Business context and reporting period
Manhattan Associates, Inc. develops and implements supply-chain, inventory, and omnichannel commerce software and provides related services and hardware. This Form 10-K covers the fiscal year ended December 31, 2014; quarterly figures below include the fourth quarter ended December 31, 2014.
Financial performance and condition
| Metric | FY 2014 | FY 2013 | Change |
|---|---|---|---|
| Total revenue | $492.1 million | $414.5 million | +19% |
| Software license revenue | $71.6 million | $62.4 million | +15% |
| Services revenue | $376.0 million | $315.9 million | +19% |
| Hardware and other revenue | $44.5 million | $36.2 million | +23% |
| Operating income | $127.1 million | $101.3 million | +26% |
| Operating margin | 25.8% | 24.4% | +1.4 percentage points |
| Net income | $82.0 million | $67.3 million | +22% |
| Diluted earnings per share | $1.08 | $0.86 | +26% |
| Cash from operating activities | $94.2 million | $89.4 million | +$4.8 million |
- Services generated 76% of revenue; license revenue generated 15%. Reported gross margins were 90.1% for licenses, 55.0% for services, and 18.4% for hardware and other.
- At year-end, cash, cash equivalents, and short-term investments totaled $124.4 million, down from $133.0 million. The company reported no debt and no credit facilities. Current assets were $229.9 million and current liabilities were $122.8 million.
- International revenue was $134.6 million, or approximately 27% of total revenue. Operating income increased in all three regions: Americas, EMEA, and APAC.
- Fourth-quarter revenue was $130.4 million versus $107.6 million a year earlier; operating income was $29.1 million versus $24.7 million; net income was $20.4 million versus $16.8 million; and diluted EPS was $0.27 versus $0.22.
Material changes versus the prior comparable period
- Revenue growth accelerated from 10% in 2013 to 19% in 2014. License growth was led by non-warehouse products, which rose 37%; warehouse license revenue increased 2%.
- Services revenue grew with customer implementation, upgrade, and license activity. Professional services rose 23%, while customer support and software enhancements rose 10%.
- Operating margin improved, primarily with revenue growth and expense management. Operating expenses increased 15%; the company cited higher performance-based compensation and staffing-related costs.
- Cash from operations increased, but year-end cash and investments declined amid substantial share repurchases. The company repurchased approximately 2.6 million shares for $91.1 million under its program during 2014.
Outlook, commentary, risks, and unusual items
- The filing gives no specific revenue or EPS forecast for 2015. Management expected continued investment in product development and sales and services resources, continued evaluation of complementary acquisitions, and consideration of repurchases alongside business investment. It did not anticipate borrowing for general corporate purposes in 2015.
- Management described large software sales as subject to long, variable sales cycles, typically nine to twelve months, and noted that macroeconomic uncertainty could delay customer spending and make deal timing harder to predict. Fifteen license deals of at least $1 million were recognized in 2014, compared with fourteen in 2013.
- Key risks include intense competition, dependence on supply-chain software and related services, implementation delays, software defects, cybersecurity and data-protection incidents, hiring and retention challenges, foreign-exchange exposure, and uncertain customer demand. Services’ large share of revenue also affects the company’s overall margin profile.
- Other notable items: a $2.8 million asset acquisition of Global Bay Mobile Technologies to add in-store sales and clienteling capabilities; a $1.6 million transaction-tax expense reversal benefited 2013 comparisons; and $38.8 million of cash and investments were held by foreign subsidiaries and intended to remain indefinitely reinvested. Repayment to the U.S. could trigger additional taxes.
- The company reported no legal proceeding it believed would have a material adverse impact and no recorded liabilities for its customer indemnities or warranties. Ernst & Young issued unqualified opinions on the financial statements and internal control; management also assessed internal controls as effective.
Important facts for investors to verify
- Whether license growth and large-deal activity continue, given the long sales cycle and concentration of growth in non-warehouse products.
- Whether services staffing and compensation costs remain aligned with services demand, margins, and implementation capacity.
- Cash generation after share repurchases, the use of the newly approved $50 million repurchase authority, and the balance between repurchases, acquisitions, and investment.
- Foreign-cash repatriation and tax exposure, including uncertain tax positions and the effect of future tax-law changes.
- The eventual financial-statement impact and adoption method for ASC 606 revenue-recognition guidance, which the company was still evaluating.