. Furthermore, major gains in fuel efficiency may lead to a relative decrease in the demonstrable return on investment of our solutions perceived by our customers. If we are unable to adapt to rapid technological change, it could adversely affect our results of operations and our ability to remain competitive.

An assertion by a third party that we are infringing its intellectual property could subject us to costly and time-consuming litigation or expensive licenses and our business could be harmed.

The fleet management and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. Much of this litigation involves patent holding companies or other adverse patent owners who have no relevant product revenues of their own, and against whom our own patent portfolio may provide little or no deterrence.

For example, on April 20, 2011, we were sued by PJC Logistics, LLC, or PJC, in a patent infringement case (PJC Logistics, LLC v. Fleet Management Solutions, Inc. et al, Civil Action No. 03:11-cv-815) (United States District Court for the Northern District of Texas). The Northern District of Texas transferred the case to the United States District Court for the District of Minnesota for pretrial purposes. (In re: Vehicle Tracking and Security System (’844) Patent Litigation MDL No. 11-2249 (DWF/SER)). The complaint alleged that we infringed U.S. Patent No. 5,223,844 entitled “Vehicle Tracking and Security System.” PJC sought damages rather than an injunction. On March 4, 2013, we entered into an agreement with the plaintiffs to settle the case for a one-time cash amount not material to our financial condition, operating results or cash flows and on March 18, 2013, the court entered an order to dismiss the case with prejudice.

From time to time, in the ordinary course of business, we have been threatened with litigation, including litigation by employees, former employees, clients, prospective or former clients. For example, on August 14, 2012, a putative class action complaint was filed in the Sixth Judicial Circuit in Pinellas County, Florida, entitled U.S. Prisoner Transport, et al. v. Fleetmatics USA, LLC, et al., Case No. 1200-9933 CI-20. We removed the case to the United States District Court for the Middle District of Florida on September 13, 2012, U.S. Prisoner Transport, et al. v. Fleetmatics USA, LLC, et al., Case No. 8:12-CV-2079. We moved to dismiss the complaint on September 20, 2012. Plaintiffs filed an amended complaint on October 4, 2012 and changed the case caption to Brevard Extraditions, Inc., d/b/a U.S. Prisoner Transport, et al. v. Fleetmatics USA, LLC, et al. The amended complaint alleges that we intercepted, recorded, disclosed, and used thousands of telephone calls in violation of Florida Statutes Section 934.03. The amended complaint seeks certification of a putative class of all individuals and businesses residing in Florida who spoke with any representatives of our offices in Florida on the telephone and had their telephone conversations recorded without their consent or advance notice, from the date of the earliest recording by us through the present. The amended complaint seeks statutory damages, injunctive relief, attorney fees, costs and interest. Florida Statutes Section 934.10 permits an aggrieved person to recover “liquidated damages computed at the rate of $100 a day for each day of violation or $1,000, whichever is higher.” We moved to dismiss the amended complaint on October 18, 2012; plaintiffs filed an opposition on November 1, 2012; and we filed a reply on June 4, 2013, after the court granted leave to do so. Our motion to dismiss is pending before the court. Given the early procedural stages of this matter and the inherent uncertainties of litigation, we are unable to estimate a reasonably possible range of loss, if any, at this time, but there can be no assurance that this matter will not have a material adverse effect on our business, financial condition, operating results, and cash flows.

 

19


Table of Contents

We cannot assure you that we will prevail in any current or future intellectual property infringement or other litigation given the complex technical issues and inherent uncertainties in such litigation. Defending such claims, regardless of their merit, could be time-consuming and distracting to management, result in costly litigation or settlement, cause development delays, or require us to enter into royalty or licensing agreements. In addition, we could be obligated to indemnify our customers against third parties’ claims of intellectual property infringement based on our solutions. If our solutions violate any third-party intellectual property rights, we could be required to withdraw those solutions from the market, re-develop those solutions or seek to obtain licenses from third parties, which might not be available on reasonable terms or at all. Any efforts to re-develop our solutions, obtain licenses from third parties on favorable terms or license a substitute technology might not be successful and, in any case, might substantially increase our costs and harm our business, financial condition and operating results. Withdrawal of any of our solutions from the market could harm our business, financial condition and operating results.

In addition, we incorporate open source software into our platform. Given the nature of open source software, third parties might assert copyright and other intellectual property infringement claims against us based on our use of certain open source software programs. The terms of many open source licenses to which we are subject have not been interpreted by U.S. or courts of other jurisdictions, and there is a risk that those licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our solutions. In that event, we could be required to seek licenses from third parties in order to continue offering our solutions, to re-develop our solutions, to discontinue sales of our solutions, or to release our proprietary software source code under the terms of an open source license, any of which could adversely affect our business.

If we are unable to protect our intellectual property and proprietary technologies, our business may be adversely affected.

Our future success and competitive position depend in large part on our ability to protect our intellectual property and proprietary technologies. We rely on a combination of trademark, patent, copyright, and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our intellectual property rights, all of which provide only limited protection and may not currently or in the future provide us with a competitive advantage. We cannot assure you that any future trademark registrations will be issued for pending or future applications or that any registered trademarks will be enforceable or provide adequate protection of our proprietary rights. We have one issued U.S. patent, eight pending U.S. patent applications, and three registered U.S. trademarks. We have one Irish patent and one European patent. We also have seven pending international patent applications filed under the Patent Cooperation Treaty. We cannot assure you that any patents or trademarks will issue from any of our pending or future patent or trademark applications, that any patents or trademarks that issue from such applications will give us the protection that we seek, or that any such patents or trademarks will not be challenged, invalidated, or circumvented. Any patents or trademarks that may issue in the future from our pending or future patent and trademark applications may not provide sufficiently broad protection and may not be enforceable in actions against alleged infringers.

We cannot assure you that the steps we take will be adequate to protect our technologies and intellectual property, our patent and trademark applications will lead to issued patents or registered trademarks, others will not develop or patent similar or superior technologies or solutions, or that our patents, trademarks, and other intellectual property will not be challenged, invalidated, or circumvented by others. Furthermore, effective patent, trademark, copyright, and trade secret protection may not be available in every country in which our solutions are available or where we have employees or independent contractors. In addition, the legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights in Internet-related industries are uncertain and still evolving.

The steps we have taken and will take may not prevent unauthorized use, reverse engineering, or misappropriation of our technologies and we may not be able to detect any of the foregoing. Others may independently develop technologies that infringe on our intellectual property rights. Defending and enforcing our

 

20


Table of Contents

intellectual property rights may result in litigation, which can be costly and divert management attention and resources. Any such litigation may not be successful even if such rights have been infringed, and an adverse decision could limit the scope of such rights. If our efforts to protect our technologies and intellectual property are inadequate, the value of our intangible assets may be diminished and competitors may be able to replicate our solutions and methods of operations. Any of these events could have a material adverse effect on our business, financial condition, and operating results.

We depend in part on confidentiality agreements that may not adequately protect our trade secrets and proprietary information, which could adversely affect our business.

We have devoted substantial resources to the development of our proprietary technologies and related processes. In order to protect our proprietary technologies and processes, we rely in part on trade secret laws and confidentiality agreements with our employees, licensees, independent contractors, and advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets or develop similar technologies and processes, and, in either event we would not be able to assert trade secret rights. Further, laws in certain jurisdictions may afford little or no trade secret protection, and any changes in, or unexpected interpretations of, the intellectual property laws in any country in which we operate may compromise our ability to enforce our intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our intellectual property rights, and failure or inability to obtain or maintain trade secret protection or otherwise protect our intellectual property rights could adversely affect our business.

We rely on third-party software and other intellectual property to develop and provide our solutions and significant increases in licensing costs or defects in third-party software could harm our business.

We rely on software and other intellectual property licensed from third parties to develop and offer our solutions, including mapping software and data from Google to provide solutions to our customers. In addition, we may need to obtain future licenses from third parties to use software or other intellectual property associated with our solutions. We cannot assure you that these licenses will be available to us on acceptable terms, without significant price increases or at all. Any loss of the right to use any such software or other intellectual property required for the development and maintenance of our solutions could result in delays in the provision of our solutions until equivalent technology is either developed by us, or, if available from others, is identified, obtained, and integrated, which could harm our business. Any errors or defects in third-party software could result in errors or a failure of our solutions, which could harm our business.

Our solutions integrate with third-party technologies and if our solutions become incompatible with these technologies, our solutions would lose functionality and our customer acquisition and retention could be adversely affected.

Our solutions integrate with third-party software and devices to allow our solutions to perform key functions. For example, we offer integration with work flow software products, such as ARRIS Solutions, Garmin GPS navigation devices and fuel card providers such as FleetCor, among others. Although to date this integration has been accomplished using open software interfaces and simple physical linkages, we cannot guarantee that this ease of integration will continue or that we will be able to integrate with other products as easily or without additional cost. Additionally, errors, viruses or bugs may also be present in third-party software that our customers use in conjunction with our solutions. Changes to third-party software that our customers use in conjunction with our solutions could also render our solutions inoperable. Customers may conclude that our software is the cause of these errors, bugs or viruses and terminate their subscriptions. The inability to easily integrate with, or any defects in, any third-party software could result in increased costs, or in delays in software releases or updates to our products until such issues have been resolved, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and future prospects and could damage our reputation.

 

21


Table of Contents

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 187 at December 31, 2009 to 290 at December 31, 2010, to 408 at December 31, 2011, to 476 at December 31, 2012 and to 516 at March 31, 2013. Our subscription revenue increased from $46.1 million in 2009 to $64.7 million in 2010, $92.3 million in 2011, $127.5 million in 2012 and increased from $27.8 million in the three months ended March 31, 2012 to $38.4 million in the three months ended March 31, 2013. 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. Creating a global organization and managing 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. As such, we may be unable to manage our expenses effectively in the future, which may negatively impact our gross profit or operating expenses in any particular quarter.

The loss of one or more of our key personnel, or our failure to attract, train and retain other highly qualified personnel, could harm our business.

We depend on the continued service and performance of our key personnel, including our senior management. In addition, the sales and customer service-driven focus of our business and employees is vital to our growth plan. The loss of key personnel, including key members of our management team, as well as certain of our key marketing, sales, product development, or technology personnel, could disrupt our operations and have an adverse effect on our ability to grow our business. To execute our growth plan, we must attract and retain highly qualified personnel. Competition for these employees is intense, and we may not be successful in attracting and retaining qualified personnel. We may experience difficulty in hiring and retaining highly skilled employees with appropriate qualifications. New hires require significant training and, in most cases, 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 we fail to attract and train new personnel, or fail to retain, focus and motivate our current personnel, our business and growth prospects could be severely harmed.

We may expand by acquiring or investing in other companies, which may divert our management’s attention, result in dilution to our shareholders, and consume resources that are necessary to sustain our business.

We may in the future acquire complementary products, services, technologies, or businesses. We also may enter into relationships with other businesses to expand our portfolio of solutions or our ability to provide our solutions in foreign jurisdictions. Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to complete these transactions may often be subject to conditions or approvals that are beyond our control. Consequently, these transactions, even if undertaken and announced, may not close.

An acquisition, investment, or new business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel, or operations of acquired companies, particularly if the key personnel of the acquired company choose not to work for us, the acquired company’s technology is not easily adapted to be compatible with ours, or we have difficulty retaining the customers of any acquired business due to changes in management or otherwise. Acquisitions may also disrupt our business, divert our resources, and require significant management attention that would otherwise be available for the development of our business. Moreover, the anticipated benefits of any acquisition, investment, or business relationship may not be realized or

 

22


Table of Contents

we may be exposed to unknown liabilities, including litigation against the companies we may acquire. For one or more of those transactions, we may:

 

   

issue additional equity securities that would dilute our shareholders;

 

   

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 or that may place burdensome restrictions on our operations;

 

   

incur large charges or substantial liabilities; or

 

   

become subject to adverse tax consequences, or substantial depreciation, deferred compensation or other acquisition-related accounting charges.

Any of these risks could harm our business and operating results.

We face many risks associated with our plans to expand internationally, which could harm our business, financial condition, and operating results.

We anticipate that our efforts to expand internationally will entail the marketing and advertising of our solutions and brand. While our software and websites are designed for ease of localization, we do not have substantial experience localizing our website and software into foreign languages. We also do not have substantial experience in selling our solutions in international markets outside of the U.S., Canada, the U.K. and Ireland or in conforming to the local cultures, standards, or policies necessary to successfully compete in those markets, and we may be required to invest significant resources in order to do so. We may not succeed in these efforts or achieve our customer acquisition or other goals. In some international markets, customer preferences and buying behaviors may be different, and we may use business or pricing models that are different from our traditional subscription model to provide fleet management solutions to customers in those markets or we may be unsuccessful in implementing the appropriate business model. Our revenue from new foreign markets may not exceed the costs of establishing, marketing, and maintaining our international offerings. In addition, the current instability in the eurozone could have many adverse consequences on our international expansion, including sovereign default, liquidity and capital pressures on eurozone financial institutions, reducing the availability of credit and increasing the risk of financial sector failures and the risk of one or more eurozone member states leaving the euro, resulting in the possibility of capital and exchange controls and uncertainty about the impact of contracts and currency exchange rates.

In addition, conducting expanded international operations subjects us to new risks that we have not generally faced in our current markets. These risks include:

 

   

localization of our solutions, including the addition of foreign languages and adaptation to new local practices and regulatory requirements;

 

   

lack of experience in other geographic markets;

 

   

strong local competitors;

 

   

the cost and burden of complying with, lack of familiarity with, and unexpected changes in, foreign legal and regulatory requirements;

 

   

difficulties in managing and staffing international operations;

 

   

fluctuations in currency exchange rates or restrictions on foreign currency;

 

23


Table of Contents
   

potentially adverse tax consequences, including the complexities of transfer pricing, value added or other tax systems, double taxation and restrictions and/or taxes on the repatriation of earnings;

 

   

dependence on third parties, including commercial partners with whom we do not have extensive experience;

 

   

increased financial accounting and reporting burdens and complexities;

 

   

political, social, and economic instability, 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.

Our software contains encryption technologies, certain types of which are subject to U.S. and foreign export control regulations and, in some foreign countries, restrictions on importation and/or use. Any failure on our part to comply with encryption or other applicable export control requirements could result in financial penalties or other sanctions under the U.S. export regulations, including restrictions on future export activities, which could harm our business and operating results. Regulatory restrictions could impair our access to technologies needed to improve our solutions and may also limit or reduce the demand for our solutions outside of the U.S.

Our solutions rely on cellular and GPS networks and any disruption, failure or increase in costs could impede our profitability and harm our financial results.

Two critical links in our current solutions are between in-vehicle devices and GPS satellites and between in-vehicle devices and cellular networks, which allow us to obtain location data and transmit it to our system. Increases in the fees charged by cellular carriers for data transmission or changes in the cellular networks, such as a cellular carrier discontinuing support of the network currently used by our in-vehicle devices, requiring retrofitting of our in-vehicle devices could increase our costs and impact our profitability. We have initiated activities to migrate new installations to the next generation of cellular network compatibility in order to maximize expected useful life of our in-vehicle devices, however, cellular carriers could in the future migrate allotted bandwidth from one network to another. Also, while we have included the ability to store GPS data in our in-vehicle devices in case of temporary cellular network connectivity failure, widespread disruptions or extended failures of the cellular networks would adversely affect our solutions’ functionality and utility and harm our financial results.

GPS is a satellite-based navigation and positioning system consisting of a constellation of orbiting satellites. These satellites and their ground support systems are complex electronic systems subject to electronic and mechanical failures and possible sabotage and it is not certain that the U.S. government will remain committed to the operation and maintenance of GPS satellites over a long period. In addition, technologies that rely on GPS depend on the use of radio frequency bands and any modification of the permitted uses of these bands may adversely affect the functionality of GPS and, in turn, our solutions. The satellites and their ground control and monitoring stations are maintained and operated by the U.S. Department of Defense. The Department of Defense does not currently charge users for access to the satellite signals, but we cannot assure you that they will not do so in the future.

 

24


Table of Contents

Evolving regulation and changes in applicable laws relating to the Internet and data privacy may increase our expenditures related to compliance efforts or otherwise limit the solutions we can offer, which may harm our business and adversely affect our financial condition.

As Internet commerce continues to evolve, increased regulation by federal, state or foreign agencies becomes more likely. We are particularly sensitive to these risks because the Internet is a critical component of our SaaS business model. In addition, taxation of services provided over the Internet or other charges imposed by government agencies or by private organizations for accessing the Internet may be imposed. Any regulation imposing greater fees for Internet use or restricting information exchange over the Internet could result in a decline in the use of the Internet and the viability of Internet-based services, which could harm our business.

Our solutions and products enable us to collect, manage and store a wide range of data related to fleet management such as vehicle location and fuel usage, speed and mileage. A valuable component of our solutions is our ability to analyze this data to present the user with actionable business intelligence. We obtain our data from a variety of sources, including our customers and third-party providers. We cannot assure you that the data we require for our proprietary data sets will be available from these sources in the future or that the cost of such data will not increase. The United States and various state governments have adopted or proposed limitations on the collection, distribution and use of personal information. Several foreign jurisdictions, including the European Union and the United Kingdom, have adopted legislation (including directives or regulations) that increase or change the requirements governing data collection and storage in these jurisdictions. If our privacy or data security measures fail to comply, or are perceived to fail to comply, with current or future laws and regulations, we may be subject to litigation, regulatory investigations or other liabilities. Moreover, if future laws and regulations limit our clients’ ability to use and share this data or our ability to store, process and share data with our clients over the Internet, demand for our solution could decrease, our costs could increase, and our results of operations and financial condition could be harmed.

Our software may contain undetected errors, defects or software errors, which could result in damage to our reputation or harm to our operating results.

We warrant that our software will be free of defects for various periods of time. We must update our solutions quickly to keep pace with the rapidly changing market and the third-party software and devices with which our solutions integrate, and we have a history of frequently introducing new versions. Our solutions could contain undetected errors or defects, especially when first introduced or when new versions are released. In general, our software may not be free from errors or defects, which could result in damage to our reputation or harm to our operating results.

Any significant disruption in service on our websites or in our computer systems could damage our reputation and result in a loss of customers, which would harm our business and operating results.

Our brand, reputation, and ability to attract, retain, and serve our customers are dependent upon the reliable performance of our service and our customers’ ability to access our solutions at all times. Our customers rely on our solutions to make operating decisions related to their fleet, as well as to measure, store and analyze valuable data regarding their businesses. Our solutions are vulnerable to interruption and our data centers are vulnerable to damage or interruption from human error, intentional bad acts, computer viruses or hackers, earthquakes, hurricanes, floods, fires, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures, and similar events, any of which could limit our customers’ ability to access our solutions. Prolonged delays or unforeseen difficulties in connection with adding capacity or upgrading our network architecture may cause our service quality to suffer. Any event that significantly disrupts our service or exposes our data to misuse could damage our reputation and harm our business and operating results, including reducing our revenue, causing us to issue credits to customers, subjecting us to potential liability, harming our churn rates, or increasing our cost of acquiring new customers.

 

25


Table of Contents

We host our solutions and serve all of our customers from our network servers, which are principally located at third-party data center facilities in the Cleveland, Ohio, Denver, Colorado and Dublin, Ireland areas. While we control and have access to our servers and all of the components of our network that are located in our external data centers, we do not control the operation of these facilities. Problems faced by our third-party data center locations, with the telecommunications network providers with whom we or they contract, or with the systems by which our telecommunications providers allocate capacity among their customers, including us, could adversely affect the experience of our customers. Our third-party data center operators could decide to close their facilities without adequate notice. In addition, any financial difficulties, such as bankruptcy, faced by our third-party data center operators or any of the service providers with whom we or they contract may have negative effects on our business, the nature and extent of which are difficult to predict. Additionally, if our data centers are unable to keep up with our growing needs for capacity, this could have an adverse effect on our business. Our disaster recovery systems are located at our third-party hosting facilities. While we are increasing redundancy, our systems have not been tested under actual disaster conditions and may not have sufficient capacity to recover all data and services in the event of an outage. In the event of a disaster in which our disaster recovery systems are irreparably damaged or destroyed, we would experience interruptions in access to our products. Any changes in third-party service levels at our data centers or any errors, defects, disruptions, or other performance problems with our solutions could harm our reputation and may damage our data. Interruptions in our services might reduce our revenue, cause us to issue credits or refunds to customers, subject us to potential liability, or harm our churn rates.

We provide minimum service level commitments to certain of our customers, and our failure to meet them could cause us to issue credits for future subscriptions or pay penalties, which could harm our results of operations.

Certain of our customer agreements currently, and may in the future, provide minimum service level commitments regarding items such as uptime, functionality or performance. If we are unable to meet the stated service level commitments for these customers or suffer extended periods of service unavailability, we are or may be contractually obligated to provide these customers with credits for future subscriptions, provide services at no cost or pay other penalties, which could adversely impact our revenue. We do not currently have any reserves on our balance sheet for these commitments.

We are exposed to fluctuations in currency exchange rates, which could expose us to losses.

A significant portion of our business is conducted outside the U.S., and as such, we face exposure to movements in non-U.S. currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results and cash flows. Fluctuation in currency exchange rates impacts our operating results. Currently, we do not actively hedge against these exposures. We intend to hedge only against those currency exposures associated with certain assets and liabilities denominated in non-functional currencies, which will be intended to offset the impact of currency exchange rate fluctuations on certain non-functional currency assets and liabilities. Our future attempts to hedge against these risks could be unsuccessful and expose us to losses.

Changes in our effective tax rate may reduce our net income in future periods.

While we believe that our organization as an Irish entity should improve our ability to maintain a competitive worldwide effective corporate tax rate, we cannot give any assurance as to what our effective tax rate will be because of, among other things, uncertainty regarding the tax policies of the jurisdictions where we operate. In general, under current Irish legislation, a company is regarded as resident for tax purposes in Ireland if it is centrally managed and controlled in Ireland, or, in certain circumstances, if it is incorporated in Ireland. Trading income of an Irish resident company is generally taxable at the Irish corporation tax rate of 12.5%. Non-trading income of an Irish resident company (e.g., interest income, rental income, dividends or other passive income) is taxable at a rate of 25%. It is possible that in the future, whether as a result of a change in law or the

 

26


Table of Contents

practice of any relevant tax authority or as a result of any change in the conduct of our affairs, we could become, or be regarded as having become tax resident in a jurisdiction other than Ireland. Should we cease to be an Irish tax resident, we may be subject to a charge to Irish capital gains tax as a result of a deemed disposal of our assets. Our actual effective tax rate may vary from our expectation and that variance may be material. Additionally, the tax laws of Ireland, the U.S. and other jurisdictions could change in the future, and such changes could cause a material change in our effective tax rate.

A number of factors may increase our future effective tax rates, including:

 

   

the jurisdictions in which profits are determined to be earned and taxed;

 

   

the resolution of issues arising from tax audits with various tax authorities;

 

   

changes in the valuation of our deferred tax assets and liabilities;

 

   

increases in expense not deductible for tax purposes, including transaction costs and impairments of goodwill in connection with acquisitions;

 

   

changes in available tax credits;

 

   

changes in share-based compensation;

 

   

changes in tax laws or the interpretation of such tax laws, and changes in generally accepted accounting principles; and

 

   

challenges to the transfer pricing policies related to our structure.

Our tax position could be adversely impacted by changes in tax rates generally, tax laws, tax treaties or tax regulations or changes in the interpretation of such laws, treaties or regulations by the tax authorities in Ireland, the U.S. and other jurisdictions.

Such changes may be more likely or become more likely as a result of recent economic trends in the jurisdictions in which we operate, particularly if such trends continue. For example, Ireland has suffered from the consequences of worldwide adverse economic conditions and the credit ratings on its debt have been downgraded. Such changes could cause a material and adverse change in our worldwide effective tax rate and we may have to take action, at potentially significant expense, to seek to mitigate the effect of such changes. In addition, any amendments to the current double taxation treaties between Ireland and other jurisdictions, including the U.S., could subject us to increased taxation. In the normal course of business, we are subject to examination by various taxing authorities in the United States, Ireland and the United Kingdom. As of March 31, 2013, we remain subject to examination in the United States for tax years 2004 through 2012, in Ireland for tax years 2008 through 2012, and in the United Kingdom for tax years 2011 and 2012.

Failure to manage the risks associated with such changes, or misinterpretation of the laws relating to taxation, could result in increased charges, financial loss, including penalties, and reputational damage and materially and adversely affect our results, financial condition and prospects.

Increases in credit card processing fees would increase our operating expenses and adversely affect our operating results.

A majority of our customers purchase our solutions with credit cards and electronic funds transfers, and our business depends upon our ability to offer credit card payment options, which we offer using third-party processing services. We cannot assure you that credit card issuers will not increase their credit card processing

 

27


Table of Contents

fees, which could in turn lead to increases in the fees charged by our third-party processors. In addition, our third-party processors, like any credit card issuer, could increase their credit card processing fees if we experience excessive chargebacks or for other reasons. Given the percentage of our revenue received from credit card purchases, any increase in processing fees could adversely affect our business and operating results.

If we are unable to detect and prevent unauthorized use of credit cards and bank account numbers, we could be subject to financial liability, our reputation could be harmed and customers may be reluctant to use our solutions.

We rely on third-party encryption and authentication technology to provide secure transmission of confidential information over the Internet, including customer credit card and bank account numbers. Advances in technological capabilities, new discoveries in the field of cryptography or other events or developments could result in a compromise or breach of the technology we use to protect sensitive transaction data. If any such compromise of our security, or the security of our customers, were to occur, it could result in misappropriation of proprietary information or interruptions in operations and have an adverse impact on our reputation or the reputation of our customers. If we are unable to detect and prevent unauthorized use of credit cards and bank account numbers, our business could suffer.

Our operating results may be harmed if we are required to collect sales, services or other related taxes for our solutions in jurisdictions where we have not historically done so.

We do not believe that we are required to collect sales, use, services or other similar taxes from our customers in certain jurisdictions. However, one or more countries or states may seek to impose sales, use, services, or other tax collection obligations on us, including for past sales. A successful assertion by one or more jurisdictions that we should collect sales or other taxes on the sale of our solutions could result in substantial tax liabilities for past sales and decrease our ability to compete for future sales. Each country and each state has different rules and regulations governing sales and use taxes and these rules and regulations are subject to varying interpretations that may change over time. We review these rules and regulations periodically and, when we believe sales and use taxes apply in a particular jurisdiction, voluntarily engage tax authorities in order to determine how to comply with their rules and regulations. We cannot assure you that we will not be subject to sales and use taxes or related penalties for past sales in jurisdictions where we presently believe sales and use taxes are not due. We reserve estimated sales and use taxes on our financial statements but we cannot be certain that we have made sufficient reserves to cover taxes.

Providers of goods or services are typically held responsible by taxing authorities for the collection and payment of any applicable sales and similar taxes. If one or more taxing authorities determines that taxes should have, but have not, been paid with respect to our solutions, we may be liable for past taxes in addition to being required to collect sales or similar taxes in respect of our solutions going forward. Liability for past taxes may also include very substantial interest and penalty charges. Our client contracts provide that our clients must pay all applicable sales and similar taxes. Nevertheless, clients may be reluctant to pay back taxes and may refuse responsibility for interest or penalties associated with those taxes or we may determine that it would not be feasible to seek reimbursement. If we are required to collect and pay back taxes and the associated interest and penalties and if our clients do not reimburse us for all or a portion of these amounts, we will have incurred unplanned expenses that may be substantial. Moreover, imposition of such taxes on our solutions going forward will effectively increase the cost of such solutions to our clients.

Many states are also pursuing legislative expansion of the scope of goods and services that are subject to sales and similar taxes as well as the circumstances in which a vendor of goods and services must collect such taxes. Furthermore, legislative proposals have been introduced in Congress that would provide states with additional authority to impose such taxes. Accordingly, it is possible that either federal or state legislative changes may require us to collect additional sales and similar taxes from our clients in the future.

 

28


Table of Contents

Risk Related to Offering and Ownership of Ordinary Shares

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

We anticipate that our available funds will be sufficient to meet our cash needs for at least the next 12 months. We may, however, need, or could elect to seek, additional financing at any time. Our ability to obtain financing will depend on, among other things, our development efforts, business plans, operating performance and condition of the capital markets at the time we seek financing. If we need to raise additional funds, 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 shareholders may experience significant dilution of their ownership interests, and the per share value of our ordinary shares could decline. If we engage in additional debt financing, we may be required to accept terms that further restrict our ability to incur additional indebtedness and force us to maintain specified liquidity or other ratios and limit the operating flexibility of our business. 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 solutions;

 

   

continue to expand our development, sales, and marketing teams;

 

   

acquire complementary technologies, products, or businesses;

 

   

expand our operations in the U.S. or internationally;

 

   

hire, train, and retain employees;

 

   

respond to competitive pressures or unanticipated working capital requirements; or

 

   

continue our operations.

Our share price has been volatile and may be volatile in the future, which could result in substantial losses for investors in our ordinary shares .

Our ordinary shares were sold to the public in our October 2012 initial public offering at $17.00 per share, and as of July 19, 2013, our ordinary shares have subsequently traded as high as $35.87 per share and as low as $19.20 per share. Market prices for securities of companies like ours have historically been particularly volatile in response to various factors, some of which are beyond our control. As a result of this volatility, you may not be able to sell your ordinary shares at or above the public offering price in this offering. Some of the factors that may cause the market price for our ordinary shares to fluctuate include:

 

   

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

 

   

actual or anticipated fluctuations in our key operating metrics, financial condition, and operating results;

 

   

loss of existing customers or inability to attract new customers;

 

   

actual or anticipated changes in our growth rate;

 

   

announcements of technological innovations or new offerings by us or our competitors;

 

29


Table of Contents
   

our announcement of actual results for a fiscal period that are lower than projected or expected or our announcement of revenue or earnings guidance that is lower than expected;

 

   

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

 

   

failure of any of our solutions 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 or services, contracts, acquisitions, or strategic alliances;

 

   

regulatory developments in the U.S. or other countries;

 

   

actual or threatened litigation involving us or our industry;

 

   

additions or departures of key personnel;

 

   

general perception of the future of the fleet management market or our solutions;

 

   

share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

 

   

further issuances of ordinary shares by us;

 

   

sales of ordinary shares by our shareholders;

 

   

repurchases of ordinary shares; and

 

   

changes in general economic, industry, and market conditions.

In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. This litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources, and harm our business, operating results, and financial condition. In addition, recent fluctuations in the financial and capital markets have resulted in volatility in securities prices.

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 ordinary shares to drop significantly, even if our business is doing well.

Sales of a substantial number of our ordinary shares in the public market could occur at any time after the expiration or waiver of the lock-up agreements described in the “Underwriting” section of this prospectus. These sales, or the market perception that the holders of a large number of shares intend to sell shares, could reduce the market price of our ordinary shares. After this offering, we will have 35,637,805 ordinary shares outstanding based on the number of shares outstanding as of March 31, 2013. A total of 10,172,256 shares, representing 28.5% of our outstanding ordinary shares after this offering, are currently restricted as a result of

 

30


Table of Contents

securities laws or lock-up agreements but may be sold, subject to any applicable volume limitations under federal securities laws, in the near future as set forth below.

 

Number of Shares and

% of Total Outstanding

  

First Date Available for Sale into Public Market

10,172,256 shares, or 28.5%

   90 days after the date of this prospectus, due to lock-up agreements between the holders of these shares and the underwriters entered into in connection with this offering

After this offering and the expiration or waiver of the lock-up agreements, holders of an aggregate of 9,499,087 of our ordinary shares will continue to have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other shareholders. In addition, as of March 31, 2013, there were an aggregate of 2,898,743 shares subject to outstanding options that will become eligible for sale in the public market to the extent permitted by any applicable vesting requirements, the lock-up agreements, and Rules 144 and 701 under the Securities Act of 1933, as amended, or the Securities Act. We also have registered and intend to continue to register all of our ordinary shares that we may issue under our equity incentive plans. Once we register and issue these shares, they can generally be freely sold in the public market upon issuance.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our shares adversely, our share price and trading volume could decline.

The trading market for our ordinary shares will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. Securities and industry analysts do not currently, and may never, publish research on us. If no securities or industry analysts commence coverage of our company, our share price and trading volume would likely be negatively impacted. If any of the analysts who may cover us change their recommendation regarding our shares adversely, or provide more favorable relative recommendations about our competitors, our share price would likely decline. If any of the analysts who may cover us were to cease coverage or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline.

Our directors, executive officers, and holders of more than 5% of our ordinary shares prior to this offering, together with their affiliates, will continue to have substantial control over us after this offering and will beneficially own, in the aggregate, approximately 14,680,383 of our outstanding ordinary shares, which could delay or prevent a change in corporate control.

After this offering, our directors, executive officers, and holders of more than 5% of our ordinary shares prior to this offering, together with their affiliates, will beneficially own, in the aggregate, approximately 40.5% of our outstanding ordinary shares and Fleetmatics Investor Holdings, L.P., which is controlled by its limited partners and Investcorp Technology Fund III Limited Partnership, its general partner, will beneficially own approximately 26.2% of our outstanding ordinary shares, assuming no exercise of the underwriters’ option to acquire additional ordinary shares in this offering. As a result, these shareholders, acting together, may have the ability to control the outcome of matters submitted to our shareholders for approval, including the election of directors any sale, merger or consolidation and certain other corporate governance matters. For example, on July 18, 2013, our Board of Directors approved and adopted an amendment and restatement to the 2011 Stock Option and Incentive Plan to, among other things, increase the number of ordinary shares available for future issuance under such plan, and recommended that the amendment and restatement to the 2011 Stock Option and Incentive Plan be submitted to our shareholders for approval at our annual general meeting to be held on August 19, 2013. The record date for the annual general meeting is July 15, 2013 and therefore any shares purchased in this offering will not be entitled to vote at the annual general meeting. Furthermore, our directors, executive officers and Fleetmatics Investor Holdings, L.P. own approximately 49% of our issued and outstanding shares as of the record date and therefore will be able to effectively control the outcome of the matters presented at the

 

31


Table of Contents

annual general meeting. See “Management—Compensation—Share Options” for more information. In addition, these shareholders, acting together, may have the ability to control or influence the management of our affairs. These holders acquired their shares for substantially less than the price of the shares being acquired in this offering, and these holders may have interests, with respect to their shares, that are different from those of investors in this offering and the concentration of voting power among these holders may have an adverse effect on our share price.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our ordinary shares less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 for an extended period of time, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We may take advantage of these exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” for up to five years, although if the market value of our ordinary shares that are held by non-affiliates exceeds $700 million as of any June 30 before that time and in certain other circumstances, we would cease to be an “emerging growth company” as of the following December 31. We cannot predict if investors will find our ordinary shares less attractive because we may rely on these exemptions. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are electing to not take advantage of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to not take advantage of the extended transition period for complying with new or revised accounting standards is irrevocable.

We are a “foreign private issuer” under the New York Stock Exchange rules, and as such we are entitled to exemption from certain New York Stock Exchange corporate governance standards, and you may not have the same protections afforded to shareholders of companies that are subject to all New York Stock Exchange corporate governance requirements, and you may not receive corporate and company information and disclosure that you are accustomed to receiving or in a manner in which you are accustomed to receiving it.

We are a “foreign private issuer,” as such term is defined in Rule 405 under the Securities Act, and we may follow certain home country corporate governance practices instead of the corporate governance requirements of the New York Stock Exchange. For example, we intend to follow Irish practice with respect to the quorum requirements for meetings of our shareholders as set forth in our articles of association , which are different from the requirements of the New York Stock Exchange. The quorum required for a general meeting of shareholders is at least two persons present in person or by proxy at a meeting and holding shares representing at least 50% of the issued shares carrying voting rights. See “Description of Share Capital.” Under Irish law, there is no general statutory requirement for equity compensation plans to be approved by way of shareholder resolution, which is different than the requirements of the New York Stock Exchange. As such, while we may choose to seek shareholder approval for any equity compensation plans, we do not intend to adopt any requirements for shareholder approval of such plans in our memorandum and articles of association. Other than the foregoing, we do not intend to follow home country corporate governance practices instead of the requirements of the New York Stock Exchange.

Further, as a “foreign private issuer” the rules governing the information that we disclose differ from those governing U.S. corporations pursuant to the Securities and Exchange Act of 1934, as amended, which we

 

32


Table of Contents

refer to as the Exchange Act. We are not required to file quarterly reports on Form 10-Q or provide current reports on Form 8-K disclosing significant events within four days of their occurrence. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchase and sales of our securities. Our exemption from the rules of Section 16 of the Exchange Act regarding sales of ordinary shares by insiders means that you will have less data in this regard than shareholders of U.S. companies that are subject to the Exchange Act. Moreover, we are exempt from the proxy rules, and proxy statements that we distribute will not be subject to review by the SEC. Accordingly there may be less information concerning our company publicly available than there is for other U.S. public companies.

We will lose our foreign private issuer status which will require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.

We are a foreign private issuer and therefore we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. As of June 30, 2013, we determined that we no longer qualify as a foreign private issuer, which means that we will be required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers as of January 1, 2014. As of January 1, 2014, we will be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We will also be required to make changes in our corporate governance practices in accordance with various SEC and New York Stock Exchange rules. The regulatory and compliance costs to us under U.S. securities laws when we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status will increase our legal and financial compliance costs and would make some activities highly time consuming and costly. We also expect that when we are required to comply with the rules and regulations applicable to U.S. domestic issuers, it will make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our Board of Directors.

We do not currently intend to pay dividends on our ordinary shares and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our ordinary shares.

We have never declared or paid any cash dividends on our ordinary shares and do not intend to do so for the foreseeable future. We currently intend to retain all available funds and any future earnings to support the operation of, and to finance the growth and development of, our business. Any future determination to declare cash dividends will be made at the discretion of our Board of Directors, subject to compliance with applicable laws (including the Irish Companies Acts which require Irish companies to have “profits available for distribution” before they can pay dividends) and covenants under current or future credit facilities, which may restrict or limit our ability to pay dividends and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our Board of Directors may deem relevant. As a result, a return on your investment may only occur if our share price appreciates.

Provisions contained in our articles of association, as well as provisions of Irish law, could impair a takeover attempt.

Our articles of association and certain provisions of the Irish Companies Acts contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our Board of Directors. In addition, our articles of association provide that our Board of Directors is divided into three classes, class I, class II and class III, with each class serving three-year staggered terms so that only one third of our Board of Directors will be subject to re-election in any one year.

 

33


Table of Contents

There are a number of mechanisms for acquiring an Irish public limited company, including a court-approved scheme of arrangement under the Irish Companies Acts, through a tender offer by a third party and by way of a merger with a company incorporated in the European Economic Area under the European Communities (Cross-Border Mergers) Regulations 2008. Each method requires shareholder approval or acceptance and different thresholds apply.

In addition, we are subject to the Irish Takeover Rules, which will govern a takeover or attempted takeover of the company by means of a court-approved scheme of arrangement or a tender offer. These Rules contain detailed provisions for takeovers including as to disclosure, dealing and timetable.

The Irish Takeover Rules could discourage an investor from acquiring 30% or more of the outstanding ordinary shares of the company unless such investor was prepared to make a bid to acquire all outstanding ordinary shares.

Our Board of Directors may be limited by the Irish Takeover Rules in its ability to defend an unsolicited takeover attempt.

We are subject to the Irish Takeover Rules, under which we will not be permitted to take certain actions which might “frustrate” an offer for our ordinary shares once our Board of Directors has received an offer, or has reason to believe an offer is or may be imminent, without the approval of more than 50% of shareholders entitled to vote at a general meeting of our shareholders and/or the consent of the Irish Takeover Panel. This could limit the ability of our Board of Directors to take defensive actions even if it believes that such defensive actions would be in the best interests of our company and shareholders.

Please see “Description of Share Capital” for further detail.

Irish law differs from the laws in effect in the U.S. and may afford less protection to holders of our securities.

It may not be possible to enforce court judgments obtained in the U.S. against us in Ireland based on the civil liability provisions of the U.S. federal or state securities laws. In addition, there is some uncertainty as to whether the courts of Ireland would recognize or enforce judgments of U.S. courts obtained against us or our directors or officers based on the civil liabilities provisions of the U.S. federal or state securities laws or hear actions against us or those persons based on those laws. We have been advised that the U.S. currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in Ireland.

As an Irish company, we are governed by Irish law, which differs in some material respects from laws generally applicable to U.S. corporations and shareholders, including, among others, differences relating to interested director and officer transactions and shareholder lawsuits. Likewise, the duties of directors and officers of an Irish company generally are owed to the company only. Shareholders of Irish companies generally do not have a personal right of action against directors or other officers of the company and may exercise such rights of action on behalf of the company only in limited circumstances. Accordingly, holders of Fleetmatics Group PLC shares may have more difficulty protecting their interests than would holders of shares of a corporation incorporated in a jurisdiction of the U.S.

The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation and these differences may make our ordinary shares less attractive to investors.

We are incorporated under Irish law and, therefore, certain of the rights of holders of our shares are governed by Irish law, including the provisions of the Irish Companies Acts, and by our articles of association.

 

34


Table of Contents

These rights differ in certain respects from the rights of shareholders in typical U.S. corporations and these differences may make our ordinary shares less attractive to investors. The principal differences include the following:

 

   

under Irish law, dividends may only be declared if we have, on an individual entity basis, profits available for distribution, within the meaning of the Irish Companies Acts;

 

   

under Irish law, each shareholder generally has preemptive rights to subscribe on a proportionate basis to any issuance of shares. Under U.S. law, shareholders generally do not have preemptive rights unless specifically granted in the certificate of incorporation or otherwise. Pre-emption rights may be disapplied under Irish law for renewable five year periods by Irish companies by way of a provision in their articles of association or special resolution of their shareholders, which is an option we availed ourselves of prior to our initial public offering;

 

   

under Irish law, certain matters require the approval of shareholders holding 75% or more of the voting share capital at the general meeting, including amendments to our articles of association. This may make it more difficult for us to complete corporate transactions deemed advisable by our Board of Directors. Under U.S. law, generally only majority shareholder approval is required to amend the certificate of incorporation or to approve other significant transactions;

 

   

under Irish law, a bidder seeking to acquire us would need, on a tender offer, to receive shareholder acceptance in respect of 80% of our outstanding shares. If this 80% threshold is not achieved in the offer, under Irish law, the bidder cannot complete a “second step merger” to obtain 100% control of us. Accordingly, tender of 80% of our outstanding shares is likely to be a condition in a tender offer to acquire us, not 50% as is more common in tender offers for corporations organized under U.S. law; and

 

   

under Irish law, shareholders may be required to disclose information regarding their equity interests upon our request, and the failure to provide the required information could result in the loss or restriction of rights attaching to the shares, including prohibitions on the transfer of the shares, as well as restrictions on voting, dividends and other payments. Comparable provisions generally do not exist under U.S. law.

A future transfer of your ordinary shares, other than one effected by means of the transfer of book entry interests in DTC, may be subject to Irish stamp duty.

Transfers of ordinary shares effected by means of the transfer of book entry interests in the Depositary Trust Company, or DTC, should not be subject to Irish stamp duty. It is anticipated that the majority of ordinary shares will be traded through DTC, either directly or through brokers who hold such ordinary shares on behalf of customers through DTC. However, if you hold your ordinary shares directly rather than beneficially through DTC (or through a broker that holds your ordinary shares through DTC), any transfer of your ordinary shares could be subject to Irish stamp duty (currently at the rate of 1% of the higher of the price paid or the market value of the ordinary shares acquired). Payment of Irish stamp duty is generally a legal obligation of the transferee. The potential for stamp duty to arise could adversely affect the price of our ordinary shares.

U.S. Holders of our shares could be subject to material adverse tax consequences if we are considered a “passive foreign investment company” for U.S. federal income tax purposes.

We do not believe that we are a passive foreign investment company, and we do not expect to become a passive foreign investment company. However, our status in any taxable year will depend on our assets and activities in each year, and because this is a factual determination made annually after the end of each taxable year, there can be no assurance that we will not be considered a passive foreign investment company for the

 

35


Table of Contents

current taxable year or any future taxable year. If we were a passive foreign investment company while a taxable U.S. holder held our shares, such U.S. holder would generally be subject to an interest charge on any deferred taxation and any “excess distributions” and gain upon the sale of our stock would generally be taxed as ordinary income to such U.S. holder. See “Taxation—Material United States federal income tax consequences to U.S. Holders—Passive foreign investment company.”

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.

 

36


Table of Contents

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements and these statements involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “will,” “may,” “potential,” “continue,” or the negative of these terms, and similar expressions intended to identify future events or outcomes indicate such forward-looking statements. Not all forward-looking statements contain these identifying words. Forward-looking statements in this prospectus may include statements about:

 

   

our vehicles under subscription data as of June 30, 2013 and our preliminary operating results for the quarter ended June 30, 2013;

 

   

our ability to attract, sell to and retain customers on a cost-effective basis;

 

   

our anticipated growth strategies, including our ability to increase sales to existing customers, the introduction of new solutions and international expansion;

 

   

our future business development, results of operations and financial condition;

 

   

expected changes in our profitability and certain cost or expense items as a percentage of our revenue;

 

   

our ability to remediate material weaknesses in our internal controls; and

 

   

the effectiveness of our marketing and sales programs.

The forward-looking statements included in this prospectus are subject to risks, uncertainties and assumptions. Our actual results of operations may differ materially from those stated in or implied by such forward-looking statements as a result of a variety of factors, including those described under “Risk Factors” and elsewhere in this prospectus.

We operate in an evolving environment. New risks emerge from time to time, and it is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Forward-looking statements speak only as of the date of this prospectus. You should not rely upon forward-looking statements as predictions of future events. Except as required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

37


Table of Contents

USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of $31.9 million based upon an assumed public offering price of $33.63 per ordinary share, the last reported sale price of our ordinary shares on the New York Stock Exchange on July 19, 2013, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

As of the date of this prospectus, we have no specific plans for the use for the net proceeds of this offering, or a significant portion thereof. We anticipate that we will use the net proceeds we will receive from this offering for working capital and other general corporate purposes, including funding of our sales and marketing activities and further investment in the development of our proprietary technologies.

We will not receive any proceeds from the sale of ordinary shares by the selling shareholders.

 

38


Table of Contents

MARKET PRICE OF OUR ORDINARY SHARES

Our ordinary shares have been listed on the New York Stock Exchange under the symbol “FLTX” since October 5, 2012. Prior to that date, there was no public trading market for our ordinary shares. Our initial public offering was priced at $17.00 per share on October 4, 2012. The following table sets forth for the periods indicated the high and low sales prices per share of our common stock as reported on the New York Stock Exchange:

 

     High      Low  

2012

     

Fourth Quarter (from October 5, 2012 to December 31, 2012)

   $ 25.18       $ 19.20   

2013

     

First Quarter (from January 1, 2013 to March 31, 2013)

   $ 27.45       $ 22.95   

For January 2013

   $ 27.45       $ 24.62   

For February 2013

   $ 25.20       $ 23.41   

For March 2013

   $ 25.12       $ 22.95   

Second Quarter (from April 1, 2013 to June 30, 2013)

   $ 34.72       $ 21.14   

For April 2013

   $ 24.89       $ 21.14   

For May 2013

   $ 30.87       $ 22.52   

For June 2013

   $ 34.72       $ 29.44   

Third Quarter (from July 1, 2013 to July 19, 2013)

   $ 35.87       $ 30.88   

On July 19, 2013, the last reported sale price of our ordinary shares on the New York Stock Exchange was $33.63 per share. As of March 31, 2013, we had 10 holders of record of our ordinary shares. The actual number of shareholders is greater than this number of record holders, and includes shareholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include shareholders whose shares may be held in trust by other entities.

As of June 30, 2013, more than 50 percent of our outstanding voting securities are directly or indirectly owned of record by residents of the United States. As of June 30, 2013, we determined that we no longer qualify as a foreign private issuer, which means that we will be required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers as of January 1, 2014. See “Risk Factors—Risks Related to Offering and Ownership of Ordinary Shares —We will lose our foreign private issuer status which will require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.”

 

39


Table of Contents

DIVIDEND POLICY

We do not have any present plan to pay dividends on our shares. Additionally, our ability to pay dividends on our ordinary shares is limited by restrictions on the ability of our subsidiaries and us to pay dividends or make distributions, including restrictions under the terms of the agreements governing our indebtedness and under Irish law. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our Board of Directors and will depend on then existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our Board of Directors may deem relevant.

Cash dividends on our shares, if any, will be paid in U.S. dollars. As we are an Irish company, dividend withholding tax, or DWT, currently at a rate of 20%, will arise in respect of dividends or other distributions to our shareholders unless an exemption applies. Where DWT does arise, we are responsible for deducting DWT at source and accounting for the relevant amount to the Irish Revenue Commissioners. See “Taxation—Taxation in Ireland—Dividend Withholding Tax” and “Description of Share Capital—Dividends.”

 

40


Table of Contents

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2013:

 

   

on an actual basis; and

 

   

on an as adjusted basis to give effect to the issuance by us of 1,000,000 ordinary shares in this offering at an assumed public offering price of $33.63 per ordinary share, the last reported sale price of our ordinary shares on the New York Stock Exchange on July 19, 2013, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     March 31, 2013  
     Actual     As Adjusted  
     (in thousands, except share and per share data)  

Long-term debt, including current maturities:

    

Senior Secured Credit Facility:

    

Revolving Credit Facility(1)

   $      $   

Term Loan, net of discount of $520

     23,855        23,855   

Capital lease obligations

     527        527   
  

 

 

   

 

 

 

Total debt

     24,382        24,382   

Shareholders’ equity:

    

Ordinary shares, €0.015 par value; 66,666,663 shares authorized; 34,637,805 shares issued and outstanding, actual; 35,637,805 shares issued and outstanding, as adjusted

     661        680   

Deferred shares, €0.01 par value; 5,000,004 shares authorized

     29        29   

Additional paid-in capital

     228,804        261,059   

Accumulated other comprehensive income

     619        619   

Accumulated deficit

     (105,323     (105,695
  

 

 

   

 

 

 

Total shareholders’ equity

     124,790        156,692   
  

 

 

   

 

 

 

Total capitalization

   $ 149,172      $ 181,074   
  

 

 

   

 

 

 

A $1.00 increase (decrease) in the assumed public offering price of $33.63 per share, the last reported sale price of our common stock on the New York Stock Exchange on July 19, 2013, would increase (decrease) our as adjusted total shareholders’ equity and total capitalization by approximately $1.0 million, assuming the number of shares offered by us, as set forth on the front cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

(1) As of March 31, 2013, our revolving credit facility provides for borrowing of up to $25.0 million to fund our working capital needs.

The number of shares shown as outstanding in the table above is based on 34,637,805 ordinary shares outstanding as of March 31, 2013 and excludes:

 

   

2,898,743 ordinary shares issuable upon the exercise of stock options outstanding as of March 31, 2013 at a weighted average exercise price of $4.70 per share;

 

   

1,628,688 additional ordinary shares reserved for future issuance of stock options and other share-based awards under the 2004 Plan and the 2011 Plan;

 

   

250,000 additional ordinary shares proposed to be reserved for future issuance under our 2011 Plan, subject to the approval of an amendment and restatement of the 2011 Plan by the shareholders of the Company at the Company’s annual general meeting to be held on August 19, 2013. See “Management—Share Options” for more information; and

 

   

400,000 ordinary shares reserved for future issuance under our 2012 Employee Share Purchase Plan.

 

41


Table of Contents

CORPORATE STRUCTURE

We were incorporated in Ireland on October 28, 2004 as a private limited company. Before commencing our initial public offering, a public limited company known as Fleetmatics Group PLC became the holding company of the FleetMatics group by way of a share-for-share exchange in which the shareholders of FleetMatics Group Limited exchanged their shares in FleetMatics Group Limited for identical shares in Fleetmatics Group PLC.

Our registered and principal office is located at Block C, Cookstown Court, Belgard Road, Tallaght, Dublin 24, Ireland. Our U.S. headquarters’ office is located at 70 Walnut Street, Wellesley Hills, Massachusetts and our telephone number is (866) 844-2235. We have additional offices in Rolling Meadows, Illinois, Charlotte, North Carolina, Clearwater, Florida, Tempe, Arizona and Solon, Ohio in the United States, Reading, Berkshire in the United Kingdom, and in Dublin, Ireland.

We are a holding company and conduct substantially all of our business through our wholly-owned operating subsidiaries, FleetMatics IRL Limited, FleetMatics UK Limited, FleetMatics USA, LLC and SageQuest LLC.

We have other non-operating, wholly-owned entities in our group, including Fleetmatics Patents Limited, an Irish company, which holds certain group intellectual property.

Additionally, we may, from time to time, incorporate subsidiaries for specific purposes or to carry out particular functions.

The following chart shows our current corporate structure:

 

LOGO

 

42


Table of Contents

SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus.

The consolidated statements of operations data for the years ended December 31, 2010, 2011 and 2012 and the consolidated balance sheet data as of December 31, 2011 and 2012 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statements of operations data for the years ended December 31, 2008 and 2009 and the consolidated balance sheet data as of December 31, 2008, 2009 and 2010 are derived from our audited consolidated financial statements not included in this prospectus. The consolidated statement of operations data for the three months ended March 31, 2012 and 2013 and the consolidated balance sheet data as of March 31, 2013 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited consolidated financial statements include, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, that management considers necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that should be expected in the future, and our interim results are not necessarily indicative of results that should be expected for the full year.

 

    Year Ended December 31,     Three Months Ended
March 31,
 
    2008     2009     2010     2011     2012     2012     2013  
                                  (unaudited)  
          (in thousands, except per share data)  

Consolidated Statements of Operations Data:

             

Subscription revenue

  $ 32,014      $ 46,057      $ 64,690      $ 92,317      $ 127,451      $ 27,839      $ 38,419   

Cost of subscription revenue

    13,193        16,161        22,941        28,631        35,507        8,443        9,997   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    18,821        29,896        41,749        63,686        91,944        19,396        28,422   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

             

Sales and marketing

    12,379        16,113        20,447        33,391        41,138        9,934        12,601   

Research and development

    5,724        2,866        4,061        6,021        7,379        1,617        2,094   

General and administrative

    5,949        6,853        14,628        18,309        31,047        5,696        7,940   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    24,052        25,832        39,136        57,721        79,564        17,247        22,635   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    (5,231     4,064        2,613        5,965        12,380        2,149        5,787   

Interest income (expense), net

    (330     74        (1,012     (2,386     (2,075     (623     (366

Foreign currency transaction gain (loss), net

    (313     68        (907     155        (24     216        (356

Loss on extinguishment of debt

                                (934              

Other income (expense), net

                                (32              
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (5,874     4,206        694        3,734        9,315        1,742        5,065   

Provision for (benefit from) income taxes

    1,783        1,344        1,430        865        3,907        718        2,105   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (7,657     2,862        (736     2,869        5,408        1,024        2,960   

Accretion of redeemable convertible preferred shares to redemption value

    (290     (609     (418     (446     (335     (111       

Modification of redeemable convertible preferred shares

                  (6,542                            

Net income attributable to participating securities

           (873            (2,294            (864       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ordinary shareholders

  $ (7,947   $ 1,380      $ (7,696   $ 129      $ 5,073      $ 49      $ 2,960   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share attributable to ordinary shareholders(1):

             

Basic

  $ (0.64   $ 0.13      $ (0.77   $ 0.09      $ 0.58      $ 0.03      $ 0.09   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $ (0.64   $ 0.12      $ (0.77   $ 0.08      $ 0.50      $ 0.03      $ 0.08   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares outstanding(1):

             

Basic

    12,465        10,936        10,051        1,497        8,822        1,505        34,612   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    12,465        11,851        10,051        2,078        10,085        2,551        36,245   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

43


Table of Contents
     As of December 31,      As of 
March 31,
2013
 
     2008     2009     2010     2011     2012     
                                    (unaudited)  
     (in thousands)  

Consolidated Balance Sheet Data:

             

Cash

   $ 14,844      $ 11,606      $ 23,054      $ 8,615      $ 100,087       $ 102,018   

Working capital (deficit)(2)

     (7,554     (7,193     (368     (8,858     88,579         87,987   

Total assets

     51,003        51,484        104,352        99,576        210,625         216,937   

Total debt (net of discount), including capital lease obligations

     182               16,881        17,986        24,767         24,382   

Redeemable convertible preferred shares

     37,169        37,778        130,393        130,839                  

Total shareholders’ equity (deficit)

     (57,264     (55,946     (115,514     (111,065     121,022         124,790   

 

(1) See Note 16 to our consolidated financial statements for further details on the calculation of basic and diluted net income (loss) per share attributable to ordinary shareholders.

 

(2) We define working capital (deficit) as current assets less current liabilities.

 

44


Table of Contents

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 consolidated financial statements and the related notes and other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this prospectus 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

FleetMatics is a leading global provider of fleet management solutions delivered as software-as-a-service, or SaaS. Our mobile software platform enables businesses to meet the challenges associated with managing their local fleets of commercial vehicles and improve productivity by extracting actionable business intelligence from vehicle and driver behavioral data. We offer intuitive, cost-effective Web-based and mobile application solutions that provide fleet operators with visibility into vehicle location, fuel usage, speed and mileage and other insights into their mobile workforce, enabling them to reduce operating and capital costs, as well as increase revenue. As of March 31, 2013, we had more than 19,000 customers who collectively deployed our solutions in over 356,000 vehicles worldwide. The substantial majority of our customers are small and medium-sized businesses, or SMBs, each of which deploy our solutions in 1,000 or fewer vehicles. During the three months ended March 31, 2013, we collected an average of approximately 41 million data points per day from these vehicles, and we have aggregated over 38 billion data points since our inception, which we believe provides valuable information that we may consider in the development of complementary solutions and additional sources of revenue.

We were founded in 2004 in Dublin, Ireland through a combination of two fleet management companies, WebSoft Ltd. and Moviltec Ltd. Since inception, our software has been designed to be delivered as a hosted, multi-tenant offering, accessed through a Web browser utilizing broadly available in-vehicle devices to transmit vehicle and driver behavioral data to our databases over cellular networks. In July 2010, we completed the acquisition of SageQuest, Inc., or SageQuest, in exchange for a cash payment of approximately $37.0 million. Through our SageQuest branded product, we provide configurable SaaS-based fleet management solutions to customers requiring integration capabilities with third-party workflow solutions or that require advanced levels of administrative flexibility.

We derive substantially all of our revenues from subscription agreements to our solutions, which typically include the use of our SaaS fleet management solution and an in-vehicle device. We generate sales through lead-generating Web-based advertising and targeted outbound sales efforts, which we then work to convert into paying customers. Our in-vehicle devices are installed by our network of installation partners. Initial customer contracts are typically 36 months in duration with renewal automatically for one-year intervals thereafter, unless the customer elects not to renew. These contract terms provide us with a high degree of visibility into future revenue. Our customer contracts are non-cancelable, and our customers generally are billed on a monthly basis.

We have achieved significant revenue growth historically. Our growth has been driven through a combination of selling to new customers, selling additional vehicle subscriptions to existing customers, as their number of vehicles under management increases, as well as selling additional features to our existing customers. Our customer acquisition model is designed to be efficient and scalable by focusing on acquiring large volumes of leads primarily through Web-based sales and marketing efforts. Through these efforts, we have successfully driven strong growth in sales among a relatively diverse and distributed SMB customer base. In 2012 and in the first three months of 2013, our largest customer accounted for approximately 3% and 4%, respectively, of our subscription revenue and our top 25 customers represented approximately 11% and 14%, respectively, of our subscription revenue.

 

45


Table of Contents

As we pursue our growth strategy, we will have many opportunities and challenges. One of our key initiatives is to expand our business internationally and we expect to hire additional personnel as we pursue this expansion. We may also complete strategic acquisitions to help us expand our sales and operations internationally. We will have to address additional risks as we pursue this international expansion, including the difficulties of localizing our solutions, competing with local companies as well as the challenge of managing and staffing international operations. We also intend to explore opportunities to capitalize on the data we accumulate from our customers’ vehicles as we seek ways to monetize this valuable information. Over time, we may experience pressure on pricing as our products become more mature and as competition intensifies in various markets. Each of our strategic initiatives will require expenditure of capital and management focus and we may be unsuccessful as we execute our strategy.

In each quarter since our inception, we have increased our number of customers and the number of vehicles subscribed to our solutions. As of March 31, 2013, we had approximately 356,000 vehicles under subscription, an increase of 7.6% from approximately 331,000 as of December 31, 2012, which was an increase of 39.7% from approximately 237,000 as of December 31, 2011. Our subscription revenue in 2012 grew 38.1% to $127.5 million compared to $92.3 million in 2011 and in the three months ended March 31, 2013 grew 38.0% to $38.4 million compared to $27.8 million in the three months ended March 31, 2012. As the business has grown, we have leveraged our scale to negotiate improved pricing associated with application hosting, procurement of in-vehicle devices, telecommunication services and third-party data subscription services. We reported net income in 2012 of $5.4 million as compared to $2.9 million in 2011. We reported net income of $3.0 million in the three months ended March 31, 2013 compared to net income of $1.0 million in the three months ended March 31, 2012. Our Adjusted EBITDA in 2012 grew 55.8% to $33.9 million compared to $21.7 million in 2011 and in the three months ended March 31, 2013 grew 81.1% to $11.1 million compared to $6.1 million in the three months ended March 31, 2012. On October 11, 2012, we completed the initial public offering of our ordinary shares.

Key Financial and Operating Metrics

In addition to traditional financial metrics, we monitor the ongoing operation of our business using a number of financially and non-financially derived metrics that are not included in our consolidated financial statements.

 

    Year Ended December 31,     Three Months Ended
March 31,
 
    2010     2011     2012     2012     2013  
    (dollars in thousands)  

Total vehicles under subscription

    172,000        237,000        331,000        256,000        356,000   

Adjusted EBITDA

  $ 11,171      $ 21,748      $ 33,886      $ 6,105      $ 11,059   

Net churn

    (1.3 )%      3.2     6.2     0.8     1.3

Total vehicles under subscription. This metric represents the number of vehicles managed by our customers utilizing one or more of our SaaS solutions at the end of the period. Since our revenue is primarily driven by the number of vehicles that subscribe to our SaaS solutions, we believe that total vehicles under subscription is an important metric to monitor.

Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) plus provision for income taxes, interest (income) expense, net, foreign currency transaction gain (loss), net, depreciation and amortization of property and equipment, amortization of capitalized in-vehicle-devices owned by customers, amortization of intangible assets, share-based compensation, certain non-recurring secondary public offering costs, certain non-recurring litigation and settlement costs, transaction costs related to acquired businesses, costs associated with our Management Services Agreement with Privia, and loss on extinguishment of debt.

 

46


Table of Contents

We have included Adjusted EBITDA in this prospectus because it is a key measure used by our management and Board of Directors to understand and evaluate our core operating performance and trends; to prepare and approve our annual budget and to develop short—and long-term operational plans; and to allocate resources to expand our business. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. For further explanation of our management’s use of this measure, limitations of its use, and a reconciliation of our Adjusted EBITDA to our net income (loss), please see “Summary Consolidated Financial Data—Adjusted EBITDA.”

Net churn. We calculate our net churn for a period by dividing (i) the number of vehicles under subscription added from existing customers less vehicles under subscription lost from existing customers over that period by (ii) the total vehicles under subscription at the beginning of that period. This provides us an appropriate measure of churn as it reflects the stability of our existing customer base before taking into account new customers as existing customers may remain a customer, but decrease the total number of subscribed vehicles at their contractual point of renewal, and conversely, may increase the number of vehicles under subscription at any point of time. When the number of vehicles under subscription added from existing customers exceeds the number of vehicles under subscription lost from existing customers in the period, this formula generates a positive number. SageQuest vehicles under subscription and vehicles under subscription lost are not reflected as part of the churn calculation prior to July 2010 when we acquired it.

Privia Management Services Agreement

In November 2010, we entered into a consulting and non-compete agreement, or the Management Services Agreement, with Privia Enterprises Limited, or Privia, a company controlled by certain of our former shareholders, one of whom continued to serve as a member of our Board of Directors through February 2012. Pursuant to this agreement, in exchange for consulting services to be performed by Privia, we agreed to pay Privia up to $15.0 million in three separate installments if we sold a specified number of subscriptions, measured by unit installation, during each of the twelve months ending March 31, 2012, 2013 and 2014. These payments would be made after the conclusion of each measurement period and were scheduled to be paid as follows: $3.0 million for the period ending March 31, 2012, $5.0 million for the period ending March 31, 2013 and $7.0 million for the period ending March 31, 2014. On August 20, 2012, we paid Privia an aggregate of $7.8 million in full satisfaction of all present and future amounts that were payable by us under the Management Services Agreement. We recorded expense of $0.2 million, $2.2 million, $5.4 million and $0.6 million, respectively, for the years ended December 31, 2010, 2011 and 2012 and for the three months ended March 31, 2012 in relation to this agreement.

Components of Results of Operations

Subscription Revenue

We derive substantially all of our revenue from subscription fees for our solutions, which typically include the use of our SaaS fleet management solution and an in-vehicle device. Our revenue is driven primarily by the number of vehicles under subscription and the price per vehicle under subscription. In addition, we generate revenue by selling our customers additional subscriptions, such as our fuel card integration, driving style option, and integration with GPS navigation devices. To a much lesser extent, we sell aggregated, anonymous data to traffic subscription service providers.

Our contract terms generally are 36 months for their initial term with automatic annual renewals thereafter, unless the customer elects not to renew. We collect fees from our customers for a ratable portion of the contract on a periodic basis, generally on a monthly basis in advance. Prior to 2011, some customer contracts were paid in advance for the full, multiple-year term. Since that time, our payment terms are typically monthly in advance; however, we continue to enable our customers to prepay all or part of their contractual obligations quarterly, annually or for the full contract term in exchange for a prepayment discount that is reflected in the pricing of the contract.

 

47


Table of Contents

Cost of Subscription Revenue

Cost of subscription revenue consists primarily of costs related to communications, third-party data and hosting costs (which include the cost of telecommunications charges for data; subscription fees paid to third-party providers of Internet maps; posted speed limit and other data; and costs of hosting of our software applications underlying our product offerings); third-party costs related to the maintenance and repair of installed in-vehicle devices, which we refer to as field service costs; depreciation of in-vehicle devices (including installation and shipping costs related to these devices); amortization of capitalized in-vehicle devices owned by customers; personnel costs (including share-based compensation) of our customer support activities and related to configuration of our solutions to interface with the customers’ workflow or other internal systems where necessary; amortization expense for internal-use capitalized software costs; amortization of developed technology acquired as part of our SageQuest acquisition in 2010; amortization of the patent for our vehicle tracking system; and an allocation of occupancy and general office related expenses, such as rent and utilities, based on headcount. We allocate a portion of customer support costs related to assisting in the sales process to sales and marketing expense.

We capitalize the cost of installed in-vehicle devices (including installation and shipping costs related to these devices) and depreciate these costs over the minimum estimated useful life of the devices or over the estimated average customer relationship period, which are both currently six years. If a customer subscription agreement is canceled or expires prior to the end of the expected useful life of the device under contract, the depreciation period is accelerated resulting in the carrying value being expensed in the then-current period. Should an installed in-vehicle device require replacement because it has become defective, we record as expense the cost of the replacement part or device when provided.

The expenses related to our hosted software applications are only modestly affected by the number of customers who subscribe to our products because of the scalability of our software applications, data expansion and hosting infrastructure. However, many of the other components of our cost of subscription revenue, such as depreciation of in-vehicle devices and installation and shipping costs related to these devices, communications expense and subscription fees paid to our Internet map providers and for other third-party data are variable costs affected by the number of vehicles subscribed by customers.

We expect that the cost of subscription revenue in absolute dollars may increase in the future depending on the growth rate of subscription sales to new and existing customers and our resulting need to service and support those customers. We also expect that cost of subscription revenue as a percentage of subscription revenue will fluctuate from period to period.

Sales and Marketing

Sales and marketing expenses consist primarily of wages and benefits (including share-based compensation) for sales and marketing personnel, including the amortization of deferred commissions and travel related expenses; advertising and promotional costs; and an allocation of occupancy and general office related expenses, such as rent and utilities, based on headcount. Also included in our sales and marketing expenses is the amortization of the value of customer relationships and trademarks acquired as part of our SageQuest acquisition in 2010. Advertising costs consist primarily of pay-per-click advertising with search engines, other online and offline advertising media, as well as the costs to create and produce these advertisements. Advertising costs are expensed as incurred. We capitalize commission costs that are incremental and directly related to the acquisition of new customer contracts or renewals. We pay commissions in full when we receive the initial customer payment for a new subscription or a renewal subscription. Commission costs are capitalized upon payment and are amortized as expense ratably over the term of the related non-cancelable customer contract, in proportion to the recognition of the subscription revenue. If a subscription agreement is terminated, the unamortized portion of any deferred commission cost is recognized as an expense immediately upon such termination.

 

 

48


Table of Contents

We plan to continue to invest in sales and marketing in order to drive growth in our sales and continue to build brand and category awareness. We expect sales and marketing expenses to increase in absolute dollars and to continue to be our largest operating expense in absolute dollars and as a percentage of subscription revenue, although they may fluctuate as a percentage of subscription revenue.

Research and Development

Research and development expenses consist primarily of wages and benefits (including share-based compensation) for product management and development personnel, costs of external consultants, and, to a lesser extent, an allocation of occupancy and general office related expenses, such as rent and utilities, based on headcount. We have focused our research and development efforts on improving ease of use, functionality and technological scalability of our existing products as well as on expanding and developing new offerings. The majority of our research and development employees are located in our development center in Ireland. Therefore, a majority of research and development expense is subject to fluctuations in foreign exchange rates. Research and development costs are expensed as incurred, except for certain internal-use software development costs that qualify for capitalization, such as costs related to software enhancements that add functionality, which are capitalized and amortized over their estimated useful life.

We believe that continued investment in our technology is important for our future growth, and as a result, we expect research and development expenses to increase in absolute dollars, although they may fluctuate as a percentage of subscription revenue.

General and Administrative

General and administrative expenses consist primarily of wages and benefits (including share-based compensation) for administrative services, human resources, internal information technology support, executive, legal, finance and accounting personnel; professional fees; expenses for business application software licenses; non-income related taxes; other corporate expenses, such as insurance; bad debt expenses; and an allocation of occupancy and general office related expenses, such as rent and utilities, based on headcount. Also included within our general and administrative expenses through 2012 are costs related to the Management Services Agreement we entered into in November 2010 with Privia, which was terminated on August 20, 2012.

We expect that general and administrative expenses will increase as we continue to add personnel in connection with the anticipated growth of our business. In addition, we anticipate that we will also incur additional personnel expenses, professional service fees, including auditing and legal fees, and insurance costs related to operating as a public company.

Interest Income (Expense), net

Interest income (expense), net consists primarily of interest expense on our outstanding debt as well as on our capital lease obligations.

Foreign Currency Transaction Gain (Loss), net

Foreign currency transaction gain (loss), net consists primarily of the net unrealized gains and losses recognized upon revaluing the foreign currency-denominated intercompany payables and receivables of our various subsidiaries at each balance sheet date. To a lesser extent, foreign currency transaction gain (loss), net also consists of the transaction gains and losses recorded to revalue the foreign currency-denominated customer accounts receivable and vendor payables recorded by our subsidiaries that transact in currencies other than their functional currency. We currently do not engage in hedging activities related to our foreign currency-denominated intercompany balances or our customer receivables and other payables; as such, we cannot predict the impact of future foreign currency transaction gains and losses on our operating results. See “—Quantitative and Qualitative Disclosures about Market Risk.”

 

49


Table of Contents

Provision for Income Taxes

Provision for income taxes consists primarily of taxes in Ireland, the United States and the United Kingdom. There are two main drivers of our annual effective tax rate. First, as a multi-national company, we are subject to tax in various jurisdictions which apply various statutory rates of tax to our income. Each of these jurisdictions has its own tax law which is subject to interpretation on a jurisdiction by jurisdiction basis. In Ireland, our operating entity is subject to tax at a 12.5% tax rate and our non-operating entities are subject to tax at a 25% tax rate, while our foreign subsidiaries in the United States and the United Kingdom are subject to tax rates of approximately 40% and 23%, respectively. Second, as a result of our global business model, we engage in a significant number of cross-border intercompany transactions. As a result of these transactions, we have recorded reserves for uncertain tax positions related to how the different jurisdictions may conclude on the tax treatment of the transaction and how we might settle those exposures. There is no guarantee that how one jurisdiction might view a particular transaction will be respected by another jurisdiction. Additionally, there may be instances where our income is subject to taxation in more than one jurisdiction.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. 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 believe that the estimates, assumptions and judgments involved in the accounting policies described below may have the greatest potential impact on our financial statements and, therefore, consider these to be our critical accounting policies. Accordingly, we evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. See also Note 3 of our consolidated financial statements included elsewhere in this prospectus for information about these critical accounting policies as well as a description of our other significant accounting policies.

JOBS Act

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” As an “emerging growth company,” we elected not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to not take advantage of the extended transition period for complying with new or revised accounting standards is irrevocable. In addition, we are in the process of evaluating the benefits of continuing to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act.

Subject to certain conditions set forth in the JOBS Act, if as an “emerging growth company” we choose to rely on such exemptions, we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation, which would not apply to us in any event so long as we remain a foreign private issuer. These exemptions will apply for a period of five years following our October 2012 initial public offering or until we no longer meet the requirements of being an “emerging growth company,” whichever is earlier.

 

50


Table of Contents

Revenue Recognition

We provide access to our software through subscription arrangements whereby our customers are charged a per subscribed-vehicle fee for access for a specified term. Subscription agreements contain multiple service elements and deliverables, including installation of in-vehicle devices, access to our on-demand software via our website, and support services delivered over the term of the arrangement. Agreements do not provide customers the right to take possession of the software at any time. We have determined that the elements of our subscription agreements do not have value to the customer on a standalone basis. As a result, the multiple elements within our subscription agreements do not qualify for treatment as separate units of accounting. Accordingly, we account for all fees received under our subscription agreements as a single unit of accounting and, except for any up-front fees, recognize the total fee amount ratably on a daily basis over the term of the subscription agreement. We only commence recognition of revenue when there is persuasive evidence of an arrangement, the fee is fixed or determinable, collectibility is deemed reasonably assured, and recurring services have commenced. Our initial subscription agreements typically have contract terms of 36 months.

For the limited number of customer arrangements in which title to the in-vehicle devices transfers to the customer upon delivery or installation of the in-vehicle device, we receive an up-front fee from the customer. As the in-vehicle devices do not have value to the customer on a standalone basis, the delivery or installation of the in-vehicle devices does not represent the culmination of a separate earning process associated with the payment of the up-front fee. Accordingly, we record the amount of the up-front fee as deferred revenue upon invoicing and recognize that amount as revenue ratably on a daily basis over the estimated average customer relationship period of six years, which is longer than the typical subscription agreement term of 36 months. If a customer permanently ceases use of our subscription service at any point when a balance of deferred revenue from this up-front payment exists, we recognize the remaining balance of the deferred revenue in the period of notification. Changes in the typical customer contractual term, customer behavior, competition or economic conditions could affect our estimates of the average customer relationship period. We review the estimated average customer relationship period on a periodic basis and account for changes prospectively.

Deferred revenue represents amounts billed to customers or payments received from customers for which revenue has not yet been recognized. Deferred revenue primarily consists of prepayments made by customers for future periods and, to a lesser extent, the unearned portion of monthly billed subscription fees and up-front payments from customers for in-vehicle devices whose ownership transfers to them upon delivery or installation.

Allowance for Doubtful Accounts

Accounts receivable are carried at their original invoice amounts less an allowance for doubtful collections based on estimated losses resulting from the inability or unwillingness of customers to make required payments. We estimate the allowance at each reporting period based upon historical loss patterns, the number of days that billings are past due and an evaluation of the potential risk of loss associated with specific delinquent accounts. We also consider any changes to the financial condition of our customers and any other external market factors that could impact the collectibility of our receivables in the determination of our allowance for doubtful accounts.

Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to calculate our income tax expense based on taxable income by jurisdiction. There are many transactions and calculations about which the ultimate tax outcome is uncertain; as a result, our calculations involve estimates by management. Some of these uncertainties arise as a consequence of transfer pricing arrangements among our related entities and the differing tax treatment of revenue and cost items across various jurisdictions. If we were compelled to revise or to account differently for our arrangements, that revision could affect our tax liability.

 

 

51


Table of Contents

We account for uncertainty in income taxes recognized in our financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon examination by the taxing authorities, based on the technical merits of the position. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. Our provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different. We make adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact, either favorable or unfavorable, on our consolidated financial condition and operating results. At December 31, 2011 and 2012 and March 31, 2013 the balances recorded as liabilities for unrecognized tax benefits in our consolidated balance sheets totaled $17.8 million, $14.6 million and $14.9 million, respectively, including accrued interest and penalties.

The income tax accounting process also involves estimating our actual current tax liability, together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. Our net deferred tax assets currently are comprised of net operating loss carryforwards in the United States and the United Kingdom as well as deductible temporary differences. As of December 31, 2012, our net operating loss carryforwards in the United States available to reduce future federal taxable income totaled $9.1 million, and our net operating loss carryforwards in the United Kingdom available to reduce future taxable income totaled $2.3 million. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe, based upon the weight of available evidence, that it is more likely than not that all or a portion of deferred tax assets will not be realized, we establish a valuation allowance as a charge to income tax expense. We evaluate valuation allowances for deferred tax assets at the individual subsidiary level or consolidated tax group level in accordance with the tax law in the specific jurisdiction. In estimating future taxable profits, we consider all current contracts and assets of the business, including intercompany transfer pricing agreements, as well as a reasonable estimation of future taxable profits achievable by us. With respect to our subsidiaries in the United States, which file a consolidated group tax return for federal and state tax purposes and are in a three-year cumulative pre-tax income position as a result of the current year’s pre-tax profit, we have concluded that there is sufficient positive evidence that we do not need to establish a valuation allowance against our net operating loss deferred tax asset, nor a valuation allowance against our other (non-NOL) deferred tax assets, given our future forecasted income and the relatively long carryforward periods permitted for net operating losses in the United States. In arriving at this conclusion, we forecasted future income in the United States using fiscal year 2012 results as a base, then adjusted for (i) verifiable evidence of known reductions in certain future expenses, including amortization expense from acquired intangible assets and interest expense, which will be lower in the future due to lower borrowing rates as a result of our new credit facility entered into in May 2012 and (ii) income from a newly executed customer contract. We believe that the future earnings forecasts combined with the lengthy carryforward period of the net operating loss carryforwards would produce sufficient taxable income in our subsidiaries in the United States to fully realize the deferred tax assets before expiration of the U.S. federal and state carryforward periods, which expire from 2026 through 2031 for federal purposes and from 2017 to 2031 for state purposes. Accordingly, we have not recorded a valuation allowance for the net operating loss carryforwards in the United States as of December 31, 2011 and 2012. Our net deferred tax assets at December 31, 2011 totaled $12.6 million, comprised of deferred tax assets of $20.7 million, partially offset by deferred tax liabilities of $7.0 million and a valuation allowance of $1.0 million. Our

 

52


Table of Contents

net deferred tax assets at December 31, 2012 totaled $6.2 million, comprised of deferred tax assets of $18.2 million, partially offset by deferred tax liabilities of $9.5 million and a valuation allowance of $2.6 million

Internal-Use Software

We expense research and development costs as incurred, except for certain costs which are capitalized in connection with our internal-use software and website. These capitalized costs are primarily related to the application software that is hosted by us and accessed by our customers through our website. Costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing performed to ensure the product is ready for its intended use. We also capitalize costs related to specific upgrades and enhancements of this application software when it is probable that the expenditures will result in additional functionality. Maintenance and training costs are expensed as incurred. Capitalized internal-use software costs are recorded as part of property and equipment and are amortized on a straight-line basis over an estimated useful life of three years. At December 31, 2011 and 2012 and March 31, 2013, the carrying value of our internal-use software was $1.0 million, $1.3 million and $1.5 million, respectively.

Business Combinations

In an acquisition of a business, we recognize separately from goodwill the fair value of assets acquired and liabilities assumed. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition-date fair values of the assets acquired and liabilities assumed. In determining the fair value of assets acquired and liabilities assumed in a business combination, we primarily use recognized valuation methods such as an income approach or a cost approach and apply present value modeling. Our significant estimates in the income or cost approach include identifying business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and operating income multiples in estimating the fair value. Further, we make certain assumptions within present value modeling valuation techniques including risk-adjusted discount rates, future price levels, rates of increase in operating expenses, weighted average cost of capital, rates of long-term growth and effective income tax rates. We believe that the estimated fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions that marketplace participants would use. While we use our best estimates and assumptions as a part of the process to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and actual results could differ from those estimates.

In addition, uncertain tax positions assumed and valuation allowances related to the net deferred tax assets acquired in connection with a business combination are estimated as of the acquisition date and recorded as part of the purchase. Thereafter, any changes to these uncertain tax positions and valuation allowances are recorded as part of the provision for income taxes in our consolidated statement of operations.

Impairment of Goodwill

We record goodwill when the consideration paid in a business acquisition exceeds the fair value of the net tangible assets acquired, identifiable intangible assets acquired and liabilities assumed. Goodwill is not amortized, but rather is tested for impairment annually or more frequently if events or circumstances occur that indicate an impairment may exist. Factors we consider important that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in our use of the acquired assets in a business combination or the strategy for our overall business, and significant negative industry or economic trends. We perform our annual assessment for impairment of goodwill on October 31 and have determined that we have a single reporting unit for testing goodwill for impairment. For purposes of assessing potential impairment, we first estimate the fair value of the reporting unit (based on the fair value of our outstanding ordinary shares) and compare that amount to the carrying value of the reporting unit (as reflected by the total carrying values of our shareholders’ equity). If we determine that the carrying value of the

 

53


Table of Contents

reporting unit exceeds its fair value, then we determine the implied fair value of the goodwill in the same manner used to determine the amount of goodwill in a business combination. If the carrying value of goodwill exceeds the implied fair value of the goodwill, an impairment charge is recognized in the amount equal to that excess. No goodwill impairment charges were recorded by us during the years ended December 31, 2010, 2011 and 2012.

Impairment of Long-Lived Assets

Long-lived assets include property and equipment and definite-lived intangible assets subject to amortization, including customer relationships, trademarks, acquired developed technology and a patent for our vehicle tracking system. We amortize customer relationships, trademarks and acquired developed technology over their estimated useful lives, which range from three to nine years, based on the pattern over which we expect to consume the economic benefit of each asset, which in general reflects the expected cash flow from each asset. We amortize our patent over its useful life of 20 years on a straight-line basis, as the pattern of consumption of the economic benefit of the asset cannot be reliably determined. We amortize property and equipment, inclusive of internal-use software, on a straight-line basis over their useful lives, which range from three to six years, as the pattern of consumption of the economic benefit of the assets cannot be reliably determined. We evaluate our long-lived assets for recoverability whenever events or changes in circumstances indicate that their carrying values may not be recoverable. Factors that we consider in deciding when to perform an impairment review include significant underperformance of a business or product line in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. To evaluate a long-lived asset for recoverability, we compare forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. If the carrying value exceeds the sum of the expected undiscounted cash flows, an impairment loss on the long-lived asset to be held and used is recognized based on the excess of the asset’s carrying value over its fair value, determined based on discounted cash flows. Long-lived assets to be disposed of are reported at the lower of carrying value or fair value less cost to sell.

Deferred Commissions

We capitalize commission costs that are incremental and directly related to the acquisition of customer contracts. We pay commissions in full when we receive the initial customer payment for a new subscription or a renewal subscription. Commission costs are capitalized upon payment and are amortized as expense ratably over the term of the related non-cancelable customer contract in proportion to the recognition of the subscription revenue. If a subscription agreement is terminated, the unamortized portion of any deferred commission costs is recognized as expense immediately. We believe that capitalizing commission costs is the preferable method of accounting as the commission charges are so closely related to the revenue from the non-cancelable customer contracts that they should be recorded as an asset and charged to expense over the same period that the subscription revenue is recognized. Deferred commission costs are included in other current and long-term assets in our consolidated balance sheets and totaled $6.8 million, $8.9 million and $9.7 million at December 31, 2011 and 2012 and March 31, 2013, respectively. Amortization of deferred commissions is included in sales and marketing expense in our consolidated statements of operations.

Capitalization of In-Vehicle Device Costs

For customer arrangements in which we retain ownership of the in-vehicle devices installed in a customer’s fleet, we capitalize the cost of the in-vehicle devices (including installation and shipping costs) as a component of property and equipment in our consolidated balance sheets, and we depreciate these assets on a straight-line basis over their estimated useful life, which is currently six years. If a customer subscription agreement is canceled or expires prior to the end of the expected useful life of the in-vehicle device, the carrying value of the asset is depreciated in full with expense immediately recorded as cost of subscription revenue. The carrying value of these installed in-vehicle devices (including installation and shipping costs) was $22.5 million, $34.1 million and $38.5 million at December 31, 2011 and 2012 and March 31, 2013, respectively. Depreciation

 

54


Table of Contents

expense of these installed in-vehicle devices is included in cost of subscription revenue in our consolidated statements of operations.

In addition, for the limited number of customer arrangements in which title to the in-vehicle devices transfers to the customer upon delivery or installation of the in-vehicle device (for which we receive an up-front fee from the customer), we defer the costs of the in-vehicle devices (including installation and shipping costs) as they are directly related to the revenue that we derive from the sale of the devices and that we recognize ratably over the estimated average customer relationship period of six years. We capitalize these in-vehicle device costs and amortize the deferred costs as expense ratably over the estimated average customer relationship period, in proportion to the recognition of the up-front fee revenue. Capitalized costs related to these in-vehicle devices of which title has transferred to customers are included in other current and long-term assets in our consolidated balance sheets and totaled $2.6 million, $4.1 million and $3.2 million at December 31, 2011 and 2012 and March 31, 2013, respectively. Amortization of these capitalized costs is included in cost of subscription revenue in our consolidated statements of operations.

Share-Based Compensation

We measure stock options granted to employees and directors at fair value on the date of grant and recognize the corresponding compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. The straight-line method is applied to all awards with service conditions, while the graded-vesting method is applied to all awards with both service and performance conditions.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. We have historically been a private company and lack company-specific historical and implied volatility information. Therefore, we estimate our expected volatility based on the historical volatility of our publicly traded peer companies and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our traded stock price. The expected term of options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that we have never paid cash dividends and do not expect to pay any cash dividends in the foreseeable future. The assumptions we used to determine the fair value of stock options granted are as follows, presented on a weighted average basis:

 

     Year Ended December 31,  
             2010                     2011                     2012          

Risk-free interest rate

     2.08     0.97     0.63

Expected term (in years)

     4.6        4.7        4.1   

Expected volatility

     49     56     56

Expected dividend yield

     0     0     0

These assumptions represented our best estimates, but the estimates involve inherent uncertainties and the application of our judgment. As a result, if factors change and we use significantly different assumptions or estimates, our share-based compensation expense could be materially different. We recognize compensation expense for only the portion of awards that are expected to vest. In developing a forfeiture rate estimate, we have considered our historical experience to estimate pre-vesting forfeitures for awards with service conditions. For awards with performance conditions, we estimate the probability that the performance condition will be met. If our actual forfeiture rate is materially different from the estimate, our share-based compensation expense could be significantly different from what we have recorded in the current period.

 

55


Table of Contents

Valuations of ordinary shares

Since completion of our initial public offering October, 2012, we have valued our ordinary shares in connection with the issuance of share-based payment awards using the closing price of our ordinary shares on the New York Stock Exchange on the date of the grant.

Results of Operations

The following table presents our results of operations in thousands of dollars and as a percentage of subscription revenue for each of the periods indicated (certain items may not foot due to rounding).

 

    Year Ended December 31,     Three Months Ended March 31,  
    2010     2011     2012     2012     2013  
    Amount     Percent of
Revenue
    Amount     Percent of
Revenue
    Amount     Percent of
Revenue
    Amount     Percent of
Revenue
    Amount     Percent of
Revenue
 
                                        (unaudited)     (unaudited)  
   

(dollars in thousands)

 

Subscription revenue

  $ 64,690        100.0   $ 92,317        100.0   $ 127,451        100.0   $ 27,839        100.0   $ 38,419        100.0

Cost of subscription revenue

    22,941        35.5        28,631        31.0        35,507        27.9        8,443        30.3        9,997        26.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    41,749        64.5        63,686        69.0        91,944        72.1        19,396        69.7        28,422        74.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

                   

Sales and marketing

    20,447        31.6        33,391        36.2        41,138        32.3        9,934        35.7        12,601        32.8   

Research and development

    4,061        6.3        6,021        6.5        7,379        5.8        1,617        5.8        2,094        5.5   

General and administrative

    14,628        22.6        18,309        19.8        31,047        24.3        5,696        20.5        7,940        20.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    39,136        60.5        57,721        62.5        79,564        62.4        17,247        62.0        22,635        58.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    2,613        4.0        5,965        6.5        12,380        9.7        2,149        7.7        5,787        15.1   

Interest income (expense), net

    (1,012     (1.6     (2,386     (2.6     (2,075     (1.6     (623     (2.2     (366     (0.9

Foreign currency transaction gain (loss), net

    (907     (1.4     155        0.2        (24            216        0.8        (356     (0.9

Other income (expense), net(6)

                                (32                                   

Loss on extinguishment of debt

                                (934     (0.7                            
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    694        1.1        3,734        4.0        9,315        7.3        1,742        6.3        5,065        13.2   

Provision for (benefit from) income taxes

    1,430        2.2        865        0.9        3,907        3.1        718        2.6        2,105        5.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (736     (1.1 )%    $ 2,869        3.1   $ 5,408        4.2   $ 1,024        3.7   $ 2,960        7.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comparison of Three Months Ended March 31, 2012 and 2013

Subscription Revenue

 

     Three Months Ended March 31,         
         2012              2013          % Change  
     (dollars in thousands)         

Subscription revenue

   $ 27,839       $ 38,419         38.0

Subscription revenue increased by $10.6 million, or 38.0%, for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012. This revenue growth was primarily driven by the increase in the average number of vehicles under subscription, which grew by approximately 39.1% from the three months ended March 31, 2012 to the three months ended March 31, 2013. As of the period-ends, the number of vehicles under subscription increased from approximately 256,000 as of March 31, 2012 to approximately 356,000 as of March 31, 2013. The increase in vehicles under subscription was due in large part to our investment in sales and marketing of our solutions, including the addition of 50 sales and marketing personnel from period-end to period-end. Our average selling prices generally remained stable, while volume increased in the three months ended March 31, 2013 as compared to the three months ended March 31, 2012.

 

56


Table of Contents

Cost of Subscription Revenue

 

     Three Months Ended March 31,        
         2012             2013         % Change  
     (dollars in thousands)        

Cost of subscription revenue

   $ 8,443      $ 9,997        18.4

Percentage of subscription revenue

     30.3     26.0  

Cost of subscription revenue increased by $1.6 million for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012. The increase was primarily due to an increase in variable expenses resulting from an increase in the average number of vehicles under subscription, which grew approximately 39.1% period-end to period-end. Communications, third-party data and hosting costs increased by $0.2 million due to the increase in the number of installed in-vehicle devices, comprised of an increase of $0.1 million in third-party data subscription fees and an increase of $0.1 million in hosting costs for our software applications. Field service costs for maintenance and repair of installed in-vehicle devices increased by $0.3 million primarily due to the increase in number of vehicles under subscription. Depreciation and amortization of installed in-vehicle devices increased by $0.8 million primarily due to the increase in the number of vehicles under subscription. Payroll and related expenses increased by $0.2 million primarily due to an increase of 18 employees in our customer support and configuration groups.

As a percentage of subscription revenue, our cost of subscription revenue decreased to 26.0% in the three months ended March 31, 2013 from 30.3% in the three months ended March 31, 2012. As our business and subscription revenue has grown, the decrease in cost of subscription revenue as a percentage of subscription revenue has resulted from leveraging our scale to negotiate improved pricing for our subscriber-based costs, such as the cost of in-vehicle devices, data communication charges and third-party data subscription fees, including those for mapping and posted speed limit data. In addition, we achieved improved economies of scale from our hosting activities and configuration personnel as these components of our costs result in minimal incremental cost per vehicle under subscription.

Sales and Marketing Expense

 

     Three Months Ended March 31,        
         2012             2013         % Change  
     (dollars in thousands)        

Sales and marketing expense

   $ 9,934      $ 12,601        26.8

Percentage of subscription revenue

     35.7     32.8  

Sales and marketing expense increased $2.7 million, or 26.8%, for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012. This increase was primarily due to our investment in building brand and category awareness in our market to drive customer adoption of our solutions. We incurred increased payroll-related costs of $1.0 million, inclusive of commissions and share-based compensation, primarily related to the expansion of our sales and marketing teams. These increases were the result of an increase of 50 sales and marketing personnel from period-end to period-end. Those 50 new employees were added to further pursue the continued sales growth strategy of our business. We also increased the number of our marketing personnel to focus on lead generation, brand awareness and search engine optimization. Advertising and promotional expenditures increased by $1.0 million due to additional marketing and advertising efforts. Recruiting expense increased by $0.1 million and travel expense increased by $0.3 million as a result of our additional hiring efforts, and facilities expense increased by $0.4 million as a result of additional office space requirements for our newly hired employees. These increases were partially offset by decreased amortization expense of $0.1 million related to customer relationships and trademarks acquired in the SageQuest acquisition. Customer relationships, trademarks and acquired developed technology are amortized over their estimated useful lives, which range from three to nine years, based on the pattern over which we expect to consume the economic benefit of each asset which in general reflects the expected cash flows from each asset.

 

57


Table of Contents

As a percentage of subscription revenue, sales and marketing expense decreased to 32.8% in the three months ended March 31, 2013 from 35.7% in the three months ended March 31, 2012 primarily due to the increased expenses noted above being more than offset by the impact of the percentage growth in our subscription revenue period-over-period.

Research and Development Expense

 

     Three Months Ended March 31,        
         2012             2013         % Change  
     (dollars in thousands)        

Research and development expense

   $ 1,617      $ 2,094        29.5

Percentage of subscription revenue

     5.8     5.5  

Research and development expense increased $0.5 million, or 29.5%, for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012. The increase was primarily due to additional payroll-related costs of $0.3 million resulting from an increase of 8 product management and development personnel, additional travel-related expenses of $0.1 million incurred related to additional employees hired, and $0.1 million of consulting fees to further enhance and develop our products.

Research and development expense for the three months ended March 31, 2013 and 2012 of $2.1 million and $1.6 million, respectively, was recorded net after capitalization of $0.4 million and $0.2 million, respectively, of costs related to our internal-use software applications accessed by our customers through our website.

As a percentage of subscription revenue, research and development expense decreased to 5.5% in the three months ended March 31, 2013 from 5.8% in the three months ended March 31, 2012. This decrease was attributable to the increased expenses noted above being more than offset by the impact of the percentage growth in our subscription revenue period-over-period.

General and Administrative Expense

 

     Three Months Ended March 31,        
         2012             2013         % Change  
     (dollars in thousands)        

General and administrative expense

   $ 5,696      $ 7,940        39.4

Percentage of subscription revenue

     20.5     20.7  

General and administrative expense increased $2.2 million, or 39.4%, for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012. This increase was primarily due to an increase of $1.1 million in payroll-related costs and an increase of $0.9 million in professional fees. The increase in payroll-related costs was primarily the result of an increase of 23 general and administrative personnel period-over-period. The increase in employees was primarily due to the transition from clerical and administrative-level personnel to professionals with public company and managerial experience. The increase in professional fees period-over-period reflected an increase of $1.4 million in accounting, tax and audit fees related to the audit of our financial statements and professional fees related to our secondary public offering. In addition, professional fees in the three months ended March 31, 2012 included $0.6 million of expenses accrued for consulting fees under our Management Services Agreement with Privia while no expenses were incurred in 2013. In August 2012, we paid Privia an aggregate of $7.8 million in full satisfaction of all present and future amounts that were payable by us under the Management Services Agreement. Also contributing to the increase in general and administrative expense period-over-period was an increase of $0.2 million of office-related costs associated with our additional employees and an increase of $0.1 million in merchant and bank fees due to the increase in customer subscriptions.

 

 

58


Table of Contents

As a percentage of subscription revenue, general and administrative expense increased to 20.7% in the three months ended March 31, 2013 from 20.5% in the three months ended March 31, 2012. This increase was primarily due to the increases period-over-period related to the increases in payroll and related expenses and accounting, tax and audit fees period-over-period as noted above. Other cost increases in general and administrative expense were in line with the percentage growth in subscription revenue period-over-period.

Interest Income (Expense), net

 

     Three Months Ended March 31,        
         2012             2013         % Change  
     (dollars in thousands)        

Interest income (expense), net

   $ (623   $ (366     (41.3 )% 

Interest income (expense), net for the three months ended March 31, 2013 decreased $0.3 million, or 41.3% as compared to the three months ended March 31, 2012 and primarily reflects the interest expense incurred on our long-term debt as well as amortization expense of related debt discounts and deferred financing costs. In conjunction with the SageQuest acquisition in July 2010, we entered into a credit agreement with D.E. Shaw Direct Capital Portfolios, LLC, or DE Shaw, for $17.5 million of senior secured notes, which we refer to as the Senior Secured Notes. The outstanding principal amount of the Senior Secured Notes bore interest at a floating rate of one-month LIBOR plus 9.5% per annum (based on actual days), but not less than 12.5%. In May 2012, we repaid the Senior Secured Notes in full and we entered into a credit facility with Wells Fargo Capital Finance, LLC consisting of a $25.0 million Term Loan and a $25.0 million Revolving Credit Facility. The interest rate on the Term Loan and borrowings under the Revolving Credit Facility is either (a) LIBOR plus 3.5% per annum, but not less than 4.5% per annum, or (b) at our option, subject to certain conditions, base rate plus 2.5% per annum, but not less than 5.5% per annum. Interest income netted against interest expense was immaterial in the three months ended March 31, 2013 and 2012.

Foreign Currency Transaction Gain (Loss), net

 

     Three Months Ended March 31,        
         2012              2013         % Change  
     (dollars in thousands)        

Foreign currency transaction gain (loss), net

   $ 216       $ (356     (264.8 )% 

For the three months ended March 31, 2013, we recognized $0.4 million in foreign currency transaction losses. For the three months ended March 31, 2012, we recognized $0.2 million in foreign currency transaction gains. Foreign currency transaction gain (loss), primarily reflects the foreign currency transaction gains or losses arising from exchange rate fluctuations on intercompany payables and receivables denominated in currencies other than the functional currencies of the legal entities in which the transactions are recorded. Foreign currency transaction gains (losses) arise from fluctuations in the value of the U.S. dollar compared to other currencies in which we transact primarily the euro and British pound.

Provision for Income Taxes

 

     Three Months Ended March 31,         
         2012              2013          % Change  
     (dollars in thousands)         

Provision for income taxes

   $ 718       $ 2,105         193.2

Our provision for income taxes consists primarily of taxes in Ireland, the United States and the United Kingdom. We are subject to tax in various jurisdictions that apply various statutory rates of tax to our income. Each of these jurisdictions has its own tax law, which is subject to interpretation on a jurisdiction-by-jurisdiction basis. In Ireland, our operating entity is subject to tax at a 12.5% tax rate on its trading income and 25% on its

 

59


Table of Contents

non-trading income and our non-operating entities are subject to tax at a 25% tax rate, while our foreign subsidiaries in the United States and the United Kingdom are subject to tax rates of approximately 40% and 23%, respectively.

Our effective income tax rate for the three months ended March 31, 2013 and 2012 was 41.6% and 41.2%, respectively, on pre-tax income of $5.1 million and $1.7 million, respectively. Our effective tax rates for the three months ended March 31, 2013 and 2012 were higher than the statutory Irish rate of 12.5% primarily due to the recording of interest and penalties associated with our uncertain tax positions and an increase in the valuation allowance related to certain Irish net operating loss carryforwards. The increases associated with these items was partially offset by research tax credits in Ireland.

Our provision for income taxes may change from period to period based on non-recurring events, such as the settlement of income tax audits and changes in tax laws including enacted statutory rates, as well as recurring factors, including changes in the mix of earnings in countries with differing statutory tax rates. As a result of our global business model and cross-border intercompany transactions, a change in uncertain tax positions or a change in statutory rates, particularly in Ireland, could have a significant effect on our overall effective tax rate.

Comparison of Years Ended December 31, 2010, 2011 and 2012

Subscription Revenue

 

     Year Ended December 31,  
         2010              2011         2012  
     (dollars in thousands)  

Subscription revenue

   $ 64,690       $ 92,317      $ 127,451   

% change from prior year

        42.7     38.1

Subscription revenue increased by $35.1 million, or 38.1%, for the year ended December 31, 2012 as compared to the year ended December 31, 2011. This revenue growth was primarily driven by the increase in the average number of vehicles under subscription, which grew by approximately 39.7% year-over-year. As of the year-ends, the number of vehicles under subscription increased to approximately 331,000 as of December 31, 2012 as compared to approximately 237,000 as of December 31, 2011. The increase in vehicles under subscription was due in large part to our investment in sales and marketing of our branded solutions, including the addition of 24 sales and marketing personnel year-over-year. Our average selling prices generally remained stable, while volume increased in 2012 as compared to 2011.

Subscription revenue increased by $27.6 million, or 42.7% for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This revenue growth was primarily driven by the increase in the average number of vehicles under subscription, which grew by approximately 35.7% year-over-year. As of the year-ends, the number of vehicles under subscription increased to approximately 172,000 as of December 31, 2011 as compared to approximately 130,000 as of December 31, 2010. The increase in vehicles under subscription was due in large part to our investment in sales and marketing of our branded solutions, including the addition of 87 sales and marketing personnel, and the inclusion, for a full year in 2011, of SageQuest, which was acquired in July 2010. Our average selling prices generally remained stable, while volume increased in 2011 as compared to 2010.

 

60


Table of Contents

Cost of Subscription Revenue

 

     Year Ended December 31,  
         2010             2011         2012  
     (dollars in thousands)  

Cost of subscription revenue

   $ 22,941      $ 28,631      $ 35,507   

% change from prior year

       24.8     24.0

Percentage of subscription revenue

     35.5     31.0     27.9

Cost of subscription revenue increased by $6.9 million for the year ended December 30, 2012 as compared to the year ended December 31, 2011. The increase was primarily due to an increase in variable expenses resulting from an increase in the average number of vehicles under subscription, which grew approximately 39.7% year-over-year. Communications, third-party data and hosting costs increased by $2.2 million due to the increase in the number of installed in-vehicle devices, comprised of an increase in data communications costs of $1.5 million and an increase of $0.7 million in third-party data subscription fees and hosting costs for our software applications. Field service costs for maintenance and repair of installed in-vehicle devices increased by $2.6 million primarily due to the increase in number of vehicles under subscription. Depreciation and amortization of installed in-vehicle devices increased by $1.4 million primarily due to the increase in the number of vehicles under subscription.

As a percentage of subscription revenue, our cost of subscription revenue decreased to 27.9% for the year ended December 31, 2012 from 31.0% for the year ended December 31, 2011. As our business and subscription revenue has grown, the decrease in cost of subscription revenue as a percentage of subscription revenue has resulted from leveraging our scale to negotiate improved pricing for our subscriber-based costs, such as the cost of in-vehicle devices, data communication charges and third-party data subscription fees, including those for mapping and posted speed limit data. In addition, we achieved improved economies of scale from our hosting activities and configuration personnel as these components of our costs result in minimal incremental cost per vehicle under subscription.

Cost of subscription revenue increased by $5.7 million for the year ended December 31, 2011 as compared to the year ended December 31, 2010. The increase was primarily due to an increase in variable expenses resulting from an increase in the average number of vehicles under subscription, which grew approximately 35.7% year-over-year, as well as the effect of a full year of SageQuest cost of subscription revenue included for 2011 versus five months of such costs being included in for 2010. Communications, third-party data and hosting costs increased by $2.2 million due to the increase in the number of installed in-vehicle devices, comprised of an increase in data communications costs of $1.6 million, an increase of $0.4 million in third-party data subscription fees, and an increase of $0.2 million in hosting costs for our software applications. The increase in hosting costs was also the result of incurring a full year of costs in 2011 from the use of two new third-party hosting facilities, one of which we began to use upon the acquisition of SageQuest in July 2010 and the other of which we began to use in April 2010. Field service costs for maintenance and repair of installed in-vehicle devices increased by $1.6 million from 2010 to 2011 primarily due to the increase in number of vehicles under subscription. Payroll and related expense increased by $1.0 million primarily due to an increase of seven employees in our customer support and configuration groups as well as a full year versus only five months of expense related to 32 employees added as a result of the SageQuest acquisition in 2010.

As a percentage of subscription revenue, our cost of subscription revenue decreased to 31.0% for the year ended December 31, 2011 from 35.5% for the year ended December 31, 2010. As our business and subscription revenue has grown, the decrease in cost of subscription revenue as a percentage of subscription revenue has resulted from leveraging our scale to negotiate improved pricing for our subscriber-based costs, such as the cost of in-vehicle devices, data communication charges and third-party data subscription fees, including those for mapping and posted speed limit data. In addition, we achieved improved economies of scale from our hosting activities and configuration personnel as these components of our costs result in minimal incremental cost per vehicle under subscription.

 

61


Table of Contents

Sales and Marketing Expense

 

     Year Ended December 31,  
         2010             2011         2012  
     (dollars in thousands)  

Sales and marketing expense

   $ 20,447      $ 33,391      $ 41,138   

% change from prior year

       63.3     23.2

Percentage of subscription revenue

     31.6     36.2     32.3

Sales and marketing expense increased by $7.7 million, or 23.2%, for the year ended December 31, 2012 as compared to the year ended December 31, 2011. This increase was primarily due to our investment in building brand and category awareness in our market to drive customer adoption of our solutions. We incurred increased payroll-related costs of $6.4 million, inclusive of commissions and share-based compensation, primarily related to an increase of 24 sales and marketing personnel for the investment in our sales and marketing efforts noted above. Advertising and promotional expenditures increased by $2.9 million due to additional marketing and advertising efforts. These increases were partially offset by decreased amortization expense of $0.9 million related to customer relationships and trademarks acquired in the SageQuest acquisition.

As a percentage of subscription revenue, sales and marketing expense decreased to 32.3% for the year ended December 31, 2012 from 36.2% for the year ended December 31, 2011, primarily due to the 23.2% increase in expenses noted above being more than offset by the impact of the 38.1% growth in our subscription revenue year-over-year.

Sales and marketing expense increased by $12.9 million for the year ended December 31, 2011 as compared to the year ended December 31, 2010 as we invested heavily in building brand and category awareness in our market to drive customer adoption of our solutions. We incurred increased payroll-related costs of $5.4 million, inclusive of commissions, primarily related to the expansion of our sales and marketing teams. These increases were the result of an increase of 87 in the number of sales and marketing personnel as well as a full year versus only five months of expense related to 27 employees added as a result of the SageQuest acquisition in 2010. Those 87 new employees were added to further pursue the opportunity provided by the SageQuest product line and to further grow the Web sales teams for the FleetMatics product line. We also increased the number of our marketing personnel to focus on lead generation, brand awareness and search engine optimization. Amortization expense related to customer relationships and trademarks acquired in the SageQuest acquisition increased by $2.8 million as a result of incurring a full year of amortization of in 2011 versus five months of amortization in 2010. Advertising and promotional expenditures increased by $1.5 million due to additional marketing and advertising efforts, and travel expenses increased by $0.7 million due to the growth in personnel and the addition of two new sales offices. Recruiting expense increased by $1.0 million as a result of our additional hiring efforts, and facilities expense increased by $1.0 million as a result of additional office space requirements for our newly hired employees. In addition, share-based compensation expense increased by $0.6 million resulting from stock options granted to employees at the end of 2010.

As a percentage of subscription revenue, sales and marketing expense increased to 36.2% for the year ended December 31, 2011 from 31.6% for the year ended December 31, 2010 primarily due to our investment in sales and marketing efforts, including adding additional personnel, and the increase in amortization expense related to customer relationships and trademarks acquired in the SageQuest acquisition. The other expense increases noted above were generally consistent with the percentage growth in subscription revenue year-over-year.

 

62


Table of Contents

Research and Development Expense

 

     Year Ended December 31,  
         2010             2011         2012  
     (dollars in thousands)  

Research and development expense

   $ 4,061      $ 6,021      $ 7,379   

% change from prior year

       48.3     22.6

Percentage of subscription revenue

     6.3     6.5     5.8

Research and development expense increased $1.4 million, or 22.6%, for the year ended December 31, 2012 as compared to the year ended December 31, 2011. The increase was primarily due to additional payroll-related costs of $1.1 million and travel-related expenses of $0.3 million related to additional employees hired to further enhance and develop our products. Research and development expense for the years ended December 31, 2012 and 2011 of $7.4 million and $6.0 million, respectively, was recorded net after capitalization of $0.9 million and $0.7 million, respectively, of costs related to our internal-use software applications accessed by our customers through our website.

As a percentage of subscription revenue, research and development expense decreased to 5.8% for the year ended December 31, 2012 from 6.5% for the year ended December 31, 2011, primarily due to the 22.6% increase in expenses noted above being more than offset by the impact of the 38.1% growth in our subscription revenue year-over-year.

Research and development expense increased by $2.0 million for the year ended December 31, 2011 as compared to the year ended December 31, 2010. The increase was primarily due to additional payroll-related costs of $1.4 million resulting from an increase of 16 in the number of product management and development personnel as well as a full year versus only five months of expense related to 11 employees added as a result of the SageQuest acquisition in 2010, additional travel-related expenses of $0.2 million, and office-related expense of $0.3 million incurred related to additional employees hired to further enhance and develop our products. Most of this growth in our research and development workforce was the result of hiring the SageQuest research and development employees as part of the acquisition in July 2010. Research and development expense for the years ended December 31, 2010 and 2011 of $4.1 million and $6.0 million, respectively, was recorded net after capitalization of $0.4 million and $0.7 million, respectively, of costs related to our internal-use software applications accessed by our customers through our website. The increase in the amounts capitalized year over year was due to two major product releases in April and November 2011.

As a percentage of subscription revenue, research and development expense remained relatively constant from 2010 to 2011.

General and Administrative Expense

 

     Year Ended December 31,  
         2010             2011             2012      
     (dollars in thousands)  

General and administrative expense

   $ 14,628      $ 18,309      $ 31,047   

% change from prior year

       25.2     69.6

Percentage of subscription revenue

     22.6     19.8     24.3

General and administrative expense increased $12.7 million, or 69.6%, for the year ended December 31, 2012 as compared to the year ended December 31, 2011. This increase was primarily due to an increase of $2.1 million in payroll-related costs and an increase of $7.3 million in professional fees. The increase in payroll-related costs was due primarily to the transition from clerical and administrative-level personnel to professionals with public company and managerial experience. Professional fees for the years ended December 31, 2012 and 2011 included $5.4 million and $2.2 million, respectively, of expenses accrued for

 

63


Table of Contents

consulting fees under our Management Services Agreement with Privia and also reflected an increase period over period of $3.4 million in accounting, tax and audit fees related to the audits of our financial statements. Also contributing to the increase in general and administrative expense period over period was an increase of $2.2 million of office-related costs associated with our additional employees, an increase of $0.7 million in bad debt expense, and an increase of $0.6 million in merchant and bank fees due to the increase in customer subscriptions. These increases were partially offset by a decrease of $0.2 million period over period in share-based compensation expense. We granted performance-based options at the end of 2010 with a one-year vesting period, which increased the share-based compensation expense for the year ended December 31, 2011.

As a percentage of subscription revenue, general and administrative expense increased to 24.3% for the year ended December 31, 2012 from 19.8% for the year ended December 31, 2011. This increase was primarily due to the increases year-over-year related to our Management Services Agreement with Privia and the increases in accounting, tax and audit fees year-over-year as noted above. Other cost increases in general and administrative expense were in line with the percentage growth in subscription revenue year-over-year.

General and administrative expense increased by $3.7 million for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This increase was primarily due to an increase of $2.5 million in payroll-related costs as a result of hiring eight additional employees to support our overall growth as well as a full year versus only five months of expense related to 13 employees added as a result of the SageQuest acquisition in 2010; additional share-based compensation expense of $1.3 million resulting from stock options granted to employees at the end of 2010; and an increase of $2.6 million in professional fees. Professional fees in 2010 and 2011 included $0.2 million and $2.2 million, respectively, of expenses accrued for consulting fees that are to be paid under our Management Services Agreement with Privia. Also contributing to the increase in general and administrative expense year over year was an increase of $0.4 million of office-related costs associated with our additional employees and an increase of $0.3 million in merchant and bank fees due to the increase in customer subscriptions. These increases were partially offset by a decrease of $3.9 million year over year in accounting, tax and audit fees related to the audits of our financial statements.

As a percentage of subscription revenue, general and administrative expense decreased to 19.8% from 22.6% for the year ended December 31, 2011 as compared to the year ended December 31, 2010 primarily due to the decrease of $3.9 million year-over-year in accounting, tax and audit fees, partially offset by the $2.0 million increase in expense year-over-year related to our Management Services Agreement with Privia. Other cost increases in general and administrative expense were in line with the percentage growth in subscription revenue year-over-year.

Interest Income (Expense), net

 

     Year Ended December 31,  
         2010             2011             2012      
     (dollars in thousands)  

Interest income (expense), net

   $ (1,012   $ (2,386   $ (2,075

% change from prior year

       135.8     (13.0 )% 

Interest income (expense), net for the year ended December 31, 2012 decreased $0.3 million, or 13.0% and primarily reflects the interest expense incurred on our long-term debt as well as amortization expense of related debt discounts and deferred financing costs. In conjunction with the SageQuest acquisition in July 2010, we entered into a credit agreement with D.E. Shaw Direct Capital Portfolios, LLC, or DE Shaw, for $17.5 million of senior secured notes, which we refer to as the Senior Secured Notes. The outstanding principal amount of the Senior Secured Notes bore interest at a floating rate of one-month LIBOR plus 9.5% per annum (based on actual days), but not less than 12.5%. In May 2012, we repaid the Senior Secured Notes in full and we entered into a credit facility with Wells Fargo Capital Finance, LLC consisting of a $25.0 million Term Loan and a $25.0 million Revolving Credit Facility. The interest rate on the Term Loan and borrowings under the Revolving Credit Facility is either (a) LIBOR plus 3.5% per annum, but not less than 4.5% per annum, or (b) at our option, subject to certain conditions, base rate plus 2.5% per annum, but not less than 5.5% per annum. Interest income netted against interest expense was immaterial for the years ended December 31, 2010, 2011 and 2012.

 

64


Table of Contents

Foreign Currency Transaction Gain (Loss), net

 

     Year Ended December 31,  
         2010             2011             2012      
     (dollars in thousands)  

Foreign currency transaction gain (loss), net

   $ (907   $ 155      $ (24

% change from prior year

       (117.1 )%      (115.5 )% 

For the year ended December 31, 2012, we recognized $24 thousand in foreign currency transaction losses as compared to $0.2 million foreign currency transaction gains for the year ended December 31, 2011. For the year ended December 31, 2010, we recognized $0.9 million in foreign currency transaction losses. Foreign currency transaction gain (loss), net primarily reflects the foreign currency transaction gains or losses arising from exchange rate fluctuations on intercompany payables and receivables denominated in currencies other than the functional currencies of the legal entities in which the transactions are recorded. Foreign currency transaction gains (losses) arise from fluctuations in the value of the U.S. dollar compared to other currencies in which we transact, primarily the euro and British pound.

Loss on Extinguishment of Debt

In May 2012, we used proceeds from the $25.0 million Term Loan of our Senior Secured Credit Facility with Wells Fargo Capital Finance, LLC to pay in full the amounts due under the Senior Secured Notes with DE Shaw. The repayment of the DE Shaw debt was accounted for as a debt extinguishment. For the year ended December 31, 2012, we recognized a loss on extinguishment of debt of $0.9 million, which was primarily comprised of the write-off of unamortized debt discount of $0.4 million and the prepayment premium of $0.5 million we paid in cash.

Provision for Income Taxes

 

     Year Ended December 31,  
         2010              2011              2012      
     (dollars in thousands)  

Provision for income taxes

   $ 1,430       $ 865       $ 3,907   

Our provision for income taxes consists primarily of taxes in Ireland, the United States and the United Kingdom. We are subject to tax in various jurisdictions that apply various statutory rates of tax to our income. Each of these jurisdictions has its own tax law, which is subject to interpretation on a jurisdiction-by-jurisdiction basis. In Ireland, our operating entity is subject to tax at a 12.5% tax rate on its trading income and 25% on its non-trading income and our non-operating entities are subject to tax at a 25% tax rate, while our foreign subsidiaries in the United States and the United Kingdom are subject to tax rates of approximately 40% and 24.5%, respectively. For the years ended December 31, 2010, 2011 and 2012, our domestic pre-tax income in Ireland was $0.5 million, $6.5 million, and $7.6 million, respectively, and our foreign pre-tax income (loss) was $0.2 million, $(2.8) million, and $1.7 million, respectively, primarily in the United States and the United Kingdom. See Note 11 to our consolidated financial statements for additional information related to the foreign and domestic income tax expense (benefit) we recorded and the effect that foreign taxes had on our overall effective tax rate. In addition to the pre-tax income (loss) of each jurisdiction taxed at the different tax rates noted above, our effective income tax rates for each year were affected by the items noted below.

Our effective income tax rate for the years ended December 31, 2010, 2011 and 2012 was 205.9%, 23.2%, and 41.9%, respectively, on pre-tax income of $0.7 million, $3.7 million, and $9.3 million, respectively. Our effective tax rate for the year ended December 31, 2010 was higher than the statutory Irish rate of 12.5% due primarily to the recording of reserves for uncertain tax positions along with related interest and penalties, an increase to our valuation allowance related to certain Irish net operating loss carryforwards, and 22.9% of our income being earned outside of Ireland at higher income tax rates. The impact of these increases was partially offset by the release of certain reserves for uncertain tax positions in non-Irish jurisdictions due to the expiration

 

65


Table of Contents

of a statute of limitations as well as Irish tax credits being claimed. Our effective tax rate for the year ended December 31, 2011 was higher than the statutory Irish rate of 12.5% primarily due to the recording of reserves for uncertain tax positions, along with related interest and penalties, and an increase in the valuation allowance related to certain Irish net operating loss carryforwards. The increase associated with these items was partially offset by the release of reserves for uncertain tax positions due to the expiration of a statute of limitations in the United Kingdom, research and development tax credits in Ireland, and losses being generated in jurisdictions that have a higher tax rate than the statutory Irish rate for which no valuation allowance was required. The decrease in our effective tax rate from 2010 to 2011 was primarily the result of us earning a greater proportion of our taxable income overall in lower tax-rate jurisdictions in 2011 than in 2010 and a decrease in the reserves recorded for uncertain tax positions as a result of the lapse of statute of limitations and other changes in potential tax liabilities of prior years. Our effective tax rate for the year ended December 31, 2012 was higher than the statutory Irish rate of 12.5% primarily due to recording of reserves for uncertain tax positions, and an increase in the valuation allowance related to certain Irish net operating loss carryforwards.

Our provision for income taxes may change from period to period based on non-recurring events, such as the settlement of income tax audits and changes in tax laws including enacted statutory rates, as well as recurring factors, including changes in the mix of earnings in countries with differing statutory tax rates. As a result of our global business model and cross-border intercompany transactions, a change in uncertain tax positions or a change in statutory rates, particularly in Ireland, could have a significant effect on our overall effective tax rate.

Quarterly Results of Operations

The following table sets forth our unaudited consolidated statements of operations data and other financial data for each of the eight quarters up to the period ended March 31, 2013 (certain items may not foot due to rounding). We have prepared the consolidated statement of operations for each of these quarters on the same basis as the audited consolidated financial statements included elsewhere in this prospectus. In the opinion of management, each consolidated statement of operations includes all adjustments, consisting solely of normal recurring adjustments, necessary for a fair statement of this data for the periods presented. This information should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of the results to be expected in future periods.

 

     Three Months Ended  
     Jun 30,
2011
    Sep 30,
2011
    Dec 31,
2011
    Mar 31,
2012
    Jun 30,
2012
    Sep 30,
2012
    Dec 31,
2012
    Mar 31,
2013
 
     (in thousands)  

Consolidated Statements of Operations Data:

                

Subscription revenue

   $ 22,417      $ 23,865      $ 25,865      $ 27,839      $ 30,566      $ 33,225      $ 35,821      $ 38,419   

Cost of subscription revenue

     7,040        7,469        7,696        8,443        8,889        8,931        9,244        9,997   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     15,377        16,396        18,169        19,396        21,677        24,294        26,577        28,422   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sales and marketing

     8,084        8,548        8,895        9,934        10,265        10,301        10,638        12,601   

Research and development

     1,399        1,630        1,648        1,617        1,757        1,870        2,135        2,094   

General and administrative

     4,833        4,539        5,184        5,696        8,533        9,660        7,158        7,940   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     14,316        14,717        15,727        17,247        20,555        21,831        19,931        22,635   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     1,061        1,679        2,442        2,149        1,122        2,463        6,646        5,787   

Other income (expense), net

     (539     (1,013     (704     (407     (1,773     (381     (504     (722

Provision for (benefit from) income taxes

     376        463        668        718        739        868        1582        2,105   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 146      $ 203      $ 1,070      $ 1,024      $ (1,390     1,214        4,560        2,960   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

66


Table of Contents
     Three Months Ended  
     Jun 30,
2011
    Sep 30,
2011
    Dec 31,
2011
    Mar 31,
2012
    Jun 30,
2012
    Sep 30,
2012
    Dec 31,
2012
    Mar 31,
2013
 
     (as a percentage of subscription revenue)  

Consolidated Statements of Operations Data:

                

Subscription revenue

     100.0     100.0     100.0     100.0     100.0     100.0     100.0     100.0

Cost of subscription revenue

     31.4        31.3        29.8        30.3        29.1        26.9        25.8        26.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     68.6        68.7        70.2        69.7        70.9        73.1        74.2        74.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sales and marketing

     36.1        35.8        34.4        35.7        33.6        31.0        29.7        32.8   

Research and development

     6.2        6.8        6.4        5.8        5.7        5.6        6.0        5.5   

General and administrative

     21.6        19.0        20.0        20.5        27.9        29.1        20.0        20.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     63.9        61.7        60.8        62.0        67.2        65.7        55.6        58.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     4.7        7.0        9.4        7.7        3.7        7.4        18.6        15.1   

Other income (expense), net

     (2.4     (4.2     (2.7     (1.5     (5.8     (1.1     (1.4     (1.8

Provision for (benefit from) income taxes

     1.7        1.9        2.6        2.6        2.4        2.6        4.4        5.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     0.7     0.9     4.1     3.7     (4.5 )%      3.7     12.7     7.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subscription revenue increased sequentially in each of the quarters presented primarily due to increases in the number of total vehicles under subscription in each quarter. Gross profit, in absolute dollars, increased sequentially for all quarters presented primarily due to revenue growth and efficiencies in our costs, driven by leveraging our scale to negotiate improved pricing on third-party costs coupled with improved economies of scale for certain infrastructure costs, including hosting costs and internal configuration personnel costs. Total operating expenses, in absolute dollars, increased over time in the periods presented primarily due to increased sales and marketing and general and administrative expenses, which resulted from increased marketing and advertising efforts, increased number of personnel to support the business, and increased professional fees, including those related to accounting, tax and audit services and those related to our Management Services Agreement with Privia. During the three months ended June 30, 2012, general and administrative expenses increased from $5.7 million during the three months ended March 31, 2012 to $8.5 million, primarily as a result of increases of $1.0 million in accounting, tax and audit fees; $0.7 million in expense recorded related to our Management Services Agreement with Privia; and $0.5 million in health insurance expense. During the three months ended June 30, 2012, other income (expense), net increased from $(0.4) million during the three months ended March 31, 2012 to $(1.8) million, primarily as a result of a one-time loss of $0.9 million on extinguishment of our debt.

Provision for income taxes fluctuated over time in the periods presented primarily due to changes in the jurisdictions in which the income or loss was generated, changes in the valuation allowances for deferred tax assets, the expiration of certain statutes of limitations, and the recording of interest and penalties related to our tax contingencies.

Liquidity and Capital Resources

 

     Year Ended December 31,     Three Months Ended,
March 31
 
             2010                     2011                   2012                 2012                 2013        
     (in thousands)  

Cash flows provided by operating activities

   $ 8,663      $ 1,805      $ 16,890      $ 4,493      $ 12,077   

Cash flows used in investing activities

     (46,285     (16,156     (25,576     (5,644     (8,930

Cash flows provided by (used in) financing activities

     49,236        13        100,386        (243     (1,144

Effect of exchange rate changes on cash

     (166     (101     (228     12        (72
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

   $ 11,448      $ (14,439   $ 91,472      $ (1,382   $ 1,931   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

67


Table of Contents

In connection with our October 2012 initial public offering, we received aggregate proceeds of $93.3 million net of underwriting discounts and commissions and offering costs paid by us.

Prior to our October 2012 initial public offering, we funded our operations, capital expenditures and the acquisition of SageQuest primarily through sales of our fleet management solutions to customers, the net proceeds of approximately $54.2 million from the issuance of shares in our capital, and the net proceeds of $31.5 million from debt issued in 2010 and 2012. At March 31, 2013, our principal sources of available liquidity were our cash balance of $102.0 million and borrowings of up to $25.0 million available under our revolving credit facility.

Operating Activities

Operating activities provided $12.1 million of cash in the three months ended March 31, 2013. The cash flow provided by operating activities resulted primarily from our net income of $3.0 million, net non-cash charges of $7.3 million, and net cash of $1.8 million provided by changes in our operating assets and liabilities. Our non-cash charges primarily consisted of $5.1 million of depreciation and amortization expense, $0.4 million of provisions for accounts receivable and deferred tax assets, $0.6 million of share-based compensation expense, and $0.8 million for losses on disposal of property and equipment and other assets. Net cash provided by changes in our operating assets and liabilities primarily consisted of a $3.1 million increase in deferred revenue, $1.4 million increase in accounts payable, accrued expenses, and other current liabilities, and a $0.3 million increase in accrued income taxes, partially offset by a $1.2 million increase in prepaid expenses and other assets and $1.8 million increase in our accounts receivable from customers. The increase in deferred revenue was attributable to a greater number of customers in 2013 than in 2012 prepaying for a portion of their subscription. The increase in our accounts payable and accrued expenses resulted from our increased spending due to the growth of our business. The increase in our accrued taxes was due to net increases in our prior-year tax reserves. The increase in our prepaid expenses and other assets was due to increases in deferred commissions and capitalized costs of in-vehicle devices owned by customers due to the growth in our business as well as deferred financing costs related to our Senior Secured Credit Facility. The increase in our accounts receivable was due to the increase in subscription revenue from the three months ended March 31, 2012 to the three months ended March 31, 2013 resulting from the increased number of vehicles under subscription.

Operating activities provided $4.5 million of cash in the three months ended March 31, 2012. The cash flow provided by operating activities resulted primarily from our net income of $1.0 million, net non-cash charges of $5.0 million, and net cash of $1.5 million used by changes in our operating assets and liabilities. Our non-cash charges primarily consisted of $4.0 million of depreciation and amortization expense, $0.3 million of provisions for accounts receivable and deferred tax assets, $0.5 million of share-based compensation expense, and $0.4 million for losses on disposal of property and equipment and other assets. Net cash provided by changes in our operating assets and liabilities primarily consisted of a $3.0 million increase in accounts payable, accrued expenses, and other current liabilities and a $0.6 million increase in accrued income taxes, partially offset by a $0.4 million decrease in deferred revenue, $2.2 million increase in prepaid expenses and other assets and $2.4 million increase in our accounts receivable from customers. The decrease in deferred revenue was attributable to a greater number of customers in 2012 than in 2013 prepaying for a portion of their subscription. The increase in our accounts payable and accrued expenses resulted from our increased spending due to the growth of our business. The increase in our accrued taxes was due to net increases in our prior-year tax reserves. The increase in our prepaid expenses and other assets was due to increases in deferred commissions and capitalized costs of in-vehicle devices owned by customers due to the growth in our business. The increase in our accounts receivable was due to the increase in subscription revenue from the three months ended March 31, 2011 to the three months ended March 31, 2012 resulting from the increased number of vehicles under subscription.

Operating activities provided $16.9 million of cash in 2012. The cash flow provided by operating activities resulted primarily from our net income of $5.4 million, net non-cash charges of $30.6 million, and net uses of cash of $19.1 million from changes in our operating assets and liabilities. Our non-cash charges primarily consisted of $17.5 million of depreciation and amortization expense, $8.0 million of provisions for accounts

 

68


Table of Contents

receivable and deferred tax assets, $2.4 million of share-based compensation expense, $2.2 million for losses on disposal of property and equipment and other assets, and $0.4 million of loss on extinguishment of debt. Net uses of cash from changes in our operating assets and liabilities primarily consisted of a $11.6 million increase in prepaid expenses and other assets, $5.0 million increase in our accounts receivable from customers, a $3.3 million decrease in accrued income taxes, and a $0.5 million decrease in our deferred revenue balance, partially offset by a $1.0 million increase in accounts payable, accrued expenses and other current liabilities. The increase in our prepaid expenses and other assets was due to increases in deferred commissions and capitalized costs of in-vehicle devices owned by customers due to the growth in our business as well as deferred financing costs related to our Senior Secured Credit Facility. The increase in our accounts receivable was due to the increase in subscription revenue from 2011 to 2012 resulting from the increased number of vehicles under subscription. The decrease in accrued income taxes was due to net decreases in our prior-year tax reserves. The decrease in deferred revenue was attributable to a greater number of customers in 2012 than in 2011 paying for their subscriptions on a monthly basis rather than prepaying the full amount or an annual amount due under their subscription agreement. The increase in our accounts payable and accrued expenses resulted from our increased spending due to the growth of our business.

Operating activities provided $1.8 million of cash in 2011. The cash flow provided by operating activities primarily resulted from our net income of $2.9 million, net non-cash charges of $21.0 million, and net uses of cash of $22.0 million from changes in our operating assets and liabilities. Our non-cash charges primarily consisted of $15.1 million of depreciation and amortization expense, $2.8 million of provisions for accounts receivable and deferred tax assets, and $2.3 million of share-based compensation expense. Net uses of cash from changes in our operating assets and liabilities primarily consisted of a $12.5 million decrease in our deferred revenue balance, $7.2 million increase in prepaid expenses and other assets, $3.5 million increase in our accounts receivable from customers, and $1.0 million decrease in accrued income taxes, all offset by increases in our accounts payable and accrued expenses of $2.2 million. The decrease in deferred revenue was attributable to a greater number of customers in 2011 than in 2010 paying for their subscriptions on a monthly basis rather than prepaying the full amount or an annual amount due under their subscription agreement. The increases in our accounts receivable and prepaid expenses and other assets were due to the increase in our subscription revenue from 2010 to 2011 resulting from the increased number of vehicles under subscription and an increase in our subscription fees paid to third-party providers of Internet maps and other data. The decrease in accrued income taxes was due to net decreases in our prior-year tax reserves. The increase in our accounts payable and accrued expenses resulted from our increased spending due to the growth of our business.

Operating activities provided $8.7 million of cash in 2010. The cash flow provided by operating activities primarily resulted from our net loss of $0.7 million, net non-cash charges of $12.1 million, and net uses of cash of $2.7 million from changes in our operating assets and liabilities. Our non-cash charges primarily consisted of $10.6 million of depreciation and amortization expense and $0.9 million of unrealized net foreign currency transaction losses. Net uses of cash from changes in our operating assets and liabilities primarily consisted of a $7.5 million decrease in our deferred revenue balance, $3.5 million increase in prepaid expenses and other assets, and $1.2 million increase in accounts receivable from customers, all offset by increases in our accounts payable and accrued expenses of $7.7 million and accrued income taxes of $1.8 million. The decrease in deferred revenue was attributable to a greater number of customers in 2010 than in 2009 paying for their subscriptions on a monthly basis rather than prepaying the full amount or an annual amount due under their subscription agreement. The other changes in our operating assets and liabilities were primarily driven by the increase in our subscription revenue from 2009 to 2010 resulting from the increased number of vehicles under subscription and increased spending due to the growth of our business.

 

69


Table of Contents

Investing Activities

Net cash used in investing activities was $5.6 million and $8.9 million for the three months ended March 31, 2012 and 2013, respectively. Net cash used in investing activities consisted primarily of cash paid to purchase property and equipment of $5.4 million and $8.5 million in the three months ended March 31, 2012 and 2013, respectively, as well as costs capitalized for internal-use software of $0.2 million and $0.4 million in the three months ended March 31, 2012 and 2013, respectively.

Net cash used in investing activities was $46.3 million, $16.2 million and $25.6 million for the years ended December 31, 2010, 2011 and 2012, respectively. Net cash used in investing activities consisted primarily of cash paid to purchase property and equipment of $9.4 million, $15.1 million and $25.2 million in 2010, 2011 and 2012, respectively; costs capitalized for internal-use software of $0.4 million, $0.7 million and $0.9 million in 2010, 2011 and 2012, respectively; and cash paid to acquire SageQuest of $36.4 million in 2010. Property and equipment purchased in 2010, 2011 and 2012 included computer equipment for our employees, software used by our research and development team, and furniture for our offices.

Financing Activities

Net cash used in financing activities was $1.1 million and $0.2 million for the three months ended March 31, 2012 and 2013, respectively. Net cash used in financing activities for the three months ended March 31, 2012 consisted of payments of our Senior Secured Notes of $0.1 million and payments of our capital lease obligations of $0.1 million. Net cash used in financing activities for the three months ended March 31, 2013 consisted of payments of previously accrued initial public offering costs of $0.9 million, payments of our Term Loan of $0.3 million, payments of our capital lease obligations of $0.1 million, partially offset by proceeds from the issuance of ordinary shares under stock option plans of $0.2 million.

Net cash provided by financing activities was $49.2 million, $13 thousand and $100.4 million for the years ended December 31, 2010, 2011 and 2012, respectively. Net cash provided by financing activities in 2010 consisted primarily of net proceeds of $32.1 million from the issuance of our Series B and Series C redeemable convertible preferred shares and net proceeds of $16.8 million from the issuance of $17.5 million senior secured notes. Net cash provided by financing activities in 2011 consisted of the repayment in full of the principal and interest of $0.1 million due on the note receivable from our Chief Executive Officer, offset partially by the payment of our capital lease obligations of $0.1 million. Net cash provided by financing activities in 2012 consisted of net proceeds of $94.7 million from our initial public offering, net of offering costs, $23.5 million from our borrowing under the Term Loan, $8.3 million from borrowing under our Revolving Credit Facility, partially offset by the repayment of our Senior Secured Notes of $17.5 million, the repayment of borrowing under our Revolving Credit Facility of $8.3 million and payments of our capital lease obligations of $0.4 million.

Indebtedness and Liquidity

We believe that our cash and borrowings available under our Senior Secured Credit Facility will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months.

On May 10, 2012, we entered into a credit facility with Wells Fargo Capital Finance, LLC, as administrative agent and lender, consisting of a $25 million term loan, or the Term Loan, and a $25 million revolving line of credit, or the Revolving Credit Facility, which expires on May 10, 2017 and which we refer to collectively as the Senior Secured Credit Facility. The Senior Secured Credit Facility is collateralized by a senior first-priority lien on all of our assets and property, subject to certain customary exclusions. The purpose of the Senior Secured Credit Facility was to repay the outstanding principal of the Senior Secured Notes, which was repaid on May 10, 2012 with proceeds of the $25 million Term Loan, and to provide us with an additional source of liquidity. Borrowings under the Revolving Credit Facility are subject to drawdown limitations based on financial ratios. As of March 31, 2013, no borrowings were outstanding under the Revolving Credit Facility.

 

70


Table of Contents

The interest rate on the Term Loan and borrowings under the Revolving Credit Facility is either (a) LIBOR plus 3.5% per annum, but not less than 4.5% per annum, or (b) at our option, subject to certain conditions, base rate plus 2.5% per annum, but not less than 5.5% per annum. Principal due under the Term Loan is payable quarterly commencing on December 31, 2012, with $0.3 million due in 2012, $1.3 million due in 2013, $1.4 million due in 2014, $2.0 million due in 2015, $2.5 million due in 2016 and $17.5 million due in 2017. All amounts borrowed under the Revolving Credit Facility are due and payable on May 10, 2017. Borrowings under the Senior Secured Credit Facility require a 1% prepayment penalty if the facility is terminated within the first twelve months of the agreement.

The Senior Secured Credit Facility contains financial covenants that, among other things, require us to maintain liquidity of at least $10 million, comprised of cash plus availability under borrowings, and limits our maximum total leverage ratio (total indebtedness with a maturity greater than twelve months to earnings before interest, taxes, depreciation and amortization and certain other adjustments, as defined by the terms of the Senior Secured Credit Facility agreement). The leverage ratio becomes more restrictive in each of 2013 and 2014. The Senior Secured Credit Facility also requires us to maintain other affirmative and negative covenants. We were in compliance with all such covenants as of March 31, 2013.

As of December 31, 2012, we had net operating loss carryforwards in the United States available to reduce future federal taxable income of $9.1 million, and we had net operating loss carryforwards in Ireland available to reduce future taxable income of $10.3 million and in the United Kingdom available to reduce future taxable income of $2.3 million. If unused, our net operating loss carryforwards in the United States expire at various dates through 2031, while those in Ireland and the United Kingdom may be carried forward indefinitely. In certain circumstances, usage of our net operating loss carryforwards in the United States and Ireland may be limited.

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet financing activities. We do not have any interest in entities referred to as variable interest entities, which include special purpose entities and other structured finance entities.

Contractual Obligations and Commitments

Our principal commitments consist of obligations under our outstanding debt facilities, leases for our office space, computer equipment, furniture and fixtures, and contractual commitments for hosting and other support services. Our Term Loan bears interest at a rate of either (a) LIBOR plus 3.5% per annum, but not less than 4.5% per annum, or (b) at our option, subject to certain conditions, base rate plus 2.5% per annum, but not less than 5.5% per annum. We have a lease for 11,600 square feet of office space in Wellesley, Massachusetts for our U.S. headquarters which is effective through March 2017. We lease approximately 31,200 square feet of office and warehouse space in Ohio under operating leases that expire in November 2017 with a five-year extension option. We lease office space in Ireland for our registered office and for our research and development and sales teams under operating leases that expire in May 2022. We have a lease for 2,200 square feet of office space in Templeogue Village, Dublin, which expires in 2036. We lease office space in Rolling Meadows, Illinois, Clearwater, Florida, Charlotte, North Carolina, Tempe, Arizona and Atlanta, Georgia for our sales teams and Reading, U.K. for a customer care center under lease agreements that expire at various dates through 2019.

We have non-cancelable purchase commitments related to telecommunications, mapping and subscription software services that are payable through 2015.

We have agreements with various vendors to provide specialized space and equipment and related services from which we host our software application. The agreements include payment commitments that expire at various dates through 2014.

 

71


Table of Contents

The following table summarizes our contractual obligations at March 31, 2013:

 

     Payments Due by Period  
     Total      Less
than 1
Year
     1-3
Years
     3-5
Years
     More
than
5 Years
 
     (in thousands)  

Term Loan and Revolving Credit Facility(1)

   $ 29,078       $ 2,506       $ 6,047       $ 20,525       $   

Capital lease obligations(2)

     555         406         149                   

Operating lease obligations(3)

     10,773         1,797         3,674         2,954         2,348   

Outstanding purchase obligations(4)

     4,738         3,722         1,016                   

Data center commitments(5)

     4,942         2,515         2,427                   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total(6)

   $ 50,086       $ 10,946       $ 13,313       $ 23,479       $ 2,348   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Represents the contractually required principal and interest payments on our Term Loan in existence at March 31, 2011 in accordance with the required payment schedule and the unused line fees and service fees contractually required under our Revolving Credit Facility. Cash flows associated with future interest payments to be made were calculated using the interest rate in effect as of March 31, 2013, which was 4.5%.

 

(2) Represents the contractually required payments under our capital lease obligations in existence as of March 31, 2013 in accordance with the required payment schedule. No assumptions were made with respect to renewing the lease terms at the expiration date of their initial terms.

 

(3) Represents the contractually required payments under our operating lease obligations in existence as of March 31, 2013 in accordance with the required payment schedule. No assumptions were made with respect to renewing the lease terms at the expiration date of their initial terms.

 

(4) Represents the contractually required payments under the various purchase obligations in existence as of March 31, 2013. No assumptions were made with respect to renewing the purchase obligations at the expiration date of their initial terms, no amounts are assumed to be prepaid and no assumptions were made for early termination of any obligations.

 

(5) Represents the contractually required payments for our data center agreements in existence as of March 31, 2013 in accordance with the required payment schedule. No assumptions were made with respect to renewing the lease term at its expiration date.

 

(6) This table does not include $14.9 million recorded as liabilities for unrecognized tax benefits (inclusive of $7.7 million of accrued interest and penalties) as of March 31, 2013 as we are unable to make reasonably reliable estimates of when cash settlement, if any, will occur with a tax authority because the timing of the examination and the ultimate resolution of the examination is uncertain. Refer to Note 11 to our unaudited consolidated financial statements included elsewhere in this prospectus for further discussion on income taxes.

Quantitative and Qualitative Disclosures about Market Risk

We face exposure to adverse movements in foreign currency exchange rates and changes in interest rates. Portions of our revenues, expenses, assets and liabilities are denominated in currencies other than the U.S. dollar, primarily the euro, the British pound, and the Canadian dollar with respect to revenues, expenses and intercompany payables and receivables. These exposures may change over time as business practices evolve.

 

72


Table of Contents

Foreign Currency Exchange Risk

Foreign currency transaction exposure results primarily from intercompany transactions and transactions with customers or vendors denominated in currencies other than the functional currency of the legal entity in which the transaction is recorded by us. Assets and liabilities arising from such transactions are translated into the legal entity’s functional currency using the exchange rate in effect at the balance sheet date. Any gain or loss resulting from currency fluctuations is recorded on a separate line in our consolidated statements of operations. Net foreign currency transaction losses of $0.4 million were recorded for the three months ended March 31, 2013.

Foreign currency translation exposure results from the translation of the financial statements of our subsidiaries whose functional currency is not the U.S. dollar into U.S. dollars for consolidated reporting purposes. The balance sheets of these subsidiaries are translated into U.S. dollars using period-end exchange rates and their income statements are translated into U.S. dollars using the average exchange rate over the period. Resulting currency translation adjustments are recorded in accumulated other comprehensive income (loss) in our consolidated balance sheets. Net foreign currency translation losses were not material for the three months ended March 31, 2013.

For the three months ended March 31, 2013, approximately 9.4% of our revenues and approximately 14.4% of our operating expenses were generated by subsidiaries whose functional currency is not the U.S. dollar and therefore are subject to foreign currency translation exposure. In addition, 5.2% of our assets and 6.1% of our liabilities were subject to foreign currency translation exposure as of March 31, 2013 as compared to 5.4% of our assets and 6.3% of our liabilities as of December 31, 2012.

Currently, our largest foreign currency exposures are those with respect to the euro and British pound. Relative to foreign currency exposures existing at March 31, 2013, a 10% unfavorable movement in foreign currency exchange rates would expose us to losses in earnings. For the three months ended March 31, 2013, we estimated that a 10% unfavorable movement in foreign currency exchange rates would have decreased pre-tax income by $0.7 million. The estimates used assume that all currencies move in the same direction at the same time. The potential change noted above is based on a sensitivity analysis performed on our financial position as of March 31, 2013. We have experienced and we will continue to experience fluctuations in our net income (loss) as a result of revaluing our assets and liabilities that are not denominated in the functional currency of the entity that recorded the asset or liability. At this time, we do not hedge our foreign currency risk.

Interest Rate Fluctuation Risk

As we only hold cash, our cash balances are not subject to market risk due to changes in interest rates. The Term Loan under our Senior Secured Credit Facility, which earns variable rates of interest, exposes us to interest rate risk. Based on the $24.4 million outstanding principal amount of our variable-rate indebtedness at March 31, 2013 under the Term Loan, a one percentage point change in the interest rates above the floor of 4.5% would impact our future annual interest expense due under the debt by an aggregate of approximately $0.2 million. However, interest cannot decrease from the 4.5% rate we were paying as of March 31, 2013 as our Senior Secured Credit Facility does not allow for us to pay interest at a rate of less than 4.5% on our principal balances.

Inflation Risk

We do not believe that inflation had a material effect on our business, financial condition or results of operations in the last two fiscal years or for the three months ended March 31, 2013. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

 

73


Table of Contents

Recently Issued and Adopted Accounting Pronouncements

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), which provides companies with two options for presenting comprehensive income. ASU 2011-05 requires companies to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In December 2011, the FASB indefinitely deferred the requirement in ASU 2011-05 to present reclassification adjustments of other comprehensive income by line item on the face of the income statement. However, all other requirements of ASU 2011-05 were effective for the Company on January 1, 2012. As the guidance in ASU 2011-05 relates only to how comprehensive income is disclosed and does not change the items that must be reported as comprehensive income, adoption did not have an effect on the Company’s consolidated financial position, results of operations or cash flows.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, which simplifies how companies test goodwill for impairment. This guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in the goodwill accounting standard. This guidance is effective for years beginning after December 15, 2011, with early adoption permitted. We did not early adopt this guidance and as such it became effective for us on January 1, 2012. The new guidance did not have an effect on our consolidated financial position, results of operations or cash flows.

In July 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”). ASU 2012-02 is intended to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. ASU 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test described in ASC 350. In accordance with ASU 2012-02, an entity will have an option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is impaired. ASU 2012-02 became effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company adopted the standard on January 1, 2013. Since the Company does not have any indefinite-lived intangible assets, the adoption of this guidance had no impact on our consolidated financial position, results of operations or cash flows.

In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”) that amended ASU 2011-12 and ASU 2011-05. ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either in the consolidated statements of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. These amendments are disclosure related and will not have an impact on the Company’s financial position, results of operations, comprehensive income or cash flows. ASU 2013-02 is effective for reporting periods beginning after December 15, 2012. Accordingly, the Company adopted ASU 2013-02 in the first quarter of fiscal 2013. As the new guidance relates only to how comprehensive income is disclosed and does not change the items that must be reported as comprehensive income, adoption did not have an effect on our consolidated financial position, results of operations or cash flows.

 

74


Table of Contents

In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (“ASU 2013-05”). ASU 2013-05 addresses a parent’s accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or group of assets within a foreign entity or of an investment in a foreign entity. The objective of this guidance is to resolve the diversity in practice about the appropriate guidance to apply to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or a business within a foreign entity. ASU 2013-05 provides that the entire amount of the cumulative translation adjustment associated with the foreign entity would be released when there has been a sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity. ASU 2013-05 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2012. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company 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, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on this evaluation, management concluded as of December 31, 2012 that our disclosure controls and procedures were not effective at the reasonable assurance level due to material weaknesses in our internal control over financial reporting, which are described below.

Notwithstanding the material weaknesses, however, our management has concluded that our consolidated financial statements for the periods covered by and included in this prospectus are fairly stated in all material respects in accordance with generally accepted accounting principles in the U.S. for each of the periods presented herein.

Management’s Report on Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed by, or under the supervision of, a company’s principal executive and principal financial officers, or persons performing similar functions, and effected by a company’s Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. We have designed our internal control over financial reporting to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

In connection with the audits of our financial statements as of and for the years ended December 31, 2010 and 2011, which were completed simultaneously, we and our independent registered public accounting firm identified certain material weaknesses in our internal control over financial reporting. Also, in late 2012, errors

 

75


Table of Contents

were identified on the statements of cash flows relating to interim periods ended June 30, 2012 and 2011 and September 30, 2012 and 2011 due to the material weaknesses described below. A material weakness is a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 31, 2012, we had remediated two material weaknesses, but it was determined that the following two material weaknesses remained:

 

   

we did not have sufficient formalized policies and procedures to ensure that complete and accurate, consolidated financial information was prepared and reviewed timely in accordance with U.S. GAAP; and

 

   

we lacked sufficient and timely formalized monthly, quarterly and annual financial data reviews and analysis.

The previously identified material weaknesses as of and for the years ended December 31, 2010 and 2011 concerning the lack of sufficient integrated systems to consolidate multi-currency financial information in a complete, accurate and timely manner and lacking a sufficient number of resources to completely and accurately record accounting transactions in accordance with U.S. GAAP as well as resources with the technical accounting expertise to completely and accurately account for complex and unique transactions in a timely manner and to prepare and review financial statements and footnote disclosures were remediated as of December 31, 2012.

Changes in Internal Control Over Financial Reporting

We continue our remediation efforts to address the remaining material weaknesses. Our efforts to date have included the following:

 

   

Implementation of Formalized Policies and Procedures – We have implemented a more structured monthly and quarterly close process to improve the completeness, timeliness and accuracy of our financial reporting and disclosures including, but not limited to, those regarding proper financial statement classification, share-based compensation, and recognition of accruals. We continue to formalize and standardize our consolidation and financial reporting policies and procedures as well as create a uniform set of standards and guidelines for our finance and accounting personnel across our subsidiaries. This approach will allow us to streamline and enhance consistency of our reporting processes across multiple subsidiaries in the U.S. and Europe, and to strengthen our processes for year-end and quarter-end reporting. In addition, our policies and procedures will continue to expand and evolve as we continue to deploy more functionality of our upgraded accounting system.

 

   

Implementation of Financial Data Reviews – As a result of the additional employees added to the finance function as well as the implementation of certain functionality of our upgraded general ledger system, we are allowing for greater lead times between consolidation and reporting of financial information, which has provided and will continue to provide additional time for the review and analysis of monthly, quarterly and annual financial data and information. Although improved monthly quarterly and annual financial data reviews were implemented for a majority of our financial cycles in the latter half of 2012, there were not enough instances of these reviews by the end of 2012 to obtain comfort that the newly implemented controls were operating effectively across all financial cycles to warrant a conclusion that the material weaknesses had been remediated by December 31, 2012.

The actions we have taken and will continue to take are subject to continued review supported by confirmation and testing by management as well as audit committee oversight. While we have implemented a plan to remediate these weaknesses, we cannot assure you that we will be able to remediate these weaknesses,

 

76


Table of Contents

which could impair our ability to accurately and timely report our financial position, results of operations or cash flows. See “Risk Factors—Risk Relating to Our Business—We have identified material weaknesses in our internal control over financial reporting, some of which have led to a restatement of certain statements of cash flows, and we may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate one or more of our material weaknesses or if we fail to establish and maintain effective control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected.”

 

77


Table of Contents

BUSINESS

Overview

FleetMatics is a leading global provider of fleet management solutions delivered as software-as-a-service, or SaaS. Our mobile software platform enables businesses to meet the challenges associated with managing their local fleets of commercial vehicles and improve productivity by extracting actionable business intelligence from vehicle and driver behavioral data. We offer intuitive, cost-effective Web-based and mobile application solutions that provide fleet operators with visibility into vehicle location, fuel usage, speed and mileage and other insights into their mobile workforce, enabling them to reduce operating and capital costs, as well as increase revenue. As of March 31, 2013, we had more than 19,000 customers who collectively deployed our solutions in over 356,000 vehicles worldwide. The substantial majority of our customers are small and medium-sized businesses, or SMBs, each of which deploy our solutions in 1,000 or fewer vehicles. During the three months ended March 31, 2013, we collected an average of approximately 41 million data points per day from subscribers and have aggregated over 38 billion data points since our inception, which we believe provides a valuable data set that we may consider in the development of complementary business intelligence solutions and additional sources of revenue.

We believe that the addressable market for our fleet management solutions is large, growing and underpenetrated. Frost and Sullivan, an independent research firm, reported that in 2010 there were approximately 18.5 million local commercial fleet vehicles in the U.S. and Canada, 11.3% of which utilized a fleet management solution. We believe that the global market opportunity is much larger and we estimate it to be in excess of 61 million vehicles.

Many SMBs manage their local fleet by using manual processes, such as entering data on time sheets and communicating with mobile employees using cellular phones, which generate minimal actionable business intelligence. Furthermore, existing technology-based solutions, including long haul-focused solutions, can be cost-prohibitive and difficult for SMBs to implement and use. Our multi-tenant SaaS solutions are designed to meet the needs of SMBs, overcome existing barriers to adoption, and leverage the volumes of data transmitted to us from in-vehicle devices over cellular networks that we aggregate and analyze from our large and growing subscriber base. By using our solutions to extract actionable business intelligence from the data on their fleet and mobile workforce, fleet operators gain greater control over fuel, maintenance, labor and other costs while improving the return on capital invested in their fleet.

We have developed a differentiated, cost-effective customer acquisition sales model based on leads sourced through both Web-based digital advertising, such as search engine marketing and optimization, email marketing and our websites, and targeted outbound sales efforts. We design our Web-based marketing programs to drive visitors to our direct Web and field sales forces that use disciplined processes to qualify and convert these leads into paying customers. New customers typically enter into initial three-year subscription agreements with monthly billing, providing us with a high degree of visibility into future revenue.

 

78


Table of Contents

We have grown our customer base, the number of vehicles using our solutions and our revenue in each year since our incorporation in 2004. The following chart shows the aggregate number of vehicles under subscription for our fleet management solution as of December 31 for each of the years presented and as of March 31, 2013:

 

LOGO