EX-99.1 2 manh-ex991_6.htm EX-99.1 manh-ex991_6.htm

Exhibit 99.1

 

Contact:

 

Dennis Story

 

Rick Fernandez

 

 

Chief Financial Officer

 

Senior Manager, Corporate Communications

 

 

Manhattan Associates, Inc.

 

Manhattan Associates, Inc.

 

 

770-955-7070

 

678-597-6988

 

 

dstory@manh.com

 

rfernandez@manh.com

 

 

 

 

 

 

Manhattan Associates Reports Solid Third Quarter Performance

Continued Cloud Transition with Manhattan Active™ Omni Solutions

 

ATLANTA – October 24, 2017 – Leading Supply Chain and Omni-Channel Commerce Solutions provider Manhattan Associates, Inc. (NASDAQ: MANH) today reported GAAP diluted earnings per share for the third quarter ended September 30, 2017, of $0.47 compared to $0.47 in Q3 2016, on license revenue of $18.8 million and total revenue of $152.9 million. Non-GAAP adjusted diluted earnings per share for Q3 2017 was $0.51 compared to $0.50 in Q3 2016.

“We posted solid Q3 operating results in a tough retail macro environment. Importantly, Q3 represents the first full quarter post-launch of our Manhattan Active™ Solutions suite and we are very pleased with the market’s enthusiasm for our Manhattan Active Omni cloud solution,” said Eddie Capel, president and chief executive officer of Manhattan Associates. "It’s encouraging to see the market is demanding the cloud delivery model and validating that Manhattan’s technology is superior and differentiated from competitive alternatives. We expect continued adoption of our Manhattan Active Omni cloud business as customers seek a cloud-first approach.”

THIRD QUARTER 2017 FINANCIAL SUMMARY:

 

•

GAAP diluted earnings per share was $0.47 in both Q3 2017 and Q3 2016.

 

 

•

Adjusted diluted earnings per share, a non-GAAP measure, was $0.51 in Q3 2017, compared to $0.50 in Q3 2016.

 

 

•

Consolidated total revenue was $152.9 million in Q3 2017, compared to $152.2 million in Q3 2016. License revenue was $18.8 million in Q3 2017, compared to $21.6 million in Q3 2016.

 

 

 

 

•

GAAP operating income was $51.1 million in Q3 2017, compared to $53.6 million in Q3 2016.

 

 

•

Adjusted operating income, a non-GAAP measure, was $54.9 million in Q3 2017, compared to $57.2 million in Q3 2016.

 

 

•

Cash flow from operations was $44.0 million in Q3 2017, compared to $42.0 million in Q3 2016. Days Sales Outstanding was 58 days at September 30, 2017, compared to 57 days at June 30, 2017.

 

 

•

Cash and investments totaled $129.7 million at September 30, 2017, compared to $86.6 million at June 30, 2017.

 

 

•

During the three months ended September 30, 2017, the Company did not repurchase any shares of Manhattan Associates common stock under the share repurchase program authorized by the Board of Directors. In October 2017, the Board of Directors confirmed the Company’s existing authority to repurchase up to an aggregate of $50 million of the Company’s common stock.

 

NINE MONTH 2017 FINANCIAL SUMMARY:

 

•

GAAP diluted earnings per share for the nine months ended September 30, 2017 was a record $1.32, compared to $1.30 for the nine months ended September 30, 2016.  

 

 

•

Adjusted diluted earnings per share, a non-GAAP measure, was a record $1.42 for the nine months ended September 30, 2017, compared to $1.41 for the nine months ended September 30, 2016.

 

 

•

Consolidated revenue for the nine months ended September 30, 2017, was $450.5 million, compared to $457.0 million for the nine months ended September 30, 2016. License revenue was a record $64.0 million for the nine months ended September 30, 2017, compared to $62.9 million for the nine months ended September 30, 2016.  

 

 

•

GAAP operating income was $142.1 million for the nine months ended September 30, 2017, compared to $149.0 million for the nine months ended September 30, 2016.

 

 

 

 

•

Adjusted operating income, a non-GAAP measure, was $156.4 million for the nine months ended September 30, 2017, compared to $161.0 million for the nine months ended September 30, 2016. 

 

 

•

Cash flow from operations was a record $116.6 million in the nine months ended September 30, 2017, compared to $101.5 million in the nine months ended September 30, 2016.

 

 

•

During the nine months ended September 30, 2017, the Company repurchased 1,539,208 shares of Manhattan Associates common stock under the share repurchase program authorized by the Board of Directors, for a total investment of $75.0 million.

 

SALES ACHIEVEMENTS:

 

•

Recognized license revenue of $1.0 million or more on four new contracts during Q3 2017.

 

 

•

Completed software wins with new customers such as: APL Logistics, Art Supply Enterprises, Canada Goose, Centaur Services, Fuerst, John Hopkins Health System, Logistica y Transporte para la Salud, Momentum Textiles, New Prime, Ozark Motor Lines, PoolCorp and Topson Downs of California.

 

 

•

Expanded relationships with existing customers such as: Ahold USA, Alidi, B&G Foods, Burlington Coat Factory, Boston Scientific, C&A Marketing, CDiscount SA, Conair, CSS Industries, Damco Distribution Services, DHL Supply Chain Singapore, Delta Galil USA, Dubois Chemicals, Everything But Water, Foschini Retail Group, Geodis Logistics, Gerber Childrenswear, HEB Grocery, Hy-Vee, Imperial Group, Jasco Products, Kane Warehousing, Komar Distribution Services, Nine West, Nordstrom, Nueva Elektra de Milenio, OKAIDI, Orefield Cold Storage and Distribution Center, Precision Planting, Reitman’s, Rocky Brands, Ryder Integrated Logistics, Stella & DOT, Sugartown Worldwide, Uline, UPS Supply Chain Management, VF Services, Wacoal America, West Coast Distribution and Uniform Advantage.

 

 

 

 

2017 GUIDANCE

Manhattan Associates reaffirms the following revenue and diluted earnings per share guidance for the full year 2017:

 

Guidance Range - 2017 Full Year

 

 

($'s in millions, except EPS)

$ Range

 

 

% Growth Range

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue - current guidance

$

590

 

 

$

600

 

 

 

-2%

 

 

 

-1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share (EPS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP EPS - current guidance

$

1.71

 

 

$

1.75

 

 

 

-1%

 

 

 

2%

 

 

 

 

Equity-based compensation, net of tax

 

0.11

 

 

 

0.11

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring charge, net of tax

 

0.03

 

 

 

0.03

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EPS(1) - current guidance

$

1.85

 

 

$

1.89

 

 

 

-1%

 

 

 

1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Adjusted EPS is a Non-GAAP measure which excludes the impact of equity-based compensation, restructuring

 

 

 

 

    charge and acquisition-related costs, and the related income tax effects of these items.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For further information regarding our full year 2017 outlook, as well as our preliminary 2018 outlook, please see note 10 to the supplemental financial information accompanying this press release.

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

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

 

CONFERENCE CALL

 

 

The Company’s conference call regarding its third quarter financial results will be held today, October 24, 2017, at 4:30 p.m. Eastern Time. Investors are invited to listen to a live webcast of the conference call through the investor relations section of Manhattan Associates' website at www.manh.com. To listen to the live webcast, please go to the website at least 15 minutes before the call to download and install any necessary audio software.

For those who cannot listen to the live broadcast, a replay can be accessed shortly after the call by dialing +1.855.859.2056 in the U.S. and Canada, or +1.404.537.3406 outside the U.S., and entering the conference identification number 83067804 or via the web at www.manh.com. The phone replay will be available for two weeks after the call, and the Internet webcast will be available until Manhattan Associates’ fourth quarter 2017 earnings release.

GAAP VERSUS NON-GAAP PRESENTATION

The Company provides adjusted operating income, adjusted net income and adjusted diluted earnings per share in this press release as additional information regarding the Company’s historical and projected operating results. These measures are not in accordance with – or alternatives to – GAAP, and may be different from non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share measures used by other companies. The Company believes that the presentation of these non-GAAP financial measures facilitates investors’ ability to understand and compare the Company’s results and guidance, because the measures provide supplemental information in evaluating the operating results of its business, as distinct from results that include items that are not indicative of ongoing operating results, and because the Company believes its peers typically publish similar non-GAAP measures. This release should be read in conjunction with the Company’s Form 8-K earnings release filing for the quarter and nine months ended September 30, 2017.  

Non-GAAP adjusted operating income, adjusted income tax provision, adjusted net income and adjusted diluted earnings per share exclude the impact of equity-based compensation, acquisition-related costs and the amortization thereof, and a restructuring charge – all net of income tax effects. Reconciliations of the Company’s GAAP financial measures to non-GAAP adjustments are included in the supplemental information attached to this release.

 

 

ABOUT MANHATTAN ASSOCIATES

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

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

This press release contains “forward-looking statements” relating to Manhattan Associates, Inc.  Forward-looking statements in this press release include, without limitation, the information set forth under “2017 Guidance” and in note 10 to the supplemental financial information accompanying this press release, statements we make about market adoption of our cloud-based solution and other statements identified by words such as “may,” “expect,” “forecast,” “anticipate,” “intend,” “plan,” “believe,” “could,” “seek,” “project,” “estimate,” and similar expressions.  Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: uncertainty about the global economy, risks related from transitioning our business from a traditional perpetual license software company (generally hosted by our customers on their own premises and equipment) to a subscription-based software-as-service/cloud-based model, delays in product development, competitive pressures, software errors, information security breaches and the risk factors set forth in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Manhattan Associates undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results.

###

 

 

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(in thousands, except per share amounts)

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software license

 

$

18,794

 

 

$

21,633

 

 

$

64,009

 

 

$

62,871

 

Services

 

 

115,555

 

 

 

119,267

 

 

 

341,216

 

 

 

355,363

 

Hardware and other

 

 

18,534

 

 

 

11,313

 

 

 

45,288

 

 

 

38,731

 

Total revenue

 

 

152,883

 

 

 

152,213

 

 

 

450,513

 

 

 

456,965

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of license

 

 

2,830

 

 

 

2,966

 

 

 

7,425

 

 

 

8,401

 

Cost of services

 

 

44,750

 

 

 

49,436

 

 

 

142,244

 

 

 

149,733

 

Cost of hardware and other

 

 

15,492

 

 

 

9,276

 

 

 

37,337

 

 

 

30,874

 

Research and development

 

 

14,747

 

 

 

13,389

 

 

 

43,074

 

 

 

41,553

 

Sales and marketing

 

 

10,739

 

 

 

10,003

 

 

 

34,260

 

 

 

34,606

 

General and administrative

 

 

11,031

 

 

 

11,225

 

 

 

34,290

 

 

 

36,041

 

Depreciation and amortization

 

 

2,275

 

 

 

2,334

 

 

 

6,863

 

 

 

6,806

 

Restructuring charge

 

 

(77

)

 

 

-

 

 

 

2,945

 

 

 

-

 

Total costs and expenses

 

 

101,787

 

 

 

98,629

 

 

 

308,438

 

 

 

308,014

 

Operating income

 

 

51,096

 

 

 

53,584

 

 

 

142,075

 

 

 

148,951

 

Other income (loss), net

 

 

207

 

 

 

210

 

 

 

(232

)

 

 

1,384

 

Income before income taxes

 

 

51,303

 

 

 

53,794

 

 

 

141,843

 

 

 

150,335

 

Income tax provision

 

 

18,704

 

 

 

20,298

 

 

 

49,876

 

 

 

56,018

 

Net income

 

$

32,599

 

 

$

33,496

 

 

$

91,967

 

 

$

94,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.47

 

 

$

0.47

 

 

$

1.33

 

 

$

1.31

 

Diluted earnings per share

 

$

0.47

 

 

$

0.47

 

 

$

1.32

 

 

$

1.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

68,928

 

 

 

71,403

 

 

 

69,389

 

 

 

71,981

 

Diluted

 

 

69,135

 

 

 

71,743

 

 

 

69,614

 

 

 

72,340

 

 

 

 

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Reconciliation of Selected GAAP to Non-GAAP Measures

(in thousands, except per share amounts)

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

51,096

 

 

$

53,584

 

 

$

142,075

 

 

$

148,951

 

Equity-based compensation (a)

 

 

3,773

 

 

 

3,541

 

 

 

11,041

 

 

 

11,724

 

Purchase amortization (c)

 

 

108

 

 

 

107

 

 

 

323

 

 

 

322

 

Restructuring charge (d)

 

 

(77

)

 

 

-

 

 

 

2,945

 

 

 

-

 

Adjusted operating income (Non-GAAP)

 

$

54,900

 

 

$

57,232

 

 

$

156,384

 

 

$

160,997

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

$

18,704

 

 

$

20,298

 

 

$

49,876

 

 

$

56,018

 

Equity-based compensation (a)

 

 

1,377

 

 

 

1,310

 

 

 

4,030

 

 

 

4,338

 

Tax benefit of stock awards vested (b)

 

 

22

 

 

 

-

 

 

 

1,897

 

 

 

-

 

Purchase amortization (c)

 

 

40

 

 

 

40

 

 

 

118

 

 

 

119

 

Restructuring charge (d)

 

 

(28

)

 

 

-

 

 

 

1,075

 

 

 

-

 

Adjusted income tax provision (Non-GAAP)

 

$

20,115

 

 

$

21,648

 

 

$

56,996

 

 

$

60,475

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

32,599

 

 

$

33,496

 

 

$

91,967

 

 

$

94,317

 

Equity-based compensation (a)

 

 

2,396

 

 

 

2,231

 

 

 

7,011

 

 

 

7,386

 

Tax benefit of stock awards vested (b)

 

 

(22

)

 

 

-

 

 

 

(1,897

)

 

 

-

 

Purchase amortization (c)

 

 

68

 

 

 

67

 

 

 

205

 

 

 

203

 

Restructuring charge (d)

 

 

(49

)

 

 

-

 

 

 

1,870

 

 

 

-

 

Adjusted net income (Non-GAAP)

 

$

34,992

 

 

$

35,794

 

 

$

99,156

 

 

$

101,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS

 

$

0.47

 

 

$

0.47

 

 

$

1.32

 

 

$

1.30

 

Equity-based compensation (a)

 

 

0.03

 

 

 

0.03

 

 

 

0.10

 

 

 

0.10

 

Tax benefit of stock awards vested (b)

 

 

-

 

 

 

-

 

 

 

(0.03

)

 

 

-

 

Purchase amortization (c)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Restructuring charge (d)

 

 

-

 

 

 

-

 

 

 

0.03

 

 

 

-

 

Adjusted diluted EPS (Non-GAAP)

 

$

0.51

 

 

$

0.50

 

 

$

1.42

 

 

$

1.41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fully diluted shares

 

 

69,135

 

 

 

71,743

 

 

 

69,614

 

 

 

72,340

 

 

(a)

Adjusted results exclude all equity-based compensation, to facilitate comparison with our peers and for the other reasons explained in our Current Report on Form 8-K filed with the SEC on the date hereof. Equity-based compensation is included in the following GAAP operating expense lines for the three and nine months ended September 30, 2017 and 2016:

 

  

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

$

875

 

 

$

828

 

 

$

2,596

 

 

$

2,975

 

Research and development

 

 

774

 

 

 

548

 

 

 

1,928

 

 

 

1,922

 

Sales and marketing

 

 

490

 

 

 

558

 

 

 

1,550

 

 

 

1,838

 

General and administrative

 

 

1,634

 

 

 

1,607

 

 

 

4,967

 

 

 

4,989

 

Total equity-based compensation

 

$

3,773

 

 

$

3,541

 

 

$

11,041

 

 

$

11,724

 

 

(b)

During the first quarter of 2017, we adopted Accounting Standards Update (ASU) 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting, to improve the accounting for employee share-

 

 

 

based payments. Under the new guidance, all excess tax benefits and certain tax deficiencies are recognized as income tax expense or benefit in the income statements on a prospective basis, rather than recorded in additional paid-in capital. The adjustment represents the excess tax benefits and tax deficiencies of the stock awards vested during the period. Excess tax benefits (deficiencies) occur when the amount deductible for an award of equity instruments on our tax return is more (less) than the cumulative compensation cost recognized for financial reporting purposes, respectively. As discussed above, we excluded equity-based compensation from adjusted non-GAAP results to be consistent with other companies in the software industry.  Therefore, we also excluded the related tax benefit (expense) generated upon their vesting.

 

(c)

Adjustments represent purchased intangibles amortization from a prior acquisition. Such amortization is excluded from adjusted results to facilitate comparison with our peers, to facilitate comparisons of the results of our core operations from period to period and for the other reasons explained in our Current Report on Form 8-K filed with the SEC on the date hereof.

 

(d)

In May 2017, we eliminated about 100 positions due to the headwinds in the retail sector and to align our services capacity with demand. This action does not impair nor alter our strategic investment plans in innovation and sales and marketing to increase market share and extend our competitive advantage. As a result of this initiative, we recorded a charge of approximately $3.0 million in 2017. The charge primarily consists of employee severance, employee transition cost and outplacement services. We do not believe that the charge is common cost that resulted from normal operating activities. Consequently, we have excluded this charge from adjusted non-GAAP results.


 

 

 

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

September 30, 2017

 

 

December 31, 2016

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

124,818

 

 

$

95,615

 

Short-term investments

 

 

4,901

 

 

 

-

 

Accounts receivable, net of allowance of $3,163 and $3,595, respectively

 

 

97,011

 

 

 

100,285

 

Prepaid expenses and other current assets

 

 

11,638

 

 

 

11,118

 

Total current assets

 

 

238,368

 

 

 

207,018

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

15,275

 

 

 

17,424

 

Goodwill, net

 

 

62,245

 

 

 

62,228

 

Deferred income taxes

 

 

2,691

 

 

 

2,867

 

Other assets

 

 

7,670

 

 

 

7,603

 

Total assets

 

$

326,249

 

 

$

297,140

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

15,136

 

 

$

12,052

 

Accrued compensation and benefits

 

 

17,173

 

 

 

20,700

 

Accrued and other liabilities

 

 

12,394

 

 

 

12,510

 

Deferred revenue

 

 

70,984

 

 

 

63,457

 

Income taxes payable

 

 

6,745

 

 

 

8,924

 

Total current liabilities

 

 

122,432

 

 

 

117,643

 

 

 

 

 

 

 

 

 

 

Other non-current liabilities

 

 

9,463

 

 

 

10,131

 

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, no par value; 20,000,000 shares authorized, no shares issued or outstanding in 2017 and 2016

 

 

-

 

 

 

-

 

Common stock, $0.01 par value; 200,000,000 shares authorized; 68,930,029 and 70,233,955 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively

 

 

689

 

 

 

702

 

Additional paid-in capital

 

 

3,694

 

 

 

-

 

Retained earnings

 

 

202,717

 

 

 

184,558

 

Accumulated other comprehensive loss

 

 

(12,746

)

 

 

(15,894

)

Total shareholders' equity

 

 

194,354

 

 

 

169,366

 

Total liabilities and shareholders' equity

 

$

326,249

 

 

$

297,140

 

 

 

 

 

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

 

(unaudited)

 

 

(unaudited)

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

91,967

 

 

$

94,317

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

6,863

 

 

 

6,806

 

Equity-based compensation

 

 

11,041

 

 

 

11,724

 

Loss on disposal of equipment

 

 

34

 

 

 

19

 

Tax benefit of stock awards exercised/vested

 

 

-

 

 

 

5,166

 

Excess tax benefits from equity-based compensation

 

 

-

 

 

 

(5,170

)

Deferred income taxes

 

 

741

 

 

 

(259

)

Unrealized foreign currency loss (gain)

 

 

93

 

 

 

(363

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

5,095

 

 

 

(1,850

)

Other assets

 

 

(940

)

 

 

(1,555

)

Accounts payable, accrued and other liabilities

 

 

(2,273

)

 

 

(14,033

)

Income taxes

 

 

(2,151

)

 

 

6,063

 

Deferred revenue

 

 

6,169

 

 

 

633

 

Net cash provided by operating activities

 

 

116,639

 

 

 

101,498

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(3,897

)

 

 

(5,465

)

Net (purchases) maturities of investments

 

 

(4,487

)

 

 

10,201

 

Net cash (used in) provided by investing activities

 

 

(8,384

)

 

 

4,736

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Purchase of common stock

 

 

(81,700

)

 

 

(117,968

)

Proceeds from issuance of common stock from options exercised

 

 

-

 

 

 

18

 

Excess tax benefits from equity-based compensation

 

 

-

 

 

 

5,170

 

Net cash used in financing activities

 

 

(81,700

)

 

 

(112,780

)

 

 

 

 

 

 

 

 

 

Foreign currency impact on cash

 

 

2,648

 

 

 

(1,039

)

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

29,203

 

 

 

(7,585

)

Cash and cash equivalents at beginning of period

 

 

95,615

 

 

 

118,416

 

Cash and cash equivalents at end of period

 

$

124,818

 

 

$

110,831

 


 

 

 

MANHATTAN ASSOCIATES, INC.

SUPPLEMENTAL INFORMATION

1.

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

 

 

2016

 

 

2017

 

 

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

4th Qtr

 

 

Full Year

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

YTD

 

GAAP Diluted EPS

 

 

$

0.38

 

 

$

0.46

 

 

$

0.47

 

 

$

0.42

 

 

$

1.72

 

 

$

0.40

 

 

$

0.45

 

 

 

0.47

 

 

$

1.32

 

Adjustments to GAAP:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based

   compensation

 

 

 

0.04

 

 

 

0.03

 

 

 

0.03

 

 

 

0.04

 

 

 

0.14

 

 

 

0.04

 

 

 

0.03

 

 

 

0.03

 

 

 

0.10

 

Tax benefit of stock awards vested

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(0.03

)

 

 

-

 

 

 

-

 

 

 

(0.03

)

Purchase amortization

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Restructuring charge

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

0.03

 

 

 

 

 

 

 

0.03

 

Adjusted Diluted EPS

 

 

$

0.42

 

 

$

0.49

 

 

$

0.50

 

 

$

0.46

 

 

$

1.87

 

 

$

0.42

 

 

$

0.50

 

 

$

0.51

 

 

$

1.42

 

Fully Diluted Shares

 

 

 

73,020

 

 

 

72,228

 

 

 

71,743

 

 

 

71,148

 

 

 

72,060

 

 

 

70,247

 

 

 

69,421

 

 

 

69,135

 

 

 

69,614

 

2.

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

 

 

 

2016

 

 

2017

 

 

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

4th Qtr

 

 

Full Year

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

YTD

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

$

128,807

 

 

$

131,018

 

 

$

130,099

 

 

$

123,660

 

 

$

513,584

 

 

$

113,115

 

 

$

123,658

 

 

$

124,833

 

 

$

361,606

 

EMEA

 

 

 

15,686

 

 

 

18,185

 

 

 

15,078

 

 

 

17,333

 

 

 

66,282

 

 

 

23,360

 

 

 

22,028

 

 

 

18,453

 

 

 

63,841

 

APAC

 

 

 

5,367

 

 

 

5,689

 

 

 

7,036

 

 

 

6,599

 

 

 

24,691

 

 

 

7,014

 

 

 

8,455

 

 

 

9,597

 

 

 

25,066

 

 

 

 

$

149,860

 

 

$

154,892

 

 

$

152,213

 

 

$

147,592

 

 

$

604,557

 

 

$

143,489

 

 

$

154,141

 

 

$

152,883

 

 

$

450,513

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Operating Income:

 

Americas

 

 

$

37,454

 

 

$

44,126

 

 

$

46,213

 

 

$

37,154

 

 

$

164,947

 

 

$

28,713

 

 

$

35,717

 

 

$

39,295

 

 

$

103,725

 

EMEA

 

 

 

4,439

 

 

 

6,854

 

 

 

4,822

 

 

 

5,945

 

 

 

22,060

 

 

 

10,754

 

 

 

9,995

 

 

 

7,128

 

 

 

27,877

 

APAC

 

 

 

1,206

 

 

 

1,288

 

 

 

2,549

 

 

 

2,257

 

 

 

7,300

 

 

 

2,253

 

 

 

3,547

 

 

 

4,673

 

 

 

10,473

 

 

 

 

$

43,099

 

 

$

52,268

 

 

$

53,584

 

 

$

45,356

 

 

$

194,307

 

 

$

41,720

 

 

$

49,259

 

 

$

51,096

 

 

$

142,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments (pre-tax):

 

Americas:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based

   compensation

 

 

$

4,688

 

 

$

3,495

 

 

$

3,541

 

 

$

4,210

 

 

$

15,934

 

 

$

4,472

 

 

$

2,796

 

 

 

3,773

 

 

$

11,041

 

Purchase amortization

 

 

 

107

 

 

 

108

 

 

 

107

 

 

 

108

 

 

 

430

 

 

 

107

 

 

 

108

 

 

 

108

 

 

 

323

 

Restructuring charge

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,908

 

 

 

(77

)

 

 

2,831

 

 

 

 

$

4,795

 

 

$

3,603

 

 

$

3,648

 

 

$

4,318

 

 

$

16,364

 

 

$

4,579

 

 

$

5,812

 

 

$

3,804

 

 

$

14,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EMEA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring charge

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

114

 

 

 

-

 

 

 

114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted non-GAAP Operating Income:

 

Americas

 

 

$

42,249

 

 

$

47,729

 

 

$

49,861

 

 

$

41,472

 

 

$

181,311

 

 

$

33,292

 

 

$

41,529

 

 

$

43,099

 

 

$

117,920

 

EMEA

 

 

 

4,439

 

 

 

6,854

 

 

 

4,822

 

 

 

5,945

 

 

 

22,060

 

 

 

10,754

 

 

 

10,109

 

 

 

7,128

 

 

 

27,991

 

APAC

 

 

 

1,206

 

 

 

1,288

 

 

 

2,549

 

 

 

2,257

 

 

 

7,300

 

 

 

2,253

 

 

 

3,547

 

 

 

4,673

 

 

 

10,473

 

 

 

 

$

47,894

 

 

$

55,871

 

 

$

57,232

 

 

$

49,674

 

 

$

210,671

 

 

$

46,299

 

 

$

55,185

 

 

$

54,900

 

 

$

156,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.

Our services revenue consists of fees generated from professional services and customer support and software enhancements related to our software products as follows (in thousands):

 

 

 

2016

 

 

2017

 

 

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

4th Qtr

 

 

Full Year

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

YTD

 

Professional services

 

 

$

84,506

 

 

$

86,992

 

 

$

84,843

 

 

$

77,097

 

 

$

333,438

 

 

$

75,457

 

 

$

80,869

 

 

$

79,217

 

 

$

235,543

 

Customer support and

   software enhancements

 

 

 

31,757

 

 

 

32,841

 

 

 

34,424

 

 

 

34,826

 

 

 

133,848

 

 

 

33,376

 

 

 

35,959

 

 

 

36,338

 

 

 

105,673

 

Total services revenue

 

 

$

116,263

 

 

$

119,833

 

 

$

119,267

 

 

$

111,923

 

 

$

467,286

 

 

$

108,833

 

 

$

116,828

 

 

$

115,555

 

 

$

341,216

 

4.

Hardware and other revenue includes the following items (in thousands):

 

 

 

2016

 

 

2017

 

 

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

4th Qtr

 

 

Full Year

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

YTD

 

Hardware revenue

 

 

$

8,761

 

 

$

9,554

 

 

$

6,543

 

 

$

9,070

 

 

$

33,928

 

 

$

7,559

 

 

$

10,413

 

 

$

13,540

 

 

$

31,512

 

Billed travel

 

 

 

4,229

 

 

 

4,874

 

 

 

4,770

 

 

 

4,474

 

 

 

18,347

 

 

 

4,324

 

 

 

4,458

 

 

 

4,994

 

 

 

13,776

 

Total hardware and

   other revenue

 

 

$

12,990

 

 

$

14,428

 

 

$

11,313

 

 

$

13,544

 

 

$

52,275

 

 

$

11,883

 

 

$

14,871

 

 

$

18,534

 

 

$

45,288

 

5.

Impact of Currency Fluctuation

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

  

 

 

2016

 

 

2017

 

 

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

4th Qtr

 

 

Full Year

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

YTD

 

Revenue

 

 

$

(810

)

 

$

(474

)

 

$

(784

)

 

$

(1,425

)

 

$

(3,493

)

 

$

(1,547

)

 

$

(1,219

)

 

$

536

 

 

$

(2,230

)

Costs and expenses

 

 

 

(1,292

)

 

 

(702

)

 

 

(782

)

 

 

(1,028

)

 

 

(3,804

)

 

 

(789

)

 

 

(396

)

 

 

723

 

 

 

(462

)

Operating income

 

 

 

482

 

 

 

228

 

 

 

(2

)

 

 

(397

)

 

 

311

 

 

 

(758

)

 

$

(823

)

 

 

(187

)

 

 

(1,768

)

Foreign currency gains

   (losses) in other income

 

 

 

165

 

 

 

331

 

 

 

(72

)

 

 

211

 

 

 

635

 

 

 

(646

)

 

 

(348

)

 

 

(81

)

 

 

(1,075

)

 

 

 

$

647

 

 

$

559

 

 

$

(74

)

 

$

(186

)

 

$

946

 

 

$

(1,404

)

 

$

(1,171

)

 

$

(268

)

 

$

(2,843

)

 

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

 

 

 

2016

 

 

2017

 

 

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

4th Qtr

 

 

Full Year

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

YTD

 

Operating income

 

 

$

682

 

 

$

459

 

 

$

259

 

 

$

159

 

 

$

1,559

 

 

$

(70

)

 

$

(326

)

 

$

(338

)

 

$

(734

)

Foreign currency (losses)

   gains in other income

 

 

 

(109

)

 

 

212

 

 

 

(44

)

 

 

159

 

 

 

218

 

 

 

(320

)

 

 

(190

)

 

 

71

 

 

 

(439

)

Total impact of changes

   in the Indian Rupee

 

 

$

573

 

 

$

671

 

 

$

215

 

 

$

318

 

 

$

1,777

 

 

$

(390

)

 

$

(516

)

 

$

(267

)

 

$

(1,173

)

 

 

 

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

 

 

 

2016

 

 

2017

 

 

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

4th Qtr

 

 

Full Year

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

YTD

 

Interest income

 

 

$

335

 

 

$

329

 

 

$

281

 

 

$

216

 

 

$

1,161

 

 

$

293

 

 

$

264

 

 

$

314

 

 

$

871

 

Foreign currency gains

   (losses)

 

 

 

165

 

 

 

331

 

 

 

(72

)

 

 

211

 

 

 

635

 

 

 

(646

)

 

 

(348

)

 

 

(81

)

 

 

(1,075

)

Other non-operating

   income (expense)

 

 

 

20

 

 

 

(6

)

 

 

1

 

 

 

(11

)

 

 

4

 

 

 

(18

)

 

 

16

 

 

 

(26

)

 

 

(28

)

Total other income (loss)

 

 

$

520

 

 

$

654

 

 

$

210

 

 

$

416

 

 

$

1,800

 

 

$

(371

)

 

$

(68

)

 

$

207

 

 

$

(232

)

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

 

 

 

2016

 

 

2017

 

 

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

4th Qtr

 

 

Full Year

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

YTD

 

Capital expenditures

 

 

$

1,906

 

 

$

2,201

 

 

$

1,358

 

 

$

1,378

 

 

$

6,843

 

 

$

789

 

 

$

1,914

 

 

$

1,194

 

 

$

3,897

 

8.

Stock Repurchase Activity (in thousands):

 

 

 

2016

 

 

2017

 

 

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

4th Qtr

 

 

Full Year

 

 

1st Qtr

 

 

2nd Qtr

 

 

3rd Qtr

 

 

YTD

 

Shares purchased under

   publicly-announced

   buy-back program

 

 

892

 

 

 

552

 

 

 

420

 

 

 

957

 

 

 

2,821

 

 

 

1,004

 

 

 

535

 

 

 

-

 

 

 

1,539

 

Shares withheld for taxes

   due upon vesting of

   restricted stock

 

 

163

 

 

 

-

 

 

 

3

 

 

 

1

 

 

 

167

 

 

 

131

 

 

 

1

 

 

 

2

 

 

 

134

 

Total shares purchased

 

 

 

1,055

 

 

 

552

 

 

 

423

 

 

 

958

 

 

 

2,988

 

 

 

1,135

 

 

 

536

 

 

 

2

 

 

 

1,673

 

Total cash paid for shares

   purchased under

   publicly-announced

   buy-back program

 

$

48,499

 

 

$

34,995

 

 

$

24,998

 

 

$

49,901

 

 

$

158,393

 

 

$

49,978

 

 

$

24,974

 

 

$

-

 

 

$

74,952

 

Total cash paid for shares

   withheld for taxes due

   upon vesting of restricted

   stock

 

 

9,292

 

 

 

26

 

 

 

158

 

 

 

64

 

 

 

9,540

 

 

 

6,641

 

 

 

27

 

 

 

80

 

 

 

6,748

 

Total cash paid for shares

   repurchased

 

 

$

57,791

 

 

$

35,021

 

 

$

25,156

 

 

$

49,965

 

 

$

167,933

 

 

$

56,619

 

 

$

25,001

 

 

$

80

 

 

$

81,700

 

 

 

 

 

 

9.

As mentioned in footnote b to the reconciliation of selected GAAP to Non-GAAP Measures, during the first quarter of 2017, we adopted ASU 2016-09 Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. Had we adopted the guidance during the first quarter of 2016, the cash provided by operating activities and cash used in financing activities for the nine months ended September 30, 2016 as compared to September 30, 2017 would have been as follows:

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities, as stated

 

$

101,498

 

 

$

116,639

 

 

 

 

 

 

 

 

 

 

 

Add: excess tax benefit from equity-based compensation

 

 

5,170

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

Revised net cash provided by operating activities

 

$

106,668

 

 

$

116,639

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in financing activities, as stated

 

$

(112,780

)

 

$

(81,700

)

 

 

 

 

 

 

 

 

 

 

Less: excess tax benefit from equity-based compensation

 

 

(5,170

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

Revised net cash used in financing activities

 

$

(117,950

)

 

$

(81,700

)

 

 

 

 

 

 

 

 

 

 

 

10.

2018 Outlook

 

 

 

 

 

 

2017 Outlook

(Midpoint of Range)

 

 

2018 Outlook(2)

 

 

($'s in millions, except EPS)

 

Current

 

 

ASC 606(1)

 

 

Low

 

 

High

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenue

 

 

 

 

 

 

$

595

 

 

$

564

 

 

$

556

 

(2)

$

568

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP - Operating Margin %

 

 

31.2

%

 

 

32.9

%

 

 

20.8

%

(3), (4)

 

20.7

%

(3), (4)

Equity-based compensation, net of tax

 

 

2.5

%

 

 

2.7

%

 

 

3.5

%

 

 

3.5

%

 

Amortization

 

 

0.1

%

 

 

0.1

%

 

 

0.0

%

 

 

0.0

%

 

Restructuring charge, net of tax

 

 

0.5

%

 

 

0.5

%

 

 

0.0

%

 

 

0.0

%

 

Adjusted - Operating Margin %

 

 

34.3

%

 

 

36.2

%

 

 

24.3

%

(3), (4)

 

24.2

%

(3), (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP EPS

 

 

 

 

 

 

$

1.73

 

 

$

1.73

 

 

$

1.10

 

 

$

1.13

 

 

Equity-based compensation, net of tax

 

 

0.11

 

 

 

0.11

 

 

 

0.16

 

 

 

0.16

 

 

Restructuring charge, net of tax

 

 

0.03

 

 

 

0.03

 

 

 

-

 

 

 

-

 

 

Adjusted EPS

 

 

 

 

 

 

$

1.87

 

 

$

1.87

 

 

$

1.26

 

 

$

1.29

 

 

 

 

(1)

We will adopt the new revenue recognition standard, FASB ASC Topic 606, Revenue from Contracts with Customers, in the first quarter of 2018.  The new standard provides accounting guidance for all revenue arising from contracts with customers and affects substantially all entities. We expect to adopt the standard using the modified retrospective method with the cumulative effect of initially adopting the standard recorded as an adjustment to retained earnings. Currently we are in the process of reviewing our historical contracts to quantify the impact that the adoption of the standard will have on performance obligations.  We expect to recognize our hardware revenue net of related cost under the new standard which will reduce both hardware revenue and cost of sales as compared to our current accounting.  For comparison purposes only, had we implemented ASC 606 in 2017, at the midpoint of our current guidance, we estimate that the netting of hardware expense against revenue would lower our projected revenue by approximately $31 million.

 

We are also continuing to evaluate the impact of the standard on our recognition of costs related to obtaining customer contracts. Currently, sales commissions are expensed in sales and marketing expense when earned. We believe these commissions represent direct incremental costs of obtaining our contracts with customers. Under the new standard, these costs must be expensed on a systematic basis that is consistent with the transfer of the related goods and services to the customer.  Based on expected renewals of customer support and software enhancements and sales of optional implementation services, we believe a portion of our commissions expense should be deferred and amortized over time as the corresponding services are transferred to

 

 

 

the customer under the new standard.  We currently do not expect this change will have a material effect on our projected financial results.

 

 

(2)

At the midpoint of our 2017 total revenue guidance range, we expect total software revenue to be about $84 million, of which cloud-based revenue is expected to represent between 10% and 11%, with the remainder expected to represent traditional perpetual license revenue.  Our 2018 preliminary outlook assumes total software revenue will remain flat at approximately $84 million with cloud-based revenue representing between 25% to 35% of the total. Based on our expectations of SaaS / Cloud sales, beginning in Q1 2018, we will report Cloud Revenue and Cost of Cloud expense on separate line items in our Statements of Income.  Because our cloud-based contracts are subscription in nature, the total value of the contract will be recognized over a three to five-year period, as opposed to our perpetual license revenue that is typically recognized upon contract execution.  We believe our customers will transition to the SaaS / Cloud model, which will result in the shift of revenues from license revenue recognized pursuant to the residual method to cloud revenue recognized over time creating near term revenue growth headwinds. For our 2018 preliminary outlook, while we expect total software revenue to remain flat, attributable to cloud transition, we expect license revenue to decline between 16% to 27% while we expect cloud revenue to double or triple in size with growth between 135% and 225%.  We expect our license gross margin to range between 88% and 91%, and our cloud gross margin to be about 44%, reflecting our initial investment in cloud operations.

 

 

(3)

From an operating expense perspective, we plan to set aside approximately $10 to $15 million in 2018 to cover investments in global marketing and sales operations, technical resources, automation tools and infrastructure based on demand driven growth and market share capture from our transition into cloud-based offerings to our customers. Based on our 2018 outlook revenue range, the estimated impact of these investments on our GAAP and adjusted operating margin will be between 1.8% to 2.6%, and the estimated impact on our GAAP and adjusted EPS will be between $0.09 and $0.14.

 

 

(4)

Due to lower than planned revenue in 2017, the expected payouts on our variable compensation plans to our employees are significantly lower than the payouts in previous years. These plans worked as designed, by sharing the negative impact of lower than planned revenue performance between employees and our shareholders.  In 2018, compensation plans will reset with the expectation of achieving our financial goals in the coming year with an estimated financial impact of approximately $15 million of additional expense. Based on our 2018 outlook revenue range, the estimated impact of the additional compensation on our GAAP and adjusted operating margin will be between 2.6% and 2.7%, and the estimated impact on our GAAP and adjusted EPS will be approximately $0.14.