UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-23999
MANHATTAN ASSOCIATES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Georgia
58-2373424
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
2300 Windy Ridge Parkway, Tenth Floor
Atlanta, Georgia
30339
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (770) 955-7070
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common stock
MANH
Nasdaq Global Select Market
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the Registrant’s class of capital stock outstanding as of July 22, 2022, the latest practicable date, is as follows: 62,718,739 shares of common stock, $0.01 par value per share.
Quarter Ended June 30, 2022
TABLE OF CONTENTS
PART I
Financial Information
Item 1.
Financial Statements.
Condensed Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021
3
Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2022 and 2021 (unaudited)
4
Condensed Consolidated Statements of Comprehensive Income for the three months and six months ended June 30, 2022 and 2021 (unaudited)
5
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited)
6
Condensed Consolidated Statements of Stockholders’ Equity for the three months and six months ended June 30, 2022 and 2021 (unaudited)
7
Notes to Condensed Consolidated Financial Statements (unaudited)
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
15
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
27
Item 4.
Controls and Procedures.
28
PART II
OTHER INFORMATION
Legal Proceedings.
29
Item 1A.
Risk Factors.
Unregistered Sales of Equity Securities and Use of Proceeds.
Defaults Upon Senior Securities.
Mine Safety Disclosures.
Item 5.
Other Information.
Item 6.
Exhibits.
30
Signatures.
31
2
FINANCIAL INFORMATION
Financial Statements
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
June 30, 2022
December 31, 2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
213,771
263,706
Accounts receivable, net of allowance of $3,046 and $2,419, at June 30, 2022 and December 31, 2021, respectively
133,852
124,420
Prepaid expenses and other current assets
26,929
20,293
Total current assets
374,552
408,419
Property and equipment, net
12,343
13,889
Operating lease right-of-use assets
23,198
27,272
Goodwill, net
62,227
62,239
Deferred income taxes
20,093
7,650
Other assets
21,876
20,239
Total assets
514,289
539,708
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
25,154
19,625
Accrued compensation and benefits
45,598
53,104
Accrued and other liabilities
22,385
22,741
Deferred revenue
178,019
153,196
Income taxes payable
70
376
Total current liabilities
271,226
249,042
Operating lease liabilities, long-term
18,934
23,157
Other non-current liabilities
15,394
16,865
Shareholders' equity:
Preferred stock, no par value; 20,000,000 shares authorized, no shares issued or outstanding in 2022 and 2021
-
Common stock, $0.01 par value; 200,000,000 shares authorized; 62,718,513 and 63,154,494 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively
627
631
Retained earnings
233,151
269,841
Accumulated other comprehensive loss
(25,043
)
(19,828
Total shareholders' equity
208,735
250,644
Total liabilities and shareholders' equity
See accompanying Notes to Condensed Consolidated Financial Statements.
Financial Statements (continued)
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
Revenue:
Cloud subscriptions
42,203
28,595
79,500
55,238
Software license
5,125
8,823
13,483
16,661
Maintenance
35,993
37,732
71,295
73,891
Services
100,941
84,703
190,859
165,062
Hardware
7,662
6,261
15,743
12,112
Total revenue
191,924
166,114
370,880
322,964
Costs and expenses:
Cost of software license
880
556
1,282
1,112
Cost of cloud subscriptions, maintenance, and services
87,766
70,072
170,791
143,581
Research and development
27,924
23,213
55,379
47,473
Sales and marketing
17,749
13,750
32,139
27,146
General and administrative
18,606
17,082
36,571
34,651
Depreciation and amortization
1,746
2,084
3,493
4,219
Total costs and expenses
154,671
126,757
299,655
258,182
Operating income
37,253
39,357
71,225
64,782
Other income, net
2,243
306
2,981
13
Income before income taxes
39,496
39,663
74,206
64,795
Income tax provision
8,671
9,070
12,789
11,559
Net income
30,825
30,593
61,417
53,236
Basic earnings per share
0.49
0.48
0.97
0.84
Diluted earnings per share
0.83
Weighted average number of shares:
Basic
62,954
63,537
63,083
63,591
Diluted
63,419
64,276
63,644
64,371
Consolidated Statements of Comprehensive Income
(in thousands)
Foreign currency translation adjustment
(4,085
(428
(5,215
(957
Comprehensive income
26,740
30,165
56,202
52,279
Condensed Consolidated Statements of Cash Flows
Operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Equity-based compensation
29,676
20,760
(Gain) loss on disposal of equipment
(92
(12,535
1,768
Unrealized foreign currency gain
(2,087
(1,029
Changes in operating assets and liabilities:
Accounts receivable, net
(11,703
(5,289
(6,697
(7,912
Accounts payable, accrued and other liabilities
(587
9,592
Income taxes
(3,519
(1,952
27,116
12,002
Net cash provided by operating activities
84,482
85,395
Investing activities:
Purchase of property and equipment
(2,243
(1,171
Net cash used in investing activities
Financing activities:
Purchase of common stock
(127,787
(79,486
Net cash used in financing activities
Foreign currency impact on cash
(4,387
(100
Net change in cash and cash equivalents
(49,935
4,638
Cash and cash equivalents at beginning of period
204,705
Cash and cash equivalents at end of period
209,343
Condensed Consolidated Statements of Shareholders’ Equity
(in thousands, except share data)
Accumulated
Additional
Other
Total
Common Stock
Paid-In
Retained
Comprehensive
Shareholders'
Shares
Amount
Capital
Earnings
Loss
Equity
For the Three Months Ended June 30, 2022
Balance, March 31, 2022 (unaudited)
63,113,221
$ -
237,463
(20,958
217,136
Repurchase of common stock
(420,785
(5
(15,537
(35,137
(50,679
Restricted stock units issuance
26,077
1
(1
15,538
Balance, June 30, 2022 (unaudited)
62,718,513
For the Six Months Ended June 30, 2022
Balance, December 31, 2021 (audited)
63,154,494
(1,006,894
(10
(29,670
(98,107
570,913
(6
For the Three Months Ended June 30, 2021
Balance, March 31, 2021 (unaudited)
63,616,713
636
222,815
(18,791
204,660
(244,700
(2
(10,709
(22,373
(33,084
25,590
10,709
Balance, June 30, 2021 (unaudited)
63,397,603
634
231,035
(19,219
212,450
For the Six Months Ended June 30, 2021
Balance, December 31, 2020 (audited)
63,527,186
635
236,524
(18,262
218,897
(631,014
(20,755
(58,725
501,431
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.
Basis of Presentation and Principles of Consolidation
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Manhattan Associates, Inc. and its subsidiaries (the “Company,” “we,” “us,” “our,” or “Manhattan”) have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information, with the instructions to Form 10-Q and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, these condensed consolidated financial statements contain all normal recurring adjustments considered necessary for a fair presentation of our financial position at June 30, 2022, the results of operations for the three and six months ended June 30, 2022 and 2021, and cash flows for the six months ended June 30, 2022 and 2021. The results for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year or any other interim period. These statements should be read in conjunction with our audited consolidated financial statements and management’s discussion and analysis included in our annual report on Form 10-K for the year ended December 31, 2021.
Principles of Consolidation
The accompanying condensed consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
2.
Revenue Recognition
We recognize revenue when we transfer control of the promised products or services to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services. We derive our revenue from cloud subscriptions, software licenses, customer support services and software enhancements (“maintenance”), implementation and training services, and sales of hardware. We exclude sales and usage-based taxes from revenue.
Nature of Products and Services
Cloud subscriptions includes software as a service (SaaS) and arrangements which provide customers with the right to use our software within a cloud environment that we provide and manage where the customer does not have the right to take possession of the software without significant penalty. SaaS and hosting revenues are recognized ratably over the contract period. For contracts that include a perpetual license and hosting services, we generally consider the arrangement as an overall service, recognized over the initial hosting term. The software license fee typically due at the outset of the arrangement is not payable again if the customer renews the hosting services, so that the customer’s option to renew the hosting services is a material right, the revenue from which, if the option is exercised, we will recognize over the applicable renewal period. Managed services account for less than 3% of our Cloud subscription contracts.
Our perpetual software licenses provide the customer with a right to use the software as it exists at the time of purchase. We recognize revenue for distinct software licenses once the license period has begun and we have made the software available to the customer. Our perpetual software licenses are typically sold with maintenance under which we provide a comprehensive 24 hours per day, 365 days per year program that provides customers with software upgrades, when and if available, which include additional or improved functionality and technological advances incorporating emerging supply chain and industry initiatives. Revenue related to maintenance is generally paid in advance and recognized ratably over the term of the agreement, typically twelve months. Perpetual software license revenue accounts for approximately 3.6% of total revenue.
Our services revenue consists of fees generated from implementation, training, and application managed services, including reimbursements of out-of-pocket expenses in connection with our implementation services. Implementation services include system planning, design, configuration, testing, and other software implementation support, and are typically optional and distinct from our software. Following implementation, customers may purchase application managed services to support and maintain our software. Fees for our services are separately priced and are generally billed on an hourly basis, and revenue is recognized over time as the services are performed. In certain situations, we render professional services under agreements based upon a fixed fee for portions of or all of the engagement. Revenue related to fixed-fee-based services contracts is recognized over time based on the proportion performed.
As part of a complete solution, our customers periodically purchase hardware products developed and manufactured by third parties from us for use with the software licenses purchased from us. These products include computer hardware, radio frequency terminal networks, radio frequency identification (RFID) chip readers, bar code printers and scanners, and other peripherals. As we do not physically control the hardware that we sell, we are acting as an agent in the transaction and recognize our hardware revenue net of related cost. We recognize hardware revenue when control is transferred to the customer upon shipment.
Significant Judgments
Our customer contracts include the sale of multiple SaaS services or licensed products. Judgement is required to determine whether each service or product sold is a distinct performance obligation that should be accounted for separately. We allocate the transaction price to the distinct performance obligations based on relative standalone selling price (“SSP”). We estimate SSP based on the prices we charge our customers or by using other information such as market conditions and other observable inputs. However, the selling price of our software licenses is highly variable. Thus, we estimate SSP for software licenses using the residual approach, determined based on total transaction price less the SSP of other goods and services promised in the contract.
Contract Balances
Timing of invoicing to customers may differ from timing of revenue recognition. Payment terms for our software licenses vary. We have an established history of collecting under the terms of our software license contracts without providing refunds or concessions to our customers. Cloud subscriptions and maintenance are typically billed annually in advance. We typically bill our professional services monthly as performed. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with predictable ways to purchase our software and services, not to provide or receive financing. Additionally, we are applying the practical expedient to exclude from consideration any contracts with payment terms of one year or less as we rarely offer terms extending beyond one year.
Deferred revenue mainly represents amounts collected prior to having completed performance of cloud subscriptions, maintenance, and professional services. In the three and six months ended June 30, 2022, we recognized $42.9 million and $108.0 million of revenue that was included in the deferred revenue balance as of December 31, 2021. In the three months ended June 30, 2022, we recognized $62.5 million of revenue that was included in the deferred revenue balance as of March 31, 2022.
Remaining Performance Obligations
As of June 30, 2022, approximately $897.7 million of revenue, over 97% of which is cloud-native subscriptions, is expected to be recognized from remaining performance obligations (“RPO”) with a non-cancelable term greater than 1 year (including deferred revenue as well as amounts that will be invoiced and recognized as revenue in future periods). We expect to recognize revenue on approximately 40% of these remaining performance obligations over the next 24 months with the balance recognized thereafter. We have elected not to provide disclosures regarding remaining performance obligations for contracts with a term of 1 year or less.
Returns and Allowances
We have not experienced significant returns or warranty claims to date and, as a result, have not recorded a provision for the cost of returns and product warranty claims.
9
We record an allowance for doubtful accounts based on historical experience of write-offs and a detailed assessment of accounts receivable. Additions to the allowance for credit losses generally represent a sales allowance on services revenue, which are recorded to operations as a reduction to services revenue. The total amount charged to operations was $0.2 million and $1.3 million for the three months ended June 30, 2022 and 2021, respectively, and $1.2 million and $2.0 million for the six months ended June 30, 2022 and 2021, respectively.
Our analysis involved utilizing a model of internal historical losses data. In estimating the allowance for credit losses, we considered the age of the accounts receivable, our historical write-offs, and the historical creditworthiness of the customer, among other factors. Should any of these factors change, the estimates made by us will also change accordingly, which could affect the level of our future allowances. We also analyzed future expected credit losses given ever present changes to future risks in projected economic conditions and future risks of customer collection.
Deferred Commissions
We consider sales commissions to be incremental costs of obtaining a contract with a customer. We defer and recognize an asset for sales commissions related to performance obligations with an expected period of benefit of more than one year. We apply the practical expedient to expense sales commissions when the amortization period would have been one year or less. Deferred commissions were $26.0 million as of June 30, 2022, of which $18.9 million is included in other assets and $7.1 million is included in prepaid expenses. Sales commission expense is included in Sales and Marketing expense in the accompanying Consolidated Statements of Income. Amortization of sales commissions was $1.9 million and $1.2 million for the three months ended June 30, 2022 and 2021, respectively, and $3.7 million and $2.3 million for the six months ended June 30, 2022 and 2021, respectively. No impairment losses were recognized during the periods.
3.
Fair Value Measurement
We measure our investments based on a fair value hierarchy disclosure framework that prioritizes and ranks the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is affected by a number of factors, including the type of asset or liability and its characteristics. This hierarchy prioritizes the inputs into three broad levels as follows:
•
Level 1–Quoted prices in active markets for identical instruments.
Level 2–Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3–Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Investments with maturities of 90 days or less from the date of purchase are classified as cash equivalents; investments with maturities of greater than 90 days from the date of purchase but less than one year are generally classified as short-term investments; and investments with maturities of one year or greater from the date of purchase are generally classified as long-term investments. Unrealized holding gains and losses are reflected as a net amount in a separate component of shareholders’ equity until realized. For the purposes of computing realized gains and losses, cost is determined on a specific identification basis.
At June 30, 2022, our cash and cash equivalents were $198.2 million and $15.6 million, respectively. We had neither short-term investments nor long-term investments at June 30, 2022. Cash equivalents consist of highly liquid money market funds. For money market funds, we use quoted prices from active markets that are classified at Level 1, the highest level of observable input in the disclosure hierarchy framework. We had no investments classified at Level 2 or Level 3 at June 30, 2022.
4.
Leases
We lease our facilities and some of our equipment under noncancelable operating lease arrangements that expire at various dates through 2029. For a few of our facility leases, we have certain options to extend the lease term for up to 10 years, at our sole discretion. We have no finance leases.
10
We present below the operating lease right-of-use assets and lease liabilities as of June 30, 2022 (in thousands):
LIABILITIES
Operating lease liabilities, current (included in accrued and other liabilities)
6,575
Total operating lease liabilities
25,509
Aggregate future minimum lease payments under noncancelable operating leases as of June 30, 2022 are as follows (in thousands):
Year Ending December 31,
2022 (excluding the three months ended March 31, 2022)
3,509
2023
6,982
2024
6,196
2025
5,409
2026
2,560
Thereafter
4,618
Total minimum payments required
29,274
Less short-term leases
(75
Less imputed interest
(3,690
The total lease cost for the three and six months ended June 30, 2022 was $1.9 million and $3.9 million, respectively. Total lease cost for the three months ended June 30, 2022 consisted of $1.8 million of operating lease costs, and $0.1 million of short-term lease costs. For the six months ended June 30, 2022, total lease cost consisted of $3.7 million of operating lease costs, and $0.2 of short-term lease costs.
Total lease cost for the three and six months ended June 30, 2021 was $2.0 million and $4.0 million, respectively. Total lease cost for the three months ended June 30, 2021 consisted of $1.9 million of operating lease costs, and $0.1 million of short-term lease costs. For the six months ended June 30, 2021, total lease cost consisted of $3.8 million of operating lease cost, and $0.2 million of short-term lease costs.
Our variable lease costs for the three and six months ended June 30, 2022 and 2021 were immaterial.
Other information related to operating leases are as follows:
Weighted average remaining lease term
4.7
Weighted average discount rate
%
Supplemental cash flow information - operating cash flows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases
3,723
5.
Equity-Based Compensation
We granted 23,923 and 52,237 restricted stock units (RSUs) during the three months ended June 30, 2022 and 2021, respectively, and granted 677,129 and 376,828 RSUs during the six months ended June 30, 2022 and 2021, respectively. Equity-based compensation expense related to RSUs was $15.5 million and $10.7 million during the three months ended June 30, 2022 and 2021, respectively, and $29.7 million and $20.8 million during the six months ended June 30, 2022 and 2021, respectively.
11
We present below a summary of changes during the six months ended June 30, 2022 in our unvested units of restricted stock:
Number of shares/units
Outstanding at December 31, 2021
1,388,467
Granted
677,129
Vested
(570,913
Forfeited
(24,073
Outstanding at June 30, 2022
1,470,610
6.
Income Taxes
Our effective tax rate was 22.0% and 22.9% for the three months ended June 30, 2022 and 2021, respectively, and 17.2% and 17.8% for the six months ended June 30, 2022 and 2021, respectively. The decrease in the effective tax rate for three months ended June 30, 2022 is due to a settlement of a tax contingency reserve, offset by a decrease in excess tax benefits on restricted stock vesting as a percentage of pretax income. The decrease in the effective tax rate for the six months ended June 30, 2022 is due to the same settlement of a tax contingency reserve offset by a decrease of excess tax benefits on restricted stock vesting.
We apply the provisions for income taxes related to, among other things, accounting for uncertain tax positions and disclosure requirements in accordance with Accounting Standards Classification (ASC) 740, Income Taxes. For the three months ended June 30, 2022, our uncertain tax positions decreased by $0.7 million due to settlement of a tax contingency. There has been no change to our policy that recognizes potential interest and penalties related to uncertain tax positions within our global operations in income tax expense.
We conduct business globally and, as a result, file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, Manhattan is subject to examination by taxing authorities throughout the world. We are no longer subject to the U.S. federal, substantially all state and local income tax examinations and substantially all non-U.S. income tax examinations for years before 2010.
7.
Basic and Diluted Net Income Per Share
Basic net income per share is computed using net income divided by the weighted average number of shares of common stock outstanding (“Weighted Shares”) for the period presented.
Diluted net income per share is computed using net income divided by Weighted Shares and the treasury stock method effect of common equivalent shares (CESs) outstanding for each period presented.
In the following table, we present a reconciliation of earnings per share and the shares used in the computation of earnings per share for the three and six months ended June 30, 2022 and 2021 (in thousands, except per share data):
(in thousands, except per share data)
Earnings per share:
Effect of CESs
(0.01
465
739
561
780
The number of anti-dilutive CESs during the three and six months ended June 30, 2022 and 2021 was immaterial.
8.
Contingencies
From time to time, we may be involved in litigation relating to claims arising out of the ordinary course of business, and occasionally legal proceedings not in the ordinary course. Many of our installations involve products that are critical to the operations of our clients’ businesses. Any failure in one of our products could result in a claim for substantial damages against us, regardless of
12
our responsibility for such failure. Although we attempt to limit contractually our liability for damages arising from product failures or negligent acts or omissions, there can be no assurance that the limitations of liability set forth in our contracts will be enforceable in all instances. We are not currently a party to any legal proceedings in the ordinary course of business or other legal proceedings the result of which we believe is likely to have a material adverse impact on our business, financial position, results of operations, or cash flows. We expense legal costs associated with loss contingencies as such legal costs are incurred.
9.
Operating Segments
We manage our business by geographic region and have three geographic reportable segments: North and Latin America (the “Americas”); Europe, the Middle East and Africa (EMEA); and Asia Pacific (APAC). All segments derive revenue from the sale and implementation of our supply chain commerce solutions. The individual products sold by the segments are similar in nature and are all designed to help companies manage the effectiveness and efficiency of their supply chain commerce. We use the same accounting policies for each reportable segment. The chief executive officer and chief financial officer evaluate performance based on revenue and operating results for each reportable segment.
The Americas segment charges royalty fees to the other segments based on software licenses and cloud subscriptions sold by those reportable segments. The royalties, which totaled approximately $1.9 million and $1.3 million for the three months ended June 30, 2022 and 2021, respectively, and $4.4 million and $2.9 million for the six months ended June 30, 2022, respectively, are included in costs of revenue for each segment with a corresponding reduction in the Americas segment’s cost of revenue. The revenues represented below are from external customers only. The geography-based costs consist of costs for professional services personnel, direct sales and marketing expenses, infrastructure costs to support the employee and customer base, billing and financial systems, management and general and administrative support. Certain corporate expenses included in the Americas segment are not charged to the other segments. Such expenses include research and development, certain marketing and general and administrative costs that support the global organization, and the amortization of acquired developed technology. Costs in the Americas segment include all research and development costs, including the costs associated with our operations in India.
In accordance with the segment reporting topic of the FASB Accounting Standards Codification, we present below certain financial information by reportable segment for the three and six months ended June 30, 2022 and 2021 (in thousands):
Americas
EMEA
APAC
Consolidated
36,184
4,947
1,072
24,654
3,187
754
3,459
1,262
404
7,421
842
560
29,126
4,738
2,129
29,213
6,208
2,311
75,608
20,624
4,709
64,790
16,922
2,991
7,619
43
6,230
151,996
31,614
8,314
132,308
27,190
6,616
Costs and Expenses:
Cost of revenue
67,062
17,700
3,884
88,646
53,105
14,252
3,271
70,628
Operating expenses
58,863
4,331
1,085
64,279
48,763
4,104
1,178
54,045
1,564
160
22
1,850
191
127,489
22,191
4,991
103,718
18,547
4,492
24,507
9,423
3,323
28,590
8,643
2,124
67,613
9,849
2,038
47,143
6,765
1,330
7,461
5,261
761
11,581
3,994
1,086
57,083
9,631
4,581
57,449
11,770
4,672
143,727
38,933
8,199
126,970
32,961
5,131
15,652
91
11,978
134
291,536
63,765
15,579
255,121
55,624
12,219
129,805
34,435
7,833
172,073
108,412
6,605
144,693
112,704
9,068
2,317
124,089
98,268
8,538
2,464
109,270
3,127
322
44
3,735
393
245,636
43,825
10,194
210,415
38,607
9,160
45,900
19,940
5,385
44,706
17,017
3,059
Cloud subscriptions revenue primarily relates to our Manhattan Active omnichannel, warehouse management solutions, and transportation management solutions for the six months ended June 30, 2022. The majority of our software license revenue relates to our warehouse management product group (over 80%) for the three and six months ended June 30, 2022.
At June 30, 2022, total assets for the Americas, EMEA and APAC segments were $439.2 million, $57.8 million and $17.3 million, respectively.
14
The following discussion should be read in conjunction with the condensed consolidated financial statements for the three and six months ended June 30, 2022 and 2021, including the notes to those statements, included elsewhere in this quarterly report. We also recommend the following discussion be read in conjunction with management’s discussion and analysis and consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2021. Statements in the following discussion that are not statements of historical fact are “forward-looking statements.” Actual results may differ materially from the results predicted in such forward-looking statements, for a variety of factors. See “Forward-Looking Statements” below.
References in this filing to the “Company,” “Manhattan,” “Manhattan Associates,” “we,” “our,” and “us” refer to Manhattan Associates, Inc., our predecessors, and our wholly owned and consolidated subsidiaries.
Business Overview
We develop, sell, deploy, service and maintain software solutions designed to manage Unified Omnichannel Commerce and Digital Supply Chain, inventory and omnichannel operations for retailers, wholesalers, manufacturers, logistics providers and other organizations. Our customers include many of the world’s most premier and profitable brands.
Our business model is singularly focused on the development and implementation of complex commerce enablement software solutions that are designed to optimize supply chains, and retail store operations including point of sale effectiveness and efficiency for our customers.
We have five principal sources of revenue:
●
cloud subscriptions, including software as a service (SaaS) and hosting of software;
licenses of our software;
customer support services and software enhancements (collectively, “maintenance”);
professional services, including solutions planning and implementation, related consulting, customer training, and reimbursements from customers for out-of-pocket expenses (collectively, “services”); and
hardware sales.
In the three and six months ended June 30, 2022, we generated $191.9 million and $370.9 million in total revenue, respectively. The revenue mix for the three months ended June 30, 2022 was: cloud subscriptions 22%; software license 3%; maintenance 19%; services 52%; and hardware 4%. The revenue mix for the six months ended June 30, 2022 was: cloud subscriptions 21%; software license 4%; maintenance 19%; services 52%; and hardware 4%.
We have three geographic reportable segments: North and Latin America (the “Americas”), Europe, the Middle East and Africa (EMEA), and Asia-Pacific (APAC). Geographic revenue is based on the location of the sale. Our international revenue was approximately $59.4 million and $115.9 for the three and six months ended June 30, 2022, respectively, which represents approximately 31% of our total revenue for both three and six months ended June 30, 2022. International revenue includes all revenue derived from sales to customers outside the United States. At June 30, 2022, we employed approximately 3,860 employees worldwide. We have offices in Australia, Chile, China, France, Germany, India, Italy, Japan, the Netherlands, Singapore, Spain, the United Kingdom, and the United States, as well as representatives in Mexico and reseller partnerships in Latin America, Eastern Europe, the Middle East, South Africa, and Asia.
Future Expectations
Regarding the impact of the COVID-19 pandemic, we remain cautious about the global recovery, which we expect to be protracted. Despite the COVID-19 pandemic, our results for the first half of 2022 exceeded our expectations due to solid demand for our cloud solutions. Our solutions are mission critical, supporting complex global supply chains. We believe that favorable secular tailwinds, such as the digital transformation of businesses in manufacturing, wholesale and retail, coupled with our commitment to investing in organic innovation to deliver leading cloud supply chain, inventory and omnichannel commerce solutions is in synergistic alignment with current market demand. We believe that this alignment is contributing to our strong financial results, higher demand and strong win rates for our solutions for the period.
We remain committed to investing in our business to drive customer success and expand our total addressable market, which we believe will position us well to achieve long-term sustainable growth and earnings. We have taken steps to best ensure the health and safety of our employees globally. Our daily execution has evolved into hybrid model, and we continue to find innovative ways to engage with employees, customers and prospects, ensuring that they are supported as they navigate their way through this period.
Going forward, we are investing in our cloud business, including enterprise investments in innovation, and strategic operating expenses to support growth objectives. The pace at which the market adopts our cloud subscriptions, resulting in revenue recognition
spread out over the subscription period rather than up front, combined with extended lead times for developing new business, can cause uncertainty, impacting our ability to accurately forecast bookings and revenues from quarter to quarter and over the longer term.
For the remainder of 2022, our five strategic goals remain:
Focus on employees, customer success and drive sustainable long-term growth;
Invest in innovation to expand our products and total addressable market;
Expand our Manhattan Active Suite of Cloud Solutions;
Develop and grow our cloud business and cloud subscription revenue; and
Expand our global sales and marketing teams.
Cloud Subscription
In 2017, we released Manhattan Active™ Solutions, accelerating our business transition to cloud subscriptions. Under a cloud subscription, customers pay a periodic fee for the right to use our software within a cloud environment that we provide and manage over a specified period of time. As part of our subscription program, we allow our existing customers to convert their maintenance contracts to cloud subscription contracts. Some customers have converted their maintenance contracts to cloud subscriptions, and we expect there will be continued opportunities to convert existing maintenance contracts to cloud subscription contracts in the future.
In the fifth year of our cloud transition, demand for our cloud solutions is the dominant preference of customers. Our perpetual license solutions are rapidly attritting due to market demand for our cloud solutions with over 95% of our pipeline representing cloud solutions. Cloud solutions are our fastest growing revenue line and represents 85% of total software revenue in the first half of 2022. We believe the reduction in license and maintenance revenue in favor of our cloud offerings is positive for our customers and Manhattan Associates.
Global Economic Trends and Industry Factors
Global macro-economic trends, technology spending, and supply chain management market growth are important barometers for our business. In the three and six months ended June 30, 2022, both approximately 69% of our total revenue was generated in the United States, 16% and 17% in EMEA, respectively, and the remaining balance in APAC, Canada, and Latin America. In addition, Gartner Inc. (“Gartner”), an information technology research and advisory company, estimates that nearly 75% of every supply chain software solutions dollar invested is spent in North America and Western Europe; consequently, the health of the U.S. and the Western European economies have a meaningful impact on our financial results.
We sell technology-based solutions with total pricing, including software and services, in many cases exceeding $1.0 million. Our software is often a part of our customers’ and prospects’ much larger capital commitment associated with facilities expansion and business improvement. We believe that, given the mission critical nature of our software, combined with a challenging global macro environment, our current sales cycles for large cloud subscriptions in our target markets could be extended. While demand for our solutions is solid, the current business climate within the United States and geographic regions in which we operate may affect customers’ and prospects’ decisions regarding timing of strategic capital expenditures.
While we are encouraged by our results, we remain cautious regarding the pace of global economic growth. We believe global geopolitical and economic volatility likely will continue to shape customers’ and prospects’ enterprise software buying decisions.
16
Revenue
Cloud Subscriptions and Software License Revenue. Cloud subscriptions revenue and remaining performance obligation (“RPO”) growth are the leading indicators of our business performance, primarily derived from cloud native subscription fees that customers pay for our Unified Omnichannel Commerce and Digital Supply Chain solutions. Since we announced our transition to becoming a cloud-first company in 2017 with our launch of Manhattan ActiveTM Solutions, we have continued to see a significant shift in demand for cloud solutions versus software licenses. By comparison, in 2016, cloud subscriptions and software license revenue represented 7% and 93%, respectively, of our total cloud and software license revenue mix.
In the six months ended June 30, 2022, cloud subscriptions revenue was 85% of total cloud and software license revenue. RPO increased 84% over prior year on strong demand. As of June 30, 2022, approximately $897.7 million of revenue, over 97% of which is cloud native subscriptions, is expected to be recognized from RPO with a non-cancelable term greater than 1 year (including deferred revenue as well as amounts that will be invoiced and recognized as revenue in future periods).
In the three months ended June 30, 2022, cloud subscriptions revenue totaled $42.2 million or 22% of total revenues. In the six months ended June 30, 2022, cloud subscriptions revenue totaled $79.5 million or 21% of total revenues.
The Americas, EMEA and APAC segments recognized $36.2 million, $4.9 million and $1.1 million in cloud subscriptions revenue, respectively, in the three months ended June 30, 2022. The Americas, EMEA and APAC segments recognized $67.6 million, $9.9 million and $2.0 million in cloud subscriptions revenue, respectively, in the six months ended June 30, 2022. Cloud subscriptions revenue is recognized ratably over the term of the agreement, typically five years and more. Cloud subscription revenue growth is influenced by the strength of general economic and business conditions and the competitive position of our software products. These revenues generally have long sales cycles. In the three and six months ended June 30, 2022, the percentage mix of new to existing customers for the combination of software license and cloud subscriptions sales was approximately 49/51 and 53/47, respectively.
In the three months ended June 30, 2022, software license revenue totaled $5.1 million, or 3% of total revenue. In the six months ended June 30, 2022, software license revenue totaled $13.5 million or 4% of total revenue. Software license revenue recognized by the Americas, EMEA, and APAC segments totaled $3.5 million, $1.2 million, and $0.4 million, respectively, in the three months ended June 30, 2022. Software license revenue recognized by the Americas, EMEA, and APAC segments totaled $7.4 million, $5.3 million, and $0.8 million, respectively, in the six months ended June 30, 2022.
Our Unified Omnichannel Commerce and Digital Supply Chain solutions are focused on core omnichannel operation (e-commerce, retail store operations and point of sale), supply chain commerce operations (Warehouse Management, Transportation Management and Labor Management), and Inventory Optimization, which are intensely competitive markets characterized by rapid technological change. We are a market leader in the supply chain management and omnichannel software solutions market as defined by industry analysts such as ARC Advisory Group and Gartner. Our goal is to extend our position as a leading global supply chain solutions provider by growing our cloud subscriptions and software license revenues faster than our competitors through investment in innovation.
Maintenance Revenue. Our maintenance revenue for the three months ended June 30, 2022 totaled $36.0 million, or 19% of total revenue. For the six months ended June 30, 2022, maintenance revenue totaled $71.3 million or 19% of total revenue. The Americas, EMEA and APAC segments recognized $29.1 million, $4.8 million, and $2.1 million in maintenance revenue, respectively, in the three months ended June 30, 2022. For the six months ended June 30, 2022, maintenance revenue recognized by the Americas, EMEA, and APAC segments totaled $57.1 million, $9.6 million and $4.6 million, respectively. For maintenance, we offer a comprehensive 24 hours per day, 365 days per year program that provides our perpetual software license customers with software upgrades, when and if available, which include additional or improved functionality and technological advances incorporating emerging supply chain and industry initiatives.
Maintenance revenue is influenced by: (1) new software license revenue growth; (2) annual renewal of support contracts; (3) increase in customers through acquisitions; (4) fluctuations in currency rates, and (5) conversion of maintenance contracts to cloud subscription contracts. Substantially all of our customers renew their annual support contracts. Maintenance revenue is generally paid in advance and recognized ratably over the term of the agreement, typically twelve months. Maintenance renewal revenue is recognized over the renewal period once we have a contract upon payment from the customer.
Services Revenue. In the three months ended June 30, 2022, our services revenue totaled $100.9 million, or 52% of total revenue. The Americas, EMEA and APAC segments recognized $75.6 million, $20.6 million and $4.7 million in services revenue, respectively, in the three months ended June 30, 2022. In the six months ended June 30, 2022, our services revenue totaled $190.9 million, or 52% of total revenue. The Americas, EMEA and APAC segments recognized $143.8 million, $38.9 million and $8.2 million in services revenue, respectively, in the six months ended June 30, 2022.
17
Our professional services organization provides our customers with expertise and assistance in planning and implementing our solutions. To ensure a successful product implementation, consultants assist customers with the initial installation of a system, the conversion and transfer of the customer’s historical data onto our system, and ongoing training, education, and system upgrades. We believe our professional services enable customers to implement our software rapidly, ensure the customer’s success with our solutions, strengthen our customer relationships, and add to our industry-specific knowledge base for use in future implementations and product innovations.
Although our professional services are optional, the majority of our customers use at least some portion of these services for their planning, implementation, or related needs. Professional services are typically rendered under time and materials-based contracts with services typically billed on an hourly basis. Professional services are sometimes rendered under fixed-fee based contracts with payments due on specific dates or milestones.
Services revenue growth is contingent upon cloud sales and customer upgrade cycles, which are influenced by the strength of general economic and business conditions and the competitive position of our software products. In addition, our professional services business has competitive exposure to offshore providers and other consulting companies.
Hardware Revenue. Our hardware revenue, which we recognize net of related costs, totaled $7.7 million in the three months ended June 30, 2022 representing 4% of total revenue. For the six months ended June 30, 2022, hardware revenue totaled $15.7 million, or 4% of total revenue. In conjunction with the licensing of our software, and as a convenience for our customers, we resell a variety of hardware products developed and manufactured by third parties. These products include computer hardware, radio frequency terminal networks, RFID chip readers, bar code printers and scanners, and other peripherals. We resell all third-party hardware products and related maintenance pursuant to agreements with manufacturers or through distributor-authorized reseller agreements pursuant to which we are entitled to purchase hardware products and services at discount prices. We generally purchase hardware from our vendors only after receiving an order from a customer. As a result, we do not maintain hardware inventory.
Product Development
We continue to invest significantly in research and development (R&D) to provide leading Unified Omnichannel Commerce and Digital Supply Chain solutions to enable global retailers, manufacturers, wholesalers, distributors, and logistics providers to successfully manage accelerating and fluctuating demands as well as the increasing complexity and volatility of their local and global supply chains, retail store operations and points of sale. Our R&D expenses were $27.9 million and $55.4 million for the three and six months ended June 30, 2022.
We expect to continue to focus our R&D resources on the development and enhancement of our core supply chain, inventory optimization, omnichannel and point of sale software solutions. We offer what we believe to be the broadest solutions portfolio in the supply chain solutions marketplace, addressing all aspects of inventory optimization, transportation management, distribution management, planning, and omnichannel operations including order management, store inventory & fulfillment, call center and point-of-sale.
We also plan to continue to enhance our existing solutions and to introduce new solutions to address evolving industry standards and market needs. We identify opportunities to further enhance our solutions and to develop and provide new solutions through our customer support organization, as well as through ongoing customer consulting engagements and implementations, interactions with our user groups, association with leading industry analysts and market research firms, and participation in industry standards and research committees. Our solutions address the needs of customers in various vertical markets, including retail, consumer goods, food and grocery, logistics service providers, industrial and wholesale, high technology and electronics, life sciences, and government.
18
Cash Flow and Financial Condition
For the three and six months ended June 30, 2022, we generated cash flow from operating activities of $52.7 million and $84.5 million, respectively. Our cash and cash equivalents at June 30, 2022 totaled $213.8 million, with no debt on our balance sheet. We currently have no credit facilities. Our primary uses of cash have been for funding investments in R&D in our Unified Omnichannel Commerce and Digital Supply Chain solutions to drive revenue and earnings growth. In addition, during the six months ended June 30, 2022, we repurchased approximately $100.1 million of Manhattan Associates’ outstanding common stock under the share repurchase program approved by our Board of Directors. In July 2022, our Board of Directors approved raising the Company’s remaining share repurchase authority to an aggregate of $75.0 million of our common stock.
For the remainder of 2022, our priorities for use of cash will continue to be investments in our Unified Omnichannel Commerce and Digital Supply Chain solutions. We also will prioritize capital allocation in our global teams to fund growth, and share repurchases. We do not anticipate any borrowing requirements in 2022 for general corporate purposes.
Results of Operations
In the following table, we present a summary of our consolidated results for the three and six months ended June 30, 2022 and 2021.
Costs and expenses
Diluted weighted average number of shares
We have three geographic reportable segments: the Americas, EMEA, and APAC. Geographic revenue information is based on the location of sale. The revenues represented below are from external customers only. The geography-based expenses include costs of personnel, direct sales, marketing expenses, and general and administrative costs to support the business. There are certain corporate expenses included in the Americas segment that we do not charge to the other segments, including R&D, certain marketing and general and administrative costs that support the global organization, and the amortization of acquired developed technology. Included in the Americas costs are all R&D costs, including the costs associated with our operations in India. During the three and six months ended June 30, 2022 and 2021, we derived the majority of our revenues from sales to customers within our Americas segment. In the following table, we present a summary of revenue and operating income by segment:
19
% Change vs.
Prior Year
47
55
46
42
53
Total cloud subscriptions
48
-53
-36
50
32
-28
-30
Total software license
-42
-19
0
-1
-24
-18
-8
-2
Total maintenance
-5
-4
57
60
Total services
39
-32
#DIV/0
!
Total hardware and other
Total Revenue
26
Operating income:
-14
56
76
Total operating income
Condensed Consolidated Financial Summary - Second Quarter 2022
Consolidated total revenue: $191.9 million for the second quarter of 2022, compared to $166.1 million for the second quarter of 2021;
Cloud subscription revenue: $42.2 million for the second quarter of 2022, compared to $28.6 million for the second quarter of 2021;
Software license revenue: $5.1 million for the second quarter of 2022, compared to $8.8 million for the second quarter of 2021;
20
Operating income: $37.3 million for the second quarter of 2022, compared to $39.4 million for the second quarter of 2021;
Operating margins: 19.4% for the second quarter of 2022, compared to 23.7% for the second quarter of 2021;
Diluted earnings per share: $0.49 for the second quarter of 2022 compared to $0.48 for the second quarter of 2021;
Cash flow from operations: $52.7 million in the second quarter of 2022, compared to $45.5 million in the second quarter of 2021;
Days sales outstanding: 63 days at June 30, 2022, compared to 66 days at March 31, 2022;
Cash: $213.8 million at June 30, 2022, compared to $216.3 million at March 31, 2022;
Share repurchases: In the three months ended June 30, 2022, we reduced our common shares outstanding by approximately 0.6%, primarily through the repurchase of approximately 0.4 million shares of our common stock, under the share repurchase program authorized by our board of directors for a total investment of $50.1 million. In July 2022, our Board of Directors approved raising the Company’s remaining share repurchase authority to an aggregate of $75.0 million of our outstanding common stock.
Below we discuss our consolidated results of operations for the second quarters of 2022 and 2021.
% of Total Revenue
23
52
51
100
Cloud Subscriptions Revenue. In the second quarter of 2022, cloud subscriptions revenue increased $13.6 million compared to the same quarter in the prior year, as customer demand for our SaaS offerings continued to outpace traditional perpetual license solutions. Our customers have demonstrated a clear preference for cloud-based solutions, including existing customers that are migrating from on-premise to cloud-based offerings. Cloud subscriptions revenue for the Americas, EMEA and APAC segments increased $11.5 million, $1.8 million and $0.3 million in the second quarter of 2022, respectively.
Software License Revenue. Software license revenue decreased $3.7 million in the second quarter of 2022 compared to the same quarter in the prior year on strong market preference for our cloud-native solutions. License revenue for the Americas and APAC segments decreased $4.0 million and $0.2 million in the first quarter of 2022, respectively, while the EMEA segment increased $0.4 million. The perpetual license sales percentage mix across our product suite in the second quarter ended June 30, 2022 was over 70% warehouse management solutions.
Maintenance Revenue. Maintenance revenue decreased $1.7 million in the second quarter of 2022 compared to the same quarter in the prior year. Maintenance revenue for the Americas, EMEA and APAC segments decreased $0.1 million, $1.4 million and $0.2 million in the second quarter of 2022, respectively.
Services Revenue. Services revenue increased $16.2 million in the second quarter of 2022 compared to the same quarter in the prior year. Services revenue for the Americas, EMEA and APAC segments increased $10.8 million, $3.7 million, and $1.7 million, respectively, compared to the same quarter in the prior year.
Hardware Revenue. Hardware sales increased $1.4 million in the second quarter of 2022 compared to the same quarter in the prior year. The majority of our hardware revenue is derived from our Americas segment. Sales of hardware is largely dependent upon customer-specific desires, which fluctuate.
21
Cost of Revenue
58
Cost of cloud subscriptions, maintenance and services
25
Total cost of revenue
Cost of Software License. Cost of software license consists of the costs associated with software reproduction; media, packaging and delivery; documentation, and other related costs; and royalties on third-party software sold with or as part of our products. Cost of software license increased by $0.3 million in the second quarter of 2022 compared with the same quarter in the prior year.
Cost of Cloud Subscriptions, Maintenance and Services. Costs of cloud subscriptions, maintenance and services consist primarily of salaries and other personnel-related expenses of employees dedicated to cloud subscriptions; maintenance services; and professional and technical services as well as hosting fees. The $17.7 million increase in the quarter ended June 30, 2022 compared to the same quarter in the prior year was principally due to a $12.8 million increase in compensation and other personnel-related expenses, a $1.8 million increase in travel expenses, a $1.4 million increase in computer infrastructure costs, and a $1.1 million increase in performance-based compensation.
Operating Expenses
-16
66,025
56,129
Research and Development. Our principal R&D activities have focused on the expansion and integration of new products and releases, including cloud-based solutions, while expanding the product footprint of our software solution suites in Supply Chain, Inventory Optimization, Omnichannel and point-of-sale.
For each of the quarters ended June 30, 2022 and 2021, we did not capitalize any R&D costs because the costs incurred following the attainment of technological feasibility for the related software product through the date of general release were insignificant.
R&D expenses primarily consist of salaries and other personnel-related costs for personnel involved in our R&D activities. R&D expenses for the quarter ended June 30, 2022 increased by $4.7 million, compared to the same quarter of 2021 principally due to a $4.2 million increase in compensation and other personnel-related expenses.
Sales and Marketing. Sales and marketing expenses include salaries, commissions, travel and other personnel-related costs and the costs of our marketing and alliance programs and related activities. Sales and marketing expenses increased $4.0 million in the quarter ended June 30, 2022 compared to the same quarter in the prior year primarily due to a $1.9 million increase in marketing and campaign programs, a $1.2 million increase in performance-based compensation expense, and a $0.5 million increase in compensation and other personnel-related expenses.
General and Administrative (G&A). G&A expenses consist primarily of salaries and other personnel-related costs of executive, financial, human resources, information technology, and administrative personnel, as well as facilities, legal, insurance, accounting, and other administrative expenses. G&A expenses increased $1.5 million, in the current year quarter compared to the same quarter in the prior year, primarily due to a $1.2 million increase in compensation and other personnel-related expenses.
Depreciation and Amortization. Depreciation and amortization of intangibles and software expense for the second quarter of 2022 and 2021 was $1.7 million and $2.1 million, respectively. Acquisition expense was fully amortized by the first quarter of 2022. Amortization of acquisition expense for the second quarter of 2021 was immaterial.
Operating Income
Operating income in the second quarter of 2022 was $37.3 million compared to $39.4 million in the same quarter in the prior year. Operating margin was 19.4% for the second quarter of 2022 versus 23.7% for the same quarter in the prior year. Operating income and margin decreased primarily due to our commitment to strategically invest in a business as a cloud first company focused on delivering long-term sustainable growth and earnings leverage. As a result, we are investing significantly in R&D to deliver new innovation, cloud operations headcount, infrastructure and technology to support our ability to scale our cloud business to achieve our growth objectives. In addition, our innovation releases have fueled strong demand for our global consulting services, and we are actively hiring to fulfill customer demand, which pressures operating income and margins until new resources ramp to full utilization.
Other Income and Income Taxes
633
Other income, net. Other income, net primarily includes interest income, foreign currency gains and losses, and other non-operating expenses. Other income (loss), net increased $1.9 million in the second quarter of 2022 compared to the same quarter in the prior year primarily due to gains or losses on intercompany transactions denominated in foreign currencies with subsidiaries due to the fluctuation of the U.S. dollar relative to other foreign currencies, primarily the Indian Rupee. We recorded net foreign currency gains of $2.1 million in the second quarter of 2022 and net foreign currency gains of $0.3 million in the same quarter in the prior year.
Income tax provision. Our effective income tax rate was 22.0% and 22.9% for the quarters ended June 30, 2022 and 2021, respectively. The decrease in the effective tax rate for the three months ended June 30, 2022 is due to a settlement of a tax contingency reserve, offset by a decrease in excess tax benefits on restricted stock vesting as a percentage of pretax income.
Condensed Consolidated Financial Summary – First Six Months of 2022
Consolidated revenue: $370.9 million for the six months ended June 30, 2022 compared to $323.0 million for the six months ended June 30, 2021.
Cloud subscription revenue: $79.5 million for the six months ended June 30, 2022 compared to $55.2 million for the six months ended June 30, 2021.
Software license revenue: $13.5 million for the six months ended June 30, 2022, compared to $16.7 million for the six months ended June 30, 2021.
Operating income: $71.2 million for the six months ended June 30, 2022, compared to $64.8 million for the six months ended June 30, 2021.
Operating margins: 19.2% for the six months ended June 30, 2022, compared to 20.1% for the six months ended June 30, 2021.
Diluted earnings per share: $0.97 for the six months ended June 30, 2022 compared to $0.83 for the six months ended June 30, 2021.
Cash flow from operations: $84.5 million for the six months ended June 30, 2022, compared to $85.4 million for the six months ended June 30, 2021.
Cash: $213.8 million at June 30, 2022, compared to $263.7 million at December 31, 2021.
Share repurchases: During the six months ended June 30, 2022, we reduced our common shares outstanding by approximately 0.7% primarily through the repurchase of approximately 0.8 million shares of our common stock, under the share repurchase program authorized by our board of directors, for a total investment of $100.1 million.
Below we discuss our consolidated results of operations for the six months ended June 30, 2022 and 2021.
Cloud Subscription Revenue. Cloud subscriptions revenue increased $24.3 million in the six months ended June 30, 2022 compared to the same period in the prior year, as customers continued to purchase our SaaS offerings rather than a traditional perpetual license. Our customers have demonstrated a clear preference for cloud-based solutions, including existing customers that are migrating from on-premise to cloud-based offerings. Cloud subscriptions revenue for the Americas, EMEA and APAC segments increased $20.5 million, $3.1 million and $0.7 million, respectively, in the six months ended June 30, 2022.
Software License Revenue. Software license revenue decreased $3.2 million in the six months ended June 30, 2022 compared to the same period in the prior year on strong market preference for our cloud-native solutions. Our license revenue performance depends on the number and relative value of large deals we close in the period. License revenue for the Americas and APAC segments decreased $4.1 million and $0.3 million in the six months ended June 30, 2022, respectively, while license revenue for the EMEA segment increased $1.3 million.
The license sales percentage mix across our product suite in the six months ended June 30, 2022 was over 80% warehouse management solutions.
Maintenance Revenue. Maintenance revenue decreased $2.6 million in the six months ended June 30, 2022 compared to the same period in the prior year. Maintenance revenue for the Americas, EMEA and APAC segments decreased $0.4 million, $2.1 million and $0.1 million, respectively, in the six months ended June 30, 2022 compared to the same period in the prior year.
Services Revenue. Services revenue increased $25.8 million in the six months ended June 30, 2022 compared to the same period in the prior year. Services revenue for the Americas, EMEA and APAC segments increased $16.8 million, $6.0 million and $3.1 million in the six months ended June 30, 2022, respectively, compared with the same period in the prior year.
Hardware Revenue. Hardware sales increased $3.6 million in the six months ended June 30, 2022 compared to the same period in the prior year. The majority of our hardware revenue is derived from our Americas segment. Sales of hardware is largely dependent upon customer-specific desires, which fluctuate.
Cost of Software License. Cost of software license slightly increased by $0.2 million in the six months ended June 30, 2022 compared with the same period in the prior year.
24
Cost of Cloud Subscriptions, Maintenance and Services. Costs of cloud subscriptions, maintenance and services consist primarily of salaries and other personnel-related expenses of employees dedicated to cloud operations; maintenance services; and professional and technical services as well as hosting fees. The $27.2 million increase in the six months ended June 30, 2022 compared to the same period in the prior year was principally due to a $21.6 million increase in compensation and other personnel-related expenses, a $2.8 million increase in travel expense, a $1.4 million increase in computer infrastructure costs, and a $0.6 million increase in performance-based compensation expense.
-17
127,582
113,489
Research and Development. R&D expenses for the six months ended June 30, 2022 increased $7.9 million compared to the same period in the prior year principally due to a $7.5 million increase in compensation and other personnel-related expenses. For the same reasons included in the quarterly R&D discussion above, no R&D costs were capitalized during the six months ended June 30, 2022 and 2021.
Sales and Marketing. Sales and marketing expenses increased $5.0 million in the six months ended June 30, 2022 compared to the same period in the prior year primarily due to a $1.8 million increase in marketing and campaign programs, a $1.6 million increase in performance-based compensation expense and a $1.1 million increase in compensation and other personnel related expenses.
General and Administrative. General and administrative expenses increased $1.9 million in the six months ended June 30, 2022 compared to the same period in the prior year, primarily due to a $1.9 million increase in compensation and other personnel related expenses.
Depreciation and Amortization. Depreciation and amortization of intangibles and software expense for the six months ended June 30, 2022 and 2021 was $3.5 million and $4.2 million, respectively. Acquisitions expense was fully amortized by the first quarter of 2022. Amortization of acquisitions expense for the six months ended June 30, 2021 was immaterial.
Operating income for the six months ended June 30, 2022 was $71.2 million compared to $64.8 million for the same period in the prior year. Operating margin was 19.2% the first six months of 2022 versus 20.1% for the same period in the prior year. Operating income and operating margin decreased primarily due to our commitment to strategically invest in a business as a cloud first company focused on delivering long-term sustainable growth and earnings leverage. As a result, we are investing significantly in R&D to deliver new innovation, cloud operations headcount, infrastructure and technology to support our ability to scale our cloud business to achieve our growth objectives. In addition, our innovation releases have fueled strong demand for our global consulting services, and we are actively hiring to fulfill customer demand, which pressures operating income and margins until new resources ramp to full utilization.
22831
Other income, net. Other income, net increased $3.0 million in the six months ended June 30, 2022 compared to the same period in the prior year primarily due to gains or losses on intercompany transactions denominated in foreign currencies with subsidiaries due to the fluctuation of the U.S. dollar relative to other foreign currencies, primarily the Indian Rupee. We recorded net
foreign currency gains of $2.8 million in the first six months of 2022, and an immaterial amount of net foreign currency gains in the first six months of 2021.
Income tax provision. Our effective income tax rate was 17.2% and 17.8% for the six months ended June 30, 2022 and 2021, respectively. The decrease in the effective tax rate for the six months ended June 30, 2022 is due the settlement of a tax contingency reserve offset by a decrease of excess tax benefits on restricted stock vesting.
Liquidity and Capital Resources
During the first six months of 2022, we funded our business exclusively through cash generated from operations. Our cash and cash equivalents as of June 30, 2022 included $172.0 million held in the U.S. and $41.8 million held by our foreign subsidiaries. We believe that our cash balances in the U.S. are sufficient to fund our U.S. operations. In the future, if we elect to repatriate the unremitted earnings of our foreign subsidiaries, we would not be subject to additional U.S. income taxes on such earnings, but we could be subject to additional local withholding taxes.
Cash flow from operating activities totaled $84.5 million and $85.4 million in the six months ended June 30, 2022 and 2021, respectively. Typical factors affecting our cash provided by operating activities include our level of revenue and earnings for the period, the timing and amount of employee bonus and income tax payments, and the timing of cash collections from our customers which is our primary source of operating cash flow. Cash flow from operating activities for the six months ended June 30, 2022 decreased $0.9 million compared to the same period in the prior year, which is mainly due to increase in tax payments associated with the U.S. Tax Cuts and Jobs Act that requires capitalization of R&D costs for tax purposes beginning in 2022.
Cash flow used in investing activities totaled $2.2 million and $1.2 million in the six months ended June 30, 2022 and 2021, respectively. Our investing activities for both the six months ended June 30, 2022 and 2021 consisted of capital spending to support company growth.
Financing activities used cash of $127.8 million and $79.5 million for the six months ended June 30, 2022 and 2021, respectively. The principal use of cash for financing activities in both periods was to purchase our common stock, including shares withheld for taxes due upon vesting of restricted stock. Repurchases of our common stock for the six months ended June 30, 2022 and 2021 totaled $127.8 million and $79.5 million, respectively, including shares withheld for taxes of $27.7 million and $19.6 million, respectively.
Periodically, opportunities may arise to grow our business through the acquisition of complementary products, and technologies. Any material acquisition could result in a decrease to our working capital depending on the amount, timing, and nature of the consideration to be paid. We believe that our existing cash will be sufficient to meet our working capital and capital expenditure needs at least for the next twelve months, although there can be no assurance that this will be the case. We continue to focus on managing liquidity, while investing in and growing our headcount capacity to support our customers and grow our business. For the remainder of 2022, we anticipate that our priorities for use of cash will be similar to prior years, with our first priority being continued investment in product development and profitably and investing in our business to extend our market leadership. We will continue to weigh our share repurchase options against cash for acquisitions and investing in the business. We will also continue to evaluate acquisition opportunities that are complementary to our product footprint and technology direction. At this time, we do not anticipate any borrowing requirements for the remainder of 2022 for general corporate purposes.
Aggregate Contractual Obligations
Our principal commitments consist of multiple non-cancellable contracts for cloud infrastructure services and obligations under operating leases. As of June 30, 2022, our cloud infrastructure obligations are approximately $119.6 million over the next 5 years. We also enter into non-cancellable subscriptions in the ordinary course of business for internal software to support our operations. Our obligations, as of June 30, 2022, are approximately $19.0 million over the next 3 years. We expect to fulfill all these commitments from our working capital.
Critical Accounting Policies and Estimates
In the first six months of 2022, there were no significant changes to our critical accounting policies and estimates from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended December 31, 2021.
Forward-Looking Statements
Certain statements contained in this filing are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to statements related to expectations about global macroeconomic trends and industry developments, plans for future business development activities, anticipated costs of revenues, product mix and service revenues, research and development, selling, general and administrative activities, and liquidity and capital needs and resources. When used in this quarterly report, the words “may,” “expect,” “forecast,” “anticipate,” “intend,” “plan,” “believe,” “could,” “seek,”
“project,” “estimate,” and similar expressions are generally intended to identify forward-looking statements. Undue reliance should not be placed on these forward-looking statements, which reflect opinions only as of the date of this quarterly report. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Investors are cautioned that forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.
Some of the factors that could cause actual results to differ materially from the results discussed in forward-looking statements include:
the duration and severity of the coronavirus disease (COVID-19) pandemic and of measures taken to combat its spread, and the effects of both on our employees, customers, partners and the global economy;
ongoing disruption and transformation in our vertical markets, including the aggravating effects of the COVID-19 pandemic on the sector;
the operational and financial effects of our business transition to cloud subscription-based solutions;
economic, political and market conditions, including inflation;
our ability to attract and retain highly skilled employees;
competition;
our dependence on a single line of business;
our dependence on generating revenue from software licenses and cloud subscriptions to drive business;
undetected errors or “bugs” in our software;
the risk of defects, delays or interruptions in our cloud subscription services;
possible compromises of our data protection and IT security measures;
risks associated with large system implementations;
possible liability to customers if our products fail;
the requirement to maintain high quality professional service capabilities;
the risks of international operations, including foreign currency exchange risk;
the war in Ukraine;
the possibility that research and development investments may not yield sufficient returns;
the long sales cycle associated with our products;
the difficulty of predicting operating results;
the need to continually improve our technology;
risks associated with managing growth;
reliance on third party and open source software;
the need for our products to interoperate with other systems;
the need to protect our intellectual property, and our exposure to intellectual property claims of others;
the possible effects on international commerce of new or increased tariffs, or a “trade war”;
other risks described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as these may be updated from time to time in subsequent quarterly reports.
We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results.
Quantitative and Qualitative Disclosures about Market Risk.
There were no material changes to the Quantitative and Qualitative Disclosures about Market Risk previously disclosed in our annual report on Form 10-K for the year ended December 31, 2021.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that the system of controls has operated effectively in all cases. Our disclosure controls and procedures however are designed to provide reasonable assurance that the objectives of disclosure controls and procedures are met.
As of the end of the period covered by this report, our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of disclosure controls and procedures are met.
Changes in Internal Control over Financial Reporting
During the three months ended June 30, 2022, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, including any corrective actions with regard to material weaknesses.
From time to time, we may be a party to legal proceedings arising in the ordinary course of business, and we could be a party to legal proceedings not in the ordinary course of business. We are not currently a party to any legal proceeding the result of which we believe could have a material adverse impact upon our business, financial position, results of operations, or cash flows.
Many of our product installations involve software products that are critical to the operations of our customers’ businesses. Any failure in our products could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although we attempt to contractually limit our liability for damages arising from product failures or negligent acts or omissions, there can be no assurance that the limitations of liability set forth in our contracts will be enforceable in all instances.
In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A, “Risk Factors,” of our annual report on Form 10-K for the year ended December 31, 2021.
The following table provides information regarding common stock purchases under our publicly announced repurchase program for the quarter ended June 30, 2022.
Period
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 - April 30, 2022
75,000,000
May 1 - May 31, 2022
232,412
119.92
47,128,244
June 1 - June 30, 2022
184,146
120.98
24,849,826
416,558
No events occurred during the quarter covered by this report that would require a response to this item.
Not applicable.
None
Item 6.Exhibits.
Exhibit 31.1
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Exhibit 101.SCH
Inline XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, has been formatted in Inline XBRL.
*
In accordance with Item 601(b)(32)(ii) of the SEC’s Regulation S-K, this Exhibit is hereby furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date:
July 28, 2022
/s/ Eddie Capel
Eddie Capel
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Dennis B. Story
Dennis B. Story
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)