Manhattan Associates, Inc. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing is an annual report; it also reports fourth-quarter results. Amounts are in U.S. dollars unless noted. Per-share data reflect the four-for-one stock split approved in December 2013.
Business context and results
Manhattan Associates develops and implements supply-chain commerce software, related professional and customer-support services, and complementary hardware. Its principal portfolios are SCOPE and SCALE. The company reports by Americas, EMEA, and APAC; approximately 27% of 2013 revenue came from outside the United States.
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Total revenue | $414.5 million | $376.2 million | +10% |
| Software license revenue | $62.4 million | $61.5 million | +1% |
| Services revenue | $315.9 million | $283.9 million | +11% |
| Hardware and other revenue | $36.2 million | $30.9 million | +17% |
| Operating income | $101.3 million | $80.1 million | +26% |
| Operating margin | 24.4% | 21.3% | +3.1 percentage points |
| Net income | $67.3 million | $51.9 million | +30% |
| Diluted EPS | $0.86 | $0.64 | +34% |
| Operating cash flow | $89.4 million | $75.3 million | +19% |
Fourth-quarter results
Q4 2013 revenue was $107.6 million versus $95.4 million in Q4 2012. Operating income was $24.7 million versus $19.1 million; net income was $16.8 million versus $12.5 million; diluted EPS was $0.22 versus $0.16.
Margins, liquidity, and capital allocation
- 2013 gross margins were 86% for software licenses, 55.0% for services, and 16.6% for hardware and other. Services represented 76% of revenue, making results substantially dependent on service delivery and staffing.
- Cash, cash equivalents, and investments totaled $133.0 million at year-end, up from $103.0 million; the company reported no debt and no credit facilities. Current assets were $218.7 million and current liabilities $104.2 million.
- Operating cash flow was $89.4 million; investing activities used $7.8 million and financing activities used $51.8 million. The company repurchased approximately $59.2 million of shares during 2013. In January 2014, the board raised remaining repurchase authorization to $50 million.
- Management expected existing cash and investments to meet working-capital and capital-expenditure needs for at least the next 12 months, and did not anticipate borrowing for general corporate purposes in 2014.
Material changes, outlook, and risks
- Services drove most annual growth; license revenue was nearly flat. License mix shifted toward existing customers (approximately 65% versus 35% new customers), and APAC license revenue rose while Americas and EMEA license revenue declined.
- Management cited continued macroeconomic uncertainty, extended sales cycles for large license deals, and uneven timing of large transactions. It did not provide specific revenue or earnings guidance. For 2014, stated priorities were investing in product development and sales and services resources, evaluating complementary acquisitions, and balancing buybacks against business investment.
- Operating income included a $1.6 million reversal of previously expensed transaction tax after expiration of audit statutes and favorable foreign-currency translation effects of $1.9 million. Management also cited strong revenue growth and expense management. The effective tax rate declined to 34.7% from 36.0%, partly due to reinstatement of the federal R&D credit.
- Key risks include customer delays or cancellations amid economic uncertainty, intense competition and pricing pressure, long sales and implementation cycles, dependence on one business line, software defects or security breaches, the ability to recruit and retain technical and services personnel, international and foreign-exchange exposure, and tax uncertainty. The Indian development operation has currency exposure without a natural revenue hedge.
- The company reported no legal proceeding believed likely to have a material adverse effect and no liabilities recorded for its contractual indemnities or warranties. It disclosed $5.1 million of unrecognized tax benefits. Operating lease commitments totaled $28.4 million through 2018; no off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether license growth improves and whether services growth remains supported by new license sales, customer upgrades, and support renewals.
- Whether the operating-margin expansion is sustainable, given the tax reversal and favorable currency effects included in 2013 results.
- Cash conversion, receivables and collections (DSO was 61 days), and the effect of continued share repurchases on cash available for investment or acquisitions.
- Exposure to foreign exchange, uncertain tax positions, long sales cycles, and customer indemnity obligations.
- The filing reports unqualified audit opinions on the financial statements and internal controls; confirm subsequent filings for any changes to financial performance, outlook, or risk disclosures.