Annual Statements Open main menu

MANHATTAN ASSOCIATES INC - Quarter Report: 2023 September (Form 10-Q)

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 September 30, 2023

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 October 26, 2023, the latest practicable date, is as follows: 61,565,157 shares of common stock, $0.01 par value per share.

 

 

 


 

MANHATTAN ASSOCIATES, INC.

FORM 10-Q

Quarter Ended September 30, 2023

TABLE OF CONTENTS

PART I

 

 

Financial Information

 

 

 

 

Item 1.

Financial Statements.

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022

3

 

 

Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2023 and 2022 (unaudited)

4

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2023 and 2022 (unaudited)

5

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited)

6

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months and nine months ended September 30, 2023 and 2022 (unaudited)

7

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

8

 

 

Item 2.

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

14

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

25

 

 

 

Item 4.

Controls and Procedures.

25

 

 

 

 

PART II

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings.

27

 

 

 

Item 1A.

Risk Factors.

27

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

27

 

 

 

Item 3.

Defaults Upon Senior Securities.

27

 

 

 

Item 4.

Mine Safety Disclosures.

27

 

 

 

Item 5.

Other Information.

27

 

 

 

Item 6.

Exhibits.

28

 

 

 

Signatures.

29

 

 

 

 

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)

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

182,312

 

 

$

225,463

 

Accounts receivable, net of allowance of $5,367 and $6,009, at September 30, 2023 and December 31, 2022, respectively

 

 

183,377

 

 

 

166,767

 

Prepaid expenses and other current assets

 

 

27,170

 

 

 

23,145

 

Total current assets

 

 

392,859

 

 

 

415,375

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

11,266

 

 

 

12,803

 

Operating lease right-of-use assets

 

 

19,976

 

 

 

17,794

 

Goodwill, net

 

 

62,228

 

 

 

62,230

 

Deferred income taxes

 

 

55,523

 

 

 

37,206

 

Other assets

 

 

31,143

 

 

 

24,770

 

Total assets

 

$

572,995

 

 

$

570,178

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

25,253

 

 

$

25,701

 

Accrued compensation and benefits

 

 

67,187

 

 

 

54,469

 

Accrued and other liabilities

 

 

26,429

 

 

 

24,569

 

Deferred revenue

 

 

213,440

 

 

 

208,807

 

Income taxes payable

 

 

517

 

 

 

2,049

 

Total current liabilities

 

 

332,826

 

 

 

315,595

 

 

 

 

 

 

 

 

Operating lease liabilities, long-term

 

 

16,237

 

 

 

14,065

 

Other non-current liabilities

 

 

13,827

 

 

 

13,718

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

Preferred stock, no par value; 20,000,000 shares authorized, no shares issued or outstanding in 2023 and 2022

 

 

-

 

 

 

-

 

Common stock, $0.01 par value; 200,000,000 shares authorized; 61,562,480 and 62,191,570 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

 

 

616

 

 

 

621

 

Retained earnings

 

 

238,315

 

 

 

253,711

 

Accumulated other comprehensive loss

 

 

(28,826

)

 

 

(27,532

)

Total shareholders' equity

 

 

210,105

 

 

 

226,800

 

Total liabilities and shareholders' equity

 

$

572,995

 

 

$

570,178

 

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Cloud subscriptions

 

$

65,033

 

 

$

45,267

 

 

$

183,196

 

 

$

124,767

 

Software license

 

 

3,870

 

 

 

6,386

 

 

 

12,967

 

 

 

19,869

 

Maintenance

 

 

35,296

 

 

 

35,820

 

 

 

106,772

 

 

 

107,115

 

Services

 

 

127,965

 

 

 

103,425

 

 

 

368,744

 

 

 

294,284

 

Hardware

 

 

6,277

 

 

 

7,203

 

 

 

18,791

 

 

 

22,946

 

Total revenue

 

 

238,441

 

 

 

198,101

 

 

 

690,470

 

 

 

568,981

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of cloud subscriptions, maintenance and services

 

 

111,142

 

 

 

95,691

 

 

 

322,914

 

 

 

266,482

 

Cost of software license

 

 

297

 

 

 

467

 

 

 

967

 

 

 

1,749

 

Research and development

 

 

33,093

 

 

 

29,375

 

 

 

95,487

 

 

 

84,754

 

Sales and marketing

 

 

17,650

 

 

 

15,742

 

 

 

54,278

 

 

 

47,881

 

General and administrative

 

 

21,371

 

 

 

18,392

 

 

 

61,561

 

 

 

54,963

 

Depreciation and amortization

 

 

1,440

 

 

 

1,664

 

 

 

4,247

 

 

 

5,157

 

Total costs and expenses

 

 

184,993

 

 

 

161,331

 

 

 

539,454

 

 

 

460,986

 

Operating income

 

 

53,448

 

 

 

36,770

 

 

 

151,016

 

 

 

107,995

 

Other income, net

 

 

1,739

 

 

 

1,612

 

 

 

2,923

 

 

 

4,593

 

Income before income taxes

 

 

55,187

 

 

 

38,382

 

 

 

153,939

 

 

 

112,588

 

Income tax provision

 

 

5,766

 

 

 

8,708

 

 

 

26,107

 

 

 

21,497

 

Net income

 

$

49,421

 

 

$

29,674

 

 

$

127,832

 

 

$

91,091

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.80

 

 

$

0.47

 

 

$

2.07

 

 

$

1.45

 

Diluted earnings per share

 

$

0.79

 

 

$

0.47

 

 

$

2.05

 

 

$

1.43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

61,639

 

 

 

62,592

 

 

 

61,902

 

 

 

62,917

 

Diluted

 

 

62,310

 

 

 

63,165

 

 

 

62,501

 

 

 

63,483

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Net income

 

$

49,421

 

 

$

29,674

 

 

$

127,832

 

 

$

91,091

 

Foreign currency translation adjustment

 

 

(2,086

)

 

 

(3,566

)

 

 

(1,294

)

 

 

(8,781

)

Comprehensive income

 

$

47,335

 

 

$

26,108

 

 

$

126,538

 

 

$

82,310

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

 

(unaudited)

 

 

(unaudited)

 

Operating activities:

 

 

 

 

 

 

Net income

 

$

127,832

 

 

$

91,091

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

4,247

 

 

 

5,157

 

Equity-based compensation

 

 

53,598

 

 

 

44,209

 

Loss (gain) on disposal of equipment

 

 

42

 

 

 

(20

)

Deferred income taxes

 

 

(18,359

)

 

 

(20,736

)

Unrealized foreign currency loss (gain)

 

 

922

 

 

 

(2,933

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

(17,168

)

 

 

(23,384

)

Other assets

 

 

(7,747

)

 

 

(9,190

)

Accounts payable, accrued and other liabilities

 

 

13,477

 

 

 

20,743

 

Income taxes

 

 

(4,347

)

 

 

(730

)

Deferred revenue

 

 

5,362

 

 

 

20,195

 

Net cash provided by operating activities

 

 

157,859

 

 

 

124,402

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(2,761

)

 

 

(4,152

)

Net cash used in investing activities

 

 

(2,761

)

 

 

(4,152

)

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

Repurchase of common stock

 

 

(195,716

)

 

 

(179,029

)

Net cash used in financing activities

 

 

(195,716

)

 

 

(179,029

)

 

 

 

 

 

 

 

Foreign currency impact on cash

 

 

(2,533

)

 

 

(7,872

)

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(43,151

)

 

 

(66,651

)

Cash and cash equivalents at beginning of period

 

 

225,463

 

 

 

263,706

 

Cash and cash equivalents at end of period

 

$

182,312

 

 

$

197,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2023 (unaudited)

 

 

61,668,512

 

 

$

617

 

 

$

-

 

 

$

196,673

 

 

$

(26,740

)

 

$

170,550

 

Repurchase of common stock

 

 

(136,165

)

 

 

(1

)

 

 

(18,821

)

 

 

(7,779

)

 

 

-

 

 

 

(26,601

)

Restricted stock units issuance

 

 

30,133

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Excise tax on net stock repurchases

 

 

-

 

 

 

-

 

 

 

(209

)

 

 

-

 

 

 

-

 

 

 

(209

)

Equity-based compensation

 

 

-

 

 

 

-

 

 

 

19,030

 

 

 

-

 

 

 

-

 

 

 

19,030

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,086

)

 

 

(2,086

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

49,421

 

 

 

-

 

 

 

49,421

 

Balance, September 30, 2023 (unaudited)

 

 

61,562,480

 

 

$

616

 

 

$

-

 

 

$

238,315

 

 

$

(28,826

)

 

$

210,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2022 (audited)

 

 

62,191,570

 

 

$

621

 

 

$

-

 

 

$

253,711

 

 

$

(27,532

)

 

$

226,800

 

Repurchase of common stock

 

 

(1,244,580

)

 

 

(11

)

 

 

(52,477

)

 

 

(143,228

)

 

 

-

 

 

 

(195,716

)

Restricted stock units issuance

 

 

615,490

 

 

 

6

 

 

 

(6

)

 

 

-

 

 

 

-

 

 

 

-

 

Excise tax accrued

 

 

 

 

 

 

 

 

(1,115

)

 

 

 

 

 

 

 

 

(1,115

)

Equity-based compensation

 

 

-

 

 

 

-

 

 

 

53,598

 

 

 

-

 

 

 

-

 

 

 

53,598

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,294

)

 

 

(1,294

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

127,832

 

 

 

-

 

 

 

127,832

 

Balance, September 30, 2023 (unaudited)

 

 

61,562,480

 

 

$

616

 

 

$

-

 

 

$

238,315

 

 

$

(28,826

)

 

$

210,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2022 (unaudited)

 

 

62,718,513

 

 

$

627

 

 

$

-

 

 

$

233,151

 

 

$

(25,043

)

 

$

208,735

 

Repurchase of common stock

 

 

(354,711

)

 

 

(3

)

 

 

(14,533

)

 

 

(36,706

)

 

 

-

 

 

 

(51,242

)

Restricted stock units issuance

 

 

30,658

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Equity-based compensation

 

 

-

 

 

 

-

 

 

 

14,533

 

 

 

-

 

 

 

-

 

 

 

14,533

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,566

)

 

 

(3,566

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

29,674

 

 

                                 -

 

 

 

29,674

 

Balance, September 30, 2022 (unaudited)

 

 

62,394,460

 

 

$

624

 

 

$

-

 

 

$

226,119

 

 

$

(28,609

)

 

$

198,134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2021 (audited)

 

 

63,154,494

 

 

$

631

 

 

$

-

 

 

$

269,841

 

 

$

(19,828

)

 

$

250,644

 

Repurchase of common stock

 

 

(1,361,605

)

 

 

(13

)

 

 

(44,203

)

 

 

(134,813

)

 

 

-

 

 

 

(179,029

)

Restricted stock units issuance

 

 

601,571

 

 

 

6

 

 

 

(6

)

 

 

-

 

 

 

-

 

 

 

-

 

Equity-based compensation

 

 

-

 

 

 

-

 

 

 

44,209

 

 

 

-

 

 

 

-

 

 

 

44,209

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,781

)

 

 

(8,781

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

91,091

 

 

 

-

 

 

 

91,091

 

Balance, September 30, 2022 (unaudited)

 

 

62,394,460

 

 

$

624

 

 

$

-

 

 

$

226,119

 

 

$

(28,609

)

 

$

198,134

 

 

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 September 30, 2023, the results of operations for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. The results for the three and nine months ended September 30, 2023 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, 2022.

Principles of Consolidation

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

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 cloud subscriptions, software licenses, 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

Cloud subscriptions includes software as a service (SaaS) and arrangements which provide customers with the right to use our software within a cloud 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. Managed services account for less than 2% of our cloud subscription contracts.

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. 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. Perpetual software license revenue accounts for approximately 2% of total revenue.

 

8


 

Our services revenue consists of fees generated from implementation, training, and application managed services, including reimbursements of out-of-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 who have purchased perpetual licenses 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 Judgments

Our customer contracts include the sale of multiple SaaS services or licensed products. Judgment is required to determine whether each service or product sold is a distinct performance obligation that should be accounted for separately. We allocate the transaction price to the distinct performance obligations based on relative standalone selling price (SSP). We estimate SSP based on the prices we charge our customers or by using other 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. We typically bill our professional services 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 or invoice more than a year in advance.

Deferred revenue represents amounts collected prior to having completed performance of cloud subscriptions, maintenance, and professional services. In the three and nine months ended September 30, 2023, we recognized $39.2 million and $181.9 million of revenue that was included in the deferred revenue balance as of December 31, 2022. In the three months ended September 30, 2023, we recognized $97.9 million of revenue that was included in the deferred revenue balance as of June 30, 2023.

Remaining Performance Obligations

As of September 30, 2023, approximately $1.3 billion of revenue - approximately 98% of which is cloud-native subscriptions - is expected to be recognized from remaining performance obligations (RPO) with a non-cancelable term greater than 1 year (including deferred revenue as well as amounts that are expected to be invoiced and recognized as revenue in future periods). We expect to recognize revenue on approximately 40% of these remaining performance obligations over the next 24 months with the balance 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.

 

9


 

We record an allowance for credit losses 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 $2.8 million and $0.9 million for the three months ended September 30, 2023 and 2022, respectively, and $4.0 million and $2.1 million for both the nine months ended September 30, 2023 and 2022.

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 $38.0 million as of September 30, 2023, of which $28.7 million is included in other assets and $9.3 million is included in prepaid expenses. Sales commission expense is included in Sales and Marketing expense in the accompanying Consolidated Statements of Income. Amortization of sales commissions was $2.4 million and $1.8 million for the three months ended September 30, 2023 and 2022, respectively, and $7.0 million and $5.5 million for the nine months ended September 30, 2023 and 2022, 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 September 30, 2023, our cash and cash equivalents were $98.4 million and $83.9 million, respectively. We had neither short-term investments nor long-term investments at September 30, 2023. 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 September 30, 2023.

4.
Equity-Based Compensation

We granted 876 and 2,411 restricted stock units (RSUs) during the three months ended September 30, 2023 and 2022, respectively, and granted 582,209 and 679,540 RSUs during the nine months ended September 30, 2023 and 2022, respectively. Equity-based compensation expense related to RSUs was $19.0 million and $14.5 million during the three months ended September 30, 2023 and 2022, respectively, and $53.6 million and $44.2 million during the nine months ended September 30, 2023 and 2022, respectively.

 

10


 

We present below a summary of changes during the nine months ended September 30, 2023 in our unvested units of restricted stock:

 

 

Number of shares/units

 

Outstanding at December 31, 2022

 

 

1,427,831

 

Granted

 

 

582,209

 

Vested

 

 

(615,490

)

Forfeited

 

(12,726

)

Outstanding at September 30, 2023

 

 

1,381,824

 

 

5.
Income Taxes

Our effective tax rate was 10.4% and 22.7% for the three months ended September 30, 2023 and 2022, respectively, and 17.0% and 19.1% for the nine months ended September 30, 2023 and 2022, respectively. The decrease in the effective tax rate for three months ended September 30, 2023 is due to a decrease of tax with respect to foreign tax creditability in the United States, allowable United States research and development credits, and favorable return to provision estimates. The decrease in the effective tax rate for the nine months ended September 30, 2023 is due to a decrease of tax with respect to foreign tax creditability in the United States, allowable United States research and development credits, and favorable return to provision estimates offset by a decrease of excess tax benefits on restricted stock vesting.

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 September 30, 2023, our uncertain tax positions increased by a net $0.3 million due to the settlement of a tax contingency reserve.

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 U.S. federal, substantially all state and local income tax examinations and substantially all non-U.S. income tax examinations for years before 2010.

Under the Inflation Reduction Act of 2022, we are subject to a 1% excise tax on stock repurchases, net of stock issuances, beginning in 2023. We have included the tax in the cost of our stock repurchases as a reduction of shareholders' equity.

 

6.
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 nine months ended September 30, 2023 and 2022 (in thousands, except per share data):

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands, except per share data)

 

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

49,421

 

 

$

29,674

 

 

$

127,832

 

 

$

91,091

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.80

 

 

$

0.47

 

 

$

2.07

 

 

$

1.45

 

Effect of CESs

 

 

(0.01

)

 

 

-

 

 

 

(0.02

)

 

 

(0.02

)

Diluted

 

$

0.79

 

 

$

0.47

 

 

$

2.05

 

 

$

1.43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

61,639

 

 

 

62,592

 

 

 

61,902

 

 

 

62,917

 

Effect of CESs

 

 

671

 

 

 

573

 

 

 

599

 

 

 

566

 

Diluted

 

 

62,310

 

 

 

63,165

 

 

 

62,501

 

 

 

63,483

 

The number of anti-dilutive CESs during the three and nine months ended September 30, 2023 and 2022 was immaterial.

 

11


 

7.
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 one of our products 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 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.

8.
Reportable 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 operating decision maker evaluates 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 $3.1 million and $2.1 million for the three months ended September 30, 2023 and 2022, respectively, and $9.7 million and $6.6 million for the three and nine months ended September 30, 2023 and 2022, 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.

 

12


 

In accordance with ASC 280, Segment Reporting, we present below certain financial information by reportable segment for the three and nine months ended September 30, 2023 and 2022 (in thousands):

 

 

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cloud subscriptions

 

$

52,846

 

 

$

10,343

 

 

$

1,844

 

 

$

65,033

 

 

$

38,451

 

 

$

5,695

 

 

$

1,121

 

 

$

45,267

 

Software license

 

 

3,502

 

 

 

51

 

 

 

317

 

 

 

3,870

 

 

 

4,686

 

 

 

708

 

 

 

992

 

 

 

6,386

 

Maintenance

 

 

27,951

 

 

 

5,159

 

 

 

2,186

 

 

 

35,296

 

 

 

27,901

 

 

 

5,657

 

 

 

2,262

 

 

 

35,820

 

Services

 

 

96,045

 

 

 

25,594

 

 

 

6,326

 

 

 

127,965

 

 

 

78,479

 

 

 

19,737

 

 

 

5,209

 

 

 

103,425

 

Hardware

 

 

6,220

 

 

 

57

 

 

 

-

 

 

 

6,277

 

 

 

7,157

 

 

 

46

 

 

 

-

 

 

 

7,203

 

    Total revenue

 

 

186,564

 

 

 

41,204

 

 

 

10,673

 

 

 

238,441

 

 

 

156,674

 

 

 

31,843

 

 

 

9,584

 

 

 

198,101

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

84,275

 

 

 

22,134

 

 

 

5,030

 

 

 

111,439

 

 

 

73,787

 

 

 

18,117

 

 

 

4,254

 

 

 

96,158

 

Operating expenses

 

 

66,356

 

 

 

4,514

 

 

 

1,244

 

 

 

72,114

 

 

 

58,475

 

 

 

3,731

 

 

 

1,303

 

 

 

63,509

 

Depreciation and amortization

 

 

1,278

 

 

 

141

 

 

 

21

 

 

 

1,440

 

 

 

1,498

 

 

 

144

 

 

 

22

 

 

 

1,664

 

Total costs and expenses

 

 

151,909

 

 

 

26,789

 

 

 

6,295

 

 

 

184,993

 

 

 

133,760

 

 

 

21,992

 

 

 

5,579

 

 

 

161,331

 

Operating income

 

$

34,655

 

 

$

14,415

 

 

$

4,378

 

 

$

53,448

 

 

$

22,914

 

 

$

9,851

 

 

$

4,005

 

 

$

36,770

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cloud subscriptions

 

$

148,812

 

 

$

29,454

 

 

$

4,930

 

 

$

183,196

 

 

$

106,064

 

 

$

15,544

 

 

$

3,159

 

 

$

124,767

 

Software license

 

 

8,556

 

 

 

1,902

 

 

 

2,509

 

 

 

12,967

 

 

 

12,147

 

 

 

5,969

 

 

 

1,753

 

 

 

19,869

 

Maintenance

 

 

84,938

 

 

 

14,919

 

 

 

6,915

 

 

 

106,772

 

 

 

84,984

 

 

 

15,288

 

 

 

6,843

 

 

 

107,115

 

Services

 

 

275,602

 

 

 

75,321

 

 

 

17,821

 

 

 

368,744

 

 

 

222,206

 

 

 

58,670

 

 

 

13,408

 

 

 

294,284

 

Hardware

 

 

18,623

 

 

 

168

 

 

 

-

 

 

 

18,791

 

 

 

22,809

 

 

 

137

 

 

 

-

 

 

 

22,946

 

    Total revenue

 

 

536,531

 

 

 

121,764

 

 

 

32,175

 

 

 

690,470

 

 

 

448,210

 

 

 

95,608

 

 

 

25,163

 

 

 

568,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

242,998

 

 

 

66,401

 

 

 

14,482

 

 

 

323,881

 

 

 

203,592

 

 

 

52,552

 

 

 

12,087

 

 

 

268,231

 

Operating expenses

 

 

193,080

 

 

 

14,238

 

 

 

4,008

 

 

 

211,326

 

 

 

171,179

 

 

 

12,799

 

 

 

3,620

 

 

 

187,598

 

Depreciation and amortization

 

 

3,825

 

 

 

361

 

 

 

61

 

 

 

4,247

 

 

 

4,625

 

 

 

466

 

 

 

66

 

 

 

5,157

 

Total costs and expenses

 

 

439,903

 

 

 

81,000

 

 

 

18,551

 

 

 

539,454

 

 

 

379,396

 

 

 

65,817

 

 

 

15,773

 

 

 

460,986

 

Operating income

 

$

96,628

 

 

$

40,764

 

 

$

13,624

 

 

$

151,016

 

 

$

68,814

 

 

$

29,791

 

 

$

9,390

 

 

$

107,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cloud subscriptions revenue primarily relates to our Manhattan Active omnichannel, warehouse management solutions, and transportation management solutions for the nine months ended September 30, 2023. The majority of our software license revenue (over 80%) relates to our warehouse management product group for the three and nine months ended September 30, 2023.

At September 30, 2023, total assets for the Americas, EMEA and APAC segments were $464.4 million, $81.3 million, and $27.3 million, respectively.

 

13


 

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 nine months ended September 30, 2023 and 2022, 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, 2022. 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 Unified Omnichannel Commerce and Digital Supply Chain, 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 nine months ended September 30, 2023, we generated $238.4 million and $690.5 million in total revenue, respectively. The revenue mix for the three and nine months ended September 30, 2023 was: cloud subscriptions 27%; software license 2%; maintenance 15%; services 53%; 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 $72.4 million and $221.4 million for the three and nine months ended September 30, 2023, respectively, which represents approximately 30% and 32% of our total revenue for three and nine months ended September 30, 2023, respectively. International revenue includes all revenue derived from sales to customers outside the United States. At September 30, 2023, we employed approximately 4,500 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

While we remain cautious about the global economy, our results for the first nine months of 2023 exceeded our expectations due to solid demand for our cloud solutions. Our solutions are mission critical, supporting complex global supply chains. We believe that favorable secular tailwinds, such as the digital transformation of businesses in manufacturing, wholesale and retail, coupled with our commitment to investing in organic innovation to deliver leading cloud supply chain, inventory and omnichannel commerce solutions is in synergistic alignment with current market demand. We believe that this alignment is contributing to our strong financial results, higher demand and strong win rates for our solutions for the period. We remain committed to investing in our business to drive customer success and expand our total addressable market, which we believe will position us well to achieve long-term sustainable growth and earnings.

We have taken steps to best ensure the health and safety of our employees globally. Our daily execution is a hybrid (office and virtual) model, and we continue to find innovative ways to engage with employees, customers and prospects, ensuring that they are supported.

Going forward, we are investing in our cloud business, including enterprise investments in innovation, and strategic operating expenses to support growth objectives.

 

 

14


 

For the remainder of 2023, our five strategic goals remain to:

Focus on employees, 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

In 2017, we released Manhattan Active™ Solutions, a cloud subscription service. Under a cloud subscription, customers pay a periodic fee for the right to use our software within a cloud environment that we provide and manage over a specified period of time. As part of our subscription program, we allow customers to convert their maintenance contracts to cloud subscription contracts.

In the sixth year of our cloud transition, demand for our cloud solutions is the dominant preference of customers. Cloud solutions are our fastest growing revenue line and represents 93% of total software revenue in the first nine months of 2023. We believe the reduction in license and maintenance revenue in favor of our cloud offerings is positive for our customers and Manhattan Associates.

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 both the three and nine months ended September 30, 2023, approximately 68% of our total revenue was generated in the United States, 18% in EMEA, and the remaining balance in APAC, Canada, and Latin America. In addition, Gartner Inc. (“Gartner”), an information technology research and advisory company, estimates that approximately 77% 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 mission critical nature of our software, combined with a challenging global macro environment, our current sales cycles for large cloud subscriptions in our target markets could be extended. While demand for our solutions is solid, the current business climate within the United States and geographic regions in which we operate may affect customers’ and prospects’ decisions regarding timing of strategic capital expenditures.

While we are encouraged by our results, we remain cautious regarding the pace of global economic growth. We believe global geopolitical and economic volatility likely will continue to shape customers’ and prospects’ enterprise software buying decisions.

Revenue

Cloud Subscriptions and Software License Revenue. Cloud subscriptions revenue and remaining performance obligation (RPO) growth are the leading indicators of our business performance, primarily derived from cloud native subscription fees that customers pay for our Unified Omnichannel Commerce and Digital Supply Chain solutions.

In the nine months ended September 30, 2023, cloud subscriptions revenue was 93% of total cloud and software license revenue. RPO increased 37% over prior year on strong demand. As of September 30, 2023, approximately $1.3 billion of revenue, 98% of which is cloud native subscriptions, is expected to be recognized from RPO with a non-cancelable term greater than 1 year (including deferred revenue as well as amounts that are expected to be invoiced and recognized as revenue in future periods).

In the three months ended September 30, 2023, cloud subscriptions revenue totaled $65.0 million or 27% of total revenues. In the nine months ended September 30, 2023, cloud subscriptions revenue totaled $183.2 million or 27% of total revenues. Cloud subscriptions revenue is recognized ratably over the term of the agreement, typically five years and more. Cloud subscription revenue growth is influenced by the strength of general economic and business conditions and the competitive position of our software products. In the three months ended September 30, 2023, software license revenue totaled $3.9 million, or 2% of total revenue. In the nine months ended September 30, 2023, software license revenue totaled $13.0 million or 2% of total revenue.

Our Unified Omnichannel Commerce and Digital Supply Chain solutions are focused on core omnichannel operation (e-commerce, retail store operations and point-of-sale), supply chain commerce operations (Warehouse Management, Transportation Management and Labor Management), and Inventory Optimization, 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 cloud subscriptions and software license revenues faster than our competitors through investment in innovation.

 

15


 

Maintenance Revenue. Our maintenance revenue for the three months ended September 30, 2023 totaled $35.3 million, or 15% of total revenue. For the nine months ended September 30, 2023, maintenance revenue totaled $106.8 million or 15% of total revenue. For maintenance, we offer a comprehensive 24 hours per day, 365 days per year program that provides our perpetual software license customers with software upgrades, when and if available, which include additional or improved functionality and technological advances incorporating emerging supply chain and industry initiatives.

Maintenance revenue is influenced by: (1) the amount of new software license revenue; (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 or convert to cloud subscription contracts. 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 September 30, 2023, our services revenue totaled $128.0 million, or 53% of total revenue. In the nine months ended September 30, 2023, our services revenue totaled $368.7 million, or 53% of total revenue.

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.

Services revenue growth is contingent upon cloud sales 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.

Hardware Revenue. Our hardware revenue, which we recognize net of related costs, totaled $6.3 million in the three months ended September 30, 2023 representing 3% of total revenue. For the nine months ended September 30, 2023, hardware revenue totaled $18.8 million, or 3% of total revenue. 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.

Product Development

We continue to invest significantly in research and development (R&D) to provide leading Unified Omnichannel Commerce and Digital Supply Chain solutions to enable global retailers, manufacturers, wholesalers, distributors, and logistics providers to 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 points of sale. Our R&D expenses were $33.1 million and $95.5 million for the three and nine months ended September 30, 2023.

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, addressing 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.

 

16


 

Cash Flow and Financial Condition

For the three and nine months ended September 30, 2023, we generated cash flow from operating activities of $58.6 million and $157.9 million, respectively. Our cash and cash equivalents at September 30, 2023 totaled $182.3 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 our Unified Omnichannel Commerce and Digital Supply Chain solutions to drive revenue and earnings growth. In addition, during the nine months ended September 30, 2023, we repurchased approximately $166.0 million of Manhattan Associates’ outstanding common stock under the share repurchase program approved by our Board of Directors. In October 2023, our Board of Directors approved replenishing the Company’s remaining share repurchase authority to an aggregate of $75.0 million of our common stock.

For the remainder of 2023, we expect our first priority for use of cash will continue to be investments in our Unified Omnichannel Commerce and Digital Supply Chain solutions. We also expect to prioritize capital allocation in our global teams to fund growth, and share repurchases. We do not anticipate any borrowing requirements in 2023 for general corporate purposes.

Results of Operations

In the following table, we present a summary of our consolidated results for the three and nine months ended September 30, 2023 and 2022.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

238,441

 

 

$

198,101

 

 

$

690,470

 

 

$

568,981

 

Costs and expenses

 

 

184,993

 

 

 

161,331

 

 

 

539,454

 

 

 

460,986

 

Operating income

 

 

53,448

 

 

 

36,770

 

 

 

151,016

 

 

 

107,995

 

Other income, net

 

 

1,739

 

 

 

1,612

 

 

 

2,923

 

 

 

4,593

 

Income before income taxes

 

 

55,187

 

 

 

38,382

 

 

 

153,939

 

 

 

112,588

 

Net income

 

$

49,421

 

 

$

29,674

 

 

$

127,832

 

 

$

91,091

 

Diluted earnings per share

 

$

0.79

 

 

$

0.47

 

 

$

2.05

 

 

$

1.43

 

Diluted weighted average number of shares

 

 

62,310

 

 

 

63,165

 

 

 

62,501

 

 

 

63,483

 

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 nine months ended September 30, 2023 and 2022, 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:

 

17


 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

% Change vs.
Prior Year

 

 

2023

 

 

2022

 

 

% Change vs.
Prior Year

 

Revenue:

 

(in thousands)

 

 

 

(in thousands)

 

 

Cloud subscriptions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

52,846

 

 

 

38,451

 

 

 

37

%

 

 

148,812

 

 

 

106,064

 

 

 

40

%

EMEA

 

 

10,343

 

 

 

5,695

 

 

 

82

%

 

 

29,454

 

 

 

15,544

 

 

 

89

%

APAC

 

 

1,844

 

 

 

1,121

 

 

 

64

%

 

 

4,930

 

 

 

3,159

 

 

 

56

%

Total cloud subscriptions

 

 

65,033

 

 

 

45,267

 

 

 

44

%

 

 

183,196

 

 

 

124,767

 

 

 

47

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software license

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

3,502

 

 

 

4,686

 

 

 

-25

%

 

 

8,556

 

 

 

12,147

 

 

 

-30

%

EMEA

 

 

51

 

 

 

708

 

 

 

-93

%

 

 

1,902

 

 

 

5,969

 

 

 

-68

%

APAC

 

 

317

 

 

 

992

 

 

 

-68

%

 

 

2,509

 

 

 

1,753

 

 

 

43

%

Total software license

 

 

3,870

 

 

 

6,386

 

 

 

-39

%

 

 

12,967

 

 

 

19,869

 

 

 

-35

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maintenance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

27,951

 

 

 

27,901

 

 

 

0

%

 

 

84,938

 

 

 

84,984

 

 

 

0

%

EMEA

 

 

5,159

 

 

 

5,657

 

 

 

-9

%

 

 

14,919

 

 

 

15,288

 

 

 

-2

%

APAC

 

 

2,186

 

 

 

2,262

 

 

 

-3

%

 

 

6,915

 

 

 

6,843

 

 

 

1

%

Total maintenance

 

 

35,296

 

 

 

35,820

 

 

 

-1

%

 

 

106,772

 

 

 

107,115

 

 

 

0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

96,045

 

 

 

78,479

 

 

 

22

%

 

 

275,602

 

 

 

222,206

 

 

 

24

%

EMEA

 

 

25,594

 

 

 

19,737

 

 

 

30

%

 

 

75,321

 

 

 

58,670

 

 

 

28

%

APAC

 

 

6,326

 

 

 

5,209

 

 

 

21

%

 

 

17,821

 

 

 

13,408

 

 

 

33

%

Total services

 

 

127,965

 

 

 

103,425

 

 

 

24

%

 

 

368,744

 

 

 

294,284

 

 

 

25

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hardware

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

6,220

 

 

 

7,157

 

 

 

-13

%

 

 

18,623

 

 

 

22,809

 

 

 

-18

%

EMEA

 

 

57

 

 

 

46

 

 

 

24

%

 

 

168

 

 

 

137

 

 

 

23

%

APAC

 

 

-

 

 

 

-

 

 

-

 

 

 

-

 

 

 

-

 

 

-

 

Total hardware and other

 

 

6,277

 

 

 

7,203

 

 

 

-13

%

 

 

18,791

 

 

 

22,946

 

 

 

-18

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

186,564

 

 

 

156,674

 

 

 

19

%

 

 

536,531

 

 

 

448,210

 

 

 

20

%

EMEA

 

 

41,204

 

 

 

31,843

 

 

 

29

%

 

 

121,764

 

 

 

95,608

 

 

 

27

%

APAC

 

 

10,673

 

 

 

9,584

 

 

 

11

%

 

 

32,175

 

 

 

25,163

 

 

 

28

%

Total revenue

 

$

238,441

 

 

$

198,101

 

 

 

20

%

 

$

690,470

 

 

$

568,981

 

 

 

21

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

34,655

 

 

 

22,914

 

 

 

51

%

 

 

96,628

 

 

 

68,814

 

 

 

40

%

EMEA

 

 

14,415

 

 

 

9,851

 

 

 

46

%

 

 

40,764

 

 

 

29,791

 

 

 

37

%

APAC

 

 

4,378

 

 

 

4,005

 

 

 

9

%

 

 

13,624

 

 

 

9,390

 

 

 

45

%

Total operating income

 

$

53,448

 

 

$

36,770

 

 

 

45

%

 

$

151,016

 

 

$

107,995

 

 

 

40

%

 

Condensed Consolidated Financial Summary - Third Quarter 2023

Consolidated total revenue: $238.4 million for the third quarter of 2023, compared to $198.1 million for the third quarter of 2022;
Cloud subscription revenue: $65.0 million for the third quarter of 2023, compared to $45.3 million for the third quarter of 2022;
Software license revenue: $3.9 million for the third quarter of 2023, compared to $6.4 million for the third quarter of 2022;
Services revenue: $128.0 million for the third quarter of 2023, compared to $103.4 million for the third quarter of 2022;
Operating income: $53.4 million for the third quarter of 2023, compared to $36.8 million for the third quarter of 2022;

 

18


 

Operating margins: 22.4% for the third quarter of 2023, compared to 18.6% for the third quarter of 2022;
Diluted earnings per share: $0.79 for the third quarter of 2023 compared to $0.47 for the third quarter of 2022;
Cash flow from operations: $58.6 million in the third quarter of 2023, compared to $39.9 million in the third quarter of 2022;
Days sales outstanding: 71 days at September 30, 2023, compared to 70 days at June 30, 2023;
Cash: $182.3 million at September 30, 2023, compared to $153.3 million at June 30, 2023;
Share repurchases: In the three months ended September 30, 2023, we reduced our common shares outstanding by approximately 0.2%, primarily through the repurchase of approximately 0.1 million shares of our common stock, under the share repurchase program authorized by our board of directors for a total investment of $25.1 million. In October 2023, our Board of Directors approved replenishing the Company’s remaining share repurchase authority to an aggregate of $75.0 million of our outstanding common stock.

 

Below we discuss our consolidated results of operations for the third quarters of 2023 and 2022.

 

Revenue

 

 

Three Months Ended September 30,

 

 

 

 

 

% Change vs.

 

 

% of Total Revenue

 

 

 

2023

 

 

2022

 

 

Prior Year

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cloud subscriptions

 

$

65,033

 

 

$

45,267

 

 

 

44

%

 

 

27

%

 

 

23

%

Software license

 

 

3,870

 

 

 

6,386

 

 

 

-39

%

 

 

2

%

 

 

3

%

Maintenance

 

 

35,296

 

 

 

35,820

 

 

 

-1

%

 

 

15

%

 

 

18

%

Services

 

 

127,965

 

 

 

103,425

 

 

 

24

%

 

 

53

%

 

 

52

%

Hardware

 

 

6,277

 

 

 

7,203

 

 

 

-13

%

 

 

3

%

 

 

4

%

Total revenue

 

$

238,441

 

 

$

198,101

 

 

 

20

%

 

 

100

%

 

 

100

%

Cloud Subscriptions Revenue. In the third quarter of 2023, cloud subscriptions revenue increased $19.8 million compared to the same quarter in the prior year. Our customers have demonstrated a clear preference for 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 $14.4 million, $4.7 million and $0.7 million in the third quarter of 2023, respectively.

Software License Revenue. Software license revenue decreased $2.5 million in the third quarter of 2023 compared to the same quarter in the prior year on strong market preference for our cloud-native solutions. The perpetual license sales percentage mix across our product suite in the third quarter ended September 30, 2023 was approximately 80% warehouse management solutions.

Maintenance Revenue. Maintenance revenue decreased $0.5 million in the third quarter of 2023 compared to the same quarter in the prior year. The majority of our maintenance revenue is derived from our Americas segment.

Services Revenue. Services revenue increased $24.5 million in the third quarter of 2023 compared to the same quarter in the prior year. Services revenue for the Americas, EMEA and APAC segments increased $17.5 million, $5.9 million, and $1.1 million, respectively, compared to the same quarter in the prior year, primarily driven by the increase in cloud subscriptions.

Hardware Revenue. Hardware sales decreased $0.9 million in the third quarter of 2023 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.

 

 

 

19


 

Cost of Revenue

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

% Change vs.
Prior Year

 

Cost of software license

 

$

297

 

 

$

467

 

 

 

-36

%

Cost of cloud subscriptions, maintenance and services

 

 

111,142

 

 

 

95,691

 

 

 

16

%

Total cost of revenue

 

$

111,439

 

 

$

96,158

 

 

 

16

%

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 decreased by $0.2 million in the third quarter of 2023 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 computer infrastructure costs. The $15.5 million increase in the quarter ended September 30, 2023 compared to the same quarter in the prior year was principally due to a $15.0 million increase in compensation and other personnel-related expenses, a $1.4 million increase in travel expenses, and a $0.9 million increase in computer infrastructure costs, partially offset by a $2.1 million decrease in performance-based compensation.

 

Operating Expenses

 

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

% Change vs.
Prior Year

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

33,093

 

 

$

29,375

 

 

 

13

%

Sales and marketing

 

 

17,650

 

 

 

15,742

 

 

 

12

%

General and administrative

 

 

21,371

 

 

 

18,392

 

 

 

16

%

Depreciation and amortization

 

 

1,440

 

 

 

1,664

 

 

 

-13

%

Operating expenses

 

$

73,554

 

 

$

65,173

 

 

 

13

%

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

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 September 30, 2023 increased by $3.7 million, compared to the same quarter of 2022 principally due to an increase in compensation and other personnel-related expenses.

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 increased $1.9 million in the quarter ended September 30, 2023 compared to the same quarter in the prior year primarily due to a $1.2 million increase in compensation and other personnel-related expenses and a $0.3 million increase in marketing and campaign program expenses.

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 increased $3.0 million, in the current year quarter compared to the same quarter in the prior year, primarily due to a $2.2 million increase in compensation and other personnel-related expenses..

Depreciation and Amortization. Depreciation and amortization of intangibles and software expense for the third quarter of 2023 and 2022 was $1.4 million and $1.7 million, respectively.

 

20


 

Operating Income

Operating income in the third quarter of 2023 was $53.4 million compared to $36.8 million in the same quarter in the prior year. Operating margin was 22.4% for the third quarter of 2023 versus 18.6% for the same quarter in the prior year. Operating income and margin increased primarily due to increased cloud subscriptions and services revenues.

Other Income and Income Taxes

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

% Change vs.
Prior Year

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

$

1,739

 

 

$

1,612

 

 

 

8

%

Income tax provision

 

 

5,766

 

 

 

8,708

 

 

 

-34

%

 

Other income, net. Other income, net primarily includes interest income, foreign currency gains and losses, and other non-operating expenses. Other income, net increased $0.1 million in the third quarter of 2023 compared to the same quarter in the prior year primarily due to a $1.3 million increase in interest income partially offset by a $1.2 million decrease in foreign currency gains. The decrease of foreign currency gains is mainly 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 $0.4 million in the third quarter of 2023, and a $1.6 million of net foreign currency gains in the same quarter in the prior year.

Income tax provision. Our effective income tax rate was 10.4% and 22.7% for the quarters ended September 30, 2023 and 2022, respectively. The decrease in the effective tax rate for the three months ended September 30, 2023 is due to a decrease of tax with respect to foreign tax creditability in the United States, allowable United States research and development credits, and favorable return to provision estimates.

 

Condensed Consolidated Financial Summary – First Nine Months of 2023

Consolidated revenue: $690.5 million for the nine months ended September 30, 2023 compared to $569.0 million for the nine months ended September 30, 2022.
Cloud subscription revenue: $183.2 million for the nine months ended September 30, 2023 compared to $124.8 million for the nine months ended September 30, 2022.
Software license revenue: $13.0 million for the nine months ended September 30, 2023, compared to $19.9 million for the nine months ended September 30, 2022.
Services revenue: $368.7 million for the nine months ended September 30, 2023, compared to $294.3 million for the nine months ended September 30, 2022.
Operating income: $151.0 million for the nine months ended September 30, 2023, compared to $108.0 million for the nine months ended September 30, 2022.
Operating margins: 21.9% for the nine months ended September 30, 2023, compared to 19.0% for the nine months ended September 30, 2022.
Diluted earnings per share: $2.05 for the nine months ended September 30, 2023 compared to $1.43 for the nine months ended September 30, 2022.
Cash flow from operations: $157.9 million for the nine months ended September 30, 2023, compared to $124.4 million for the nine months ended September 30, 2022.
Cash: $182.3 million at September 30, 2023, compared to $225.5 million at December 31, 2022.
Share repurchases: During the nine months ended September 30, 2023, we reduced our common shares outstanding by approximately 1.6% primarily through the repurchase of approximately 1.0 million shares of our common stock, under the share repurchase program authorized by our board of directors, for a total investment of $166.0 million.

 

 

 

21


 

 

 

Below we discuss our consolidated results of operations for the nine months ended September 30, 2023 and 2022.

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

% Change vs.

 

 

% of Total Revenue

 

 

 

2023

 

 

2022

 

 

Prior Year

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cloud subscriptions

 

$

183,196

 

 

$

124,767

 

 

 

47

%

 

 

27

%

 

 

22

%

Software license

 

 

12,967

 

 

 

19,869

 

 

 

-35

%

 

 

2

%

 

 

3

%

Maintenance

 

 

106,772

 

 

 

107,115

 

 

 

0

%

 

 

15

%

 

 

19

%

Services

 

 

368,744

 

 

 

294,284

 

 

 

25

%

 

 

53

%

 

 

52

%

Hardware

 

 

18,791

 

 

 

22,946

 

 

 

-18

%

 

 

3

%

 

 

4

%

Total revenue

 

$

690,470

 

 

$

568,981

 

 

 

21

%

 

 

100

%

 

 

100

%

 

Cloud Subscription Revenue. Cloud subscriptions revenue increased $58.4 million in the nine months ended September 30, 2023 compared to the same period in the prior year, as customers continued to purchase our SaaS offerings rather than a traditional perpetual license. Our customers have demonstrated a clear preference for 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 $42.7 million, $13.9 million and $1.8 million, respectively, in the nine months ended September 30, 2023.

Software License Revenue. Software license revenue decreased $6.9 million in the nine months ended September 30, 2023 compared to the same period in the prior year on strong market preference for our cloud-native solutions. The perpetual license sales percentage mix across our product suite in the nine months ended September 30, 2023 was over 80% warehouse management solutions.

Maintenance Revenue. Maintenance revenue decreased $0.3 million in the nine months ended September 30, 2023 compared to the same period in the prior year. The majority of maintenance revenue is derived through the Americas segment.

Services Revenue. Services revenue increased $74.5 million in the nine months ended September 30, 2023 compared to the same period in the prior year. Services revenue for the Americas, EMEA and APAC segments increased $53.4 million, $16.7 million and $4.4 million in the nine months ended September 30, 2023, respectively, compared with the same period in the prior year, primarily driven by the increase in cloud subscriptions.

Hardware Revenue. Hardware sales decreased $4.2 million in the nine months ended September 30, 2023 compared to the same period in the prior year.

 

Cost of Revenue

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

% Change vs.
Prior Year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of software license

 

$

967

 

 

$

1,749

 

 

 

-45

%

Cost of cloud subscriptions, maintenance and services

 

322,914

 

 

 

266,482

 

 

 

21

%

Total cost of revenue

 

$

323,881

 

 

$

268,231

 

 

 

21

%

Cost of Software License. Cost of software license slightly decreased by $0.8 million in the nine months ended September 30, 2023 compared with the same period 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 operations; maintenance services; and professional and technical services as well as computer infrastructure costs. The $56.4 million increase in the nine months ended September 30, 2023 compared to the same period in the prior year was principally due to a $42.8 million increase in compensation and other personnel-related expenses, a $2.5 million increase in performance-based compensation expense, a $5.8 million increase in travel expense, and a $3.5 million increase in computer infrastructure cost.

 

22


 

 

Operating Expenses

 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

% Change vs.
Prior Year

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

95,487

 

 

$

84,754

 

 

 

13

%

Sales and marketing

 

54,278

 

 

 

47,881

 

 

 

13

%

General and administrative

 

 

61,561

 

 

 

54,963

 

 

 

12

%

Depreciation and amortization

 

 

4,247

 

 

 

5,157

 

 

 

-18

%

Operating expenses

 

$

215,573

 

 

$

192,755

 

 

 

12

%

 

Research and Development. R&D expenses for the nine months ended September 30, 2023 increased $10.7 million compared to the same period in the prior year principally due to a $9.4 million increase in compensation and other personnel-related expenses, and a $0.7 million increase in performance-based compensation expense.

Sales and Marketing. Sales and marketing expenses increased $6.4 million in the nine months ended September 30, 2023 compared to the same period in the prior year primarily due to a $2.9 million increase in marketing and campaign programs, and a $3.0 million increase in compensation and other personnel related expenses.

General and Administrative. General and administrative expenses increased $6.6 million in the nine months ended September 30, 2023 compared to the same period in the prior year, primarily due to a $4.6 million increase in compensation and other personnel related expenses, a $0.6 million increase in performance-based compensation expense, and a $0.6 million increase in other professional expenses.

Depreciation and Amortization. Depreciation and amortization of intangibles and software expense for the nine months ended September 30, 2023 and 2022 was $4.2 million and $5.2 million, respectively.

 

Operating Income

Operating income for the nine months ended September 30, 2023 was $151.0 million compared to $108.0 million for the same period in the prior year. Operating margin was 21.9% the first nine months of 2023 versus 19.0% for the same period in the prior year. Operating income and margin increased primarily due to increased cloud subscriptions and services revenues.

Other Income and Income Taxes

 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

% Change vs.
Prior Year

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

$

2,923

 

 

$

4,593

 

 

 

-36

%

Income tax provision

 

 

26,107

 

 

 

21,497

 

 

 

21

%

Other income, net. Other income, net decreased $1.7 million in the nine months ended September 30, 2023 compared to the same period in the prior year primarily due to a $5.3 million decrease in foreign currency gains partially offset by a $3.6 million increase in interest income. The decrease of foreign currency gains is mainly 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 losses of $0.9 million in the first nine months of 2023, and $4.3 million of net foreign currency gains in the first nine months of 2022.

Income tax provision. Our effective income tax rate was 17.0% and 19.1% for the nine months ended September 30, 2023 and 2022, respectively. The decrease in the effective tax rate for the nine months ended September 30, 2023 is due to a decrease of tax with respect to foreign tax creditability in the United States, allowable United States research and development credits, and favorable return to provision estimates.

Liquidity and Capital Resources

During the first nine months of 2023, we funded our business exclusively through cash generated from operations. Our cash and cash equivalents as of September 30, 2023 included $122.7 million held in the U.S. and $59.6 million held by our foreign subsidiaries. We believe that our cash balances in the U.S. are sufficient to fund our U.S. operations. In the future, if we elect to repatriate the

 

23


 

unremitted earnings of our foreign subsidiaries, we would not be subject to additional U.S. income taxes on such earnings, but we could be subject to additional local withholding taxes.

Cash flow from operating activities totaled $157.9 million and $124.4 million in the nine months ended September 30, 2023 and 2022, 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 nine months ended September 30, 2023 increased $33.5 million compared to the same period in the prior year, which is mainly due to earnings growth for the first nine months of 2023, and the timing of cash collections from our customers.

Cash flow used in investing activities totaled $2.8 million and $4.2 million in the nine months ended September 30, 2023 and 2022, respectively. Our investing activities for both the nine months ended September 30, 2023 and 2022 consisted of capital spending to support company growth.

Financing activities used cash of $195.7 million and $179.0 million for the nine months ended September 30, 2023 and 2022, 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 nine months ended September 30, 2023 and 2022 totaled $195.7 million and $179.0 million, respectively, including shares withheld for taxes of $29.7 million and $28.9 million, respectively.

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 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. We continue to focus on managing liquidity, while investing in and growing our headcount capacity to support our customers and grow our business. For the remainder of 2023, 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 investing in our business to extend our market leadership. We will continue to weigh our share repurchase options against cash for acquisitions and investing in the business. We will also continue to evaluate acquisition opportunities that are complementary to our product footprint and technology direction. At this time, we do not anticipate any borrowing requirements for the remainder of 2023 for general corporate purposes.

Aggregate Contractual Obligations

Our principal commitments consist of multiple non-cancellable contracts for cloud infrastructure services and obligations under operating leases. As of September 30, 2023, our cloud infrastructure obligations are approximately $105.1 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 September 30, 2023, are approximately $17.3 million over the next 5 years. We expect to fulfill all these commitments from our working capital.

 

Critical Accounting Policies and Estimates

In the first nine months of 2023, 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, 2022.
 

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 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:

ongoing disruption and transformation in our vertical markets;

 

24


 

economic, political and market conditions, including inflation;
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 wars in Ukraine and the Middle East;
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;
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 our Annual Report on Form 10-K for the year ended December 31, 2022, 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.

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, 2022.

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

 

25


 

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 September 30, 2023, 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.

 

 

26


 

PART II

OTHER INFORMATION

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, 2022.

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 September 30, 2023.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

July 1 - July 31, 2023

 

 

-

 

 

$

-

 

 

 

-

 

 

$

75,000,000

 

August 1 - August 31, 2023

 

 

65,267

 

 

 

191.07

 

 

 

65,267

 

 

 

62,529,337

 

September 1 - September 30, 2023

 

 

62,866

 

 

 

200.45

 

 

 

62,866

 

 

 

49,928,113

 

Total

 

 

128,133

 

 

 

 

 

 

128,133

 

 

 

 

 

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.

Rule 10b5-1 Trading Plans

During the quarter ended September 30, 2023, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading agreement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in item 408(a) of Regulation S-K.

 

 

27


 

Item 6. Exhibits.

 

 

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

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

Exhibit 101.PRE

Inline 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 September 30, 2023, 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.

 

28


 

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:

October 26, 2023

/s/ Eddie Capel

 

 

Eddie Capel

 

 

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

       Date:

October 26, 2023

/s/ Dennis B. Story

 

 

Dennis B. Story

 

 

Executive Vice President, Chief Financial Officer and Treasurer

 

 

(Principal Financial Officer)

 

 

29