Manhattan Associates, Inc. — Q1 2019 Form 10-Q
Business context and reporting period. The company develops and implements supply-chain, inventory and omnichannel software. This unaudited filing covers the three months ended March 31, 2019, compared with Q1 2018. Services represented 60% of quarterly revenue; international revenue was approximately 30%.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 / comparator |
|---|---|---|
| Revenue | $148.4 million | $130.6 million; up 14% |
| Cloud subscriptions | $7.9 million | $4.5 million; up 76% |
| Software licenses | $12.4 million | $7.6 million; up 64% |
| Maintenance | $36.1 million | $36.4 million; down 1% |
| Services | $88.6 million | $78.8 million; up 13% |
| Operating income / margin | $28.3 million / 19.1% | $27.8 million / 21.3% |
| Net income | $21.0 million | $22.7 million |
| Diluted EPS | $0.32 | $0.33 |
| Operating cash flow | $35.2 million | $51.3 million |
| Cash and cash equivalents | $104.9 million at March 31 | $99.1 million at December 31, 2018 |
Cash and cash equivalents were $104.9 million, with no debt and no credit facilities. Current assets were $231.3 million and current liabilities $165.5 million. The company reported $42.5 million of operating lease liabilities at quarter-end, including $6.6 million current and $35.9 million long-term; these are lease obligations, not borrowings.
Material changes versus prior year
- Revenue grew 14%, led by cloud subscriptions, software licenses and services. EMEA revenue rose 37%, Americas 10%, and APAC 7%.
- Operating income increased only 2% as operating margin fell 2.2 percentage points. Management cited cloud-transition and innovation investment and higher performance-based compensation.
- Net income declined about 7% and diluted EPS fell from $0.33 to $0.32. The effective tax rate rose to 24.8% from 20.7%.
- Operating cash flow decreased $16.1 million, which management attributed mainly to the timing and amount of employee bonus payments and customer collections.
- The company repurchased 463,680 shares under its public program for approximately $24.9 million; total financing cash used for stock purchases was $30.2 million, including shares withheld for taxes. Shares outstanding declined about 0.4% during the quarter.
Outlook, commentary and risks
- No specific numerical revenue or earnings guidance was provided. Management expects continued investment in product development, cloud operations, sales and marketing, and growth initiatives during 2019; it does not anticipate borrowing for general corporate purposes.
- Management expects continued opportunities for customers to convert maintenance contracts to cloud subscriptions. It cautioned that the shift from perpetual licenses to subscriptions can weigh on revenue, earnings and cash flow versus upfront license sales, and makes forecasting difficult.
- Management described extended sales cycles for large enterprise deals amid economic uncertainty, particularly in retail. Other cited risks include competition, execution of complex implementations, cloud service interruptions, cybersecurity and data protection, software defects, employee retention, foreign currency movements, and international trade and geopolitical conditions.
- Operating cash flow and quarterly results may vary with deal timing, customer collections, compensation and tax payment timing. The company reported no legal proceedings it believes are likely to have a material adverse effect.
- ASC 842 lease accounting was adopted in Q1 2019 without restating comparative periods. It added $39.9 million of right-of-use assets and $42.5 million of lease liabilities at March 31; adoption did not affect retained earnings, income or cash flows.
Important facts for investors to verify
- Whether cloud subscription growth and conversions continue, and how the transition affects recurring revenue, cash generation and margins.
- Whether license and large-deal performance is sustainable, given long sales cycles and quarterly transaction timing.
- Drivers of the lower operating margin and reduced operating cash flow, including staffing, compensation, cloud infrastructure investment and collection timing.
- Share repurchase activity and remaining authorization: the filing reports approximately $25.1 million of program capacity at March 31 and a Board-confirmed aggregate $50 million authorization in April.
- Lease commitments, including the two ten-year Bangalore office leases with approximately $13.1 million of lease liabilities, and the company’s ability to fund commitments alongside investment and buybacks.