Manhattan Associates, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; compared with the three months ended March 31, 2020, unless otherwise noted. The company provides supply-chain, inventory and omnichannel commerce software and related services.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $156.9 million | $153.9 million; up 2% |
| Operating income | $25.4 million | $24.2 million; up 5% |
| Operating margin | 16.2% | 15.7% |
| Net income | $22.6 million | $22.5 million |
| Diluted EPS | $0.35 | $0.35 |
| Operating cash flow | $39.9 million | $11.6 million |
| Cash and cash equivalents at March 31 | $197.2 million | $204.7 million at December 31, 2020 |
The company reported no debt and no credit facilities. Current assets were $330.1 million and current liabilities were $206.7 million at quarter-end. Cash decreased $7.5 million during the quarter, primarily reflecting $46.4 million of common-stock purchases in financing activities, partly offset by operating cash generation. The $46.4 million includes shares withheld for taxes; the company separately reported $27.0 million of repurchases under its board-authorized program.
Revenue mix: cloud subscriptions $26.6 million (+54%); software licenses $7.8 million (-19%); maintenance $36.2 million (+1%); services $80.4 million (-8%); and hardware $5.9 million (+56%). Services accounted for 51% of revenue. International revenue was approximately $47.9 million, or 31% of total revenue.
Material changes versus the prior period
- Cloud growth and hardware revenue gains more than offset declines in software licenses and services. Management attributed the services decline primarily to reduced professional-services hiring in 2020 and lower billed travel during the COVID-19 pandemic.
- Operating income and margin improved, with management citing higher cloud-subscription and hardware revenue. Operating expenses increased 5%, including higher compensation and performance-based compensation costs.
- Operating cash flow rose by $28.3 million year over year, mainly due to lower employee bonus payments and the timing of customer collections.
- Other non-operating results shifted from $1.4 million of income to a $0.3 million loss, primarily due to foreign-currency effects on intercompany transactions. The effective tax rate fell to 9.9% from 12.0%, reflecting foreign-jurisdiction incentives and changes in deductible stock compensation.
Outlook, commentary and risks
- No specific quarterly or full-year revenue or earnings guidance is provided. Management said it remained cautious about a slow and protracted global recovery, while reporting solid cloud demand and strong win rates in Q1.
- Management expects cloud subscriptions to continue gaining share as customers shift from perpetual licenses. Cloud represented 77% of combined cloud-subscription and software-license revenue in Q1; the company estimated an 80% cloud / 20% license mix for that combined revenue for full-year 2021.
- Remaining performance obligations for cloud subscriptions, maintenance and application managed services with non-cancelable terms over one year totaled approximately $421.2 million; about 45% was expected to be recognized over the next 24 months. Contracts with terms of one year or less are excluded from this disclosure.
- Priorities include investment in product development and the cloud transition, evaluating complementary acquisitions, and balancing repurchases against investment and acquisition needs. Management did not anticipate borrowing for general corporate purposes during the remainder of 2021 and believed existing cash and investments would meet needs for at least 12 months.
- Cloud-infrastructure commitments were approximately $70 million over five years; internal-software subscription obligations were approximately $10 million over three years. Operating lease liabilities totaled $32.4 million.
- Key risks include COVID-19 and macroeconomic uncertainty, potentially extended sales cycles and customer spending delays, the financial and operational effects of the cloud transition, competition and pricing pressure, foreign-currency exposure, cloud-service interruptions or security compromises, implementation and product-failure claims, and difficulty forecasting results. Management reported no legal proceedings believed likely to have a material adverse effect.
Important facts for investors to verify
- Whether cloud-subscription growth continues to offset declines in licenses and services, and how the transition affects revenue timing and margins.
- Whether the $421.2 million of disclosed remaining performance obligations converts to revenue on the expected schedule.
- How operating cash flow and customer collections develop, given the quarter’s benefit from bonus-payment and collection timing.
- Capital allocation: Q1 program repurchases were $27.0 million, and the board confirmed in April authority to repurchase up to an aggregate $50.0 million; compare further repurchases with cloud investment and acquisition needs.
- Exposure to COVID-19-related disruption, extended sales cycles, foreign-exchange movements, and the disclosed cloud-infrastructure and other contractual commitments.