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Manhattan Associates Reports Record Fourth Quarter 2018 Total Revenue

February 5, 2019 4:05 PM

ATLANTA, Feb. 05, 2019 (GLOBE NEWSWIRE) -- Leading Supply Chain and Omnichannel Commerce Solutions provider Manhattan Associates Inc. (NASDAQ: MANH) today reported GAAP diluted earnings per share for the fourth quarter ended December 31, 2018, of $0.40 compared to $0.36 in Q4 2017, on license revenue of $13.3 million, cloud subscriptions revenue of $6.8 million and record total revenue of $144.4 million, applying ASC 606 retrospectively. Non-GAAP adjusted diluted earnings per share for Q4 2018 was $0.46 compared to $0.45 in Q4 2017.

“We’re pleased with both our 2018 fourth quarter financial performance and full year results. We delivered record Q4 total revenue and strong earnings per share with a backdrop of solid software and global services revenue,” said Manhattan Associates president and CEO Eddie Capel. “In addition, we continue to receive very positive interest on our Manhattan Active™ suite of cloud-based solutions.”

“We remain bullish on our growth opportunity in 2019 and beyond. While prudently cautious regarding current global geopolitical and economic volatility, we believe continued omnichannel and supply chain evolution in our target markets has created an acute need for Manhattan’s software that enables our clients to accelerate growth and Push Possible®,” added Mr. Capel.

FOURTH QUARTER 2018 FINANCIAL SUMMARY:

FULL YEAR 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.

2019 GUIDANCE

Manhattan Associates provides the following revenue, operating margin and diluted earnings per share guidance for the full year 2019:

Guidance Range - 2019 Full Year
($'s in millions, except operating margin and EPS)$ Range % Growth Range
Total revenue$564 $576 1% 3%
Operating Margin:
GAAP operating margin 15.5% 15.8%
Equity-based compensation 5.5% 5.4%
Adjusted operating margin(1) 21.0% 21.2%
Diluted earnings per share (EPS):
GAAP EPS$1.03 $1.07 -35% -32%
Equity-based compensation 0.35 0.35
Adjusted EPS(1)$1.38 $1.42 -23% -21%
(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 fourth quarter and twelve months ended December 31, 2018, financial results will be held today, February 5, 2019, 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 ­­­­­­­­9549358 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’ first quarter 2019 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 twelve months ended December 31, 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 “2019 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 SUBSIDIARIESCondensed Consolidated Statements of Income(in thousands, except per share amounts)

Three Months Ended December 31, Year Ended December 31,
2018 2017 2018 2017
(unaudited) (unaudited)
Revenue:
Cloud subscriptions$6,803 $3,188 $23,104 $9,596
Software license 13,314 14,712 45,368 72,313
Maintenance 36,466 37,325 147,033 142,998
Services 84,525 77,183 329,685 326,502
Hardware 3,258 11,678 13,967 43,190
Total revenue 144,366 144,086 559,157 594,599
Costs and expenses:
Cost of software license 682 1,377 5,297 5,483
Cost of cloud subscriptions, maintenance and services 62,138 48,934 235,584 208,045
Cost of hardware - 8,416 - 32,205
Research and development 18,208 14,630 71,896 57,704
Sales and marketing 13,843 13,222 51,262 47,482
General and administrative 13,222 11,764 52,618 46,054
Depreciation and amortization 1,997 2,197 8,613 9,060
Restructuring charge - (24) - 2,921
Total costs and expenses 110,090 100,516 425,270 408,954
Operating income 34,276 43,570 133,887 185,645
Other (loss) income, net (901) (580) 2,344 (812)
Income before income taxes 33,375 42,990 136,231 184,833
Income tax provision 7,460 18,476 31,541 68,352
Net income$25,915 $24,514 $104,690 $116,481
Basic earnings per share$0.40 $0.36 $1.58 $1.68
Diluted earnings per share$0.40 $0.36 $1.58 $1.68
Weighted average number of shares:
Basic 65,199 68,485 66,201 69,175
Diluted 65,526 68,791 66,434 69,424

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIESReconciliation of Selected GAAP to Non-GAAP Measures(in thousands, except per share amounts)

Three Months Ended December 31, Year Ended December 31,
2018 2017 2018 2017
Operating income $34,276 $43,570 $133,887 $185,645
Equity-based compensation (a) 5,291 5,188 19,864 16,229
Purchase amortization (c) 108 107 430 430
Restructuring charge (d) - (24) - 2,921
Adjusted operating income (Non-GAAP) $39,675 $48,841 $154,181 $205,225
Income tax provision $7,460 $18,476 $31,541 $68,352
Equity-based compensation (a) 1,092 1,934 4,662 5,964
Tax benefit of stock awards vested (b) 6 14 777 1,911
Purchase amortization (c) 22 40 101 158
Restructuring charge (d) - (2) - 1,073
U.S. Tax Cuts and Jobs Act impact (e) (146) (2,825) 202 (2,825)
Adjusted income tax provision (Non-GAAP) $8,434 $17,637 $37,283 $74,633
Net income $25,915 $24,514 $104,690 $116,481
Equity-based compensation (a) 4,199 3,254 15,202 10,265
Tax benefit of stock awards vested (b) (6) (14) (777) (1,911)
Purchase amortization (c) 86 67 329 272
Restructuring charge (d) - (22) - 1,848
U.S. Tax Cuts and Jobs Act impact (e) 146 2,825 (202) 2,825
Adjusted net income (Non-GAAP) $30,340 $30,624 $119,242 $129,780
Diluted EPS $0.40 $0.36 $1.58 $1.68
Equity-based compensation (a) 0.06 0.05 0.23 0.15
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) - 0.04 - 0.04
Adjusted diluted EPS (Non-GAAP) $0.46 $0.45 $1.79 $1.87
Fully diluted shares 65,526 68,791 66,434 69,424

(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. Equity-based compensation is included in the following GAAP operating expense lines for the three and twelve months ended December 31, 2018, and 2017:

Three Months Ended December 31, Year Ended December 31,
2018 2017 2018 2017
Cost of services $1,583 $1,398 $5,787 $3,994
Research and development 1,095 1,280 4,230 3,208
Sales and marketing 545 690 2,041 2,240
General and administrative 2,068 1,820 7,806 6,787
Total equity-based compensation $5,291 $5,188 $19,864 $16,229

(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 $2.9 million in 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 finalized our calculations, resulting in a tax benefit of $0.2 million during the twelve months ended December 31, 2018.

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIESCondensed Consolidated Balance Sheets(in thousands, except share and per share data)

December 31, 2018 December 31, 2017
ASSETS
Current Assets:
Cash and cash equivalents $99,126 $125,522
Short-term investments 1,440 -
Accounts receivable, net of allowance of $2,589 and $2,692 at December 31, 2018 and December 31, 2017, respectively 100,108 92,231
Prepaid expenses and other current assets 14,708 10,320
Total current assets 215,382 228,073
Property and equipment, net 14,318 15,493
Goodwill, net 62,240 62,248
Deferred income taxes 5,442 1,877
Other assets 9,768 7,304
Total assets $307,150 $314,995
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $18,181 $14,028
Accrued compensation and benefits 29,485 15,826
Accrued and other liabilities 12,161 12,105
Deferred revenue 81,894 75,068
Income taxes payable 3,543 7,228
Total current liabilities 145,264 124,255
Other non-current liabilities 14,739 15,784
Shareholders' equity:
Preferred stock, no par value; 20,000,000 shares authorized, no shares issued or outstanding at December 31, 2018 and December 31, 2017 - -
Common stock, $.01 par value; 200,000,000 shares authorized; 64,860,419 and 67,776,138 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively 649 678
Retained earnings 163,359 186,117
Accumulated other comprehensive loss (16,861) (11,839)
Total shareholders' equity 147,147 174,956
Total liabilities and shareholders' equity $307,150 $314,995

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIESCondensed Consolidated Statements of Cash Flows(in thousands)

Year Ended December 31,
2018 2017
Operating activities:
Net income $104,690 $116,481
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 8,613 9,060
Equity-based compensation 19,864 16,229
Loss on disposal of equipment 59 152
Deferred income taxes (4,265) 1,574
Unrealized foreign currency loss 298 196
Changes in operating assets and liabilities:
Accounts receivable, net (9,341) 10,139
Other assets (4,357) 661
Accounts payable, accrued and other liabilities 18,603 (5,354)
Income taxes (4,390) 1,876
Deferred revenue 7,575 13,052
Net cash provided by operating activities 137,349 164,066
Investing activities:
Purchases of property and equipment (7,306) (6,199)
Net (purchases) maturities of short-term investments (2,532) 429
Net cash used in investing activities (9,838) (5,770)
Financing activities:
Purchase of common stock (149,322) (131,707)
Net cash used in financing activities (149,322) (131,707)
Foreign currency impact on cash (4,585) 3,318
Net change in cash and cash equivalents (26,396) 29,907
Cash and cash equivalents at beginning of period 125,522 95,615
Cash and cash equivalents at end of period $99,126 $125,522

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 4th Qtr Full Year
GAAP Diluted EPS$0.40 $0.45 $0.47 $0.36 $1.68 $0.33 $0.42 $0.43 $0.40 $1.58
Adjustments to GAAP:
Equity-based compensation 0.04 0.03 0.03 0.05 0.15 0.05 0.06 0.06 0.06 0.23
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) - - - -
Adjusted Diluted EPS$0.42 $0.50 $0.51 $0.45 $1.87 $0.37 $0.47 $0.49 $0.46 $1.79
Fully Diluted Shares 70,247 69,421 69,135 68,791 69,424 67,736 66,535 65,901 65,526 66,434

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 4th Qtr Full Year
Revenue:
Americas$113,115 $123,658 $124,833 $115,543 $477,149 $104,615 $112,945 $113,886 $114,040 $445,486
EMEA 23,360 22,028 18,453 21,508 85,349 19,164 21,356 21,181 23,043 84,744
APAC 7,014 8,455 9,597 7,035 32,101 6,790 7,570 7,284 7,283 28,927
$143,489 $154,141 $152,883 $144,086 $594,599 $130,569 $141,871 $142,351 $144,366 $559,157
GAAP Operating Income:
Americas$28,713 $35,717 $39,295 $32,968 $136,693 $20,318 $26,589 $26,200 $24,422 $97,529
EMEA 10,754 9,995 7,128 7,952 35,829 5,475 6,252 7,413 7,297 26,437
APAC 2,253 3,547 4,673 2,650 13,123 2,037 2,844 2,483 2,557 9,921
$41,720 $49,259 $51,096 $43,570 $185,645 $27,830 $35,685 $36,096 $34,276 $133,887
Adjustments (pre-tax):
Americas:
Equity-based compensation$4,472 $2,796 $3,773 $5,188 $16,229 $4,343 $4,927 5,303 $5,291 $19,864
Purchase amortization 107 108 108 107 430 107 108 107 108 430
Restructuring charge - 2,908 (77) (18) 2,813 - - - - -
$4,579 $5,812 $3,804 $5,277 $19,472 $4,450 $5,035 $5,410 $5,399 $20,294
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 $29,821 $117,823
EMEA 10,754 10,109 7,128 7,946 35,937 5,475 6,252 7,413 7,297 26,437
APAC 2,253 3,547 4,673 2,650 13,123 2,037 2,844 2,483 2,557 9,921
$46,299 $55,185 $54,900 $48,841 $205,225 $32,280 $40,720 $41,506 $39,675 $154,181

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 4th Qtr Full Year
Revenue$(1,547) $(1,219) $536 $1,820 $(410) $2,781 $1,699 $(581) $(1,068) $2,831
Costs and expenses (789) (396) 723 1,485 1,023 2,328 831 (1,177) (1,774) 208
Operating income (758) (823) (187) 335 (1,433) 453 868 596 706 2,623
Foreign currency gains (losses) in other income (646) (348) (81) (771) (1,846) 366 705 1,431 (1,185) 1,317
$(1,404) $(1,171) $(268) $(436) $(3,279) $819 $1,573 $2,027 $(479) $3,940

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 4th Qtr Full Year
Operating income$(70) $(326) $(338) $(345) $(1,079) $(360) $359 $828 $1,066 $1,893
Foreign currency gains (losses) in other income (320) (190) 71 (43) (482) 210 1,120 1,572 (1,074) 1,828
Total impact of changes in the Indian Rupee$(390) $(516) $(267) $(388) $(1,561) $(150) $1,479 $2,400 $(8) $3,721

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 4th Qtr Full Year
Interest income$293 $264 $314 $303 $1,174 $347 $241 $201 $278 $1,067
Foreign currency gains (losses) (646) (348) (81) (771) (1,846) 366 705 1,431 (1,185) 1,317
Other non-operating income (expense) (18) 16 (26) (112) (140) 8 40 (94) 6 (40)
Total other income (loss)$(371) $(68) $207 $(580) $(812) $721 $986 $1,538 $(901) $2,344

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 4th Qtr Full Year
Capital expenditures$789 $1,914 $1,194 $2,302 $6,199 $2,174 $1,881 $1,481 $1,770 $7,306

6. Stock Repurchase Activity (in thousands):

2017 2018
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year
Shares purchased under publicly-announced buy-back program 1,004 535 - 1,156 2,695 1,158 1,082 389 519 3,148
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 1,083 392 519 3,263
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 $24,757 $143,274
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 7 6,048
Total cash paid for shares repurchased$56,619 $25,001 $80 $50,007 $131,707 $55,815 $47,899 $20,844 $24,764 $149,322

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):

2017 2018
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year
Former Presentation:
Software license$22,773 $22,442 $18,794 $17,900 $81,909 $12,024 $18,350 $17,981 $20,117 $68,472
Services 108,833 116,828 115,555 110,394 451,610 111,701 115,051 116,911 116,256 459,919
Hardware and other 11,883 14,871 18,534 15,792 61,080 6,844 8,470 7,459 7,993 30,766
$143,489 $154,141 $152,883 $144,086 $594,599 $130,569 $141,871 $142,351 $144,366 $559,157
Cost of license$2,240 $2,355 $2,830 $3,169 $10,594 $3,982 $5,534 $5,789 $6,023 $21,328
Cost of services 49,743 47,751 44,750 43,053 185,297 50,348 49,475 50,984 52,093 202,900
Cost of hardware and other 9,638 12,207 15,492 12,505 49,842 3,464 4,072 4,413 4,704 16,653
$61,621 $62,313 $63,072 $58,727 $245,733 $57,794 $59,081 $61,186 $62,820 $240,881
New Presentation:
Cloud subscriptions (a)$1,496 $2,378 $2,534 $3,188 $9,596 $4,469 $5,377 $6,455 $6,803 $23,104
Software license 21,277 20,064 16,260 14,712 72,313 7,555 12,973 11,526 13,314 45,368
Maintenance 33,376 35,959 36,338 37,325 142,998 36,397 36,993 37,177 36,466 147,033
Services 79,781 85,327 84,211 77,183 326,502 78,757 82,267 84,136 84,525 329,685
Hardware 7,559 10,413 13,540 11,678 43,190 3,391 4,261 3,057 3,258 13,967
$143,489 $154,141 $152,883 $144,086 $594,599 $130,569 $141,871 $142,351 $144,366 $559,157
Cost of license$1,352 $1,438 $1,316 $1,377 $5,483 $1,308 $2,096 $1,211 $682 $5,297
Cost of cloud subscriptions, maintenance and services (b) 54,899 53,109 51,103 48,934 208,045 56,486 56,985 59,975 62,138 235,584
Cost of hardware 5,370 7,766 10,653 8,416 32,205 - - - - -
$61,621 $62,313 $63,072 $58,727 $245,733 $57,794 $59,081 $61,186 $62,820 $240,881

Reconciliation of Selected GAAP to Non-GAAP Measure:
2017 2018
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year
Former Presentation:
Cost of services$49,743 $47,751 $44,750 $43,053 $185,297 $50,348 $49,475 $50,984 $52,093 $202,900
Equity-based compensation (c) (1,141) (580) (875) (1,398) (3,994) (1,117) (1,556) (1,531) (1,583) (5,787)
Adjusted Cost of services$48,602 $47,171 $43,875 $41,655 $181,303 $49,231 $47,919 $49,453 $50,510 $197,113
New Presentation:
Cost of cloud subscriptions, maintenance and services (b)$54,899 $53,109 $51,103 $48,934 $208,045 $56,486 $56,985 $59,975 $62,138 $235,584
Equity-based compensation (c) (1,141) (580) (875) (1,398) (3,994) (1,117) (1,556) (1,531) (1,583) (5,787)
Adjusted Cost of cloud subscriptions, maintenance and services$53,758 $52,529 $50,228 $47,536 $204,051 $55,369 $55,429 $58,444 $60,555 $229,797
  1. Cloud subscriptions includes software as a service (“SaaS”) and arrangements that provide customers with the right to use our software within a cloud-based environment provided by and managed by us where the customer does not have the right to take possession of the software without significant penalties.
  2. Cost of cloud subscriptions, maintenance and services consists primarily of salaries and other personnel-related expenses of employees dedicated to cloud subscriptions; maintenance services; professional and technical services; and hosting fees.
  3. 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 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):

2017 2018
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year
Presentation of Hardware Revenue - Pre ASC 606 adoption:
Revenue
Hardware Revenue$7,559 $10,413 $13,540 $11,678 $43,190 $11,224 $16,252 $10,575 $11,863 $49,914
Cost of Revenue
Cost of Hardware (5,370) (7,766) (10,653) (8,416) (32,205) (7,833) (11,991) (7,518) (8,605) (35,947)
Hardware Revenue, net$2,189 $2,647 $2,887 $3,262 $10,985 $3,391 $4,261 $3,057 $3,258 $13,967
Proforma Presentation of Hardware Revenue - Post ASC 606 Using Full Retrospective Method:
Hardware Revenue$2,189 $2,647 $2,887 $3,262 $10,985 $3,391 $4,261 $3,057 $3,258 $13,967

9. Remaining Performance Obligations

Under the new revenue recognition standard, we now disclose revenue we expect to recognize from our remaining performance obligations. Our reported performance obligations primarily represent cloud subscriptions with a non-cancelable term greater than one year (including cloud deferred revenue as well as cloud amounts that will be invoiced and recognized as revenue in future periods). Our deferred revenue on the balance sheet primarily relates to our maintenance contracts, which are typically one year in duration and are not included in the remaining performance obligations. Below are our remaining performance obligations as of the end of each period (in thousands):

December 31, 2017 March 31, 2018 June 30, 2018 September 30, 2018 December 31, 2018
Remaining Performance Obligations$27,535 $33,999 $58,434 $64,175 $76,990

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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