Manhattan Associates, Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports unaudited fourth-quarter results. The company develops and implements supply-chain software, with related professional services and hardware, across the Americas, EMEA, and APAC.
Key financial results
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Total revenue | $329.3 million | $297.1 million | +11% |
| Operating income | $61.4 million | $41.9 million | +46% |
| Operating margin | 18.6% | 14.1% | +4.5 percentage points |
| Net income | $44.9 million | $28.1 million | +60% |
| Diluted EPS | $2.09 | $1.25 | +67% |
| Operating cash flow | $55.8 million | $50.0 million | +12% |
| Cash and investments at year-end | $99.1 million | $126.9 million | Down $27.8 million |
- Revenue mix was $54.2 million software licenses (17% of revenue), $244.1 million services (74%), and $31.0 million hardware and other (9%). License revenue was essentially flat; services grew 14% and hardware and other grew 7%.
- Reported gross margins were 87.5% for licenses, 55.9% for services, and 19.9% for hardware and other. Services margin improved 2.1 percentage points from 2010.
- International revenue was $90.7 million, or approximately 28% of total revenue. The top five customers represented 15% of revenue; no individual customer exceeded 10%.
- The company reported $92.2 million in cash and cash equivalents and $6.9 million in investments, with no debt and no credit facilities. Current assets were $174.5 million against current liabilities of $88.1 million.
Material changes and unusual items
- Revenue growth and improved services utilization helped lift operating income and margins. License revenue was flat year over year, with APAC license revenue down 55%, partly offset by growth in the Americas and EMEA.
- FY2011 net income included a $2.5 million recovery from sale of a previously impaired auction-rate security and a $2.0 million tax benefit related to Indian tax assets. Management cited a combined $0.21 per diluted share benefit from these items.
- Share repurchases totaled approximately $130.7 million during 2011. Year-end shares outstanding were 20.4 million, down from 21.7 million a year earlier. The board increased remaining repurchase authorization to $50 million in January 2012.
- Fourth-quarter 2011 revenue was $83.5 million, versus $71.5 million in fourth-quarter 2010; net income was $10.5 million versus $6.4 million, and diluted EPS was $0.50 versus $0.29.
Outlook, risks, and contingencies
- The filing gives no specific 2012 revenue or earnings guidance. Management planned to prioritize product development and profitable growth, continue evaluating complementary acquisitions, and weigh repurchases against business investment. It did not anticipate borrowing for general corporate purposes in 2012.
- Management remained cautious about global economic conditions and said extended sales cycles for large license deals made timing and forecasting difficult. It cited a six-to-twelve-month typical sales cycle and noted that large deals can materially affect quarterly results.
- Key risks include intense competition, customer delays or cuts to technology spending, dependence on supply-chain software and related services, implementation delays, and the ability to retain skilled employees. Foreign-currency exposure, particularly to the Indian rupee, is also a risk.
- Sky Technologies filed a patent-infringement suit in May 2011 seeking unspecified damages and injunctive relief. Manhattan denied infringement and intended to defend the case; trial was scheduled for October 2012. The company said a potential finding would likely concern a small portion of its product portfolio, but the outcome was uncertain.
- Operating lease commitments totaled $35.8 million, including $6.1 million due in 2012. The company reported no off-balance-sheet arrangements and no recorded liability for its customer indemnification obligations.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether services growth and utilization can be sustained while license revenue remains flat and services comprise most revenue.
- How much reported earnings growth depended on the $2.5 million investment recovery, the $2.0 million tax benefit, and lower share count from repurchases.
- The outcome and potential financial or operational impact of the Sky patent litigation.
- Cash generation and liquidity after substantial repurchases, and management’s allocation of cash among repurchases, acquisitions, and investment.
- Exposure to weaker customer spending, long and uneven deal timing, currency movements, and the remaining auction-rate security valued using significant unobservable inputs.