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MANHATTAN ASSOCIATES INC - Quarter Report: 2020 June (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

[Mark One]

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

For the quarterly period ended June 30, 2020

OR

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

For the transition period from ____________ to ____________

Commission File Number:  0-23999

MANHATTAN ASSOCIATES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Georgia

 

 

58-2373424

(State or Other Jurisdiction of

Incorporation or Organization)

 

 

(I.R.S. Employer

Identification No.)

 

2300 Windy Ridge Parkway, Tenth Floor

 

 

 

Atlanta, Georgia

 

 

30339

(Address of Principal Executive Offices)

 

 

(Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (770) 955-7070

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common stock

MANH

Nasdaq Global Select Market

 

 

 

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

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging Growth Company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

 

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

The number of shares of the Registrant’s class of capital stock outstanding as of July 22, 2020, the latest practicable date, is as follows: 63,521,369 shares of common stock, $0.01 par value per share.

 

 


MANHATTAN ASSOCIATES, INC.

FORM 10-Q

Quarter Ended June 30, 2020

TABLE OF CONTENTS

PART I

 

 

Financial Information

 

 

 

 

Item 1.

Financial Statements.

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019

3

 

 

Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2020 and 2019 (unaudited)

4

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months and six months ended June 30, 2020 and 2019 (unaudited)

5

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (unaudited)

6

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months and six months ended June 30, 2020 and 2019 (unaudited)

7

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

8

 

 

Item 2.

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

15

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

28

 

 

 

Item 4.

Controls and Procedures.

28

 

 

 

 

PART II

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings.

29

 

 

 

Item 1A.

Risk Factors.

29

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

29

 

 

 

Item 3.

Defaults Upon Senior Securities.

29

 

 

 

Item 4.

Mine Safety Disclosures.

29

 

 

 

Item 5.

Other Information.

29

 

 

 

Item 6.

Exhibits.

30

 

 

 

Signatures.

31

 

 

 

 

2


PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

123,638

 

 

$

110,678

 

Accounts receivable, net of allowance of $4,078 and $2,826, at June 30, 2020 and December 31, 2019, respectively

 

 

108,099

 

 

 

100,937

 

Prepaid expenses and other current assets

 

 

20,022

 

 

 

20,426

 

Total current assets

 

 

251,759

 

 

 

232,041

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

19,458

 

 

 

22,725

 

Operating lease right-of-use assets

 

 

31,791

 

 

 

35,896

 

Goodwill, net

 

 

62,237

 

 

 

62,237

 

Deferred income taxes

 

 

2,529

 

 

 

6,814

 

Other assets

 

 

12,615

 

 

 

12,566

 

Total assets

 

$

380,389

 

 

$

372,279

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

16,262

 

 

$

20,561

 

Accrued compensation and benefits

 

 

27,779

 

 

 

45,991

 

Accrued and other liabilities

 

 

19,184

 

 

 

19,325

 

Deferred revenue

 

 

118,795

 

 

 

94,371

 

Income taxes payable

 

 

1,401

 

 

 

1,348

 

Total current liabilities

 

 

183,421

 

 

 

181,596

 

 

 

 

 

 

 

 

 

 

Operating lease liabilities, long-term

 

 

28,431

 

 

 

32,416

 

Other non-current liabilities

 

 

15,759

 

 

 

15,989

 

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, no par value; 20,000,000 shares authorized, no shares issued or outstanding in 2020 and 2019

 

 

-

 

 

 

-

 

Common stock, $0.01 par value; 200,000,000 shares authorized; 63,518,968 and 63,456,986 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

635

 

 

 

635

 

Retained earnings

 

 

173,125

 

 

 

159,490

 

Accumulated other comprehensive loss

 

 

(20,982

)

 

 

(17,847

)

Total shareholders' equity

 

 

152,778

 

 

 

142,278

 

Total liabilities and shareholders' equity

 

$

380,389

 

 

$

372,279

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

3


Item 1.

Financial Statements (continued)

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(in thousands, except per share amounts)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cloud subscriptions

 

$

18,503

 

 

$

9,009

 

 

$

35,763

 

 

$

16,868

 

Software license

 

 

5,681

 

 

 

11,721

 

 

 

15,416

 

 

 

24,135

 

Maintenance

 

 

35,898

 

 

 

37,323

 

 

 

71,642

 

 

 

73,422

 

Services

 

 

71,778

 

 

 

93,951

 

 

 

159,184

 

 

 

182,582

 

Hardware

 

 

3,770

 

 

 

2,337

 

 

 

7,528

 

 

 

5,738

 

Total revenue

 

 

135,630

 

 

 

154,341

 

 

 

289,533

 

 

 

302,745

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of software license

 

 

591

 

 

 

623

 

 

 

1,146

 

 

 

1,215

 

Cost of cloud subscriptions, maintenance and services

 

 

62,434

 

 

 

70,955

 

 

 

136,710

 

 

 

137,533

 

Research and development

 

 

19,931

 

 

 

21,997

 

 

 

43,259

 

 

 

43,210

 

Sales and marketing

 

 

9,709

 

 

 

14,520

 

 

 

22,797

 

 

 

29,301

 

General and administrative

 

 

14,016

 

 

 

16,805

 

 

 

30,130

 

 

 

31,855

 

Depreciation and amortization

 

 

2,257

 

 

 

1,859

 

 

 

4,603

 

 

 

3,773

 

Total costs and expenses

 

 

108,938

 

 

 

126,759

 

 

 

238,645

 

 

 

246,887

 

Operating income

 

 

26,692

 

 

 

27,582

 

 

 

50,888

 

 

 

55,858

 

Other (loss) income, net

 

 

(158

)

 

 

(71

)

 

 

1,262

 

 

 

(442

)

Income before income taxes

 

 

26,534

 

 

 

27,511

 

 

 

52,150

 

 

 

55,416

 

Income tax provision

 

 

7,330

 

 

 

6,586

 

 

 

10,416

 

 

 

13,519

 

Net income

 

$

19,204

 

 

$

20,925

 

 

$

41,734

 

 

$

41,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.30

 

 

$

0.32

 

 

$

0.66

 

 

$

0.65

 

Diluted earnings per share

 

$

0.30

 

 

$

0.32

 

 

$

0.65

 

 

$

0.64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

63,509

 

 

 

64,623

 

 

 

63,550

 

 

 

64,765

 

Diluted

 

 

64,126

 

 

 

65,093

 

 

 

64,234

 

 

 

65,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

4


Item 1.

Financial Statements (continued)

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(in thousands)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Net income

 

$

19,204

 

 

$

20,925

 

 

$

41,734

 

 

$

41,897

 

Foreign currency translation adjustment

 

 

336

 

 

 

(22

)

 

 

(3,135)

 

 

 

237

 

Comprehensive income

 

$

19,540

 

 

$

20,903

 

 

$

38,599

 

 

$

42,134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

5


 

Item 1.

Financial Statements (continued)

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

(unaudited)

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

41,734

 

 

$

41,897

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,603

 

 

 

3,773

 

Equity-based compensation

 

 

15,056

 

 

 

15,644

 

Loss (gain) on disposal of equipment

 

 

10

 

 

 

(121

)

Deferred income taxes

 

 

4,234

 

 

 

272

 

Unrealized foreign currency (gain) loss

 

 

(741

)

 

 

156

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(7,469

)

 

 

(312

)

Other assets

 

 

(619

)

 

 

(6,144

)

Accounts payable, accrued and other liabilities

 

 

(21,787

)

 

 

4,238

 

Income taxes

 

 

568

 

 

 

(3,145

)

Deferred revenue

 

 

24,799

 

 

 

16,149

 

Net cash provided by operating activities

 

 

60,388

 

 

 

72,407

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(1,752

)

 

 

(3,305

)

Net maturities of investments

 

 

-

 

 

 

1,439

 

Net cash used in investing activities

 

 

(1,752

)

 

 

(1,866

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Purchase of common stock

 

 

(43,155

)

 

 

(50,238

)

Net cash used in financing activities

 

 

(43,155

)

 

 

(50,238

)

 

 

 

 

 

 

 

 

 

Foreign currency impact on cash

 

 

(2,521

)

 

 

(28

)

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

12,960

 

 

 

20,275

 

Cash and cash equivalents at beginning of period

 

 

110,678

 

 

 

99,126

 

Cash and cash equivalents at end of period

 

$

123,638

 

 

$

119,401

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

6


Item 1.

Financial Statements (continued)

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

For the Three Months Ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2020 (unaudited)

 

 

63,495,687

 

 

$

635

 

 

$

-

 

 

$

146,552

 

 

$

(21,318

)

 

$

125,869

 

Repurchase of common stock

 

 

(1,829

)

 

 

-

 

 

 

(7,492

)

 

 

7,369

 

 

 

-

 

 

 

(123

)

Restricted stock units issuance

 

 

25,110

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Equity-based compensation

 

 

-

 

 

 

-

 

 

 

7,492

 

 

 

-

 

 

 

-

 

 

 

7,492

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

336

 

 

 

336

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19,204

 

 

 

-

 

 

 

19,204

 

Balance, June 30, 2020 (unaudited)

 

 

63,518,968

 

 

$

635

 

 

$

-

 

 

$

173,125

 

 

$

(20,982

)

 

$

152,778

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019 (audited)

 

 

63,456,986

 

 

$

635

 

 

$

-

 

 

$

159,490

 

 

$

(17,847

)

 

$

142,278

 

Repurchase of common stock

 

 

(557,938

)

 

 

(6

)

 

 

(15,050

)

 

 

(28,099

)

 

 

-

 

 

 

(43,155

)

Restricted stock units issuance

 

 

619,920

 

 

 

6

 

 

 

(6

)

 

 

-

 

 

 

-

 

 

 

-

 

Equity-based compensation

 

 

-

 

 

 

-

 

 

 

15,056

 

 

 

-

 

 

 

-

 

 

 

15,056

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,135

)

 

 

(3,135

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

41,734

 

 

 

-

 

 

 

41,734

 

Balance, June 30, 2020 (unaudited)

 

 

63,518,968

 

 

$

635

 

 

$

-

 

 

$

173,125

 

 

$

(20,982

)

 

$

152,778

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2019 (unaudited)

 

 

64,593,909

 

 

$

646

 

 

$

-

 

 

$

161,356

 

 

$

(16,602

)

 

$

145,400

 

Repurchase of common stock

 

 

(303,292

)

 

 

(3

)

 

 

(8,462

)

 

 

(11,613

)

 

 

-

 

 

 

(20,078

)

Restricted stock units issuance

 

 

31,450

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Equity-based compensation

 

 

-

 

 

 

-

 

 

 

8,462

 

 

 

-

 

 

 

-

 

 

 

8,462

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22

)

 

 

(22

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,925

 

 

 

-

 

 

 

20,925

 

Balance, June 30, 2019 (unaudited)

 

 

64,322,067

 

 

$

643

 

 

$

-

 

 

$

170,668

 

 

$

(16,624

)

 

$

154,687

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018 (audited)

 

 

64,860,419

 

 

$

649

 

 

$

-

 

 

$

163,359

 

 

$

(16,861

)

 

$

147,147

 

Repurchase of common stock

 

 

(873,198

)

 

 

(9

)

 

 

(15,641

)

 

 

(34,588

)

 

 

-

 

 

 

(50,238

)

Restricted stock units issuance

 

 

334,846

 

 

 

3

 

 

 

(3

)

 

 

-

 

 

 

-

 

 

 

-

 

Equity-based compensation

 

 

-

 

 

 

-

 

 

 

15,644

 

 

 

-

 

 

 

-

 

 

 

15,644

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

237

 

 

 

237

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

41,897

 

 

 

-

 

 

 

41,897

 

Balance, June 30, 2019 (unaudited)

 

 

64,322,067

 

 

$

643

 

 

$

-

 

 

$

170,668

 

 

$

(16,624

)

 

$

154,687

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.


 

7


 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.

Basis of Presentation and Principles of Consolidation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Manhattan Associates, Inc. and its subsidiaries (the “Company,” “we,” “us,” “our,” or “Manhattan”) have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information, with the instructions to Form 10-Q and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, these condensed consolidated financial statements contain all normal recurring adjustments considered necessary for a fair presentation of our financial position at June 30, 2020, the results of operations for the three and six months ended June 30, 2020 and 2019, and cash flows for the six months ended June 30, 2020 and 2019. The results for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year or any other interim period. These statements should be read in conjunction with our audited consolidated financial statements and management’s discussion and analysis included in our annual report on Form 10-K for the year ended December 31, 2019.

Principles of Consolidation

The accompanying condensed consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

New Accounting Pronouncements Adopted in Fiscal Year 2020

Credit Impairment

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including trade receivables. ASU No. 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. This guidance is effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted.

On January 1, 2020, we adopted ASU 2016-13 using the modified retrospective method applied for all financial assets measured at amortized cost. Our analysis involved utilizing a model of internal historical losses data. In estimating the allowance for credit losses, we considered the age of the accounts receivable, our historical write-offs, and the historical creditworthiness of the customer, among other factors. Should any of these factors change, the estimates made by us will also change accordingly, which could affect the level of our future allowances. We also analyzed future expected credit losses given ever present changes to future risks in projected economic conditions and future risks of customer collection. The net impact of the adoption of ASU 2016-13 was immaterial on our consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes and changes in tax laws or rates, as well as clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for the Company beginning January 1, 2021 and would require us to recognize a cumulative effect adjustment to the opening balance of reinvested earnings, if applicable. We do not expect our adoption of this guidance to have a material impact on our consolidated financial statements.

2.

Revenue Recognition

We recognize revenue when we transfer control of the promised products or services to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services. We derive our revenue from software licenses, cloud subscriptions, customer support services and software enhancements (“maintenance”), implementation and training services, and sales of hardware. We exclude sales and usage-based taxes from revenue.

Nature of Products and Services

Our perpetual software licenses provide the customer with a right to use the software as it exists at the time of purchase. We recognize revenue for distinct software licenses once the license period has begun and we have made the software available to the customer.

 

8


 

Cloud subscriptions includes software as a service (SaaS) and arrangements which provide customers with the right to use our software within a cloud-based environment that we provide and manage where the customer does not have the right to take possession of the software without significant penalty. SaaS and hosting revenues are recognized ratably over the contract period. For contracts that include a perpetual license and hosting services, we generally consider the arrangement as an overall service, recognized over the initial hosting term. The software license fee typically due at the outset of the arrangement is not payable again if the customer renews the hosting services, so that the customer’s option to renew the hosting services is a material right, the revenue from which, if the option is exercised, we will recognize over the applicable renewal period.

Our perpetual software licenses are typically sold with maintenance under which we provide a comprehensive 24 hours per day, 365 days per year program that provides customers with software upgrades, when and if available, which include additional or improved functionality and technological advances incorporating emerging supply chain and industry initiatives. Revenue related to maintenance is generally paid in advance and recognized ratably over the term of the agreement, typically twelve months.

Our services revenue consists of fees generated from implementation, training, and application managed services, including reimbursements of out-pocket expenses in connection with our implementation services. Implementation services include system planning, design, configuration, testing, and other software implementation support, and are typically optional and distinct from our software. Following implementation, customers may purchase application managed services to support and maintain our software. Fees for our services are separately priced and are generally billed on an hourly basis, and revenue is recognized over time as the services are performed. In certain situations, we render professional services under agreements based upon a fixed fee for portions of or all of the engagement. Revenue related to fixed-fee-based services contracts is recognized over time based on the proportion performed.

As part of a complete solution, our customers periodically purchase hardware products developed and manufactured by third parties from us for use with the software licenses purchased from us. These products include computer hardware, radio frequency terminal networks, radio frequency identification (RFID) chip readers, bar code printers and scanners, and other peripherals. As we do not physically control the hardware that we sell, we are acting as an agent in the transaction and recognize our hardware revenue net of related cost. We recognize hardware revenue when control is transferred to the customer upon shipment.

Significant Judgements

Our contracts with customers typically contain promises to transfer multiple products and services to a customer. Judgement is required to determine whether each product and service is considered to be a distinct performance obligation that should be accounted for separately under the contract. We allocate the transaction price to the distinct performance obligations based on relative standalone selling price (SSP). We estimate SSP based on the prices charged to customers, or by using information such as market conditions and other observable inputs. However, the selling price of our software licenses is highly variable. Thus, we estimate SSP for software licenses using the residual approach, determined based on total transaction price less the SSP of other goods and services promised in the contract.

Contract Balances

Timing of invoicing to customers may differ from timing of revenue recognition. Payment terms for our software licenses vary. We have an established history of collecting under the terms of our software license contracts without providing refunds or concessions to our customers. Cloud subscriptions and maintenance are typically billed annually in advance. Services are typically billed monthly as performed. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with predictable ways to purchase our software and services, not to provide or receive financing. Additionally, we are applying the practical expedient to exclude from consideration any contracts with payment terms of one year or less as we rarely offer terms extending beyond one year.

Deferred revenue mainly represents amounts collected prior to having completed performance of maintenance, cloud subscriptions and professional services. In the three and six months ended June 30, 2020, we recognized $27.1 million and $69.4 million of revenue that was included in the deferred revenue balance as of December 31, 2019. In the three months ended June 30, 2020, we recognized $45.9 million of revenue that was included in the deferred revenue balance as of March 31, 2020.

No revenue was recognized during the three and six months ended June 30, 2020 from performance obligations that were satisfied in prior periods.

Remaining Performance Obligations

As of June 30, 2020, approximately $225.5 million of revenue is expected to be recognized from remaining performance obligations for cloud subscriptions, maintenance contracts, and application managed services with a non-cancelable term greater than 1 year (including deferred revenue as well as amounts that will be invoiced and recognized as revenue in future periods).  We expect to recognize revenue on approximately 50% of these remaining performance obligations over the next 24 months with the balance

 

9


 

recognized thereafter.  We have elected not to provide disclosures regarding remaining performance obligations for contracts with a term of 1 year or less.

Returns and Allowances

We have not experienced significant returns or warranty claims to date and, as a result, have not recorded a provision for the cost of returns and product warranty claims.

We record an allowance for doubtful accounts based on historical experience of write-offs and a detailed assessment of accounts receivable. Additions to the allowance for credit losses generally represent a sales allowance on services revenue, which are recorded to operations as a reduction to services revenue. The total amount charged to operations was $1.4 million and $0.9 million for the three months ended June 30, 2020 and 2019, respectively, and $2.7 million and $1.8 million for the six months ended June 30, 2020 and 2019, respectively.

Our analysis involved utilizing a model of internal historical losses data. In estimating the allowance for credit losses, we considered the age of the accounts receivable, our historical write-offs, and the historical creditworthiness of the customer, among other factors. Should any of these factors change, the estimates made by us will also change accordingly, which could affect the level of our future allowances. We also analyzed future expected credit losses given ever present changes to future risks in projected economic conditions and future risks of customer collection.

Deferred Commissions

We consider sales commissions to be incremental costs of obtaining a contract with a customer. We defer and recognize an asset for sales commissions related to performance obligations with an expected period of benefit of more than one year. We apply the practical expedient to expense sales commissions when the amortization period would have been one year or less. Deferred commissions were $10.5 million as of June 30, 2020, of which $7.5 million is included in other assets and $3.0 million is included in prepaid expenses and other current assets. Sales commission expense is included in Sales and Marketing expense in the accompanying Consolidated Statements of Income. Amortization of sales commissions was $0.7 million and $0.4 million for the three months ended June 30, 2020 and 2019, respectively, and $1.4 million and $0.8 million for the six months ended June 30, 2020 and 2019, respectively. No impairment losses were recognized during the periods.

 

3.

Fair Value Measurement

We measure our investments based on a fair value hierarchy disclosure framework that prioritizes and ranks the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is affected by a number of factors, including the type of asset or liability and its characteristics.  This hierarchy prioritizes the inputs into three broad levels as follows:

 

Level 1–Quoted prices in active markets for identical instruments.

 

Level 2–Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

 

Level 3–Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Investments with maturities of 90 days or less from the date of purchase are classified as cash equivalents; investments with maturities of greater than 90 days from the date of purchase but less than one year are generally classified as short-term investments; and investments with maturities of one year or greater from the date of purchase are generally classified as long-term investments.  Unrealized holding gains and losses are reflected as a net amount in a separate component of shareholders’ equity until realized.  For the purposes of computing realized gains and losses, cost is determined on a specific identification basis.

At June 30, 2020, our cash and cash equivalents were $113.1 million and $10.5 million, respectively. We had neither short-term investments nor long-term investments at June 30, 2020. Cash equivalents consist of highly liquid money market funds. For money market funds, we use quoted prices from active markets that are classified at Level 1, the highest level of observable input in the disclosure hierarchy framework. We had no investments classified at Level 2 or Level 3 at June 30, 2020.

 


 

10


 

4.

Leases

We lease our facilities and some of our equipment under noncancelable operating lease arrangements that expire at various dates through 2029. For a few of our facility leases, we have certain options to extend the lease term for up to 10 years, at our sole discretion. We have no finance leases.

 

We present below the operating lease right-of-use assets and lease liabilities as of June 30, 2020 (in thousands):

 

 

 

 

 

 

 

June 30, 2020

 

ASSETS

 

 

 

 

Operating lease right-of-use assets

 

$

31,791

 

 

 

 

 

 

LIABILITIES

 

 

 

 

Operating lease liabilities, current (included in accrued and other liabilities)

 

$

6,554

 

Operating lease liabilities, long-term

 

 

28,431

 

Total operating lease liabilities

 

$

34,985

 

 

 

 

 

 

 

Aggregate future minimum lease payments under noncancelable operating leases as of June 30, 2020 are as follows (in thousands):

 

Year Ending December 31,

 

 

 

 

2020 (excluding the six months ended June 30, 2020)

 

$

3,370

 

2021

 

 

6,777

 

2022

 

 

6,286

 

2023

 

 

6,439

 

2024

 

 

6,252

 

Thereafter

 

 

13,091

 

Total minimum payments required

 

 

42,215

 

Less short-term leases

 

 

-

 

Less imputed interest

 

 

(7,230

)

Total operating lease liabilities

 

$

34,985

 

 

The total lease cost for the three and six months ended June 30, 2020 was $2.0 and $4.0 million, respectively. Total lease cost for the three months ended June 30, 2020 consisted of $1.9 million of operating lease costs, and $0.1 million of short-term lease costs. For the six months ended June 30, 2020, total lease cost consisted of $3.8 million of operating lease costs, and $0.2 of short-term lease costs.

Total lease costs for the three and six months ended June 30, 2019 was $2.2 million and $4.2 million, respectively. Total lease cost for the three months ended June 30, 2019 consisted of $2.1 million of operating lease costs, and $0.1 million of short-term lease costs. For the six months ended June 30, 2019, total lease cost consisted of $4.0 million of operating lease cost, and $0.2 million of short-term lease costs.  

Our variable lease costs for the three and six months ended June 30, 2020 and 2019 were immaterial.

 

Other information related to operating leases are as follows:

 

Weighted average remaining lease term

 

6.4 years

 

Weighted average discount rate

 

 

4

%

Supplemental cash flow information - operating cash flows (in thousands):

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

Operating cash flows for operating leases

 

$

3,673

 

 

5.

Equity-Based Compensation

We granted 20,834 and 26,512 restricted stock units (RSUs) during the three months ended June 30, 2020 and 2019, respectively, and granted 532,467 and 938,731 RSUs during the six months ended June 30, 2020 and 2019, respectively. Equity-based

 

11


 

compensation expense related to RSUs was $7.5 million and $8.5 million during the three months ended June 30, 2020 and 2019, respectively, and $15.1 million and $15.6 million during the six months ended June 30, 2020 and 2019, respectively.

We present below a summary of changes during the six months ended June 30, 2020 in our unvested units of restricted stock:

 

 

 

Number of shares/units

 

Outstanding at December 31, 2019

 

 

1,496,693

 

Granted

 

 

532,467

 

Vested

 

 

(505,986

)

Forfeited

 

 

(26,839

)

Outstanding at June 30, 2020

 

 

1,496,335

 

 

6.

Income Taxes

Our effective tax rate was 27.6% and 23.9% for the three months ended June 30, 2020 and 2019, respectively, and 20.0% and 24.4% for the six months ended June 30, 2020 and 2019, respectively. The increase in the effective tax rate for the three months ended June 30, 2020 is due to an increase in non-deductible equity-based compensation, reduction in expected business credits and deductions, and a decrease of $0.1 million in excess tax benefits on restricted stock vestings. The decrease in the effective tax rate for the six months ended June 30, 2020 is due to an increase of $3.7 million in excess tax benefits on restricted stock vestings, partially offset by an increase in non-deductible equity-based compensation, and reduction in expected business credits and deductions.

We apply the provisions for income taxes related to, among other things, accounting for uncertain tax positions and disclosure requirements in accordance with Accounting Standards Classification (ASC) 740, Income Taxes. For the three months ended June 30, 2020, there were no material changes to our uncertain tax positions. There has been no change to our policy that recognizes potential interest and penalties related to uncertain tax positions within our global operations in income tax expense.

We conduct business globally and, as a result, file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, Manhattan is subject to examination by taxing authorities throughout the world.  We are no longer subject to the U.S. federal, substantially all state and local income tax examinations and substantially all non-U.S. income tax examinations for years before 2012.

 

7.

Basic and Diluted Net Income Per Share

Basic net income per share is computed using net income divided by the weighted average number of shares of common stock outstanding (“Weighted Shares”) for the period presented.

Diluted net income per share is computed using net income divided by Weighted Shares and the treasury stock method effect of common equivalent shares (CESs) outstanding for each period presented.

In the following table, we present a reconciliation of earnings per share and the shares used in the computation of earnings per share for the three and six months ended June 30, 2020 and 2019 (in thousands, except per share data):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in thousands, except per share data)

 

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

19,204

 

 

$

20,925

 

 

$

41,734

 

 

$

41,897

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.30

 

 

$

0.32

 

 

$

0.66

 

 

$

0.65

 

Effect of CESs

 

 

-

 

 

 

-

 

 

 

(0.01

)

 

 

(0.01

)

Diluted

 

$

0.30

 

 

$

0.32

 

 

$

0.65

 

 

$

0.64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

63,509

 

 

 

64,623

 

 

 

63,550

 

 

 

64,765

 

Effect of CESs

 

 

617

 

 

 

470

 

 

 

684

 

 

 

383

 

Diluted

 

 

64,126

 

 

 

65,093

 

 

 

64,234

 

 

 

65,148

 

 

The number of anti-dilutive CESs during the three and six months ended June 30, 2020 and 2019 was immaterial.

 

 

12


 

8.

Contingencies

From time to time, we may be involved in litigation relating to claims arising out of the ordinary course of business, and occasionally legal proceedings not in the ordinary course. Many of our installations involve products that are critical to the operations of our clients’ businesses. Any failure in a company’s product could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although we attempt to limit contractually our liability for damages arising from product failures or negligent acts or omissions, there can be no assurance that the limitations of liability set forth in our contracts will be enforceable in all instances. We are not currently a party to any legal proceedings in the ordinary course of business or other legal proceedings the result of which we believe is likely to have a material adverse impact on our business, financial position, results of operations, or cash flows. We expense legal costs associated with loss contingencies as such legal costs are incurred.

9.

Operating Segments

We manage our business by geographic region and have three geographic reportable segments: North and Latin America (the “Americas”); Europe, the Middle East and Africa (EMEA); and Asia Pacific (APAC). All segments derive revenue from the sale and implementation of our supply chain commerce solutions.  The individual products sold by the segments are similar in nature and are all designed to help companies manage the effectiveness and efficiency of their supply chain commerce. We use the same accounting policies for each reportable segment. The chief executive officer and chief financial officer evaluate performance based on revenue and operating results for each reportable segment.

The Americas segment charges royalty fees to the other segments based on software licenses and cloud subscriptions sold by those reportable segments. The royalties, which totaled approximately $0.8 million and $1.1 million for the three months ended June 30, 2020 and 2019, respectively, and $1.5 million and $2.8 million for the six months ended June 30, 2020 and 2019, respectively, are included in costs of revenue for each segment with a corresponding reduction in the Americas segment’s cost of revenue. The revenues represented below are from external customers only. The geography-based costs consist of costs for professional services personnel, direct sales and marketing expenses, infrastructure costs to support the employee and customer base, billing and financial systems, management and general and administrative support.  Certain corporate expenses included in the Americas segment are not charged to the other segments.  Such expenses include research and development, certain marketing and general and administrative costs that support the global organization, and the amortization of acquired developed technology. Costs in the Americas segment include all research and development costs, including the costs associated with our operations in India.

In accordance with the segment reporting topic of the FASB Accounting Standards Codification, we present below certain financial information by reportable segment for the three and six months ended June 30, 2020 and 2019 (in thousands):

 

 

 

 

Three Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cloud subscriptions

 

$

16,345

 

 

$

1,811

 

 

$

347

 

 

$

18,503

 

 

$

7,684

 

 

$

1,124

 

 

$

201

 

 

$

9,009

 

Software license

 

 

3,853

 

 

 

415

 

 

 

1,413

 

 

 

5,681

 

 

 

8,152

 

 

 

2,877

 

 

 

692

 

 

 

11,721

 

Maintenance

 

 

28,211

 

 

 

5,591

 

 

 

2,096

 

 

 

35,898

 

 

 

29,304

 

 

 

5,633

 

 

 

2,386

 

 

 

37,323

 

Services

 

 

55,189

 

 

 

13,741

 

 

 

2,848

 

 

 

71,778

 

 

 

74,301

 

 

 

15,409

 

 

 

4,241

 

 

 

93,951

 

Hardware

 

 

3,770

 

 

 

-

 

 

 

-

 

 

 

3,770

 

 

 

2,337

 

 

 

-

 

 

 

-

 

 

 

2,337

 

    Total revenue

 

 

107,368

 

 

 

21,558

 

 

 

6,704

 

 

 

135,630

 

 

 

121,778

 

 

 

25,043

 

 

 

7,520

 

 

 

154,341

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

46,749

 

 

 

12,746

 

 

 

3,530

 

 

 

63,025

 

 

 

55,512

 

 

 

12,543

 

 

 

3,523

 

 

 

71,578

 

Operating expenses

 

 

39,625

 

 

 

3,095

 

 

 

936

 

 

 

43,656

 

 

 

47,835

 

 

 

4,253

 

 

 

1,234

 

 

 

53,322

 

Depreciation and amortization

 

 

2,010

 

 

 

202

 

 

 

45

 

 

 

2,257

 

 

 

1,605

 

 

 

190

 

 

 

64

 

 

 

1,859

 

Total costs and expenses

 

 

88,384

 

 

 

16,043

 

 

 

4,511

 

 

 

108,938

 

 

 

104,952

 

 

 

16,986

 

 

 

4,821

 

 

 

126,759

 

Operating income

 

$

18,984

 

 

$

5,515

 

 

$

2,193

 

 

$

26,692

 

 

$

16,826

 

 

$

8,057

 

 

$

2,699

 

 

$

27,582

 

 

13


 

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cloud subscriptions

 

$

31,588

 

 

$

3,299

 

 

$

876

 

 

$

35,763

 

 

$

14,604

 

 

$

1,868

 

 

$

396

 

 

$

16,868

 

Software license

 

 

12,303

 

 

 

1,439

 

 

 

1,674

 

 

 

15,416

 

 

 

14,280

 

 

 

8,922

 

 

 

933

 

 

 

24,135

 

Maintenance

 

 

56,671

 

 

 

10,762

 

 

 

4,209

 

 

 

71,642

 

 

 

58,405

 

 

 

10,524

 

 

 

4,493

 

 

 

73,422

 

Services

 

 

122,438

 

 

 

30,360

 

 

 

6,386

 

 

 

159,184

 

 

 

143,624

 

 

 

30,017

 

 

 

8,941

 

 

 

182,582

 

Hardware

 

 

7,514

 

 

 

11

 

 

 

3

 

 

 

7,528

 

 

 

5,738

 

 

 

-

 

 

 

-

 

 

 

5,738

 

    Total revenue

 

 

230,514

 

 

 

45,871

 

 

 

13,148

 

 

 

289,533

 

 

 

236,651

 

 

 

51,331

 

 

 

14,763

 

 

 

302,745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

104,096

 

 

 

26,770

 

 

 

6,990

 

 

 

137,856

 

 

 

106,267

 

 

 

25,415

 

 

 

7,066

 

 

 

138,748

 

Operating expenses

 

 

87,053

 

 

 

6,865

 

 

 

2,268

 

 

 

96,186

 

 

 

92,235

 

 

 

9,752

 

 

 

2,379

 

 

 

104,366

 

Depreciation and amortization

 

 

4,099

 

 

 

408

 

 

 

96

 

 

 

4,603

 

 

 

3,272

 

 

 

373

 

 

 

128

 

 

 

3,773

 

Total costs and expenses

 

 

195,248

 

 

 

34,043

 

 

 

9,354

 

 

 

238,645

 

 

 

201,774

 

 

 

35,540

 

 

 

9,573

 

 

 

246,887

 

Operating income

 

$

35,266

 

 

$

11,828

 

 

$

3,794

 

 

$

50,888

 

 

$

34,877

 

 

$

15,791

 

 

$

5,190

 

 

$

55,858

 

 

The majority of our software license revenue relates to our warehouse management product group (over 80%) for the three and six months ended June 30, 2020. Cloud subscriptions revenue primarily relates to our Manhattan Active omnichannel and transportation management solutions for the three and six months ended June 30, 2020.

At June 30, 2020, total assets for the Americas, EMEA and APAC segments were $325.5 million, $42.6 million and $12.3 million, respectively.

 

 

 

14


 

Item 2.

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

The following discussion should be read in conjunction with the condensed consolidated financial statements for the three and six months ended June 30, 2020 and 2019, including the notes to those statements, included elsewhere in this quarterly report. We also recommend the following discussion be read in conjunction with management’s discussion and analysis and consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2019. Statements in the following discussion that are not statements of historical fact are “forward-looking statements.” Actual results may differ materially from the results predicted in such forward-looking statements, for a variety of factors.  See “Forward-Looking Statements” below.

References in this filing to the “Company,” “Manhattan,” “Manhattan Associates,” “we,” “our,” and “us” refer to Manhattan Associates, Inc., our predecessors, and our wholly owned and consolidated subsidiaries.

Business Overview

We develop, sell, deploy, service and maintain software solutions designed to manage supply chains, inventory and omnichannel operations for retailers, wholesalers, manufacturers, logistics providers and other organizations. Our customers include many of the world’s most premier and profitable brands.

Our business model is singularly focused on the development and implementation of complex commerce enablement software solutions that are designed to optimize supply chains, and retail store operations including point of sale effectiveness and efficiency for our customers.

We have five principal sources of revenue:

 

cloud subscriptions, including software as a service (SaaS) and hosting of software;

 

licenses of our software;

 

customer support services and software enhancements (collectively, “maintenance”);

 

professional services, including solutions planning and implementation, related consulting, customer training, and reimbursements from customers for out-of-pocket expenses (collectively, “services”); and

 

hardware sales.

In the three and six months ended June 30, 2020, we generated $135.6 million and $289.5 million in total revenue, respectively. The revenue mix for the three months ended June 30, 2020 was: cloud subscriptions 14%; software license 4%; maintenance 26%; services 53%; and hardware 3%. The revenue mix for the six months ended June 30, 2020 was: cloud subscriptions 12%; software license 5%; maintenance 25%; services 55%; and hardware 3%.

We have three geographic reportable segments: North and Latin America (the “Americas”), Europe, the Middle East and Africa (EMEA), and Asia-Pacific (APAC). Geographic revenue is based on the location of the sale. Our international revenue was approximately $44.3 million and $89.3 million for the three and six months ended June 30, 2020, respectively, which represents approximately 33% and 31% of our total revenue for the three and six months ended June 30, 2020, respectively. International revenue includes all revenue derived from sales to customers outside the United States. At June 30, 2020, we employed approximately 3,500 employees worldwide. We have offices in Australia, Chile, China, France, Germany, India, Italy, Japan, the Netherlands, Singapore, Spain, the United Kingdom, and the United States, as well as representatives in Mexico and reseller partnerships in Latin America, Eastern Europe, the Middle East, South Africa, and Asia.

Future Expectations

Regarding the impact of the novel coronavirus disease (“COVID-19”) pandemic, we remain cautious about the global recovery, which we expect to be slow and protracted. At mid-year, we are experiencing solid demand for our cloud-based supply chain and omnichannel commerce solutions and our competitive win rates remain strong. In May, we launched Manhattan Active Warehouse Management, the next generation of Warehouse Management. We have rearchitected our warehouse management solution from the ground up as a cloud native, microservices based, versionless application. The reception has exceeded our expectations and pipeline opportunities are building. Our solutions are mission critical, supporting large and complex, global supply chains. While we expect demand to continue to grow for our Cloud solutions, sales cycles will likely extend as customers and prospects contend with the COVID-19 pandemic while evaluating our solutions. Our Professional Services business revenue through the first half of 2020 is down approximately 13% as clients delay projects due to COVID-19. We have had no notable cancellations in 2020. For the second half, we expect Services revenue to decline, driven by COVID-19 impacts to customers, as well as our traditional retail peak season impact, which typically occurs in the fourth quarter. Therefore, we have taken a conservative approach and proactive measures to position our company for uncertainty in the near-term while maintaining flexibility to extend our market-leading position when a normalization of business activity resumes.

 

15


 

We have taken steps to best ensure the health and safety of our employees globally.  Our daily execution has evolved into a largely virtual model, and we continue to find innovative ways to engage with customers and prospects, ensuring that they are supported as they navigate their way through this period.  

As previously announced, effective April 1, 2020, we reduced the salaries of the chief executive officer and the fees of the board of directors by 25%; we reduced the salary of the chief financial officer by 15% and other named executive officers by 10%; we suspended our share repurchase program; and we suspended our 401k plan company match. We are aggressively managing operating expenses globally, including by instituting a partial hiring freeze.

Importantly, these expense reductions will not materially impact our ability to support our customers or make key investments in research and development to further extend our competitive positioning. We will continue to actively monitor the situation and may take further actions that modify our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, and partners.

Going forward, we are investing significantly in our transition to a cloud business, including enterprise investments in innovation, and strategic operating expenses to support growth objectives. Our pace of investment and timing combined with global macroeconomic conditions and disruptions related to COVID-19 as a whole, have impacted and may continue to impact revenue and earnings growth, based on timing of recovery. The pace at which the market for our products transitions from perpetual license to cloud subscriptions, resulting in revenue recognition spread out over the subscription period rather than up front, combined with extended lead times for developing new business, can cause uncertainty for our future expectations, impacting our ability to accurately forecast bookings and revenues from quarter to quarter and over the longer term.

 

For 2020, our five strategic goals are:

 

Focus on customer success and drive sustainable long-term growth;

 

Invest in innovation to expand our products and total addressable market;

 

Expand our Manhattan Active Suite of Cloud Solutions;

 

Develop and grow our cloud business and cloud subscription revenue; and

 

Expand our global sales and marketing teams.

 

Cloud Subscription

Historically, our software licenses were sold as perpetual licenses, under which customers own the software license and revenue is recognized at the time of sale. In 2017, we released Manhattan Active™ Solutions, accelerating our business transition to cloud subscriptions. Under a cloud subscription, customers pay a periodic fee for the right to use our software within a cloud-based environment that we provide and manage over a specified period of time. As part of our subscription program, we allow our existing customers to convert their maintenance contracts to cloud subscription contracts. Some customers have converted their maintenance contracts to cloud subscriptions, and we expect there will be continued opportunities to convert existing maintenance contracts to cloud subscription contracts in the future.

With the launch of Manhattan Active™ Solutions, the transition to a cloud subscription model has had, and may continue to have, an adverse impact on revenue, earnings and cash flow relative to periods in which we primarily sell perpetual licenses. This effect will continue until a stable, recurring mix of perpetual license to cloud subscription revenue develops.

Global Economic Trends and Industry Factors

Global macro-economic trends, technology spending, and supply chain management market growth are important barometers for our business. In the three and six months ended June 30, 2020, approximately 67% and 69% of our total revenue was generated in the United States, respectively, 16% in EMEA in both periods, and the remaining balance in APAC, Canada, and Latin America. In addition, Gartner Inc. (“Gartner”), an information technology research and advisory company, estimates that nearly 80% of every supply chain software solutions dollar invested is spent in North America and Western Europe; consequently, the health of the U.S. and the Western European economies have a meaningful impact on our financial results.

We sell technology-based solutions with total pricing, including software and services, in many cases exceeding $1.0 million. Our software is often a part of our customers’ and prospects’ much larger capital commitment associated with facilities expansion and business improvement. We believe that, given the uncertainty in the global macro environment due to the COVID-19 pandemic, the current sales cycles for large license sales and cloud subscriptions of $1.0 million or greater in our target markets have been extended. The impact of COVID-19 on the current business climate within the United States and geographic regions we operate in have and will continue to affect customers’ and prospects’ decisions regarding timing of strategic investments. Delays with respect to such decisions can have a material adverse impact on our business and may further intensify competition in our already highly competitive markets.

 

16


 

While we are encouraged by our results, we, along with many of our customers, still remain cautious regarding macroeconomic conditions. We believe global geopolitical and economic volatility likely will continue to shape customers’ and prospects’ enterprise software buying decisions, making it challenging to forecast sales cycles for our products and the timing of large enterprise cloud subscription and software license sales.

Revenue

Cloud Subscriptions and Software License revenue.  Cloud subscriptions revenue and remaining performance obligation growth are the leading indicators of our business performance, primarily derived from cloud subscription fees that customers pay for supply chain solutions. Since we announced our transition to becoming a cloud-first company in 2017 with our launch of Manhattan Active Solutions, we have continued to see a significant shift in demand for cloud solutions versus software license. By comparison, in 2016, cloud subscriptions and software license revenue represented 7% and 93%, respectively, of our total cloud and software license revenue mix. In the full year ended 2020, we estimate cloud subscriptions and software license revenue to be 75% and 25%, respectively, of our total cloud and software license revenue mix. From 2016 to 2020 forecast, we estimate software license revenue to decline on an annual compounded negative growth of 22%, driven by the overall strong demand for cloud solutions. In the first half of 2020, cloud subscriptions revenue surpassed software license revenue, representing 70% of the total cloud and software license revenue mix. Going forward, we expect cloud revenue to increase as a percentage of total software and cloud revenue mix as market demand for cloud solutions is supplanting legacy perpetual license demand.

In the three months ended June 30, 2020, cloud subscriptions revenue totaled $18.5 million or 14% of total revenues. In the six months ended June 30, 2020, cloud subscriptions revenue totaled $35.8 million or 12% of total revenues.

The Americas, EMEA and APAC segments recognized $16.3 million, $1.8 million and $0.4 million in cloud subscriptions revenue, respectively, in the three months ended June 30, 2020. The Americas, EMEA and APAC segments recognized $31.6 million, $3.3 million and $0.9 million in cloud subscriptions revenue, respectively, in the six months ended June 30, 2020. Cloud subscriptions revenue is recognized ratably over the term of the agreement, typically 36 to 60 months. In the three and six months ended June 30, 2020, the percentage mix of new to existing customers for the combination of software license and cloud subscriptions sales was approximately 30/70 and 20/80, respectively.

In the three months ended June 30, 2020, software license revenue totaled $5.7 million, or 4% of total revenue. In the six months ended June 30, 2020, software license revenue totaled $15.4 million or 5% of total revenue. Software license revenue recognized by the Americas, EMEA, and APAC segments totaled $3.9 million, $0.4 million, and $1.4 million, respectively, in the three months ended June 30, 2020. Software license revenue recognized by the Americas, EMEA, and APAC segments totaled $12.3 million, $1.4 million, and $1.7 million, respectively, in the six months ended June 30, 2020.

Cloud subscriptions and software license revenue growth are influenced by the strength of general economic and business conditions and the competitive position of our software products. These revenues generally have long sales cycles. In addition, the timing of the closing of a few large software license transactions can have a material impact on our software license revenues, operating profit, operating margins and earnings per share. For example, $0.8 million of either pre-tax profit or expense in the second quarter of 2020 equates to approximately one cent of diluted earnings per share impact.

Our software solutions are focused on core supply chain commerce operations (Warehouse Management, Transportation Management and Labor Management), Inventory optimization and Omnichannel operations (e-commerce, retail store operations and point of sale), which are intensely competitive markets characterized by rapid technological change. We are a market leader in the supply chain management and omnichannel software solutions market as defined by industry analysts such as ARC Advisory Group and Gartner. Our goal is to extend our position as a leading global supply chain solutions provider by growing our software license and cloud subscriptions revenues faster than our competitors through investment in innovation. We expect to continue to face increased competition from Enterprise Resource Planning (ERP) and Supply Chain Management applications vendors and business application software vendors that may broaden their solutions offerings by internally developing, or by acquiring or partnering with independent developers of supply chain planning and execution software. Increased competition could result in price reductions, fewer customer orders, reduced gross margins, and loss of market share.

Maintenance Revenue. Our maintenance revenue for the three months ended June 30, 2020 totaled $35.9 million, or 26% of total revenue. For the six months ended June 30, 2020, maintenance revenue totaled $71.6 million or 25% of total revenue. The Americas, EMEA and APAC segments recognized $28.2 million, $5.6 million and $2.1 million in maintenance revenue, respectively, in the three months ended June 30, 2020. For the six months ended June 30, 2020, maintenance revenue recognized by the Americas, EMEA, and APAC segments totaled $56.6 million, $10.8 million and $4.2 million, respectively.  For maintenance, we offer a comprehensive 24 hours per day, 365 days per year program that provides our customers with software upgrades, when and if available, which include additional or improved functionality and technological advances incorporating emerging supply chain and industry initiatives. The growth of maintenance revenues is influenced by: (1) new software license revenue growth; (2) annual renewal of support contracts; (3) increase in customers through acquisitions; (4) fluctuations in currency rates, and (5) conversion of maintenance contracts to cloud subscription contracts. Substantially all of our customers renew their annual support contracts. Over the last three years, our annual revenue renewal rate of customers subscribing to comprehensive support and enhancements has been

 

17


 

greater than 90%. Maintenance revenue is generally paid in advance and recognized ratably over the term of the agreement, typically twelve months. Maintenance renewal revenue is recognized over the renewal period once we have a contract upon payment from the customer.

Services revenue.  In the three months ended June 30, 2020, our services revenue totaled $71.8 million, or 53% of total revenue. The Americas, EMEA and APAC segments recognized $55.2 million, $13.7 million and $2.9 million in services revenue, respectively, in the three months ended June 30, 2020. In the six months ended June 30, 2020, our services revenue totaled $159.2 million, or 55% of total revenue. The Americas, EMEA and APAC segments recognized $122.4 million, $30.4 million and $6.4 million in services revenue, respectively, in the six months ended June 30, 2020. Due to our large services revenue mix as a percentage of total revenue, our consolidated operating margin profile may be lower than those of our competitors, and while we believe our services margins are strong, they do lower our operating margin profile.

Our professional services organization provides our customers with expertise and assistance in planning and implementing our solutions. To ensure a successful product implementation, consultants assist customers with the initial installation of a system, the conversion and transfer of the customer’s historical data onto our system, and ongoing training, education, and system upgrades.  We believe our professional services enable customers to implement our software rapidly, ensure the customer’s success with our solutions, strengthen our customer relationships, and add to our industry-specific knowledge base for use in future implementations and product innovations.

Although our professional services are optional, the majority of our customers use at least some portion of these services for their planning, implementation, or related needs.  Professional services are typically rendered under time and materials-based contracts with services typically billed on an hourly basis.  Professional services are sometimes rendered under fixed-fee based contracts with payments due on specific dates or milestones.

Services revenue growth is contingent upon our software license revenue, cloud subscriptions and customer upgrade cycles, which are influenced by the strength of general economic and business conditions and the competitive position of our software products.  In addition, our professional services business has competitive exposure to offshore providers and other consulting companies.  All of these factors potentially create the risk of pricing pressure, fewer customer orders, reduced gross margins, and loss of market share.

Hardware Revenue. Our hardware revenue, which we recognize net of related costs, totaled $3.8 million in the three months ended June 30, 2020 representing 3% of total revenue. For the six months ended June 30, 2020, hardware revenue totaled $7.5 million or 3%. In conjunction with the licensing of our software, and as a convenience for our customers, we resell a variety of hardware products developed and manufactured by third parties.  These products include computer hardware, radio frequency terminal networks, RFID chip readers, bar code printers and scanners, and other peripherals.  We resell all third-party hardware products and related maintenance pursuant to agreements with manufacturers or through distributor-authorized reseller agreements pursuant to which we are entitled to purchase hardware products and services at discount prices.  We generally purchase hardware from our vendors only after receiving an order from a customer.  As a result, we do not maintain hardware inventory.

Product Development

We continue to invest significantly in research and development (R&D) to provide leading solutions that help global retailers, manufacturers, wholesalers, distributors, and logistics providers successfully manage accelerating and fluctuating demands as well as the increasing complexity and volatility of their local and global supply chains, retail store operations and point of sale. Our R&D expenses were $19.9 million and $43.3 million for the three and six months ended June 30, 2020, respectively.

We expect to continue to focus our R&D resources on the development and enhancement of our core supply chain, inventory optimization, omnichannel and point of sale software solutions.  We offer what we believe to be the broadest solutions portfolio in the supply chain solutions marketplace, to address all aspects of inventory optimization, transportation management, distribution management, planning, and omnichannel operations including order management, store inventory & fulfillment, call center and point of sale.

We also plan to continue to enhance our existing solutions and to introduce new solutions to address evolving industry standards and market needs.  We identify opportunities to further enhance our solutions and to develop and provide new solutions through our customer support organization, as well as through ongoing customer consulting engagements and implementations, interactions with our user groups, association with leading industry analysts and market research firms, and participation in industry standards and research committees.  Our solutions address the needs of customers in various vertical markets, including retail, consumer goods, food and grocery, logistics service providers, industrial and wholesale, high technology and electronics, life sciences, and government.

 

18


 

Cash Flow and Financial Condition

For the three and six months ended June 30, 2020, we generated cash flow from operating activities of $48.8 million and $60.4 million, respectively. Our cash and cash equivalents at June 30, 2020 totaled $123.6 million, with no debt on our balance sheet. We currently have no credit facilities. Our primary uses of cash have been for funding investments in R&D, in operations to drive revenue and earnings growth, and repurchases of our common stock.

During the three months ended March 31, 2020, we repurchased 337,007 shares of Manhattan Associates’ outstanding common stock for approximately $25.0 million under the share repurchase program approved by our Board of Directors. In April 2020, the Company suspended its share repurchase program because of COVID-19-related considerations. Accordingly, during the three months ended June 30, 2020, the Company did not repurchase any shares of Manhattan Associates common stock under the share repurchase program. The Company’s authorized repurchase limit remains at $50 million.

For the remainder of 2020, our priorities for use of cash will continue to be investments in product development and growth of our business. We expect to continue to evaluate acquisition opportunities that are complementary to our product footprint and technology direction. We also expect to continue to weigh our share repurchase options against cash for acquisitions and investing in the business. We do not anticipate any borrowing requirements for the remainder of 2020 for general corporate purposes.

Results of Operations

In the following table, we present a summary of our consolidated results for the three and six months ended June 30, 2020 and 2019.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

135,630

 

 

$

154,341

 

 

$

289,533

 

 

$

302,745

 

Costs and expenses

 

 

108,938

 

 

 

126,759

 

 

 

238,645

 

 

 

246,887

 

Operating income

 

 

26,692

 

 

 

27,582

 

 

 

50,888

 

 

 

55,858

 

Other (loss) income, net

 

 

(158

)

 

 

(71

)

 

 

1,262

 

 

 

(442

)

Income before income taxes

 

 

26,534

 

 

 

27,511

 

 

 

52,150

 

 

 

55,416

 

Net income

 

$

19,204

 

 

$

20,925

 

 

$

41,734

 

 

$

41,897

 

Diluted earnings per share

 

$

0.30

 

 

$

0.32

 

 

$

0.65

 

 

$

0.64

 

Diluted weighted average number of shares

 

 

64,126

 

 

 

65,093

 

 

 

64,234

 

 

 

65,148

 

 

 

19


 

We have three geographic reportable segments: the Americas, EMEA, and APAC. Geographic revenue information is based on the location of sale. The revenues represented below are from external customers only.  The geography-based expenses include costs of personnel, direct sales, marketing expenses, and general and administrative costs to support the business.  There are certain corporate expenses included in the Americas segment that we do not charge to the other segments, including R&D, certain marketing and general and administrative costs that support the global organization, and the amortization of acquired developed technology.  Included in the Americas costs are all R&D costs, including the costs associated with our operations in India. During the three and six months ended June 30, 2020 and 2019, we derived the majority of our revenues from sales to customers within our Americas segment. In the following table, we present a summary of revenue and operating income by segment:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

% Change vs.

Prior Year

 

 

2020

 

 

2019

 

 

% Change vs.

Prior Year

 

Revenue:

 

(in thousands)

 

 

 

 

(in thousands)

 

 

 

Cloud subscriptions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

16,345

 

 

 

7,684

 

 

 

113

%

 

 

31,588

 

 

 

14,604

 

 

 

116

%

EMEA

 

 

1,811

 

 

 

1,124

 

 

 

61

%

 

 

3,299

 

 

 

1,868

 

 

 

77

%

APAC

 

 

347

 

 

 

201

 

 

 

73

%

 

 

876

 

 

 

396

 

 

 

121

%

Total cloud subscriptions

 

 

18,503

 

 

 

9,009

 

 

 

105

%

 

 

35,763

 

 

 

16,868

 

 

 

112

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software license

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

3,853

 

 

 

8,152

 

 

 

-53

%

 

 

12,303

 

 

 

14,280

 

 

 

-14

%

EMEA

 

 

415

 

 

 

2,877

 

 

 

-86

%

 

 

1,439

 

 

 

8,922

 

 

 

-84

%

APAC

 

 

1,413

 

 

 

692

 

 

 

104

%

 

 

1,674

 

 

 

933

 

 

 

79

%

Total software license

 

 

5,681

 

 

 

11,721

 

 

 

-52

%

 

 

15,416

 

 

 

24,135

 

 

 

-36

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maintenance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

28,211

 

 

 

29,304

 

 

 

-4

%

 

 

56,671

 

 

 

58,405

 

 

 

-3

%

EMEA

 

 

5,591

 

 

 

5,633

 

 

 

-1

%

 

 

10,762

 

 

 

10,524

 

 

 

2

%

APAC

 

 

2,096

 

 

 

2,386

 

 

 

-12

%

 

 

4,209

 

 

 

4,493

 

 

 

-6

%

Total maintenance

 

 

35,898

 

 

 

37,323

 

 

 

-4

%

 

 

71,642

 

 

 

73,422

 

 

 

-2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

55,189

 

 

 

74,301

 

 

 

-26

%

 

 

122,438

 

 

 

143,624

 

 

 

-15

%

EMEA

 

 

13,741

 

 

 

15,409

 

 

 

-11

%

 

 

30,360

 

 

 

30,017

 

 

 

1

%

APAC

 

 

2,848

 

 

 

4,241

 

 

 

-33

%

 

 

6,386

 

 

 

8,941

 

 

 

-29

%

Total services

 

 

71,778

 

 

 

93,951

 

 

 

-24

%

 

 

159,184

 

 

 

182,582

 

 

 

-13

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hardware

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

3,770

 

 

 

2,337

 

 

 

61

%

 

 

7,514

 

 

 

5,738

 

 

 

31

%

EMEA

 

 

-

 

 

 

-

 

 

 

N/A

 

 

 

11

 

 

 

-

 

 

 

N/A

 

APAC

 

 

-

 

 

 

-

 

 

 

N/A

 

 

 

3

 

 

 

-

 

 

 

N/A

 

Total hardware and other

 

 

3,770

 

 

 

2,337

 

 

 

61

%

 

 

7,528

 

 

 

5,738

 

 

 

31

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

107,368

 

 

 

121,778

 

 

 

-12

%

 

 

230,514

 

 

 

236,651

 

 

 

-3

%

EMEA

 

 

21,558

 

 

 

25,043

 

 

 

-14

%

 

 

45,871

 

 

 

51,331

 

 

 

-11

%

APAC

 

 

6,704

 

 

 

7,520

 

 

 

-11

%

 

 

13,148

 

 

 

14,763

 

 

 

-11

%

Total revenue

 

$

135,630

 

 

$

154,341

 

 

 

-12

%

 

$

289,533

 

 

$

302,745

 

 

 

-4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

18,984

 

 

 

16,826

 

 

 

13

%

 

 

35,266

 

 

 

34,877

 

 

 

1

%

EMEA

 

 

5,515

 

 

 

8,057

 

 

 

-32

%

 

 

11,828

 

 

 

15,791

 

 

 

-25

%

APAC

 

 

2,193

 

 

 

2,699

 

 

 

-19

%

 

 

3,794

 

 

 

5,190

 

 

 

-27

%

Total operating income

 

$

26,692

 

 

$

27,582

 

 

 

-3

%

 

$

50,888

 

 

$

55,858

 

 

 

-9

%

 

 

20


 

Condensed Consolidated Financial Summary - Second Quarter 2020

 

Consolidated total revenue: $135.6 million for the second quarter of 2020, compared to $154.3 million for the second quarter of 2019;

 

Cloud subscription revenue: $18.5 million for the second quarter of 2020, compared to $9.0 million for the second quarter of 2019;

 

Software license revenue:  $5.7 million for the second quarter of 2020, compared to $11.7 million for the second quarter of 2019;

 

Operating income: $26.7 million for the second quarter of 2020, compared to $27.6 million for the second quarter of 2019;

 

Operating margins: 19.7% for the second quarter of 2020, compared to 17.9% for the second quarter of 2019;

 

Diluted earnings per share: $0.30 for the second quarter of 2020 compared to $0.32 for the second quarter of 2019;

 

Cash flow from operations: $48.8 million in the second quarter of 2020, compared to $37.2 million in the second quarter of 2019;

 

Days sales outstanding: 73 days at June 30, 2020, compared to 67 days at March 31, 2020;

 

Cash and investments: $123.6 million at June 30, 2020, compared to $75.3 million at March 31, 2020;

 

Share repurchases: In April 2020, the Company suspended its share repurchase program because of COVID-19-related considerations. Accordingly, during the three months ended June 30, 2020, the Company did not repurchase any shares of Manhattan Associates common stock under the share repurchase program. The Company’s authorized repurchase limit remains at $50 million.

 

Below we discuss our consolidated results of operations for the second quarters of 2020 and 2019.

 

Revenue

 

 

 

Three Months Ended June 30,

 

 

 

 

 

% Change vs.

 

 

% of Total Revenue

 

 

 

2020

 

 

2019

 

 

Prior Year

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cloud subscriptions

 

$

18,503

 

 

$

9,009

 

 

 

105

%

 

 

14

%

 

 

6

%

Software license

 

 

5,681

 

 

 

11,721

 

 

 

-52

%

 

 

4

%

 

 

8

%

Maintenance

 

 

35,898

 

 

 

37,323

 

 

 

-4

%

 

 

26

%

 

 

24

%

Services

 

 

71,778

 

 

 

93,951

 

 

 

-24

%

 

 

53

%

 

 

61

%

Hardware

 

 

3,770

 

 

 

2,337

 

 

 

61

%

 

 

3

%

 

 

1

%

Total revenue

 

$

135,630

 

 

$

154,341

 

 

 

-12

%

 

 

100

%

 

 

100

%

 

Cloud Subscriptions revenue. In 2017, we released Manhattan Active™ Solutions accelerating our business transition to cloud subscriptions. In the second quarter of 2020, cloud subscriptions revenue increased $9.5 million compared to the same quarter in the prior year, as customers began to purchase our SaaS offerings rather than a traditional perpetual license. Our customers increasingly prefer cloud-based solutions, including existing customers that are migrating from on-premise to cloud-based offerings. Cloud subscriptions revenue for the Americas, EMEA and APAC segments increased $8.7 million, $0.7 million and $0.1 million in the second quarter of 2020, respectively.

Software License revenue.  Software license revenue decreased $6.0 million in the second quarter of 2020 compared to the same quarter in the prior year as customers began to purchase our SaaS offerings rather than a traditional perpetual license. We also noticed some shifts in the expected timing of deal closings from the second quarter of 2020 to the second half of the year as a result of the COVID-19 pandemic. Our license revenue performance depends on the number and relative value of large deals we close in the period. License revenue for the Americas and EMEA segment decreased $4.3 million and $2.4 million in the first quarter of 2020, respectively, while license revenue for the APAC segment increased $0.7 million.

The perpetual license sales percentage mix across our product suite in the second quarter ended June 30, 2020 was over 80% warehouse management solutions.

 

21


 

Maintenance revenue. Maintenance revenue decreased $1.4 million in the second quarter of 2020 compared to the same quarter in the prior year. Maintenance revenue for the Americas and APAC segment decreased $1.1 million and $0.3 million, respectively, in the second quarter of 2020 compared to the same quarter in the prior year. The EMEA segment was relatively flat.

Services revenue.  Services revenue decreased $22.2 million in the second quarter of 2020 compared to the same quarter in the prior year. Services revenue for the Americas, EMEA and APAC segments decreased $19.1 million, $1.7 million, and $1.4 million, respectively, compared to the same quarter in the prior year. The decline in services revenue was primarily due to some customers delaying project implementation and upgrades as a result of the COVID-19 pandemic.

Hardware revenue.  Hardware sales increased $1.4 million in the second quarter of 2020 compared to the same quarter in the prior year. The majority of our hardware revenue is derived from our Americas segment. Sales of hardware is largely dependent upon customer-specific desires, which fluctuate.

Cost of Revenue

 

 

 

Three Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

% Change vs.

Prior Year

 

Cost of software license

 

$

591

 

 

$

623

 

 

 

-5

%

Cost of cloud subscriptions, maintenance and services

 

 

62,434

 

 

 

70,955

 

 

 

-12

%

Total cost of revenue

 

$

63,025

 

 

$

71,578

 

 

 

-12

%

 

Cost of Software License.  Cost of software license consists of the costs associated with software reproduction; media, packaging and delivery; documentation, and other related costs; and royalties on third-party software sold with or as part of our products. Cost of software license remained relatively flat in the second quarter of 2020 compared with the same quarter in the prior year.

Cost of Cloud Subscriptions, Maintenance and Services.  Costs of cloud subscriptions, maintenance and services consist 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. The $8.5 million decrease in the quarter ended June 30, 2020 compared to the same quarter in the prior year was principally due to a $5.1 million decrease in performance-based compensation expense and a $5.7 million decrease in travel expense, offset by a $1.4 million increase in compensation and other personnel-related expenses and a $1.4 million increase in computer infrastructure costs related to cloud business transition.

Operating Expenses

 

 

 

Three Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

% Change vs.

Prior Year

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

19,931

 

 

$

21,997

 

 

 

-9

%

Sales and marketing

 

 

9,709

 

 

 

14,520

 

 

 

-33

%

General and administrative

 

 

14,016

 

 

 

16,805

 

 

 

-17

%

Depreciation and amortization

 

 

2,257

 

 

 

1,859

 

 

 

21

%

Operating expenses

 

$

45,913

 

 

$

55,181

 

 

 

-17

%

 

Research and Development.  Our principal R&D activities have focused on the expansion and integration of new products and releases, while expanding the product footprint of our software solution suites in Supply Chain, Inventory Optimization and Omnichannel, including cloud-based solutions, point-of-sale and tablet retailing.

For each of the quarters ended June 30, 2020 and 2019, we did not capitalize any R&D costs because the costs incurred following the attainment of technological feasibility for the related software product through the date of general release were insignificant.

R&D expenses primarily consist of salaries and other personnel-related costs for personnel involved in our R&D activities. R&D expenses for the quarter ended June 30, 2020 decreased by $2.1 million, compared to the same quarter of 2019 principally due to a $1.7 million decrease in performance-based compensation expense.

Sales and Marketing.  Sales and marketing expenses include salaries, commissions, travel and other personnel-related costs and the costs of our marketing and alliance programs and related activities. Sales and marketing expenses decreased $4.8 million in the quarter ended June 30, 2020 compared to the same quarter in the prior year primarily due to a $2.3 million decrease in marketing and campaign programs, a $1.0 million decrease in performance-based compensation expense, a $0.9 million decrease in travel expense, and a $0.5 million decrease in compensation and other personnel-related expense.

 

22


 

General and administrative (G&A).  G&A expenses consist primarily of salaries and other personnel-related costs of executive, financial, human resources, information technology, and administrative personnel, as well as facilities, legal, insurance, accounting, and other administrative expenses. G&A expenses decreased $2.8 million, in the current year quarter compared to the same quarter in the prior year, primarily due to a $1.0 million decrease in performance-based compensation expense, a $0.8 million decrease in compensation and other personnel related expenses, and a $0.6 million decrease in travel expense and professional fees.

Depreciation and Amortization.  Depreciation and amortization of intangibles and software expense for the second quarter of 2020 and 2019 was $2.3 million and $1.9 million, respectively. Amortization of acquisitions expense for the second quarter of 2020 and 2019 was immaterial.

Operating Income

Operating income in the second quarter of 2020 was $26.7 million compared to $27.6 million for the second quarter of 2019. Operating margin was 19.7% for the second quarter of 2020 versus 17.9% for the same quarter in the prior year. Operating income decreased primarily due to lower services revenue as we noticed some delays as a result of the COVID-19 pandemic. Operating margin increased primarily due to lower performance-based compensation expense and lower travel expense. With the impact of COVID-19, we have largely suspended hiring until the global demand environment improves.

Other Income and Income Taxes

 

 

 

Three Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

% Change vs.

Prior Year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other loss, net

 

$

(158

)

 

$

(71

)

 

 

123

%

Income tax provision

 

 

7,330

 

 

 

6,586

 

 

 

11

%

 

 

Other income (loss), net.  Other income (loss), net primarily includes interest income, foreign currency gains and losses, and other non-operating expenses. Other income (loss), net remained flat in the second quarter of 2020 compared to the same quarter in the prior year.

Income tax provision.  Our effective income tax rates were 27.6% and 23.9% for the quarters ended June 30, 2020 and 2019, respectively. The increase in the effective tax rate for the three months ended June 30, 2020 is due to an increase in non-deductible equity-based compensation, reduction in expected business credits and deductions, and a decrease of $0.1 million in excess tax benefits on restricted stock vestings.

 

Condensed Consolidated Financial Summary – First Six Months of 2020  

 

Consolidated revenue: $289.5 million for the six months ended June 30, 2020 compared to $302.7 million for the six months ended June 30, 2019.

 

Cloud subscription revenue: $35.8 million for the six months ended June 30, 2020 compared to $16.9 million for the six months ended June 30, 2019.

 

Software license revenue: $15.4 million for the six months ended June 30, 2020, compared to $24.1 million for the six months ended June 30, 2019.

 

Operating income: $50.9 million for the six months ended June 30, 2020, compared to $55.9 million for the six months ended June 30, 2019.

 

Operating margins: 17.6% for the six months ended June 30, 2020 compared to 18.5% for the six months ended June 30, 2019.

 

Diluted earnings per share: $0.65 for the six months ended June 30, 2020 compared to $0.64 for the six months ended June 30, 2019.

 

Cash flow from operations: $60.4 million for the six months ended June 30, 2020, compared to $72.4 million for the six months ended June 30, 2019.

 

Cash and investments: $123.6 million at June 30, 2020, compared to $110.7 million at December 31, 2019.

 

Share repurchases: During the six months ended June 30, 2020, we reduced our common shares outstanding by approximately 0.1% primarily through the repurchase of approximately 0.3 million shares of our common stock, under the

 

23


 

 

share repurchase program authorized by our board of directors, for a total investment of $25.0 million. However, as noted above, the Company’s share repurchase program is currently suspended.

Below we discuss our consolidated results of operations for the six months ended June 30, 2020 and 2019.

 

 

 

Six Months Ended June 30,

 

 

 

 

 

% Change vs.

 

 

% of Total Revenue

 

 

 

2020

 

 

2019

 

 

Prior Year

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cloud subscriptions

 

$

35,763

 

 

$

16,868

 

 

 

112

%

 

 

12

%

 

 

6

%

Software license

 

 

15,416

 

 

 

24,135

 

 

 

-36

%

 

 

5

%

 

 

8

%

Maintenance

 

 

71,642

 

 

 

73,422

 

 

 

-2

%

 

 

25

%

 

 

24

%

Services

 

 

159,184

 

 

 

182,582

 

 

 

-13

%

 

 

55

%

 

 

60

%

Hardware

 

 

7,528

 

 

 

5,738

 

 

 

31

%

 

 

3

%

 

 

2

%

Total revenue

 

$

289,533

 

 

$

302,745

 

 

 

-4

%

 

 

100

%

 

 

100

%

 

 

Cloud Subscription Revenue. Due to the release of Manhattan Active™ Solutions, cloud subscriptions revenue increased $18.9 million in the six months ended June 30, 2020 compared to the same period in the prior year, as customers began to purchase our SaaS offerings rather than a traditional perpetual license. Our customers increasingly prefer cloud-based solutions, including existing customers that are migrating from on-premise to cloud-based offerings. Cloud subscriptions revenue for the Americas, EMEA and APAC segments increased $17.0 million, $1.4 million and $0.5 million, respectively, in the six months ended June 30, 2020.

Software License Revenue.  Software license revenue decreased $8.7 million in the six months ended June 30, 2020 compared to the same period in the prior year as customers began to purchase our SaaS offerings rather than a traditional perpetual license. We also noticed some shifts in the expected timing of deal closings from the second quarter of 2020 to the second half of the year as a result of the COVID-19 pandemic. Our license revenue performance depends on the number and relative value of large deals we close in the period.  License revenue for the Americas and EMEA segments decreased $2.0 million and $7.5 million, respectively, and license revenue for the APAC segment increased $0.8 million, in the six months ended June 30, 2020.

The license sales percentage mix across our product suite in the six months ended June 30, 2020 was over 80% warehouse management solutions.

Maintenance Revenue. Maintenance revenue decreased $1.8 million in the six months ended June 30, 2020 compared to the same period in the prior year. Maintenance revenue for the Americas and APAC segments decreased $1.7 million and $0.3 million, respectively, and maintenance revenue for the EMEA segment increased $0.2 million, in the six months ended June 30, 2020 compared to the same period in the prior year.

Services revenue.  Services revenue decreased $23.4 million in the six months ended June 30, 2020 compared to the same period in the prior year. The decline was primarily due to some customers delaying project implementation and upgrades as a result of the COVID-19 pandemic. Services revenue for the Americas and APAC segments decreased $21.2 million and $2.5 million, respectively, while services revenue for the EMEA segment increased $0.3 million in the six months ended June 30, 2020 compared with the same period in the prior year.

Hardware Revenue.  Hardware sales increased $1.8 million in the six months ended June 30, 2020 compared to the same period in the prior year.  The majority of our hardware revenue is derived from our Americas segment.  Sales of hardware is largely dependent upon customer-specific desires, which fluctuate.

 

Cost of Revenue

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

% Change vs.

Prior Year

 

Cost of software license

 

$

1,146

 

 

$

1,215

 

 

 

-6

%

Cost of cloud subscriptions, maintenance and services

 

 

136,710

 

 

 

137,533

 

 

 

-1

%

Total cost of revenue

 

$

137,856

 

 

$

138,748

 

 

 

-1

%

Cost of Software License.  Cost of software license remained relatively flat in the six months ended June 30, 2020 compared with the same period in the prior year.

 

24


 

Cost of Cloud Subscriptions, Maintenance and Services. Costs of cloud subscriptions, maintenance and services consist primarily of salaries and other personnel-related expenses of employees dedicated to cloud operations; maintenance services; and professional and technical services as well as hosting fees. The $0.8 million decrease in the six months ended June 30, 2020 compared to the same period in the prior year was principally due to a $6.7 million decrease in performance-based compensation expense, $6.4 million decrease in travel expense, offset by a $7.5 million increase in compensation and other personnel-related expense, and a $5.1 million increase in computer infrastructure costs related to cloud business transition.

 

Operating Expenses

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

% Change vs.

Prior Year

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

43,259

 

 

$

43,210

 

 

 

0

%

Sales and marketing

 

 

22,797

 

 

 

29,301

 

 

 

-22

%

General and administrative

 

 

30,130

 

 

 

31,855

 

 

 

-5

%

Depreciation and amortization

 

 

4,603

 

 

 

3,773

 

 

 

22

%

Operating expenses

 

$

100,789

 

 

$

108,139

 

 

 

-7

%

 

Research and Development.  R&D expenses for the six months ended June 30, 2020 remained relatively flat compared to the same period in the prior year. For the same reasons included in the quarterly R&D discussion above, no R&D costs were capitalized during the six months ended June 30, 2020 and 2019.

Sales and Marketing.  Sales and marketing expenses decreased $6.5 million in the six months ended June 30, 2020 compared to the same period in the prior year primarily due to a $2.8 million decrease in performance-based compensation expense, a $2.2 million decrease in marketing and campaign programs, and a $1.1 million decrease in travel expense.

General and Administrative.  General and administrative expenses decreased $1.7 million in the six months ended June 30, 2020 compared to the same period in the prior year, primarily due to a $1.4 million increase in performance-based compensation expense.  

Depreciation and Amortization.  Depreciation and amortization of intangibles and software expense for the six months ended June 30, 2020 and 2019 was $4.6 million and $3.8 million, respectively.  Amortization of acquisitions expense for the six months ended June 30, 2020 and 2019 was immaterial.

 

Operating Income

Operating income for the six months ended June 30, 2020 was $50.9 million compared to $55.9 million for the same period in the prior year. Operating margin was 17.6% for the first six months of 2020 versus 18.5% for the same period in the prior year. Operating income and margin have primarily decreased due to lower services revenue as we noticed some delays as a result of the COVID-19 pandemic.  With the impact of COVID-19, we have largely suspended hiring until the global demand environment improves. Operating income increased $0.4 million in the Americas segment, and decreased $4.0 million and $1.4 million in the EMEA and APAC segments, respectively.

 

Other Income and Income Taxes

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

% Change vs.

Prior Year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (loss), net

 

$

1,262

 

 

$

(442

)

 

 

-386

%

Income tax provision

 

 

10,416

 

 

 

13,519

 

 

 

-23

%

 

Other income, net.  Other income, net increased $1.7 million in the six months ended June 30, 2020 compared to the same period in the prior year, primarily due to gains or losses on intercompany transactions denominated in foreign currencies with subsidiaries due to the fluctuation of the U.S. dollar relative to other foreign currencies, primarily the Indian Rupee. We recorded net foreign currency gains of $1.2 million in the six months ended June 30, 2020 and net foreign currency losses of $1.0 million in the six months ended June 30, 2019.

 

25


 

Income tax provision.  Our effective income tax rates were 20.0% and 24.4% for the six months ended June 30, 2020 and 2019, respectively. The decrease is the result of an increase of $3.7 million in excess tax benefits on restricted stock vestings, partially offset by an increase in non-deductible equity-based compensation, and reduction in expected business credits and deductions.

Liquidity and Capital Resources

During the first six months of 2020, while our UK and Australia foreign subsidiaries paid a distribution to the U.S., we funded our business exclusively through cash generated from operations. Our cash and cash equivalents as of June 30, 2020 included $95.0 million held in the U.S. and $28.6 million held by our foreign subsidiaries. We believe that our cash balances in the U.S. are sufficient to fund our U.S. operations, and we do not intend to further repatriate foreign funds to the U.S.  In the future, if we elect to repatriate the unremitted earnings of our foreign subsidiaries, we would no longer be subject to additional U.S. income taxes on such earnings due to the enactment of the Tax Cuts and Jobs Act in December 2017, but we could be subject to additional local withholding taxes.

Cash flow from operating activities totaled $60.4 million and $72.4 million in the six months ended June 30, 2020 and 2019, respectively. Typical factors affecting our cash provided by operating activities include our level of revenue and earnings for the period, the timing and amount of employee bonus and income tax payments, and the timing of cash collections from our customers which is our primary source of operating cash flow. Cash flow from operating activities for the six months ended June 30, 2020 decreased $12.0 million compared to the same period in the prior year, which is mainly due to an increase in employee bonus payments and the timing of cash collections, partially offset by a decrease in income tax payments.

Cash flow used in investing activities totaled $1.8 million and $1.9 million in the six months ended June 30, 2020 and 2019, respectively. Our investing activities for both the six months ended June 30, 2020 and 2019 consisted of capital spending to support company growth and short-term investing. For the six months ended June 30, 2020 capital spending was $1.8 million. For the six months ended June 30, 2019, net maturities of investments totaled $1.4 million, while capital spending was $3.3 million.

Financing activities used cash of $43.2 million and $50.2 million for the six months ended June 30, 2020 and 2019, respectively. The principal use of cash for financing activities in both periods was to purchase our common stock, including shares withheld for taxes due upon vesting of restricted stock. Repurchases of our common stock for the six months ended June 30, 2020 and 2019 totaled $43.2 million and $50.2 million, respectively, including shares withheld for taxes of $18.2 million and $5.3 million, respectively. We have suspended the share repurchase program to position our Company for uncertainty in the near-term as a result of the COVID-19 pandemic.

As disclosed in our Annual Report on Form 10-K, our principal commitments consist of obligations under operating leases. As we continue our business transition to a cloud subscription model, we have entered into multiple non-cancellable contracts for cloud infrastructure services. As of June 30, 2020, our cloud infrastructure obligations are approximately $52 million over the next 5 years.  We also enter into non-cancellable subscriptions in the ordinary course of business for internal software to support our operations.  Our obligations, as of June 30, 2020, are approximately $7 million over the next 3 years. We expect to fulfill all of these commitments from our working capital.

Periodically, opportunities may arise to grow our business through the acquisition of complementary products, and technologies. Any material acquisition could result in a decrease to our working capital depending on the amount, timing, and nature of the consideration to be paid. We believe that our existing cash and investments will be sufficient to meet our working capital and capital expenditure needs at least for the next twelve months, although there can be no assurance that this will be the case. With the COVID-19 impact, we are focused on preserving liquidity and protecting our headcount capacity to support our customers and grow our business when global economic activity begins to recover. For the remainder of 2020, we anticipate that our priorities for use of cash will be similar to prior years, with our first priority being continued investment in product development and profitably and growing our business to extend our market leadership. We will continue to evaluate acquisition opportunities that are complementary to our product footprint and technology direction. We will also continue to weigh our share repurchase options against cash for acquisitions and investing in the business. At this time, we do not anticipate any borrowing requirements for the remainder of 2020 for general corporate purposes.

 

Critical Accounting Policies and Estimates

In the first six months of 2020, there were no significant changes to our critical accounting policies and estimates from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended December 31, 2019 other than the adoption of the ASC 326 Financial Instruments – Credit Losses.

Forward-Looking Statements

Certain statements contained in this filing are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to statements related to expectations about global macroeconomic trends and industry developments, plans for future business development activities, anticipated costs of revenues, product mix and service

 

26


 

revenues, research and development, selling, general and administrative activities, and liquidity and capital needs and resources. When used in this quarterly report, the words “may,” “expect,” “forecast,” “anticipate,” “intend,” “plan,” “believe,” “could,” “seek,” “project,” “estimate,” and similar expressions are generally intended to identify forward-looking statements. Undue reliance should not be placed on these forward-looking statements, which reflect opinions only as of the date of this quarterly report. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Investors are cautioned that 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.

Some of the factors that could cause actual results to differ materially from the results discussed in forward-looking statements include:

 

the duration and severity of the coronavirus disease (COVID-19) pandemic and of measures taken to combat its spread, and the effects of both on our employees, customers, partners and the global economy;

 

ongoing disruption and transformation in our vertical markets, including the aggravating effects of the COVID-19 pandemic on the sector;

 

the operational and financial effects of our business transition to cloud subscription-based solutions;

 

economic, political and market conditions;

 

our ability to attract and retain highly skilled employees;

 

competition;

 

our dependence on a single line of business;

 

our dependence on generating revenue from software licenses and cloud subscriptions to drive business;

 

undetected errors or “bugs” in our software;

 

the risk of defects, delays or interruptions in our cloud subscription services;

 

possible compromises of our data protection and IT security measures;

 

risks associated with large system implementations;

 

possible liability to customers if our products fail;

 

the requirement to maintain high quality professional service capabilities;

 

the risks of international operations, including foreign currency exchange risk;

 

the possibility that research and development investments may not yield sufficient returns;

 

the long sales cycle associated with our products;

 

the difficulty of predicting operating results;

 

the need to continually improve our technology;

 

risks associated with managing growth;

 

reliance on third party and open source software;

 

the need for our products to interoperate with other systems;

 

the need to protect our intellectual property, and our exposure to intellectual property claims of others;

 

economic conditions and regulatory changes caused by the United Kingdom’s pending exit from the European Union;

 

the possible effects on international commerce of new or increased tariffs, or a “trade war”; and

 

other risks described under the heading “Risk Factors” in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019, as these may be updated from time to time in subsequent quarterly reports.

We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results.

 

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Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

There were no material changes to the Quantitative and Qualitative Disclosures about Market Risk previously disclosed in our annual report on Form 10-K for the year ended December 31, 2019.

Item 4.

Controls and Procedures.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that the system of controls has operated effectively in all cases. Our disclosure controls and procedures however are designed to provide reasonable assurance that the objectives of disclosure controls and procedures are met.

As of the end of the period covered by this report, our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of disclosure controls and procedures are met.

Changes in Internal Control over Financial Reporting

During the three months ended June 30, 2020, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, including any corrective actions with regard to material weaknesses.

 

 

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PART II

OTHER INFORMATION

Item 1.

From time to time, we may be a party to legal proceedings arising in the ordinary course of business, and we could be a party to legal proceedings not in the ordinary course of business. We are not currently a party to any legal proceeding the result of which we believe could have a material adverse impact upon our business, financial position, results of operations, or cash flows.

Many of our product installations involve software products that are critical to the operations of our customers’ businesses. Any failure in our products could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although we attempt to contractually limit our liability for damages arising from product failures or negligent acts or omissions, there can be no assurance that the limitations of liability set forth in our contracts will be enforceable in all instances.

Item 1A.

Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A, “Risk Factors,” of our annual report on Form 10-K for the year ended December 31, 2019, as supplemented by the risk factors disclosed in Item 1A, “Risk Factors” of our Form 10-Q for the quarter ended March 31, 2020.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

The following table provides information regarding common stock purchases under our publicly announced repurchase program for the quarter ended June 30, 2020. As mentioned previously, our Board suspended the Company’s share repurchase program, because of COVID-19-related considerations and until conditions improve for the resumption of the program. Accordingly, during the three months ended June 30, 2020, the Company did not repurchase any shares of Manhattan Associates common stock under the share repurchase program. The Company’s authorized repurchase limit remains at $50 million.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period

 

Total Number of Shares Purchased

 

 

Average Price Paid per Share

 

 

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

 

 

Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs

 

April 1 - April 30, 2020

 

 

-

 

 

$

-

 

 

 

-

 

 

 

50,000,000

 

May 1 - May 31, 2020

 

 

-

 

 

 

-

 

 

 

-

 

 

 

50,000,000

 

June 1 - June 30, 2020

 

 

-

 

 

 

-

 

 

 

-

 

 

 

50,000,000

 

Total

 

 

-

 

 

 

 

 

 

 

-

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities.

No events occurred during the quarter covered by this report that would require a response to this item.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

None

 

29


 

Item 6.Exhibits.

 

 

Exhibit 10.1

Manhattan Associates, Inc. 2020 Equity Incentive Plan (incorporated by reference to Annex A to the Company’s Definitive Proxy Statement related to its 2020 Annual Meeting of Shareholders filed with the Securities and Exchange Commission on March 30, 2020 (Commission File No. 000-23999))

 

 

Exhibit 31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

Exhibit 31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

Exhibit 32*

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

Exhibit 101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

 

Exhibit 101.SCH

Inline XBRL Taxonomy Extension Schema Document

 

 

Exhibit 101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

Exhibit 101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

Exhibit 101.LAB

XBRL Taxonomy Extension Label Linkbase Document

 

 

Exhibit 101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

Exhibit 104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, has been formatted in Inline XBRL.

 

*

In accordance with Item 601(b)(32)(ii) of the SEC’s Regulation S-K, this Exhibit is hereby furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933.


 

 

30


 

SIGNATURES

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

MANHATTAN ASSOCIATES, INC.

 

       Date:

July 27, 2020

/s/ Eddie Capel

 

 

Eddie Capel

 

 

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

       Date:

July 27, 2020

/s/ Dennis B. Story

 

 

Dennis B. Story

 

 

Executive Vice President, Chief Financial Officer and Treasurer

 

 

(Principal Financial Officer)

 

 

31