Manhattan Associates, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; financial statements are unaudited. The company develops and implements supply-chain software and related services. All amounts below are U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Financial performance
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Revenue | $113.6 | $96.6 | +18% |
| Operating income | $30.1 | $19.7 | +53% |
| Operating margin | 26.5% | 20.4% | +6.1 percentage points |
| Net income | $18.7 | $13.4 | +40% |
| Diluted EPS | $0.24 | $0.17 | +41% |
| Cash from operations | $19.1 | $20.1 | Down $1.0 |
- Revenue mix: software licenses $17.1 million (15%, +20% year over year); services $86.9 million (77%, +16%); hardware and other $9.5 million (8%, +28%). Services growth reflected higher professional services activity and customer support revenue.
- Reported gross margins were 90.6% for licenses, 55.7% for services, and 21.6% for hardware and other.
- The effective tax rate increased to 37.2% from 32.6%; the 2014 rate did not benefit from the federal R&D tax credit, which had expired. Other expense was $0.2 million, versus $0.2 million of other income a year earlier, primarily reflecting greater foreign-currency losses.
Financial position and capital allocation
- At March 31, cash and cash equivalents were $116.6 million and short-term investments were $9.3 million, totaling $125.9 million. The company reported no debt and no credit facility; current assets were $210.6 million versus current liabilities of $99.9 million.
- Operating cash flow was $19.1 million; investing activities used $1.6 million, including $1.2 million of capital expenditures. Financing activities used $25.9 million, principally for stock purchases.
- The company repurchased 694,547 shares under its public program for approximately $25.5 million. Cash-flow statement purchases of common stock were $33.2 million and also included shares withheld for employee taxes. In April, the board approved $50 million of repurchase authority.
- Deferred revenue was $59.4 million, up from $53.8 million at year-end. Days sales outstanding were 53 days, compared with 61 days at December 31, 2013.
Changes and business mix
- Revenue and profitability improved year over year, with operating income increasing faster than revenue. Regional revenue rose 14% in the Americas, 37% in EMEA, and 22% in APAC; EMEA license revenue increased substantially from a relatively small prior-year base.
- The company recorded four software-license deals exceeding $1 million during the quarter. License sales were approximately 60% warehouse and 40% non-warehouse solutions; new-customer sales represented about 30% of license revenue, with existing customers about 70%.
- A four-for-one stock split took effect in January 2014; share and per-share data in the filing are restated for all periods presented.
Outlook, commentary, and risks
- No specific revenue or earnings guidance was provided. Management expected to prioritize investment in product development and sales and services resources, while weighing further repurchases against business investment and complementary acquisitions. It did not anticipate borrowing for general corporate purposes during the remainder of 2014 and believed available cash and investments would cover needs for at least 12 months.
- Management described customers as cautious amid uneven global growth and said sales cycles for large license deals can be extended and inconsistent. Timing of a few large transactions can materially affect quarterly revenue, operating results, and EPS.
- Risks cited include macroeconomic uncertainty and delayed customer spending, intense competition and potential pricing pressure, reliance on services delivery and staffing, currency fluctuations, and potential substantial claims arising from failures of software used in customers’ critical operations. The company reported no legal proceeding believed likely to have a material adverse effect.
- Foreign cash and investments totaled $47.3 million. Management intended to keep undistributed foreign earnings invested abroad; repatriation could incur additional U.S. and foreign taxes.
- Management reported disclosure controls effective at quarter-end and no material changes in internal control over financial reporting.
Key facts for investors to verify
- Whether license growth and large-deal activity remain consistent, given the effect of transaction timing and extended sales cycles.
- Whether services growth can be sustained while preserving services and consolidated margins.
- The ongoing cash impact and authorization remaining under the share-repurchase program, distinguishing program purchases from tax-withholding shares.
- The tax-credit situation and potential tax consequences if foreign earnings are repatriated.
- Whether reported operating cash flow, deferred revenue, and customer renewal trends support continued growth; the filing states the annual support-renewal rate had exceeded 90% over the prior three years.