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Manhattan Associates Reports Third Quarter 2018 Results

October 23, 2018 4:05 PM

Company Raises EPS Guidance and Narrows its Full-Year Total Revenue Guidance Range

ATLANTA, Oct. 23, 2018 (GLOBE NEWSWIRE) -- Leading Supply Chain and Omnichannel Commerce Solutions provider Manhattan Associates Inc. (NASDAQ: MANH) today reported GAAP diluted earnings per share for the third quarter ended September 30, 2018, of $0.43 compared to $0.47 in Q3 2017, on license revenue of $11.5 million, cloud subscriptions revenue of $6.5 million and total revenue of $142.4 million. Non-GAAP adjusted diluted earnings per share for Q3 2018 was $0.49 compared to $0.51 in Q3 2017.

“We posted solid operating results for Q3 highlighted by ongoing progress in our cloud transition and the strengthening of our Global Services business,” said Manhattan Associates president and CEO Eddie Capel. “Q3 total revenue and earnings per share performance improved over Q2 in line with expectations and we expect to exit 2018 stronger than we entered the year. Based on our outlook for the remainder of the year, we are raising our 2018 full-year earnings guidance and are narrowing the range of our full-year total revenue estimate.”

“While cautious regarding global geopolitical and economic volatility, we continue to be very bullish on the market opportunity ahead with supply chain complexity and retail evolution in our target markets bringing continued need for our solutions among our customers. Customer feedback and win rates are strong, and our product advancements are enabling our clients to Push Possible® with their commerce supply chains,” added Mr. Capel.

THIRD QUARTER 2018 FINANCIAL SUMMARY:

NINE MONTH 2018 FINANCIAL SUMMARY:

NEW PRESENTATION OF CONSOLIDATED STATEMENTS OF INCOME

We have reclassified certain line items in prior period financial statements to conform to the current period presentation in the consolidated statements of income because of our business transition to cloud subscriptions. These reclassifications include: all revenue line items; cost of license; cost of cloud subscriptions, maintenance and services; and cost of hardware. These reclassifications did not affect total revenue, operating income or net income. For further detail, please see note 7 in the supplemental financial information accompanying this press release.

2018 GUIDANCE

Manhattan Associates provides the following updated revenue, operating margin and diluted earnings per share guidance for the full year 2018:

Guidance Range - 2018 Full Year
($'s in millions, except operating margin and EPS)$ Range % Growth Range
Total revenue - current guidance$552 $555 -7% -7%
Total revenue - previous guidance$548 $560 -8% -6%
Operating Margin:
GAAP operating margin - current guidance 22.6% 22.9%
Equity-based compensation 3.7% 3.6%
Adjusted operating margin(1) - current guidance 26.3% 26.5%
GAAP operating margin - previous guidance 21.1% 21.4%
Equity-based compensation 3.7% 3.6%
Adjusted operating margin(1) - previous guidance 24.8% 25.0%
Diluted earnings per share (EPS):
GAAP EPS - current guidance$1.48 $1.50 -12% -11%
Equity-based compensation, net of tax 0.21 0.21
Adjusted EPS(1) - current guidance$1.69 $1.71 -10% -9%
GAAP EPS - previous guidance$1.32 $1.36 -21% -19%
Equity-based compensation, net of tax 0.25 0.25
Adjusted EPS(1) - previous guidance$1.57 $1.61 -16% -14%
(1) Adjusted operating margin and adjusted EPS are non-GAAP measures that exclude the impact of equity-based compensation and acquisition-related costs, and the related income tax effects of these items if applicable.

Manhattan Associates currently intends to publish in each quarterly earnings release certain expectations with respect to future financial performance. Those statements, including the guidance provided above, are forward looking. Actual results may differ materially. Those statements, including the guidance provided above, do not reflect the potential impact of mergers, acquisitions or other business combinations that may be completed after the date of the release.

Manhattan Associates will make its earnings release and published expectations available on its website (www.manh.com). Following publication of this earnings release, any expectations with respect to future financial performance contained in this release, including the guidance above, should be considered historical only, and Manhattan Associates disclaims any obligation to update them.

CONFERENCE CALL

The Company’s conference call regarding its third quarter financial results will be held today, October 23, 2018, at 4:30 p.m. Eastern Time. We invite investors to a live webcast of the conference call through the Investor Relations section of Manhattan Associates' website at www.manh.com. To listen to the live webcast, please go to the website at least 15 minutes before the call to download and install any necessary audio software.

Those who cannot listen to the live broadcast may access a replay shortly after the call by dialing +1.855.859.2056 in the U.S. and Canada, or +1.404.537.3406 outside the U.S., and entering the conference identification number ­­­­­­­­5088866 or via the web at www.manh.com. The phone replay will be available for two weeks after the call, and the Internet webcast will be available until Manhattan Associates’ fourth quarter 2018 earnings release.

GAAP VERSUS NON-GAAP PRESENTATION

The Company provides adjusted operating income and margin, adjusted income tax provision, adjusted net income, adjusted diluted earnings per share, adjusted cost of services, and adjusted cost of cloud subscriptions, maintenance and services in this press release as additional information regarding the Company’s historical and projected operating results. These measures are not in accordance with – or alternatives to – GAAP, and may be different from similarly titled non-GAAP measures used by other companies. The Company believes the presentation of these non-GAAP financial measures facilitates investors’ ability to understand and compare the Company’s results and guidance, because the measures provide supplemental information in evaluating the operating results of its business, as distinct from results that include items not indicative of ongoing operating results, and because the Company believes its peers typically publish similar non-GAAP measures. This release should be read in conjunction with the Company’s Form 8-K earnings release filing for the three and nine months ended September 30, 2018.

Non-GAAP adjusted operating income and margin, adjusted income tax provision, adjusted net income and adjusted diluted earnings per share exclude the impact of equity-based compensation, acquisition-related costs and the amortization of these costs, and a restructuring charge – all net of income tax effects, and the impact of the Tax Cuts and Jobs Act. Adjusted cost of services and adjusted cost of cloud subscriptions, maintenance and services exclude the impact of equity-based compensation. We include reconciliations of the Company’s GAAP financial measures to non-GAAP adjustments in the supplemental information attached to this release.

ABOUT MANHATTAN ASSOCIATES

Manhattan Associates is a technology leader in supply chain and omnichannel commerce. We unite information across the enterprise, converging front-end sales with back-end supply chain execution. Our software, platform technology and unmatched experience help drive both top-line growth and bottom-line profitability for our customers.

Manhattan Associates designs, builds and delivers leading edge cloud and on-premise solutions so that across the store, through your network or from your fulfillment center, you are ready to reap the rewards of the omnichannel marketplace. For more information, please visit www.manh.com.

This press release contains “forward-looking statements” relating to Manhattan Associates, Inc. Forward-looking statements in this press release include, without limitation, the information set forth under “2018 Guidance,” statements we make about market adoption of our cloud-based solution and other statements identified by words such as “may,” “expect,” “forecast,” “anticipate,” “intend,” “plan,” “believe,” “could,” “seek,” “project,” “estimate,” and similar expressions. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: uncertainty about the global economy, risks related from transitioning our business from a traditional perpetual license software company (generally hosted by our customers on their own premises and equipment) to a subscription-based software-as-a service/cloud-based model, disruption in the retail sector, the possible effect of new U.S. tariffs on imports from other countries (and possible responsive tariffs on U.S. exports by other countries) on international commerce, delays in product development, competitive pressures, software errors, information security breaches and the risk factors set forth in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 and in Item 1A of Part II in subsequent Quarterly Reports on Form 10-Q. Manhattan Associates undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results.

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue:
Software license $11,526 $16,260 $32,054 $57,601
Cloud subscriptions 6,455 2,534 16,301 6,408
Maintenance 37,177 36,338 110,567 105,673
Services 84,136 84,211 245,160 249,319
Hardware 3,057 13,540 10,709 31,512
Total revenue 142,351 152,883 414,791 450,513
Costs and expenses:
Cost of license 1,211 1,316 4,615 4,106
Cost of cloud subscriptions, maintenance and services 59,975 51,103 173,446 159,111
Cost of hardware - 10,653 - 23,789
Research and development 18,453 14,747 53,688 43,074
Sales and marketing 10,726 10,739 37,419 34,260
General and administrative 13,711 11,031 39,396 34,290
Depreciation and amortization 2,179 2,275 6,616 6,863
Restructuring charge - (77) - 2,945
Total costs and expenses 106,255 101,787 315,180 308,438
Operating income 36,096 51,096 99,611 142,075
Other income (loss), net 1,538 207 3,245 (232)
Income before income taxes 37,634 51,303 102,856 141,843
Income tax provision 9,179 18,704 24,081 49,876
Net income $28,455 $32,599 $78,775 $91,967
Basic earnings per share $0.43 $0.47 $1.18 $1.33
Diluted earnings per share $0.43 $0.47 $1.18 $1.32
Weighted average number of shares:
Basic 65,658 68,928 66,539 69,389
Diluted 65,901 69,135 66,717 69,614

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Reconciliation of Selected GAAP to Non-GAAP Measures
(in thousands, except per share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Operating income $36,096 $51,096 $99,611 $142,075
Equity-based compensation (a) 5,303 3,773 14,573 11,041
Purchase amortization (c) 107 108 322 323
Restructuring charge (d) - (77) - 2,945
Adjusted operating income (Non-GAAP) $41,506 $54,900 $114,506 $156,384
Income tax provision $9,179 $18,704 $24,081 $49,876
Equity-based compensation (a) 1,299 1,377 3,570 4,030
Tax benefit of stock awards vested (b) 41 22 771 1,897
Purchase amortization (c) 26 40 79 118
Restructuring charge (d) - (28) - 1,075
U.S. Tax Cuts and Jobs Act impact (e) - - 348 -
Adjusted income tax provision (Non-GAAP) $10,545 $20,115 $28,849 $56,996
Net income $28,455 $32,599 $78,775 $91,967
Equity-based compensation (a) 4,004 2,396 11,003 7,011
Tax benefit of stock awards vested (b) (41) (22) (771) (1,897)
Purchase amortization (c) 81 68 243 205
Restructuring charge (d) - (49) - 1,870
U.S. Tax Cuts and Jobs Act impact (e) - - (348) -
Adjusted net income (Non-GAAP) $32,499 $34,992 $88,902 $99,156
-
Diluted EPS $0.43 $0.47 $1.18 $1.32
Equity-based compensation (a) 0.06 0.03 0.16 0.10
Tax benefit of stock awards vested (b) - - (0.01) (0.03)
Purchase amortization (c) - - - -
Restructuring charge (d) - - - 0.03
U.S. Tax Cuts and Jobs Act impact (e) - - (0.01) -
Adjusted diluted EPS (Non-GAAP) $0.49 $0.51 $1.33 $1.42
Fully diluted shares 65,901 69,135 66,717 69,614

(a) Adjusted results exclude all equity-based compensation, to facilitate comparison with our peers and for the other reasons explained in our Current Report on Form 8-K filed today with the SEC on the date hereof. Equity-based compensation is included in the following GAAP operating expense lines for the three and nine months ended September 30, 2018, and 2017:

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Cost of services $1,531 $875 $4,204 $2,596
Research and development 1,074 774 3,135 1,928
Sales and marketing 591 490 1,496 1,550
General and administrative 2,107 1,634 5,738 4,967
Total equity-based compensation $5,303 $3,773 $14,573 $11,041

(b) Adjustments represent the excess tax benefits and tax deficiencies of the stock awards vested during the period. Excess tax benefits (deficiencies) occur when the amount deductible for an award of equity instruments on our tax return is more (less) than the cumulative compensation cost recognized for financial reporting purposes. As discussed above, we excluded equity-based compensation from adjusted non-GAAP results to be consistent with other companies in the software industry and for the other reasons explained in our Current Report on Form 8-K filed with the SEC. Therefore, we also excluded the related tax benefit (expense) generated upon their vesting.

(c) Adjustments represent purchased intangibles amortization from a prior acquisition. We exclude that amortization from adjusted results to facilitate comparison with our peers, to facilitate comparisons of the results of our core operations from period to period and for the other reasons explained in our Current Report on Form 8-K filed with the SEC.

(d) In May 2017, we eliminated about 100 positions due to retail sector headwinds and to align our services capacity with demand. That action did not impair or alter our strategic investment plans in innovation and sales and marketing to increase market share and extend our competitive advantage. As a result of that initiative, we recorded a charge of approximately $3.0 million in the second quarter of 2017. The charge primarily consisted of employee severance, employee transition and outplacement costs. We excluded that charge from adjusted non-GAAP results because we do not believe the charge was a cost resulting from normal operating activities and for the other reasons explained in our Current Report on Form 8-K filed with the SEC.

(e) In the fourth quarter of 2017, we recorded a provisional net one-time tax of $2.8 million because of the enactment of the Tax Cuts and Jobs Act in December 2017. We calculated that amount based on a reasonable estimate of the income tax effects, primarily from a tax on accumulated foreign earnings and the remeasurement of deferred tax assets. We adjusted our provisional estimate by $0.3 million during the nine months ended September 30, 2018.

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
September 30, 2018 December 31, 2017
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $89,749 $125,522
Short-term investments 4,148 -
Accounts receivable, net of allowance of $2,792 and $2,692, respectively 92,966 92,231
Prepaid expenses and other current assets 16,292 10,320
Total current assets 203,155 228,073
Property and equipment, net 14,501 15,493
Goodwill, net 62,243 62,248
Deferred income taxes 1,424 1,877
Other assets 9,685 7,304
Total assets $291,008 $314,995
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $14,273 $14,028
Accrued compensation and benefits 26,711 15,826
Accrued and other liabilities 11,247 12,105
Deferred revenue 83,020 75,068
Income taxes payable 1,355 7,228
Total current liabilities 136,606 124,255
Other non-current liabilities 14,724 15,784
Shareholders' equity:
Preferred stock, no par value; 20,000,000 shares authorized, no shares issued or outstanding in 2018 and 2017 - -
Common stock, $0.01 par value; 200,000,000 shares authorized; 65,378,469 and 67,776,138 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively 654 678
Retained earnings 156,912 186,117
Accumulated other comprehensive loss (17,888) (11,839)
Total shareholders' equity 139,678 174,956
Total liabilities and shareholders' equity $291,008 $314,995

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended September 30,
2018 2017
(unaudited) (unaudited)
Operating activities:
Net income $78,775 $91,967
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 6,616 6,863
Equity-based compensation 14,573 11,041
Loss on disposal of equipment 56 34
Deferred income taxes (244) 741
Unrealized foreign currency (gain) loss (1,373) 93
Changes in operating assets and liabilities:
Accounts receivable, net (1,995) 5,095
Other assets (5,296) (940)
Accounts payable, accrued and other liabilities 11,059 (2,273)
Income taxes (7,488) (2,151)
Deferred revenue 8,635 6,169
Net cash provided by operating activities 103,318 116,639
Investing activities:
Purchase of property and equipment (5,536) (3,897)
Net purchases of investments (5,196) (4,487)
Net cash used in investing activities (10,732) (8,384)
Financing activities:
Purchase of common stock (124,558) (81,700)
Net cash used in financing activities (124,558) (81,700)
Foreign currency impact on cash (3,801) 2,648
Net change in cash and cash equivalents (35,773) 29,203
Cash and cash equivalents at beginning of period 125,522 95,615
Cash and cash equivalents at end of period $89,749 $124,818

MANHATTAN ASSOCIATES, INC.SUPPLEMENTAL INFORMATION

1. GAAP and Adjusted earnings per share by quarter are as follows:

2017 2018
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year 1st Qtr 2nd Qtr 3rd Qtr YTD
GAAP Diluted EPS$0.40 $0.45 $0.47 $0.36 $1.68 $0.33 $0.42 $0.43 $1.18
Adjustments to GAAP:
Equity-based compensation 0.04 0.03 0.03 0.05 0.15 0.05 0.06 0.06 0.16
Tax benefit of stock awards vested (0.03) - - - (0.03) (0.01) - - (0.01)
Purchase amortization - - - - - - - - -
Restructuring charge - 0.03 - - 0.03 - - - -
U.S. Tax Cuts and Jobs Act impact - - - 0.04 0.04 (0.01) - - (0.01)
Adjusted Diluted EPS$0.42 $0.50 $0.51 $0.45 $1.87 $0.37 $0.47 $0.49 $1.33
Fully Diluted Shares 70,247 69,421 69,135 68,791 69,424 67,736 66,535 65,901 66,717

2. Revenues and operating income by reportable segment are as follows (in thousands):

2017 2018
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year 1st Qtr 2nd Qtr 3rd Qtr YTD
Revenue:
Americas$113,115 $123,658 $124,833 $115,543 $477,149 $104,615 $112,945 $113,886 $331,446
EMEA 23,360 22,028 18,453 21,508 85,349 19,164 21,356 21,181 61,701
APAC 7,014 8,455 9,597 7,035 32,101 6,790 7,570 7,284 21,644
$143,489 $154,141 $152,883 $144,086 $594,599 $130,569 $141,871 $142,351 $414,791
GAAP Operating Income:
Americas$28,713 $35,717 $39,295 $32,968 $136,693 $20,318 $26,589 $26,200 $73,107
EMEA 10,754 9,995 7,128 7,952 35,829 5,475 6,252 7,413 19,140
APAC 2,253 3,547 4,673 2,650 13,123 2,037 2,844 2,483 7,364
$41,720 $49,259 $51,096 $43,570 $185,645 $27,830 $35,685 $36,096 $99,611
Adjustments (pre-tax):
Americas:
Equity-based compensation$4,472 $2,796 $3,773 $5,188 $16,229 $4,343 $4,927 $5,303 $14,573
Purchase amortization 107 108 108 107 430 107 108 107 322
Restructuring charge - 2,908 (77) (18) 2,813 - - - -
$4,579 $5,812 $3,804 $5,277 $19,472 $4,450 $5,035 $5,410 $14,895
EMEA:
Restructuring charge - 114 - (6) 108 - - - -
Adjusted non-GAAP Operating Income:
Americas$33,292 $41,529 $43,099 $38,245 $156,165 $24,768 $31,624 $31,610 $88,002
EMEA 10,754 10,109 7,128 7,946 35,937 5,475 6,252 7,413 19,140
APAC 2,253 3,547 4,673 2,650 13,123 2,037 2,844 2,483 7,364
$46,299 $55,185 $54,900 $48,841 $205,225 $32,280 $40,720 $41,506 $114,506

3. Impact of Currency Fluctuation

The following table reflects the increases (decreases) in the results of operations for each period attributable to the change in foreign currency exchange rates from the prior period as well as foreign currency gains (losses) included in other income, net for each period (in thousands):

2017 2018
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year 1st Qtr 2nd Qtr 3rd Qtr YTD
Revenue$(1,547) $(1,219) $536 $1,820 $(410) $2,781 $1,699 $(581) $3,899
Costs and expenses (789) (396) 723 1,485 1,023 2,328 831 (1,177) 1,982
Operating income (758) (823) (187) 335 (1,433) 453 868 596 1,917
Foreign currency (losses) gains in other income (646) (348) (81) (771) (1,846) 366 705 1,431 2,502
$(1,404) $(1,171) $(268) $(436) $(3,279) $819 $1,573 $2,027 $4,419

Manhattan Associates has a large research and development center in Bangalore, India. The following table reflects the increases (decreases) in the financial results for each period attributable to changes in the Indian Rupee exchange rate (in thousands):

2017 2018
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year 1st Qtr 2nd Qtr 3rd Qtr YTD
Operating income$(70) $(326) $(338) $(345) $(1,079) $(360) $359 $828 $827
Foreign currency (losses) gains in other income (320) (190) 71 (43) (482) 210 1,120 1,572 2,902
Total impact of changes in the Indian Rupee$(390) $(516) $(267) $(388) $(1,561) $(150) $1,479 $2,400 $3,729

4. Other income includes the following components (in thousands):

2017 2018
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year 1st Qtr 2nd Qtr 3rd Qtr YTD
Interest income$293 $264 $314 $303 $1,174 $347 $241 $201 $789
Foreign currency (losses) gains (646) (348) (81) (771) (1,846) 366 705 1,431 2,502
Other non-operating (expense) income (18) 16 (26) (112) (140) 8 40 (94) (46)
Total other (loss) income$(371) $(68) $207 $(580) $(812) $721 $986 $1,538 $3,245

5. Capital expenditures are as follows (in thousands):

2017 2018
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year 1st Qtr 2nd Qtr 3rd Qtr YTD
Capital expenditures$789 $1,914 $1,194 $2,302 $6,199 $2,174 $1,881 $1,481 $5,536

6. Stock Repurchase Activity (in thousands):

2017 2018
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year 1st Qtr 2nd Qtr 3rd Qtr YTD
Shares purchased under publicly-announced buy-back program 1,004 535 - 1,156 2,695 1,158 1,082 389 2,629
Shares withheld for taxes due upon vesting of restricted stock 131 1 2 1 135 111 1 3 115
Total shares purchased 1,135 536 2 1,157 2,830 1,269 1,083 392 2,744
Total cash paid for shares purchased under publicly-announced buy-back program$49,978 $24,974 $- $49,953 $124,905 $49,972 $47,876 $20,669 $118,517
Total cash paid for shares withheld for taxes due upon vesting of restricted stock 6,641 27 80 54 6,802 5,843 23 175 6,041
Total cash paid for shares repurchased$56,619 $25,001 $80 $50,007 $131,707 $55,815 $47,899 $20,844 $124,558

7. Impact of Cloud Transition

Because of our business transition to Cloud Subscriptions, we have revised our presentations of revenue and related cost line items in our consolidated statements of income. We have reclassified certain line items in prior period financial statements to conform to the current period presentation in the consolidated statements of income. These reclassifications include: all revenue line items; cost of license; cost of cloud subscriptions, maintenance and services; and cost of hardware. These reclassifications did not affect total revenue, operating income or net income. The following table reflects the comparison between the former and new presentation (in thousands):

2016 2017 2018
Full Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year 1st Qtr 2nd Qtr 3rd Qtr YTD
Former Presentation:
Software license$84,996 $22,773 $22,442 $18,794 $17,900 $81,909 $12,024 $18,350 $17,981 $48,355
Services 467,286 108,833 116,828 115,555 110,394 451,610 111,701 115,051 116,911 343,663
Hardware and other 52,275 11,883 14,871 18,534 15,792 61,080 6,844 8,470 7,459 22,773
$604,557 $143,489 $154,141 $152,883 $144,086 $594,599 $130,569 $141,871 $142,351 $414,791
Cost of license$10,820 $2,240 $2,355 $2,830 $3,169 $10,594 $3,982 $5,534 $5,789 $15,305
Cost of services 197,475 49,743 47,751 44,750 43,053 185,297 50,348 49,475 50,984 150,807
Cost of hardware and other 41,584 9,638 12,207 15,492 12,505 49,842 3,464 4,072 4,413 11,949
$249,879 $61,621 $62,313 $63,072 $58,727 $245,733 $57,794 $59,081 $61,186 $178,061
New Presentation:
Software license$79,213 $21,277 $20,064 $16,260 $14,712 $72,313 $7,555 $12,973 $11,526 $32,054
Cloud subscriptions (a) 5,783 1,496 2,378 2,534 3,188 9,596 4,469 5,377 6,455 16,301
Maintenance 133,848 33,376 35,959 36,338 37,325 142,998 36,397 36,993 37,177 110,567
Services 351,785 79,781 85,327 84,211 77,183 326,502 78,757 82,267 84,136 245,160
Hardware 33,928 7,559 10,413 13,540 11,678 43,190 3,391 4,261 3,057 10,709
$604,557 $143,489 $154,141 $152,883 $144,086 $594,599 $130,569 $141,871 $142,351 $414,791
Cost of license$6,818 $1,352 $1,438 $1,316 $1,377 $5,483 $1,308 $2,096 $1,211 $4,615
Cost of cloud subscriptions, maintenance and services (b) 219,635 54,899 53,109 51,103 48,934 208,045 56,486 56,985 59,975 173,446
Cost of hardware 23,426 5,370 7,766 10,653 8,416 32,205 - - - -
$249,879 $61,621 $62,313 $63,072 $58,727 $245,733 $57,794 $59,081 $61,186 $178,061

Reconciliation of GAAP to Non-GAAP Measures:
2016 2017 2018
Full Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year 1st Qtr 2nd Qtr 3rd Qtr YTD
Former Presentation:
Cost of services$197,475 $49,743 $47,751 $44,750 $43,053 $185,297 $50,348 $49,475 $50,984 $150,807
Equity-based compensation (c) (3,794) (1,141) (580) (875) (1,398) (3,994) (1,117) (1,556) (1,531) (4,204)
Adjusted Cost of services$193,681 $48,602 $47,171 $43,875 $41,655 $181,303 $49,231 $47,919 $49,453 $146,603
New Presentation:
Cost of cloud subscriptions, maintenance and services (b)$219,635 $54,899 $53,109 $51,103 $48,934 $208,045 $56,486 $56,985 $59,975 $173,446
Equity-based compensation (c) (3,794) (1,141) (580) (875) (1,398) (3,994) (1,117) (1,556) (1,531) (4,204)
Adjusted Cost of cloud subscriptions, maintenance and services$215,841 $53,758 $52,529 $50,228 $47,536 $204,051 $55,369 $55,429 $58,444 $169,242
(a) Cloud subscriptions includes software as a service (SaaS) and arrangements that provide customers the right to use our software within a cloud-based environment that we manage where the customer does not have the right to take possession of the software without significant penalties.
(b) Cost of cloud subscriptions, maintenance and services consists primarily of salaries and other personnel-related expenses of employees dedicated to cloud subscriptions; maintenance services; and professional and technical services as well as hosting fees.
(c) Adjusted results exclude all equity-based compensation to facilitate comparison with our competitors and peers and for the other reasons explained in our Current Report on Form 8-K filed today with the SEC.

8. ASC 606 Adoption

We adopted the new revenue recognition standard, FASB ASC Topic 606, Revenue from Contracts with Customers, in the first quarter of 2018. The new standard provides accounting guidance for all revenue arising from contracts with customers and affects substantially all entities. We adopted the standard using the modified retrospective method with the cumulative effect of initially adopting the standard recorded as an adjustment to retained earnings as of January 1, 2018. We recorded historical hardware sales prior to the adoption of ASC 606 on a gross basis, as we were the principal in the transaction in accordance with ASC 605-45. Under the new standard, we are an agent in the transaction as we do not physically control the hardware we sell. Accordingly, we recognize our hardware revenue net of related cost, which reduces both hardware revenue and cost of sales as compared to our accounting prior to 2018. We recognize and present our hardware revenue net of related cost under the new standard prospectively. For comparison purposes only, had we implemented ASC 606 using the full retrospective method, we would have presented hardware revenue net of expense in our 2017 quarterly financial results below (in thousands):

2016 2017 2018
Full Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year 1st Qtr 2nd Qtr 3rd Qtr YTD
Presentation of Hardware Revenue - Pre ASC 606 adoption:
Revenue
Hardware Revenue$33,928 $7,559 $10,413 $13,540 $11,678 $43,190 $11,224 $16,252 $10,575 $38,051
Cost of Revenue
Cost of Hardware (23,426) (5,370) (7,766) (10,653) (8,416) (32,205) (7,833) (11,991) (7,518) (27,342)
Hardware Revenue, net$10,502 $2,189 $2,647 $2,887 $3,262 $10,985 $3,391 $4,261 $3,057 $10,709
Proforma Presentation of Hardware Revenue - Post ASC 606 Using Full Retrospective Method:
Hardware Revenue$10,502 $2,189 $2,647 $2,887 $3,262 $10,985 $3,391 $4,261 $3,057 $10,709



Contact: Dennis Story Rick Fernandez
Chief Financial Officer Senior Manager, Corporate Communications
Manhattan Associates, Inc. Manhattan Associates, Inc.
770-955-7070 678-597-6988
[email protected] [email protected]

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Source: Manhattan Associates, Inc.

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