UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2014
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) |
Registrants Telephone Number, Including Area Code: (770) 955-7070
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 x No ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares of the Registrants class of capital stock outstanding as of April 25, 2014, the latest practicable date, is as follows: 75,788,854 shares of common stock, $0.01 par value per share.
MANHATTAN ASSOCIATES, INC.
FORM 10-Q
Quarter Ended March 31, 2014
PART I
FINANCIAL INFORMATION
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)
March 31, 2014 | December 31, 2013 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 116,649 | $ | 124,375 | ||||
Short term investments |
9,285 | 8,581 | ||||||
Accounts receivable, net of allowance of $3,844 and $3,156 in 2014 and 2013, respectively |
66,779 | 71,136 | ||||||
Deferred income taxes |
7,321 | 7,300 | ||||||
Prepaid expenses and other current assets |
10,571 | 7,346 | ||||||
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Total current assets |
210,605 | 218,738 | ||||||
Property and equipment, net |
14,108 | 14,342 | ||||||
Goodwill, net |
62,272 | 62,272 | ||||||
Deferred income taxes |
438 | 427 | ||||||
Other assets |
3,321 | 2,049 | ||||||
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Total assets |
$ | 290,744 | $ | 297,828 | ||||
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LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 8,281 | $ | 11,555 | ||||
Accrued compensation and benefits |
17,661 | 19,465 | ||||||
Accrued and other liabilities |
12,092 | 12,225 | ||||||
Deferred revenue |
59,449 | 53,812 | ||||||
Income taxes payable |
2,446 | 7,131 | ||||||
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Total current liabilities |
99,929 | 104,188 | ||||||
Other non-current liabilities |
13,125 | 12,054 | ||||||
Shareholders equity: |
||||||||
Preferred stock, no par value; 20,000,000 shares authorized, no shares issued or outstanding in 2014 and 2013 |
| | ||||||
Common stock, $.01 par value; 100,000,000 shares authorized; 75,831,405 and 76,374,180 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively |
758 | 764 | ||||||
Retained earnings |
183,695 | 188,604 | ||||||
Accumulated other comprehensive loss |
(6,763 | ) | (7,782 | ) | ||||
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Total shareholders equity |
177,690 | 181,586 | ||||||
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Total liabilities and shareholders equity |
$ | 290,744 | $ | 297,828 | ||||
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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 March 31, | ||||||||
2014 | 2013 | |||||||
(unaudited) | ||||||||
Revenue: |
||||||||
Software license |
$ | 17,107 | $ | 14,245 | ||||
Services |
86,913 | 74,887 | ||||||
Hardware and other |
9,543 | 7,469 | ||||||
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Total revenue |
113,563 | 96,601 | ||||||
Costs and expenses: |
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Cost of license |
1,613 | 1,778 | ||||||
Cost of services |
38,460 | 35,046 | ||||||
Cost of hardware and other |
7,479 | 6,214 | ||||||
Research and development |
11,803 | 11,476 | ||||||
Sales and marketing |
12,020 | 11,434 | ||||||
General and administrative |
10,649 | 9,508 | ||||||
Depreciation and amortization |
1,488 | 1,484 | ||||||
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Total costs and expenses |
83,512 | 76,940 | ||||||
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Operating income |
30,051 | 19,661 | ||||||
Other (loss) income, net |
(233 | ) | 151 | |||||
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Income before income taxes |
29,818 | 19,812 | ||||||
Income tax provision |
11,106 | 6,457 | ||||||
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Net income |
$ | 18,712 | $ | 13,355 | ||||
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Basic earnings per share |
$ | 0.25 | $ | 0.17 | ||||
Diluted earnings per share |
$ | 0.24 | $ | 0.17 | ||||
Weighted average number of shares: |
||||||||
Basic |
75,817 | 77,308 | ||||||
Diluted |
76,795 | 78,740 |
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 March 31, | ||||||||
2014 | 2013 | |||||||
(unaudited) | ||||||||
Net income |
$ | 18,712 | $ | 13,355 | ||||
Foreign currency translation adjustment |
1,019 | (80 | ) | |||||
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Comprehensive income |
$ | 19,731 | $ | 13,275 | ||||
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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)
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
(unaudited) | ||||||||
Operating activities: |
||||||||
Net income |
$ | 18,712 | $ | 13,355 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
1,488 | 1,484 | ||||||
Equity-based compensation |
2,274 | 1,907 | ||||||
(Gain) loss on disposal of equipment |
(17 | ) | 1 | |||||
Tax benefit of stock awards exercised/vested |
6,547 | 4,206 | ||||||
Excess tax benefits from equity-based compensation |
(6,509 | ) | (4,163 | ) | ||||
Deferred income taxes |
1,302 | 1,682 | ||||||
Unrealized foreign currency loss (gain) |
90 | (75 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable, net |
4,496 | 2,255 | ||||||
Other assets |
(4,447 | ) | (594 | ) | ||||
Accounts payable, accrued and other liabilities |
(5,638 | ) | (6,652 | ) | ||||
Income taxes |
(4,647 | ) | (3,720 | ) | ||||
Deferred revenue |
5,493 | 10,414 | ||||||
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Net cash provided by operating activities |
19,144 | 20,100 | ||||||
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Investing activities: |
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Purchase of property and equipment |
(1,156 | ) | (598 | ) | ||||
Net purchases of investments |
(427 | ) | (1,115 | ) | ||||
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Net cash used in investing activities |
(1,583 | ) | (1,713 | ) | ||||
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Financing activities: |
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Purchase of common stock |
(33,179 | ) | (20,474 | ) | ||||
Proceeds from issuance of common stock from options exercised |
730 | 2,623 | ||||||
Excess tax benefits from equity-based compensation |
6,509 | 4,163 | ||||||
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Net cash used in financing activities |
(25,940 | ) | (13,688 | ) | ||||
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Foreign currency impact on cash |
653 | (343 | ) | |||||
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Net change in cash and cash equivalents |
(7,726 | ) | 4,356 | |||||
Cash and cash equivalents at beginning of period |
124,375 | 96,737 | ||||||
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Cash and cash equivalents at end of period |
$ | 116,649 | $ | 101,093 | ||||
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See accompanying Notes to Condensed Consolidated Financial Statements.
6
1. Basis of Presentation, Principles of Consolidation and Stock Split
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Manhattan Associates, Inc. and its subsidiaries (the Company) have been prepared in accordance with accounting principles generally accepted in the United States 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 the Companys financial position at March 31, 2014, the results of operations for the three months ended March 31, 2014 and 2013, and cash flows for the three months ended March 31, 2014 and 2013. The results for the three months ended March 31, 2014 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the Companys audited consolidated financial statements and managements discussion and analysis included in the Companys annual report on Form 10-K for the year ended December 31, 2013.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the Companys accounts and the accounts of its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Stock Split
On December 19, 2013, the Board of Directors of the Company approved a four-for-one stock split of the Companys common stock, effected in the form of a stock dividend. Each shareholder of record at the close of business on December 31, 2013 received three additional shares for every outstanding share held on the record date. The additional shares were distributed on January 10, 2014 and trading began on a split-adjusted basis on January 13, 2014. All references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures have been restated to reflect the effect of this four-for-one stock split for all periods presented. The Company retained the current par value of $0.01 per share for all shares of common stock.
2. Revenue Recognition
The Companys revenue consists of fees from the licensing and hosting of software (collectively included in Software license revenue in the Condensed Consolidated Statements of Income), fees from implementation and training services (collectively, professional services) and customer support services and software enhancements (collectively with professional services revenue included in Services revenue in the Condensed Consolidated Statements of Income), and sales of hardware and other revenue, which consists of reimbursements of out-of-pocket expenses incurred in connection with our professional services (collectively included in Hardware and other revenue in the Condensed Consolidated Statements of Income). All revenue is recognized net of any related sales taxes.
The Company recognizes license revenue when the following criteria are met: (1) a signed contract is obtained covering all elements of the arrangement, (2) delivery of the product has occurred, (3) the license fee is fixed or determinable, and (4) collection is probable. Revenue recognition for software with multiple-element arrangements requires recognition of revenue using the residual method when (a) there is vendor-specific objective evidence (VSOE) of the fair values of all undelivered elements in a multiple-element arrangement that is not accounted for using long-term contract accounting, (b) VSOE of fair value does not exist for one or more of the delivered elements in the arrangement, and (c) all other applicable revenue-recognition criteria for software revenue recognition are satisfied. For those contracts that contain significant customization or modifications, license revenue is recognized using contract accounting.
The Company allocates revenue to customer support services and software enhancements and any other undelivered elements of the arrangement based on VSOE of fair value of each element and such amounts are deferred until the applicable delivery criteria and other revenue recognition criteria have been met. The balance of the revenue, net of any discounts inherent in the arrangement, is recognized at the outset of the arrangement using the residual method as the product licenses are delivered. If the Company cannot objectively determine the fair value of each undelivered element based on the VSOE of fair value, the Company defers revenue recognition until all elements are delivered, all services have been performed, or until fair value can be objectively determined. The Company must apply judgment in determining all
7
elements of the arrangement and in determining the VSOE of fair value for each element, considering the price charged for each product on a stand-alone basis or applicable renewal rates. For arrangements that include future software functionality deliverables, the Company accounts for these deliverables as a separate element of the arrangement. Because the Company does not sell these deliverables on a standalone basis, the Company is not able to establish VSOE of fair value of these deliverables. As a result, the Company defers all revenue under the arrangement until the future functionality has been delivered to the customer.
Payment terms for the Companys software licenses vary. Each contract is evaluated individually to determine whether the fees in the contract are fixed or determinable and whether collectibility is probable. Judgment is required in assessing the probability of collection, which is generally based on evaluation of customer-specific information, historical collection experience, and economic market conditions. If market conditions decline, or if the financial conditions of customers deteriorate, the Company may be unable to determine that collectibility is probable, and the Company could be required to defer the recognition of revenue until the Company receives customer payments. The Company has an established history of collecting under the terms of its software license contracts without providing refunds or concessions to its customers. Therefore, the Company has determined that the presence of payment terms that extend beyond contract execution in a particular contract do not preclude the conclusion that the fees in the contract are fixed or determinable. Although infrequent, when payment terms in a contract extend beyond twelve months, the Company has determined that such fees are not fixed or determinable and recognizes revenue as payments become due provided that all other conditions for revenue recognition have been met.
The Companys services revenue consists of fees generated from professional services and customer support and software enhancements related to the Companys software products. Professional services include system planning, design, configuration, testing, and other software implementation support and are not typically essential to the functionality of our software. Fees from professional services performed by the Company are separately priced and are generally billed on an hourly basis, and revenue is recognized as the services are performed. In certain situations, professional services are rendered under agreements in which billings are limited to contractual maximums or based upon a fixed fee for portions of or all of the engagement. Revenue related to fixed-fee-based contracts is recognized on a proportional performance basis based on the hours incurred on discrete projects within an overall services arrangement. The Company has determined that output measures, or services delivered, approximate the input measures associated with fixed-fee services arrangements. Project losses are provided for in their entirety in the period in which they become known. Revenue related to customer support services and software enhancements is generally paid in advance and recognized ratably over the term of the agreement, typically twelve months.
Hardware and other revenue is generated from the resale of a variety of hardware products, developed and manufactured by third parties, that are integrated with and complementary to the Companys software solutions. As part of a complete solution, the Companys customers periodically purchase hardware from the Company for use with the software licenses purchased from the Company. These products include computer hardware, radio frequency terminal networks, radio frequency identification (RFID) chip readers, bar code printers and scanners, and other peripherals. Hardware revenue is recognized upon shipment to the customer when title passes. The Company generally purchases hardware from the Companys vendors only after receiving an order from a customer. As a result, the Company generally does not maintain hardware inventory.
In accordance with the other presentation matters within the Revenue Recognition Topic of the Financial Accounting Standards Boards (FASB) Accounting Standards Codification, the Company recognizes amounts associated with reimbursements from customers for out-of-pocket expenses as revenue. Such amounts have been included in Hardware and other revenue in the Condensed Consolidated Statements of Income. The total amount of expense reimbursement recorded to revenue was $3.6 million and $3.3 million for the three months ended March 31, 2014 and 2013, respectively.
3. Fair Value Measurement
The Company measures its 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 their characteristics. This hierarchy prioritizes the inputs into three broad levels as follows:
| Level 1Quoted prices in active markets for identical instruments. |
8
| Level 2Quoted 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 3Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
The Companys investments are categorized as available-for-sale securities and recorded at fair market value. 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 March 31, 2014, the Companys cash, cash equivalents, and short-term investments balances were $77.3 million, $39.3 million, and $9.3 million, respectively. The Company currently has no long-term investments. Cash equivalents consist of highly liquid money market funds and certificates of deposit. Short-term investments consist of certificates of deposit. The Company uses quoted prices from active markets that are classified at Level 1 as a highest level observable input in the disclosure hierarchy framework for all available-for-sale securities. At March 31, 2014 and December 31, 2013, the Company had $30.4 million in money market funds, which are classified as Level 1 and are included in cash and cash equivalents on the Condensed Consolidated Balance Sheets. The Company has no investments classified as Level 2 or Level 3.
4. Equity-Based Compensation
As discussed in Note 1, on December 19, 2013, the Board of Directors of the Company approved a four-for-one stock split of the Companys common stock, effected in the form of a stock dividend. All references to stock award data have been restated to reflect the effect of the stock split for all periods presented.
The Company recorded equity-based compensation expense related to stock options of $147,000 during the three months ended March 31, 2013. No amounts were recorded for equity-based compensation expense related to stock option during the three months ended March 31, 2014 as all stock options became vested prior to 2014. The Company does not currently grant stock options.
A summary of changes in outstanding options for the three months ended March 31, 2014 is as follows:
Number of Options | ||||
Outstanding at December 31, 2013 |
444,420 | |||
Exercised |
(130,156 | ) | ||
Forfeited and expired |
(1,000 | ) | ||
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Outstanding at March 31, 2014 |
313,264 | |||
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The Company granted 317,543 and 734,700 restricted stock units (RSUs) during the three months ended March 31, 2014 and 2013, respectively. The Company recorded equity-based compensation expense related to restricted stock and RSUs of $2.3 million and $1.8 million during the three months ended March 31, 2014 and 2013, respectively.
A summary of changes in unvested shares/units for the three months ended March 31, 2014 is as follows:
Number of shares/units | ||||
Outstanding at December 31, 2013 |
1,777,384 | |||
Granted |
317,543 | |||
Vested |
(635,134 | ) | ||
Forfeited |
(22,452 | ) | ||
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Outstanding at March 31, 2014 |
1,437,341 | |||
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9
5. Income Taxes
The Companys effective tax rate was 37.2% and 32.6% for the quarters ended March 31, 2014 and 2013, respectively. The effective tax rate for the quarter ended March 31, 2014 does not include any benefit for the federal research and development tax credit as this tax legislation expired on December 31, 2013 and has not been reinstated since. The effective tax rate for the quarter ended March 31, 2013 includes the reinstatement of the federal research and development tax credit in January 2013 for the 2013 and 2012 tax years. In addition, the effective tax rate for the three months ended March 31, 2013 included the establishment of state income tax reserves.
The Company applies the provisions for income taxes related to, among other things, accounting for uncertain tax positions and disclosure requirements in accordance with the Income Taxes Topic of the FASB Accounting Standards Codification (ASC 740). For the three months ended March 31, 2014, there were no material changes to the Companys uncertain tax positions. There has been no change to the Companys policy that recognizes potential interest and penalties related to uncertain tax positions within its global operations in income tax expense.
The Company currently plans to permanently reinvest all of its remaining undistributed foreign earnings. Accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to adjustment for foreign tax credits) and withholding taxes payable to various foreign countries. It is impractical to calculate the tax impact until such repatriation occurs.
The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The Company is no longer subject to U.S. federal, substantially all state and local income tax examinations and substantially all non-US income tax examinations for years before 2010.
6. Net Earnings Per Share
Basic net earnings per share is computed using net income divided by the weighted average number of shares of common stock outstanding (Weighted Shares) for each period presented. Diluted net earnings per share is computed using net income divided by the sum of Weighted Shares and common equivalent shares (CESs) outstanding for each period presented using the treasury stock method.
The following is a reconciliation of the net income and share amounts used in the computation of basic and diluted net earnings per common share for the three months ended March 31, 2014 and 2013 (in thousands, except per share data):
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
(in thousands, except per share data) | ||||||||
Net income |
$ | 18,712 | $ | 13,355 | ||||
Earnings per share: |
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Basic |
$ | 0.25 | $ | 0.17 | ||||
Effect of CESs |
(0.01 | ) | | |||||
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Diluted |
$ | 0.24 | $ | 0.17 | ||||
Weighted average number of shares: |
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Basic |
75,817 | 77,308 | ||||||
Effect of CESs |
978 | 1,432 | ||||||
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Diluted |
76,795 | 78,740 |
There were no anti-dilutive CESs during 2013 and 2014.
10
7. Contingencies
From time to time, the Company may be involved in litigation relating to claims arising out of its ordinary course of business, and occasionally legal proceedings not in the ordinary course. Many of the Companys installations involve products that are critical to the operations of its clients businesses. Any failure in a Company product could result in a claim for substantial damages against the Company, regardless of the Companys responsibility for such failure. Although the Company attempts to limit contractually its 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 its contracts will be enforceable in all instances. The Company is not currently a party to any legal proceedings the result of which it believes is likely to have a material adverse impact upon its business, financial position, results of operations, or cash flows. The Company expenses legal costs associated with loss contingencies as such legal costs are incurred.
8. Operating Segments
The Company manages the business by geographic segment. The Company has identified three geographic reportable segments: North America and Latin America (the Americas); Europe, Middle East and Africa (EMEA); and Asia Pacific (APAC). All segments derive revenue from the sale and implementation of the Companys supply chain execution and planning 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. The Company uses the same accounting policies for each reportable segment. The chief executive officer and chief financial officer evaluate performance based on revenue and operating results for each region.
The Americas segment charges royalty fees to the other segments based on software licenses sold by those reportable segments. The royalties, which totaled approximately $1.4 million and $0.7 million for the three months ended March 31, 2014 and 2013, respectively, are included in cost of revenue for each segment with a corresponding reduction in Americas cost of revenue. The revenues represented below are from external customers only. The geographical-based costs consist of costs of professional services personnel, direct sales and marketing expenses, cost of infrastructure to support the employees and customer base, billing and financial systems, management and general and administrative support. There are certain corporate expenses included in the Americas region that are not charged to the other segments, including research and development, 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 research and development costs including the costs associated with the Companys India operations.
The following table presents the revenues, expenses and operating income by reportable segment for the three months ended March 31, 2014 and 2013 (in thousands):
Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||||||||||
Americas | EMEA | APAC | Consolidated | Americas | EMEA | APAC | Consolidated | |||||||||||||||||||||||||
Revenue: |
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License |
$ | 11,458 | $ | 4,450 | $ | 1,199 | $ | 17,107 | $ | 11,529 | $ | 1,319 | $ | 1,397 | $ | 14,245 | ||||||||||||||||
Services |
70,904 | 10,864 | 5,145 | 86,913 | 61,280 | 9,763 | 3,844 | 74,887 | ||||||||||||||||||||||||
Hardware and other |
8,993 | 365 | 185 | 9,543 | 7,011 | 349 | 109 | 7,469 | ||||||||||||||||||||||||
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Total revenue |
91,355 | 15,679 | 6,529 | 113,563 | 79,820 | 11,431 | 5,350 | 96,601 | ||||||||||||||||||||||||
Costs and Expenses: |
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Cost of revenue |
36,649 | 7,476 | 3,427 | 47,552 | 33,814 | 6,160 | 3,064 | 43,038 | ||||||||||||||||||||||||
Operating expenses |
29,220 | 4,070 | 1,182 | 34,472 | 27,697 | 3,444 | 1,277 | 32,418 | ||||||||||||||||||||||||
Depreciation and amortization |
1,353 | 75 | 60 | 1,488 | 1,345 | 74 | 65 | 1,484 | ||||||||||||||||||||||||
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Total costs and expenses |
67,222 | 11,621 | 4,669 | 83,512 | 62,856 | 9,678 | 4,406 | 76,940 | ||||||||||||||||||||||||
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Operating income |
$ | 24,133 | $ | 4,058 | $ | 1,860 | $ | 30,051 | $ | 16,964 | $ | 1,753 | $ | 944 | $ | 19,661 | ||||||||||||||||
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11
License revenues related to the Companys warehouse and non-warehouse product groups for the three months ended March 31, 2014 and 2013 are as follows (in thousands):
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Warehouse |
$ | 10,668 | $ | 9,251 | ||||
Non-Warehouse |
6,439 | 4,994 | ||||||
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Total software license revenue |
$ | 17,107 | $ | 14,245 | ||||
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The Companys services revenues, which consist of fees generated from professional services and customer support and software enhancements related to its software products, for the three months ended March 31, 2014 and 2013 are as follows (in thousands):
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Professional services |
$ | 59,422 | $ | 49,151 | ||||
Customer support and software enhancements |
27,491 | 25,736 | ||||||
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Total services revenue |
$ | 86,913 | $ | 74,887 | ||||
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
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 and selling, general and administrative activities, and liquidity and capital needs and resources. When used in this report, the words expect, anticipate, intend, plan, believe, seek, 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. For further information about these and other factors that could affect our future results, please see Risk Factors in Item 1A of our annual report on Form 10-K for the year ended December 31, 2013. 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. The following discussion should be read in conjunction with the condensed consolidated financial statements for the three months ended March 31, 2014 and 2013, including the notes to those statements, included elsewhere in this quarterly report. We also recommend the following discussion be read in conjunction with managements discussion and analysis and consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2013.
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 are a leading developer and implementer of supply chain commerce software solutions that help organizations optimize their supply chain operations from planning through execution. Our platform-based supply chain software solution portfolios Manhattan SCOPE® and Manhattan SCALETM are designed to deliver both business agility and total cost of ownership advantages to customers. Manhattan SCOPE (Supply Chain Optimization, Planning through Execution) leverages our Supply Chain Process Platform (SCPP) to unify the full breadth of the supply chain, while Manhattan SCALE (Supply Chain Architected for Logistics Execution) leverages Microsofts .NET® platform to unify logistics functions.
Early in the Companys history, our offerings were heavily focused on warehouse management solutions. As the Company grew in size and scope, our offerings expanded across the entire supply chain, while still maintaining a significant presence in, and a relatively strong concentration of revenues from warehouse management solutions, which is a component of our distribution management solution suite. Over time, as our non-warehouse management solutions have proliferated and increased in capability, the Companys revenue concentration in its warehouse management solutions has correspondingly decreased.
Our business model is singularly focused on the development and implementation of complex supply chain commerce software solutions that are designed to optimize supply chain effectiveness and efficiency for our customers. We have three principal sources of revenue:
| licenses of our supply chain software; |
| professional services, including solutions planning and implementation, related consulting, customer training, and customer support services and software enhancements (collectively, services); and |
| hardware sales and other revenue. |
In the three months ended March 31, 2014, we generated $113.6 million in total revenue, with a revenue mix of: license revenue 15%; services revenue 77%; and hardware and other revenue 8%.
13
We manage our business based on three geographic regions: 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 $32.9 million for the three months ended March 31, 2014, which represents approximately 29% of our total revenue. International revenue includes all revenue derived from sales to customers outside the United States. At March 31, 2014, we employed approximately 2,570 employees worldwide, of which 1,210 employees are based in the Americas, 180 employees in EMEA, and 1,180 employees in APAC (including India). We have offices in Australia, China, France, India, Japan, the Netherlands, Singapore, and the United Kingdom, as well as representatives in Mexico and reseller partnerships in Latin America, Eastern Europe, the Middle East, South Africa, and Asia.
Global Economic Trends and Industry Factors
Global macroeconomic trends, technology spending, and supply chain management market growth are important barometers for our business. In the first quarter of 2014, approximately 71% of our total revenue was generated in the United States, 14% in EMEA, and the remaining balance in APAC, Canada, and Latin America. In addition, Gartner Inc., an information technology research and advisory company, estimates that nearly 73% of every supply chain software solutions dollar invested is spent in the United States (46%) and Western Europe (27%); consequently, the health of the U.S. and Western European economies has 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 often is a part of our customers and prospects much larger capital commitment associated with facilities expansion and business improvement. We believe that, given the lingering uncertainty in the global macro environment, the current sales cycles for large license deals of $1.0 million or greater in our target markets have been extended. The current business climate within the United States and geographic regions in which we operate continues to affect customers and prospects decisions regarding timing of strategic capital expenditures. Delays with respect to such decisions can have a material adverse impact on our business, and may further intensify competition in our already highly competitive markets.
In April 2014, the International Monetary Fund (IMF) provided a World Economic Outlook (WEO), which projected global economic growth to reach about 3.6 percent in 2014 and 3.9 percent in 2015. The WEO noted that the global activity has broadly strengthened and is expected to improve further in 2014-2015, with much impetus coming from advanced economies. The WEO update projected that advanced economies, which represent our primary revenue markets, would grow at about 2.3 percent in 2014-2015, while the emerging and developing economies would continue to grow at a solid pace of about 5 percent in 2014 and 5.25 percent in 2015.
During 2013 and continuing into 2014, the overall trend has been steady for our large license deals, with recognized $1.0 million or larger software license sales totaling fourteen for 2013 and totaling four in the first three months of 2014. However, the large deal flow has been inconsistent from quarter to quarter, reflecting what we believe to be ongoing lackluster macroeconomic growth in the United States and Western Europe. While we are encouraged by our 2013 and first three months of 2014 results, we, along with many of our customers, still remain cautious regarding the pace of global economic recovery. With global GDP growth continuing to be well below pre-2008 levels, we believe global economic volatility likely will continue to shape customers and prospects enterprise software buying decisions, making it more difficult to forecast sales cycles for our products and the timing of large enterprise software license deals.
Revenue
License revenue. License revenue, a leading indicator of our business, is primarily derived from software license fees that customers pay for supply chain solutions. License revenue totaled $17.1 million, or 15% of total revenue, with gross margins of 90.6% for the three months ended March 31, 2014. Prior to the 2009 global recession, our typical license revenue percentage mix of new to existing customers historically approximated 50/50. Post 2009, the percentage mix has fluctuated more. For the three months ended March 31, 2014, the percentage mix of new to existing customers was approximately 30/70. We anticipate that the new to existing customer mix will return to more historical levels on a more consistent basis in improved global economic conditions.
License revenue growth is influenced by the strength of general economic and business conditions and the competitive position of our software products. Our license revenue generally has long sales cycles and the timing of the closing of a few large license transactions can have a material impact on our quarterly license revenues, operating profit, operating margins, and earnings per share. For example, $1.0 million of license revenue in the first quarter of 2014 equates to approximately one cent of diluted earnings per share impact.
14
Our software solutions are singularly focused on the supply chain commerce planning and execution markets, which are intensely competitive and characterized by rapid technological change. We are a market leader in the supply chain management 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 license revenues faster than our competitors through investment in innovation. We expect to continue to face increased competition from Enterprise Resource Planning (ERP) and Supply Chain Management applications vendors and business application software vendors that may broaden their solution offerings by internally developing, or by acquiring or partnering with independent developers of supply chain planning and execution software. Increased competition could result in price reductions, fewer customer orders, reduced gross margins, and loss of market share.
Services revenue. Our services business consists of professional services (consulting and customer training) and customer support services and software enhancements (CSSE). Services revenue totaled $86.9 million, or 77% of total revenue, with gross margins of 55.7% for the three months ended March 31, 2014. Professional services accounted for approximately 68% of total services revenue and approximately 52% of total revenue in the three months ended March 31, 2014. Our consolidated operating margin profile may be lower than those of various other technology companies due to our large services revenue mix as a percentage of total revenue. While we believe our services margins are very strong, they do lower our overall operating margin profile as services margins are inherently lower than license revenue margins.
At March 31, 2014, our professional services organization totaled approximately 1,600 employees, accounting for 62% of our total employees worldwide. 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 customers 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 customers success with our solution, strengthen our customer relationships, and add to our industry-specific knowledge base for use in future implementations and product innovations.
Although our professional services are optional, the majority of our customers use at least some portion of these services for their planning, implementation, or related needs. Professional services are typically rendered under time and materials-based contracts with services typically billed on an hourly basis. Professional services are sometimes rendered under fixed-fee based contracts with payments due on specific dates or milestones.
Typically, our professional services lag related license revenue by several quarters, as implementation services and related consulting are performed after the purchase of the software. Services revenue growth is contingent upon license revenue and customer upgrade cycles, which are influenced by the strength of general economic and business conditions and the competitive position of our software products. In addition, our professional services business has competitive exposure to offshore providers and other consulting companies. All of these factors potentially create the risk of pricing pressure, fewer customer orders, reduced gross margins, and loss of market share.
For CSSE, we offer a comprehensive 24 hours per day, 365 days per year program that provides our customers with software upgrades, when and if available, which include additional or improved functionality and technological advances incorporating emerging supply chain and industry initiatives. Our CSSE revenues totaled $27.5 million for the three months ended March 31, 2014, representing approximately 32% of services revenue and approximately 24% of total revenue, respectively. The growth of CSSE revenues is influenced by: (1) new license revenue growth; (2) annual renewal of support contracts; (3) increase in customers through acquisitions; and (4) fluctuations in currency rates. Substantially all of our customers renew their annual support contracts. Over the last three years, our annual revenue renewal rate of customers subscribing to comprehensive support and enhancements has been greater than 90%. CSSE revenue is generally paid in advance and recognized ratably over the term of the agreement, typically twelve months. CSSE renewal revenue is not recognized unless payment is received from the customer.
Hardware and other revenue. Our hardware and other revenue totaled $9.5 million, representing 8% of total revenue with gross margins of 21.6% for the three months ended March 31, 2014. In conjunction with the licensing of our software, and as a convenience for our customers, we resell a variety of hardware products developed and manufactured by third parties. These products include computer hardware, radio frequency terminal networks, RFID chip readers, bar code printers and scanners, and other peripherals. We resell all third-party hardware products and related maintenance pursuant to agreements with manufacturers or through distributor-authorized reseller agreements pursuant to which we are entitled to purchase hardware products and services at discount prices. We generally purchase hardware from our vendors only after receiving an order from a customer. As a result, we generally do not maintain hardware inventory.
15
Other revenue represents amounts associated with reimbursements from customers for out-of-pocket expenses. The total amount of expense reimbursement recorded to hardware and other revenue was $3.6 million for the three months ended March 31, 2014.
Product Development
We continue to invest significantly in research and development (R&D) to provide leading solutions that help global manufacturers, wholesalers, distributors, retailers, and logistics providers successfully manage accelerating and fluctuating demands as well as the increasing complexity and volatility of their local and global supply chains. Our research and development expenses were $11.8 million for the three months ended March 31, 2014. At March 31, 2014, our R&D organization totaled approximately 640 employees, located in the U.S. and India.
We expect to continue to focus our R&D resources on the development and enhancement of supply chain software solutions. We offer what we believe to be the broadest solution portfolio in the supply chain solutions marketplace, to address all aspects of planning and forecasting, inventory optimization, order lifecycle management, transportation lifecycle management, and distribution management.
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 on 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.
Cash Flow and Financial Condition
For the three months ended March 31, 2014, we generated cash flow from operating activities of $19.1 million. Our cash, cash equivalents, and investments at March 31, 2014 totaled $125.9 million, with no debt on our balance sheet. We currently have no credit facilities. Our primary uses of cash continue to be funding investment in R&D and operations to drive earnings growth and repurchases of our common stock.
We repurchased 694,547 shares of Manhattan Associates outstanding common stock under our repurchase program during the three months ended March 31, 2014. In April 2014, our Board of Directors approved raising the Companys remaining share repurchase authority to $50.0 million of Manhattan Associates outstanding common stock.
For the remainder of 2014, we anticipate that our priorities for the use of cash will be in developing sales and services resources and continued investment in product development to drive and support profitable growth and extend our market leadership. We will continue to evaluate acquisition opportunities that are complementary to our product footprint and technology direction. We will also continue to weigh our share repurchase options against cash for acquisitions and investing in the business. We do not anticipate any borrowing requirements in the remainder of 2014 for general corporate purposes.
16
Results of Operations
The following table summarizes our consolidated results for the three months ended March 31, 2014 and 2013.
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
(in thousands, except per share data) | ||||||||
Revenue |
$ | 113,563 | $ | 96,601 | ||||
Costs and expenses |
83,512 | 76,940 | ||||||
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Operating income |
30,051 | 19,661 | ||||||
Other income, net |
(233 | ) | 151 | |||||
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Income before income taxes |
29,818 | 19,812 | ||||||
Net income |
$ | 18,712 | $ | 13,355 | ||||
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Diluted earnings per share |
$ | 0.24 | $ | 0.17 | ||||
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Diluted weighted average number of shares |
76,795 | 78,740 | ||||||
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We manage our business based on three geographic regions: 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 geographical-based expenses include costs of personnel, direct sales, and marketing expenses, and general and administrative costs to support the business. There are certain corporate expenses included in the Americas region that are not charged to the other segments including research and development, 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 research and development costs, including the costs associated with the Companys India operations. During the three months ended March 31, 2014 and 2013, we derived the majority of our revenues from sales to customers within our Americas region. The following table summarizes revenue and operating profit by region:
17
Three Months Ended March 31, | ||||||||||||
% Change vs. | ||||||||||||
2014 | 2013 | Prior Year | ||||||||||
(in thousands) | ||||||||||||
Revenue: |
||||||||||||
Software license |
||||||||||||
Americas |
$ | 11,458 | $ | 11,529 | -1 | % | ||||||
EMEA |
4,450 | 1,319 | 237 | % | ||||||||
APAC |
1,199 | 1,397 | -14 | % | ||||||||
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Total software license |
17,107 | 14,245 | 20 | % | ||||||||
Services |
||||||||||||
Americas |
70,904 | 61,280 | 16 | % | ||||||||
EMEA |
10,864 | 9,763 | 11 | % | ||||||||
APAC |
5,145 | 3,844 | 34 | % | ||||||||
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|
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Total services |
86,913 | 74,887 | 16 | % | ||||||||
Hardware and Other |
||||||||||||
Americas |
8,993 | 7,011 | 28 | % | ||||||||
EMEA |
365 | 349 | 5 | % | ||||||||
APAC |
185 | 109 | 70 | % | ||||||||
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|
|||||||
Total hardware and other |
9,543 | 7,469 | 28 | % | ||||||||
Total Revenue |
||||||||||||
Americas |
91,355 | 79,820 | 14 | % | ||||||||
EMEA |
15,679 | 11,431 | 37 | % | ||||||||
APAC |
6,529 | 5,350 | 22 | % | ||||||||
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Total revenue |
$ | 113,563 | $ | 96,601 | 18 | % | ||||||
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Operating income: |
||||||||||||
Americas |
$ | 24,133 | $ | 16,964 | 42 | % | ||||||
EMEA |
4,058 | 1,753 | 131 | % | ||||||||
APAC |
1,860 | 944 | 97 | % | ||||||||
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Total operating income |
$ | 30,051 | $ | 19,661 | 53 | % | ||||||
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Summary of the First Quarter 2014 Condensed Consolidated Financial Results
| Diluted earnings per share was $0.24 in the first quarter of 2014, compared to $0.17 in the first quarter of 2013. |
| Consolidated total revenue was $113.6 million in the first quarter of 2014, compared to $96.6 million in the first quarter of 2013. License revenue was $17.1 million in the first quarter of 2014, compared to $14.2 million in the first quarter of 2013. |
| Operating income was $30 million in the first quarter of 2014, compared to $19.7 million in the first quarter of 2013. |
| Cash flow from operations was $19.1 million in the first quarter of 2014, compared to $20.1 million in the first quarter of 2013. Days Sales Outstanding was 53 days at March 31, 2014, compared to 61 days at December 31, 2013. |
| Cash and investments on-hand were $125.9 million at March 31, 2014, compared to $133.0 million at December 31, 2013. |
| During the three months ended March 31, 2014, we repurchased 694,547 shares of Manhattan Associates common stock under the share repurchase program authorized by the Board of Directors, for a total investment of $25.5 million. In April 2014, the Board of Directors approved raising our share repurchase authority to an aggregate of $50.0 million of our outstanding common stock. |
18
The results of our operations for the first quarters of 2014 and 2013 are discussed below.
Revenue
Three Months Ended March 31, | ||||||||||||||||||||
% Change vs. | % of Total Revenue | |||||||||||||||||||
2014 | 2013 | Prior Year | 2014 | 2013 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Software license |
$ | 17,107 | $ | 14,245 | 20 | % | 15 | % | 15 | % | ||||||||||
Services |
86,913 | 74,887 | 16 | % | 77 | % | 77 | % | ||||||||||||
Hardware and other |
9,543 | 7,469 | 28 | % | 8 | % | 8 | % | ||||||||||||
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Total revenue |
$ | 113,563 | $ | 96,601 | 18 | % | 100 | % | 100 | % | ||||||||||
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Our revenue consists of fees generated from the licensing and hosting of software; fees from professional services, customer support services and software enhancements; hardware sales of complementary radio frequency and computer equipment; and other revenue representing amounts associated with reimbursements from customers for out-of-pocket expenses.
License revenue. License revenue increased $2.9 million, or 20%, in the first quarter of 2014 compared to the same quarter in the prior year. We completed four large software license deals greater than $1.0 million in the first quarter of 2014. The license sales percentage mix across our product suite in the quarter ended March 31, 2014 was approximately 60/40 of warehouse management solutions to non-warehouse management solutions.
Services revenue. Services revenue increased $12.0 million, or 16%, in the first quarter of 2014 compared to the same quarter in the prior year due to a $10.3 million increase in professional services revenue and a $1.7 million increase in customer support and software enhancements. The increase in services revenue was due to customer-specific initiatives in conjunction with customer upgrade activity and large license deals signed. Services revenue for the Americas, EMEA and APAC segments increased $9.6 million, $1.1 million and $1.3 million, respectively, in the first quarter of 2014 compared to the first quarter of 2013.
Hardware and other. Hardware sales increased by $1.7 million to $5.9 million in the first quarter of 2014 compared to $4.2 million for the first quarter of 2013. The majority of hardware sales are derived from our Americas segment. Sales of hardware are largely dependent upon customer-specific desires, which fluctuate. Other revenue represents reimbursements for professional service travel expenses that are required to be classified as revenue and are included in hardware and other revenue. Reimbursements by customers for out-of-pocket expenses were approximately $3.6 million and $3.3 million for the quarters ended March 31, 2014 and 2013, respectively.
Cost of Revenue
Three Months Ended March 31, | ||||||||||||
% Change vs. | ||||||||||||
2014 | 2013 | Prior Year | ||||||||||
Cost of license |
$ | 1,613 | $ | 1,778 | -9 | % | ||||||
Cost of services |
38,460 | 35,046 | 10 | % | ||||||||
Cost of hardware and other |
7,479 | 6,214 | 20 | % | ||||||||
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|
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Total cost of revenue |
$ | 47,552 | $ | 43,038 | 10 | % | ||||||
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Cost of license. Cost of license consists of the costs associated with software reproduction; hosting services; 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 license decreased by $0.2 million in the first quarter of 2014 compared to the same quarter of 2013 due to decrease in sales of third-party software over the prior year.
19
Cost of services. Cost of services consists primarily of salaries and other personnel-related expenses of employees dedicated to professional and technical services and customer support services. The $3.4 million, or 10%, increase in cost of services in the quarter ended March 31, 2014 compared to the same quarter in the prior year was principally due to a $2.9 million increase in compensation, other personnel-related, and travel expenses resulting from increased headcount in our services organization to support ongoing growth of the business.
Cost of hardware and other. Cost of hardware increased by $1.0 million to $4.0 million in the first quarter of 2014 compared to $3.0 million in the same quarter of 2013. Cost of hardware and other includes professional services billed travel expenses reimbursed by customers of approximately $3.5 million and $3.3 million for the quarters ended March 31, 2014 and 2013, respectively.
Operating Expenses
Three Months Ended March 31, | ||||||||||||
% Change vs. | ||||||||||||
2014 | 2013 | Prior Year | ||||||||||
(in thousands) | ||||||||||||
Research and development |
$ | 11,803 | $ | 11,476 | 3 | % | ||||||
Sales and marketing |
12,020 | 11,434 | 5 | % | ||||||||
General and administrative |
10,649 | 9,508 | 12 | % | ||||||||
Depreciation and amortization |
1,488 | 1,484 | 0 | % | ||||||||
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|
|||||||
Operating expenses |
$ | 35,960 | $ | 33,902 | 6 | % | ||||||
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|
Research and development. Research and development expenses primarily consist of salaries and other personnel-related costs for personnel involved in our research and development activities. Research and development expenses for the quarter ended March 31, 2014 increased by $0.3 million as compared to the quarter ended March 31, 2013. This increase is primarily due to an increase in compensation expenses.
Our principal research and development activities have focused on the enhancement of new products and releases while expanding the product footprint of our platform-based Supply Chain Commerce Solutions. These solutions are designed to help retailers, wholesalers, manufacturers and third party logistics providers seamlessly manage inventory, distribution and transportation while meeting the ever-changing customer demands created by the omni-channel driven marketplace. The Manhattan Supply Chain Process Platform provides not only a sophisticated service-oriented, architecture-based application framework, but also one that facilitates integration with Enterprise Resource Planning (ERP) and other supply chain solutions. For each of the quarters ended March 31, 2014 and 2013, we did not capitalize any research and development costs.
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 by $0.6 million, or 5%, in the first quarter of 2014 compared to the same quarter of the prior year primarily due to a $0.5 million increase in compensation and other personnel-related expenses.
General and administrative. General and administrative 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. General and administrative expenses increased by $1.1 million, or 12%, in the current year quarter compared to the same quarter in the prior year principally due to increases in compensation and other personnel-related expenses including temporary contracted personnel.
Depreciation and amortization. Depreciation expense was $1.5 million for each of the quarters ended March 31, 2014 and 2013. Amortization of intangibles associated with various acquisitions in prior years was immaterial as they are nearly fully amortized.
20
Operating Income
Operating income for the first quarter of 2014 was $30 million compared to $19.7 million for the first quarter of 2013. Operating margins were 26.5% for the first quarter of 2014 versus 20.4% for the same quarter in the prior year. Operating income and margin increased primarily due to strong revenue growth and expense management during the quarter.
Other (Loss) Income and Income Taxes
Three Months Ended March 31, | ||||||||||||
% Change vs. | ||||||||||||
2014 | 2013 | Prior Year | ||||||||||
Other (loss) income, net |
$ | (233 | ) | $ | 151 | -254 | % | |||||
Income tax provision |
11,106 | 6,457 | 72 | % |
Other (loss) income, net. Other (loss) income, net principally includes interest income, foreign currency gains and losses, and other non-operating expenses. Other (loss) income, net decreased $0.4 million in the first quarter of 2014 compared to the first quarter of 2013 primarily due to a $0.3 million increase in foreign currency losses related to the fluctuation of the U.S. dollar relative to foreign currencies, principally the Indian Rupee. We recorded net foreign currency losses of approximately $0.5 million and $0.2 million during the quarters ended March 31, 2014 and 2013, respectively.
Income tax provision. Our effective income tax rate was 37.2% and 32.6% for the quarters ended March 31, 2014 and 2013, respectively. The effective tax rate for 2014 is higher than 2013 mainly due to the reinstatement of the federal research and development tax credit in January 2013 for the 2013 and 2012 tax years. The credit has not been renewed for 2014.
Liquidity and Capital Resources
In the first quarter of 2014, we funded our business through cash flow generated from operations. Our cash and investments as of March 31, 2014 included $78.6 million held in the U.S. and $47.3 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 unremitted earnings of our foreign subsidiaries in the form of dividends or otherwise, we would be subject to additional U.S. income taxes which would result in a higher effective tax rate. However, our current intent is to indefinitely reinvest these funds outside of the U.S. and we do not have a current cash requirement need to repatriate them to the U.S.
Our operating activities generated cash flow of approximately $19.1 million and $20.1 million for the three months ended March 31, 2014 and 2013, respectively.
Our investing activities used cash of approximately $1.6 million and $1.7 million during the three months ended March 31, 2014 and 2013, respectively. The primary use of cash for investing activities for the three months ended March 31, 2014 was $1.2 million in capital expenditures and net purchases of $0.4 million in short-term investments. The primary use of cash for investing activities for the three months ended March 31, 2013 was $0.6 million in capital expenditures and net purchases of $1.1 million in short-term investments.
Our financing activities used cash of approximately $25.9 million and $13.7 million for the three months ended March 31, 2014 and 2013, respectively. The principal use of cash for financing activities for the three months ended March 31, 2014 was to purchase approximately $33.2 million of our common stock, including $7.7 million of shares withheld for taxes due upon vesting of restricted stock and restricted stock units, partially offset by proceeds generated from options exercised of $0.7 million and a $6.5 million excess tax benefit from equity-based compensation. The principal use of cash for financing activities for the three months ended March 31, 2013 was to purchase approximately $20.5 million of our common stock, including $4.5 million of shares withheld for taxes due upon vesting of restricted stock and restricted stock units, partially offset by proceeds generated from options exercised of $2.6 million and a $4.2 million excess tax benefit from equity-based compensation.
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Periodically, opportunities may arise to grow our business through the acquisition of complementary and synergistic companies, 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 existing balances of cash and investments will be sufficient to meet our working capital and capital expenditure needs at least for the next twelve months, although there can be no assurance that this will be the case. In the remainder of 2014, we expect that our priorities for the use of cash will be our share repurchase program, developing sales and services resources and continued investment in product development to drive and support profitable growth and to extend our market leadership. We expect to continue to weigh our share repurchase options against using cash for investing in the business and acquisition opportunities that are complementary to our product footprint and technology direction. We do not anticipate any borrowing requirements in the remainder of 2014 for general corporate purposes.
Critical Accounting Policies and Estimates
In the first three months of 2014, there were no significant changes to our critical accounting policies and estimates from those disclosed in the section Managements Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the year ended December 31, 2013.
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, 2013.
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 SECs rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that the system of controls has operated effectively in all cases. Our disclosure controls and procedures however are designed to provide reasonable assurance that the objectives of disclosure controls and procedures are met.
As of the end of the period covered by this report, our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are 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 March 31, 2014, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, including any corrective actions with regard to material weaknesses.
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PART II
OTHER INFORMATION
Item 1. | Legal Proceedings. |
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. The Company is not currently a party to any legal proceeding the result of which it believes could have a material adverse impact upon its 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 the Companys annual report on Form 10-K for the year ended December 31, 2013.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
The following table provides information regarding our common stock repurchases under our publicly-announced repurchase program and shares withheld for taxes due upon vesting of restricted stock for the quarter ended March 31, 2014. All repurchases related to the repurchase program were made on the open market.
Maximum Number | ||||||||||||||||
(or Approximate | ||||||||||||||||
Total Number of | Dollar Value) of | |||||||||||||||
Total | Average | Shares Purchased | Shares that May Yet | |||||||||||||
Number of | Price Paid | as Part of Publicly | Be Purchased Under | |||||||||||||
Shares | per | Announced Plans | the Plans or | |||||||||||||
Period |
Purchased(a) | Share(b) | or Programs | Programs | ||||||||||||
January 1January 31, 2014 |
212,435 | $ | 32.32 | | $ | 50,000,000 | ||||||||||
February 1February 28, 2014 |
376,470 | 34.40 | 353,719 | 37,905,897 | ||||||||||||
March 1March 31, 2014 |
340,828 | 39.21 | 340,828 | 24,541,704 | ||||||||||||
|
|
|
|
|||||||||||||
Total |
929,733 | 35.69 | 694,547 | |||||||||||||
|
|
|
|
(a) | Includes 235,186 shares withheld for taxes due upon vesting of restricted stock during the quarter ended March 31, 2014. |
(b) | The average price paid per share for shares withheld for taxes due upon vesting of restricted stock was $32.83 in the three months ended March 31, 2014. |
In April 2014, our Board of Directors approved raising our repurchase authority for the Companys common stock to a total of $50.0 million.
Item 3. | Defaults Upon Senior Securities. |
No events occurred during the quarter covered by the report that would require a response to this item.
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Item 4. | Mine Safety Disclosures. |
Not applicable.
Item 5. | Other Information. |
No events occurred during the quarter covered by the report that would require a response to this item.
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 | XBRL Instance Document | |
Exhibit 101.SCH | XBRL Taxonomy Extension Schema Document | |
Exhibit 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
Exhibit 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
Exhibit 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
Exhibit 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* | In accordance with Item 601(b)(32)(ii) of the SECs 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. |
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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: April 29, 2014 | /s/ Eddie Capel | |||||
Eddie Capel | ||||||
President and Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
Date: April 29, 2014 | /s/ Dennis B. Story | |||||
Dennis B. Story | ||||||
Executive Vice President, Chief Financial Officer and Treasurer | ||||||
(Principal Financial and Accounting Officer) |
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EXHIBIT INDEX
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 Principal Executive Officer and Principal 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 | XBRL Instance Document | |
Exhibit 101.SCH | XBRL Taxonomy Extension Schema Document | |
Exhibit 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
Exhibit 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
Exhibit 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
Exhibit 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* | In accordance with Item 601(b)(32)(ii) of the SECs 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. |
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
I, Eddie Capel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated this 29th day of April, 2014
/s/ Eddie Capel |
Eddie Capel, President and Chief Executive Officer |
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
I, Dennis B. Story, certify that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated this 29th day of April, 2014
/s/ Dennis B. Story |
Dennis B. Story, Executive Vice President, Chief Financial Officer and Treasurer |
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
This Certificate is being delivered pursuant to the requirements of Section 1350 of Chapter 63 (Mail Fraud) of Title 18 (Crimes and Criminal Procedures) of the United States Code and shall not be relied on by any person for any other purpose.
The undersigned, who are the Chief Executive Officer and Chief Financial Officer, respectively, of Manhattan Associates, Inc. (the Company), hereby each certify that, to the undersigneds knowledge:
The Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2014 (the Report), which accompanies this Certification, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and all information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated this 29th day of April, 2014
/s/ Eddie Capel |
Eddie Capel, President and Chief Executive Officer |
/s/ Dennis B. Story |
Dennis B. Story, Executive Vice President, Chief Financial Officer and Treasurer |
In accordance with SEC Release No. 34-47986, this Exhibit is 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. A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request.