Manhattan Associates, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; the filing also reports quarterly results, including Q4 2015. Manhattan develops and implements supply-chain, inventory and omni-channel software, with related services and hardware. Its reporting segments are Americas, EMEA and APAC.
Financial performance
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Total revenue | $556.4 million | $492.1 million | +13% |
| Software license revenue | $78.6 million | $71.6 million | +10% |
| Services revenue | $428.1 million | $376.0 million | +14% |
| Hardware and other revenue | $49.7 million | $44.5 million | +12% |
| Operating income | $161.4 million | $127.1 million | +27% |
| Operating margin | 29.0% | 25.8% | +3.2 percentage points |
| Net income | $103.5 million | $82.0 million | +26% |
| Diluted EPS | $1.40 | $1.08 | +30% |
| Operating cash flow | $120.2 million | $94.2 million | +$26.0 million |
Services represented 77% of revenue, licenses 14%, and hardware and other 9%. Disclosed gross margins were 87.4% for licenses, 56.9% for services and 17.2% for hardware and other. The effective tax rate was 36.5%, compared with 35.9% in 2014.
Q4 2015: Revenue was $141.4 million, operating income $39.5 million, net income $26.4 million and diluted EPS $0.36. Q4 2014 comparables were $130.4 million, $29.1 million, $20.4 million and $0.27, respectively.
Liquidity, debt and capital allocation
Cash, cash equivalents and short-term investments totaled $128.8 million at year-end, versus $124.4 million a year earlier. The company reported no debt and no credit facilities. Current assets were $247.1 million and current liabilities $127.2 million (an approximately 1.9x current ratio, calculated from reported balances). Management said existing cash and investments should meet working-capital and capital-expenditure needs for at least 12 months and anticipated no general-purpose borrowing in 2016.
FY2015 share repurchases were reported as approximately $101.6 million under the repurchase program; cash-flow disclosures report $112.1 million of common-stock purchases, including shares withheld for employee taxes. The board raised remaining repurchase authority to $50 million in January 2016. The company does not expect to pay cash dividends in the foreseeable future.
Material changes and management commentary
- Revenue growth accelerated services and license sales, supported by new license deals and customer upgrades. Manhattan completed 21 new contracts with recognized license revenue of at least $1 million, compared with 15 in 2014.
- Warehouse-management license revenue rose 25% to $50.1 million; non-warehouse license revenue declined 9% to $28.5 million.
- Americas revenue increased 16% to $464.5 million and EMEA revenue increased 15% to $70.1 million. APAC revenue fell 25% to $21.8 million; APAC operating income declined 46% to $5.3 million.
- Operating margin improved with revenue growth and expense management. Management cited an unfavorable $2.1 million foreign-currency translation effect in 2015, mainly from the euro and British pound.
- Operating cash flow increased, while cash financing uses remained substantial, principally due to stock repurchases. R&D spending rose 10% to $53.9 million.
Outlook, risks and unusual items
The filing provides no numeric revenue or earnings guidance. For 2016, management prioritized hiring and developing sales and services resources, product investment, and evaluation of complementary acquisitions; it would weigh repurchases against business investment and acquisitions. Management described large-deal timing and customer spending as difficult to forecast amid macroeconomic uncertainty and long sales cycles, typically nine to twelve months and sometimes longer.
- Key risks include economic and technology-spending weakness, intense competition and pricing pressure, reliance on one business line and continued license sales, lengthy or delayed implementations, and the ability to attract and retain skilled personnel.
- International operations create currency and political, regulatory and tax risks. The company specifically noted exposure to the Indian rupee and that foreign subsidiary earnings were intended to remain indefinitely reinvested; repatriation could increase taxes.
- Cybersecurity incidents, software defects, third-party or open-source software issues, intellectual-property claims, and product failures could disrupt operations or lead to claims. Customer contracts include indemnities with no specified monetary cap; no related liability was recorded at year-end.
- There were no legal proceedings identified as likely to have a material adverse effect and no off-balance-sheet arrangements. Operating-lease commitments totaled $52.1 million, including $21.4 million thereafter. No liabilities were recorded for product/service warranties at year-end.
- Revenue standard ASC 606 was under evaluation, with adoption required for periods beginning after December 15, 2017. Adoption of the cloud-computing arrangement guidance had no material impact.
- 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 license growth and large-deal activity remain durable, given the long and variable sales cycle and the substantial services share of revenue.
- Whether APAC’s revenue and operating-income declines persist, and how foreign exchange affects reported growth and margins.
- How services utilization, hiring and compensation costs affect margins as the company expands its implementation capacity.
- The company’s use of cash among repurchases, product investment and acquisitions, including the distinction between program repurchases and total stock purchases reported in cash flows.
- Potential tax exposure from uncertain tax positions and any future decision to repatriate foreign earnings; also monitor the eventual ASC 606 adoption impact.