Manhattan Associates, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; financial statements are unaudited. Amounts are in U.S. dollars unless noted.
Business context
Manhattan develops and implements supply-chain, inventory, and omnichannel software. Revenue comes from cloud subscriptions, software licenses, maintenance, services, and hardware. The company is transitioning from perpetual licenses toward cloud subscriptions; services remained its largest revenue source.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $166.1 million | $135.6 million | $323.0 million | $289.5 million |
| Operating income | $39.4 million | $26.7 million | $64.8 million | $50.9 million |
| Operating margin | 23.7% | 19.7% | 20.1% | 17.6% |
| Net income | $30.6 million | $19.2 million | $53.2 million | $41.7 million |
| Diluted EPS | $0.48 | $0.30 | $0.83 | $0.65 |
| Cash from operations | $45.5 million | $48.8 million | $85.4 million | $60.4 million |
- Q2 revenue increased 22%; cloud subscriptions rose 55% to $28.6 million, software licenses rose 55% to $8.8 million, and services rose 18% to $84.7 million. For the quarter, revenue mix was 17% cloud, 5% licenses, 23% maintenance, 51% services, and 4% hardware.
- At June 30, cash and cash equivalents were $209.3 million, versus $204.7 million at December 31, 2020. The company reported no debt and no credit facilities. Current assets were $347.2 million and current liabilities were $216.9 million.
- Six-month investing cash use was $1.2 million; financing cash use was $79.5 million, principally common-stock purchases, including shares withheld for taxes. Operating lease liabilities totaled $31.4 million.
Material changes versus the prior comparable period
- For the six months, revenue increased 12%, operating income 27%, net income 28%, and diluted EPS from $0.65 to $0.83. Operating margin rose to 20.1% from 17.6%.
- Cloud subscription revenue grew 54% in the first half to $55.2 million, while software-license revenue rose 8% to $16.7 million. Management attributed growth to demand for cloud offerings and customer migration from on-premise solutions.
- Operating expenses increased 22% in Q2 and 13% in the first half, with higher performance-based compensation and personnel costs among the cited drivers. Equity-based compensation was $20.8 million for the first half, up from $15.1 million.
- First-half operating cash flow rose to $85.4 million from $60.4 million, mainly reflecting higher net income. Q2 operating cash flow, however, declined to $45.5 million from $48.8 million.
Outlook, commentary, and risks
- Management said first-half results exceeded expectations, citing solid cloud demand, but remained cautious about a slow, protracted global recovery and the COVID-19 pandemic. It plans continued investment in product development, cloud transition, innovation, and sales and marketing.
- Management estimated 2021 cloud subscriptions and software licenses would comprise approximately 80% and 20%, respectively, of those combined revenue streams. Cloud represented 77% of combined cloud and license revenue in the first half; approximately 90% of the pipeline was cloud solutions.
- Remaining performance obligations for qualifying cloud, maintenance, and managed-services contracts were approximately $488.7 million; about 45% was expected to be recognized over the next 24 months. These figures are not a full-year revenue forecast.
- The company repurchased approximately 0.5 million shares for $59.9 million under its program during the first half; total financing cash used for stock purchases was $79.5 million, including shares withheld for taxes. The board confirmed up to $50.0 million of repurchase authority in July 2021. Management said it would weigh repurchases against investment and acquisition opportunities.
- Cash commitments include approximately $72 million for cloud infrastructure over five years and $12 million for internal software subscriptions over three years. Management expected existing cash to cover working-capital and capital needs for at least 12 months and did not anticipate general-purpose borrowing for the remainder of 2021.
- Risks include pandemic and macroeconomic uncertainty, extended sales cycles, difficulty forecasting bookings and revenue during the shift to subscriptions, competition, software or cloud-service defects or interruptions, cybersecurity, implementation and customer-claim exposure, and foreign-currency and international-operation risks. The company reported no legal proceeding it believed likely to have a material adverse impact. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether cloud growth, pipeline conversion, and remaining performance obligations translate into recognized revenue and cash flow as expected.
- How the cloud transition and high services revenue mix affect margins, and whether rising compensation and equity-based compensation remain manageable.
- Repurchase activity and remaining authorization relative to investment priorities, acquisition plans, and the stated liquidity position.
- Whether the stated cash, lease, and cloud-infrastructure commitments remain consistent with management’s liquidity outlook amid pandemic and macroeconomic risks.