Attached files

file filename
EX-32 - EX-32 - MANHATTAN ASSOCIATES INCmanh-ex32_201506307.htm
EX-10.1 - EX-10.1 - MANHATTAN ASSOCIATES INCmanh-ex101_310.htm
EX-31.2 - EX-31.2 - MANHATTAN ASSOCIATES INCmanh-ex312_201506306.htm
EX-31.1 - EX-31.1 - MANHATTAN ASSOCIATES INCmanh-ex311_201506308.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10‑Q

 

[Mark One]

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

OR

o

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

 

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  x   No  o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).   Yes  T   No  o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

x

 

Accelerated filer

o

Non-accelerated filer

o

(Do not check if a smaller reporting company)

Smaller reporting company

o

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  o   No  T

The number of shares of the Registrant’s class of capital stock outstanding as of July 23, 2015, the latest practicable date, is as follows: 73,415,653 shares of common stock, $0.01 par value per share.

 

 

 

 


MANHATTAN ASSOCIATES, INC.

FORM 10-Q

Quarter Ended June 30, 2015

TABLE OF CONTENTS

PART I

 

 

Financial Information

 

 

 

 

Item 1.

Financial Statements.

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014

3

 

 

Condensed Consolidated Statements of Income for the three and six months ended June 30, 2015 and 2014 (unaudited)

4

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014 (unaudited)

5

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (unaudited)

6

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

7

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

13

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

24

 

 

 

Item 4.

Controls and Procedures.

24

 

 

 

 

PART II

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings.

26

 

 

 

Item 1A.

Risk Factors.

26

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

26

 

 

 

Item 3.

Defaults Upon Senior Securities.

26

 

 

 

Item 4.

Mine Safety Disclosures.

26

 

 

 

Item 5.

Other Information.

27

 

 

 

Item 6.

Exhibits.

27

 

 

 

Signatures.

28

 

 

 

 

2


PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

June 30, 2015

 

 

December 31, 2014

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

100,156

 

 

$

115,708

 

Short-term investments

 

 

8,243

 

 

 

8,730

 

Accounts receivable, net of allowance of $8,222 and $4,164, respectively

 

 

82,937

 

 

 

86,828

 

Deferred income taxes

 

 

9,882

 

 

 

9,900

 

Prepaid expenses and other current assets

 

 

9,451

 

 

 

8,695

 

Total current assets

 

 

210,669

 

 

 

229,861

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

19,569

 

 

 

17,265

 

Goodwill, net

 

 

62,235

 

 

 

62,250

 

Deferred income taxes

 

 

270

 

 

 

270

 

Other assets

 

 

7,559

 

 

 

8,524

 

Total assets

 

$

300,302

 

 

$

318,170

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,357

 

 

$

12,483

 

Accrued compensation and benefits

 

 

21,717

 

 

 

30,889

 

Accrued and other liabilities

 

 

11,840

 

 

 

12,501

 

Deferred revenue

 

 

57,400

 

 

 

58,968

 

Income taxes payable

 

 

2,542

 

 

 

7,974

 

Total current liabilities

 

 

102,856

 

 

 

122,815

 

 

 

 

 

 

 

 

 

 

Other non-current liabilities

 

 

13,550

 

 

 

13,332

 

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, no par value; 20,000,000 shares authorized, no shares issued or outstanding in 2015 and 2014

 

 

-

 

 

 

-

 

Common stock, $0.01 par value; 200,000,000 shares authorized; 73,423,899 and 74,104,064 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively

 

 

734

 

 

 

741

 

Retained earnings

 

 

193,312

 

 

 

191,305

 

Accumulated other comprehensive loss

 

 

(10,150

)

 

 

(10,023

)

Total shareholders' equity

 

 

183,896

 

 

 

182,023

 

Total liabilities and shareholders' equity

 

$

300,302

 

 

$

318,170

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

3


Item 1.

Financial Statements (continued)

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(in thousands, except per share amounts)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software license

 

$

19,758

 

 

$

17,989

 

 

$

39,072

 

 

$

35,096

 

Services

 

 

107,344

 

 

 

93,519

 

 

 

208,547

 

 

 

180,432

 

Hardware and other

 

 

12,007

 

 

 

11,022

 

 

 

25,013

 

 

 

20,565

 

Total revenue

 

 

139,109

 

 

 

122,530

 

 

 

272,632

 

 

 

236,093

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of license

 

 

2,137

 

 

 

1,848

 

 

 

5,043

 

 

 

3,461

 

Cost of services

 

 

46,464

 

 

 

41,457

 

 

 

91,248

 

 

 

79,917

 

Cost of hardware and other

 

 

10,163

 

 

 

9,265

 

 

 

20,710

 

 

 

16,744

 

Research and development

 

 

13,257

 

 

 

11,867

 

 

 

26,813

 

 

 

23,670

 

Sales and marketing

 

 

11,889

 

 

 

12,848

 

 

 

23,736

 

 

 

24,868

 

General and administrative

 

 

11,927

 

 

 

11,256

 

 

 

23,165

 

 

 

21,905

 

Depreciation and amortization

 

 

1,898

 

 

 

1,489

 

 

 

3,679

 

 

 

2,977

 

Total costs and expenses

 

 

97,735

 

 

 

90,030

 

 

 

194,394

 

 

 

173,542

 

Operating income

 

 

41,374

 

 

 

32,500

 

 

 

78,238

 

 

 

62,551

 

Other income, net

 

 

359

 

 

 

312

 

 

 

621

 

 

 

79

 

Income before income taxes

 

 

41,733

 

 

 

32,812

 

 

 

78,859

 

 

 

62,630

 

Income tax provision

 

 

15,729

 

 

 

12,218

 

 

 

29,651

 

 

 

23,324

 

Net income

 

$

26,004

 

 

$

20,594

 

 

$

49,208

 

 

$

39,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.35

 

 

$

0.27

 

 

$

0.67

 

 

$

0.52

 

Diluted earnings per share

 

$

0.35

 

 

$

0.27

 

 

$

0.66

 

 

$

0.51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

73,618

 

 

 

75,274

 

 

 

73,797

 

 

 

75,544

 

Diluted

 

 

74,126

 

 

 

76,037

 

 

 

74,366

 

 

 

76,415

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

4


Item 1.

Financial Statements (continued)

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(in thousands)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Net income

 

$

26,004

 

 

$

20,594

 

 

$

49,208

 

 

$

39,306

 

Foreign currency translation adjustment

 

 

244

 

 

 

258

 

 

 

(127

)

 

 

1,277

 

Comprehensive income

 

$

26,248

 

 

$

20,852

 

 

$

49,081

 

 

$

40,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

5


 

Item 1.

Financial Statements (continued)

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

 

(unaudited)

 

 

(unaudited)

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

49,208

 

 

$

39,306

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,679

 

 

 

2,977

 

Equity-based compensation

 

 

5,739

 

 

 

4,670

 

Gain on disposal of equipment

 

 

(38

)

 

 

(15

)

Tax benefit of stock awards exercised/vested

 

 

7,848

 

 

 

6,954

 

Excess tax benefits from equity-based compensation

 

 

(7,825

)

 

 

(6,916

)

Deferred income taxes

 

 

1,216

 

 

 

879

 

Unrealized foreign currency loss (gain)

 

 

117

 

 

 

(174

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

3,002

 

 

 

(15,320

)

Other assets

 

 

(97

)

 

 

(4,305

)

Accounts payable, accrued and other liabilities

 

 

(13,296

)

 

 

(4,148

)

Income taxes

 

 

(5,428

)

 

 

(8,786

)

Deferred revenue

 

 

(1,437

)

 

 

5,910

 

Net cash provided by operating activities

 

 

42,688

 

 

 

21,032

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(5,769

)

 

 

(3,580

)

Net decrease (increase) in short-term investments

 

 

447

 

 

 

(1,441

)

Net cash used in investing activities

 

 

(5,322

)

 

 

(5,021

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Purchase of common stock

 

 

(61,330

)

 

 

(58,305

)

Proceeds from issuance of common stock from options exercised

 

 

535

 

 

 

829

 

Excess tax benefits from equity-based compensation

 

 

7,825

 

 

 

6,916

 

Net cash used in financing activities

 

 

(52,970

)

 

 

(50,560

)

 

 

 

 

 

 

 

 

 

Foreign currency impact on cash

 

 

52

 

 

 

1,295

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(15,552

)

 

 

(33,254

)

Cash and cash equivalents at beginning of period

 

 

115,708

 

 

 

124,375

 

Cash and cash equivalents at end of period

 

$

100,156

 

 

$

91,121

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

6


Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.

Basis of Presentation, Principles of Consolidation, Stock Split and Increase of the Authorized Number of Shares of Common Stock

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Manhattan Associates, Inc. and its subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States 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 the Company’s financial position at June 30, 2015, the results of operations for the three and six months ended June 30, 2015 and 2014, and cash flows for the six months ended June 30, 2015 and 2014. The results for the three and six months ended June 30, 2015 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the Company’s audited consolidated financial statements and management’s discussion and analysis included in the Company’s annual report on Form 10-K for the year ended December 31, 2014.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the Company’s accounts and the accounts of its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

 

2.

Revenue Recognition

The Company’s revenue consists of fees from the licensing and hosting of software (collectively included in “Software license” revenue in the Condensed Consolidated Statements of Income), fees from implementation and training services (collectively, “professional services”) and customer support services and software enhancements (collectively with professional services revenue included in “Services” revenue in the Condensed Consolidated Statements of Income), and sales of hardware and other revenue, which consists of reimbursements of out-of-pocket expenses incurred in connection with our professional services (collectively included in “Hardware and other” revenue in the Condensed Consolidated Statements of Income).  All revenue is recognized net of any related sales taxes.

The Company recognizes license revenue when the following criteria are met: (1) a signed contract is obtained covering all elements of the arrangement, (2) delivery of the product has occurred, (3) the license fee is fixed or determinable, and (4) collection is probable.  Revenue recognition for software with multiple-element arrangements requires recognition of revenue using the “residual method” when (a) there is vendor-specific objective evidence (VSOE) of the fair values of all undelivered elements in a multiple-element arrangement that is not accounted for using long-term contract accounting, (b) VSOE of fair value does not exist for one or more of the delivered elements in the arrangement, and (c) all other applicable revenue-recognition criteria for software revenue recognition are satisfied. For those contracts that contain significant customization or modifications, license revenue is recognized using contract accounting.

The Company allocates revenue to customer support services and software enhancements and any other undelivered elements of the arrangement based on VSOE of fair value of each element, and such amounts are deferred until the applicable delivery criteria and other revenue recognition criteria have been met.  The balance of the revenue, net of any discounts inherent in the arrangement, is recognized at the outset of the arrangement using the residual method as the product licenses are delivered.  If the Company cannot objectively determine the fair value of each undelivered element based on the VSOE of fair value, the Company defers revenue recognition until all elements are delivered, all services have been performed, or until fair value can be objectively determined.  The Company must apply judgment in determining all elements of the arrangement and in determining the VSOE of fair value for each element, considering the price charged for each product on a stand-alone basis or applicable renewal rates.  For arrangements that include future software functionality deliverables, the Company accounts for these deliverables as a separate element of the arrangement.  Because the Company does not sell these deliverables on a standalone basis, the Company is not able to establish VSOE of fair value of these deliverables.  As a result, the Company defers all revenue under the arrangement until the future functionality has been delivered to the customer.

Payment terms for the Company’s software licenses vary.  Each contract is evaluated individually to determine whether the fees in the contract are fixed or determinable and whether collectability is probable.  Judgment is required in assessing the probability of collection, which is generally based on evaluation of customer-specific information, historical collection experience, and economic market conditions.  If market conditions decline, or if the financial conditions of customers deteriorate, the Company may be unable to determine that collectability is probable, and the Company could be required to defer the recognition of revenue until the Company receives customer payments.  The Company has an established history of collecting under the terms of its software license contracts

 

7


Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

without providing refunds or concessions to its customers.  Therefore, the Company has determined that the presence of payment terms that extend beyond contract execution in a particular contract do not preclude the conclusion that the fees in the contract are fixed or determinable.  Although infrequent, when payment terms in a contract extend beyond twelve months, the Company has determined that such fees are not fixed or determinable and recognizes revenue as payments become due provided that all other conditions for revenue recognition have been met.

The Company’s services revenue consists of fees generated from professional services and customer support and software enhancements related to the Company’s software products.  Professional services include system planning, design, configuration, testing, and other software implementation support, and are not typically essential to the functionality of the software.  Fees from professional services performed by the Company are separately priced and are generally billed on an hourly basis, and revenue is recognized as the services are performed.  In certain situations, professional services are rendered under agreements in which billings are limited to contractual maximums or based upon a fixed fee for portions of or all of the engagement.  Revenue related to fixed-fee-based contracts is recognized on a proportional performance basis based on the hours incurred on discrete projects within an overall services arrangement.  The Company has determined that output measures, or services delivered, approximate the input measures associated with fixed-fee services arrangements.  Project losses are provided for in their entirety in the period in which they become known.  Revenue related to customer support services and software enhancements is generally paid in advance and recognized ratably over the term of the agreement, typically twelve months.

Hardware and other revenue is generated from the resale of a variety of hardware products, developed and manufactured by third parties, that are integrated with and complementary to the Company’s software solutions. As part of a complete solution, the Company’s customers periodically purchase hardware from the Company for use with the software licenses purchased from the Company. These products include computer hardware, radio frequency terminal networks, radio frequency identification (RFID) chip readers, bar code printers and scanners, and other peripherals. Hardware revenue is recognized upon shipment to the customer when title passes. The Company generally purchases hardware from the Company’s vendors only after receiving an order from a customer. As a result, the Company generally does not maintain hardware inventory.

In accordance with the other presentation matters within the Revenue Recognition Topic of the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC), the Company recognizes amounts associated with reimbursements from customers for out-of-pocket expenses as revenue. Such amounts have been included in “Hardware and other” revenue in the Condensed Consolidated Statements of Income. The total amount of expense reimbursement recorded to revenue was $4.9 million for both the three months ended June 30, 2015 and 2014, and $10.2 million and $8.5 million for the six months ended June 30, 2015 and 2014, respectively.

 

 

3.

Fair Value Measurement

The Company measures its 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.

The Company’s investments are categorized as available-for-sale securities and recorded at fair market value.  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, 2015, the Company’s cash, cash equivalents, and short-term investments balances were $69.6 million, $30.6 million, and $8.2 million, respectively. The Company currently has no long-term investments. Cash equivalents consist of highly

 

8


Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

liquid money market funds and certificates of deposit. Short-term investments consist of certificates of deposit. The Company uses quoted prices from active markets that are classified at Level 1 as a highest level observable input in the disclosure hierarchy framework for all available-for-sale securities. At both June 30, 2015 and December 31, 2014, the Company had $30.4 million in money market funds, which are classified as Level 1 and are included in cash and cash equivalents on the Condensed Consolidated Balance Sheets. The Company has no investments classified as Level 2 or Level 3.

 

 

4.

Equity-Based Compensation

 

The Company granted 15,890 and 38,384 restricted stock units (“RSUs”) during the three months ended June 30, 2015 and 2014, respectively, and 354,281 and 355,927 RSUs during the six months ended June 30, 2015 and 2014, respectively. The Company recorded equity-based compensation expense related to restricted stock grants of $2.7 million and $2.4 million during the three months ended June 30, 2015 and 2014, respectively, and $5.7 million and $4.7 million during the six months ended June 30, 2015 and 2014, respectively.

A summary of changes in unvested shares/units for the six months ended June 30, 2015 is as follows:

 

 

 

Number of shares/units

 

Outstanding at December 31, 2014

 

 

1,346,062

 

Granted

 

 

354,281

 

Vested

 

 

(580,990

)

Forfeited

 

 

(63,441

)

Outstanding at June 30, 2015

 

 

1,055,912

 

 

No amounts were recorded for equity-based compensation expense related to stock options during the three and six months ended June 30, 2015 and 2014 as all stock options vested prior to 2014.  The Company does not currently grant stock options.

A summary of changes in outstanding options for the six months ended June 30, 2015 is as follows:

 

 

 

Number of Options

 

Outstanding at December 31, 2014

 

 

153,764

 

Exercised

 

 

(104,652

)

Forfeited and expired

 

 

-

 

Outstanding at June 30, 2015

 

 

49,112

 

 

 

5.

Income Taxes

 

The Company’s effective tax rate was 37.7% and 37.2% for the three months ended June 30, 2015 and 2014, respectively, and 37.6% and 37.2% for the six months ended June 30, 2015 and 2014, respectively.  The increase in the effective tax rate for the quarter and six month period ended June 30, 2015 is primarily due to increases in state tax rates.

The Company applies the provisions for income taxes related to, among other things, accounting for uncertain tax positions and disclosure requirements in accordance with the Income Taxes Topic of the FASB Accounting Standards Codification (ASC 740). For the three months ended June 30, 2015, there were no material changes to the Company’s uncertain tax positions. There has been no change to the Company’s policy that recognizes potential interest and penalties related to uncertain tax positions within its global operations in income tax expense.

The Company currently plans to permanently reinvest all of its remaining undistributed foreign earnings.  Accordingly, no provision for U.S. federal and state income taxes has been provided thereon.  Upon repatriation of those earnings, in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to adjustment for foreign tax credits) and withholding taxes payable to various foreign countries.  It is impractical to calculate the tax impact until such repatriation occurs.

 

9


Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions.  In the normal course of business, the Company is subject to examination by taxing authorities throughout the world.  The Company is no longer subject to U.S. federal income tax examinations, substantially all state and local income tax examinations and substantially all non-U.S. income tax examinations for years before 2011.

 

 

6.

Net Earnings Per Share

Basic net earnings per share is computed using net income divided by the weighted average number of shares of common stock outstanding (“Weighted Shares”) for each period presented. Diluted net earnings per share is computed using net income divided by the sum of Weighted Shares and common equivalent shares (“CESs”) outstanding for each period presented using the treasury stock method.

The following is a reconciliation of the net income and share amounts used in the computation of basic and diluted net earnings per common share for the three and six months ended June 30, 2015 and 2014 (in thousands, except per share data):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(in thousands, except per share data)

 

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

26,004

 

 

$

20,594

 

 

$

49,208

 

 

$

39,306

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.35

 

 

$

0.27

 

 

$

0.67

 

 

$

0.52

 

Effect of CESs

 

 

-

 

 

 

-

 

 

 

(0.01

)

 

 

(0.01

)

Diluted

 

$

0.35

 

 

$

0.27

 

 

$

0.66

 

 

$

0.51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

73,618

 

 

 

75,274

 

 

 

73,797

 

 

 

75,544

 

Effect of CESs

 

 

508

 

 

 

763

 

 

 

569

 

 

 

871

 

Diluted

 

 

74,126

 

 

 

76,037

 

 

 

74,366

 

 

 

76,415

 

 

There were no anti-dilutive CESs during 2015 and 2014.

 

 

7.

Contingencies

From time to time, the Company may be involved in litigation relating to claims arising out of its ordinary course of business, and occasionally legal proceedings not in the ordinary course. Many of the Company’s installations involve products that are critical to the operations of its clients’ businesses. Any failure in a Company product could result in a claim for substantial damages against the Company, regardless of the Company’s responsibility for such failure. Although the Company attempts to limit contractually its 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 its contracts will be enforceable in all instances. The Company is not currently a party to any legal proceedings the result of which it believes is likely to have a material adverse impact upon its business, financial position, results of operations, or cash flows. The Company expenses legal costs associated with loss contingencies as such legal costs are incurred.

 

 

8.

Operating Segments

The Company manages the business by geographic segment. The Company has three geographic reportable segments: North America and Latin America (the “Americas”); Europe, Middle East and Africa (“EMEA”); and Asia Pacific (“APAC”). All segments derive revenue from the sale and implementation of the Company’s supply chain execution and planning 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. The Company uses 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 sold by those reportable segments. The royalties, which totaled approximately $0.6 million and $0.9 million for the three months ended June 30, 2015 and 2014, respectively, and approximately $1.6 million and $2.3 million for the six months ended June 30, 2015 and 2014, respectively, are

 

10


Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

included in cost of revenue for each segment with a corresponding reduction in America’s cost of revenue. The revenues represented below are from external customers only. The geographical-based costs consist of costs of professional services personnel, direct sales and marketing expenses, cost of infrastructure to support the employees and customer base, billing and financial systems, management and general and administrative support.  There are certain corporate expenses included in the Americas segment that are not charged to the other segments, including research and development, 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 research and development costs including the costs associated with the Company’s India operations.

The following table presents the revenues, expenses and operating income by reportable segment for the three and six months ended June 30, 2015 and 2014 (in thousands):

 

 

 

Three Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License

 

$

17,294

 

 

$

2,115

 

 

$

349

 

 

$

19,758

 

 

$

14,498

 

 

$

1,621

 

 

$

1,870

 

 

$

17,989

 

Services

 

 

88,563

 

 

 

14,504

 

 

 

4,277

 

 

 

107,344

 

 

 

73,884

 

 

 

13,851

 

 

 

5,784

 

 

 

93,519

 

Hardware and other

 

 

11,297

 

 

 

556

 

 

 

154

 

 

 

12,007

 

 

 

10,251

 

 

 

439

 

 

 

332

 

 

 

11,022

 

Total revenue

 

 

117,154

 

 

 

17,175

 

 

 

4,780

 

 

 

139,109

 

 

 

98,633

 

 

 

15,911

 

 

 

7,986

 

 

 

122,530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

47,251

 

 

 

8,639

 

 

 

2,874

 

 

 

58,764

 

 

 

41,385

 

 

 

7,551

 

 

 

3,634

 

 

 

52,570

 

Operating expenses

 

 

32,013

 

 

 

3,908

 

 

 

1,152

 

 

 

37,073

 

 

 

30,766

 

 

 

4,049

 

 

 

1,156

 

 

 

35,971

 

Depreciation and amortization

 

 

1,676

 

 

 

112

 

 

 

110

 

 

 

1,898

 

 

 

1,355

 

 

 

72

 

 

 

62

 

 

 

1,489

 

Total costs and expenses

 

 

80,940

 

 

 

12,659

 

 

 

4,136

 

 

 

97,735

 

 

 

73,506

 

 

 

11,672

 

 

 

4,852

 

 

 

90,030

 

Operating income

 

$

36,214

 

 

$

4,516

 

 

$

644

 

 

$

41,374

 

 

$

25,127

 

 

$

4,239

 

 

$

3,134

 

 

$

32,500

 

 

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software license

 

$

32,777

 

 

$

5,648

 

 

$

647

 

 

$

39,072

 

 

$

25,956

 

 

$

6,071

 

 

$

3,069

 

 

$

35,096

 

Services

 

 

170,775

 

 

 

28,704

 

 

 

9,068

 

 

 

208,547

 

 

 

144,788

 

 

 

24,715

 

 

 

10,929

 

 

 

180,432

 

Hardware and other

 

 

23,561

 

 

 

1,128

 

 

 

324

 

 

 

25,013

 

 

 

19,244

 

 

 

804

 

 

 

517

 

 

 

20,565

 

    Total revenue

 

 

227,113

 

 

 

35,480

 

 

 

10,039

 

 

 

272,632

 

 

 

189,988

 

 

 

31,590

 

 

 

14,515

 

 

 

236,093

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

93,652

 

 

 

17,546

 

 

 

5,803

 

 

 

117,001

 

 

 

78,034

 

 

 

15,027

 

 

 

7,061

 

 

 

100,122

 

Operating expenses

 

 

63,794

 

 

 

7,671

 

 

 

2,249

 

 

 

73,714

 

 

 

59,986

 

 

 

8,119

 

 

 

2,338

 

 

 

70,443

 

Depreciation and amortization

 

 

3,271

 

 

 

225

 

 

 

183

 

 

 

3,679

 

 

 

2,708

 

 

 

147

 

 

 

122

 

 

 

2,977

 

    Total costs and expenses

 

 

160,717

 

 

 

25,442

 

 

 

8,235

 

 

 

194,394

 

 

 

140,728

 

 

 

23,293

 

 

 

9,521

 

 

 

173,542

 

Operating income

 

$

66,396

 

 

$

10,038

 

 

$