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EX-32 - EX-32 - MANHATTAN ASSOCIATES INCmanh-ex32_8.htm
EX-31.2 - EX-31.2 - MANHATTAN ASSOCIATES INCmanh-ex312_6.htm
EX-31.1 - EX-31.1 - MANHATTAN ASSOCIATES INCmanh-ex311_7.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, 2016

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 19, 2016, the latest practicable date, is as follows: 71,605,024 shares of common stock, $0.01 par value per share.

 

 

 

 


MANHATTAN ASSOCIATES, INC.

FORM 10-Q

Quarter Ended June 30, 2016

TABLE OF CONTENTS

PART I

 

 

Financial Information

 

 

 

 

Item 1.

Financial Statements.

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015

3

 

 

Condensed Consolidated Statements of Income for the three and six months ended June 30, 2016 and 2015 (unaudited)

4

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2016 and 2015 (unaudited)

5

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015 (unaudited)

6

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

7

 

 

Item 2.

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

14

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

25

 

 

 

Item 4.

Controls and Procedures.

25

 

 

 

 

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.

27

 

 

 

Item 3.

Defaults Upon Senior Securities.

27

 

 

 

Item 4.

Mine Safety Disclosures.

27

 

 

 

Item 5.

Other Information.

27

 

 

 

Item 6.

Exhibits.

28

 

 

 

Signatures.

29

 

 

 

 

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, 2016

 

 

December 31, 2015

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

93,135

 

 

$

118,416

 

Short-term investments

 

 

2,076

 

 

 

10,344

 

Accounts receivable, net of allowance of $4,359 and $7,031, respectively

 

 

92,998

 

 

 

97,379

 

Prepaid expenses and other current assets

 

 

11,761

 

 

 

10,772

 

Total current assets

 

 

199,970

 

 

 

236,911

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

20,861

 

 

 

21,176

 

Goodwill, net

 

 

62,235

 

 

 

62,233

 

Deferred income taxes

 

 

3,699

 

 

 

4,648

 

Other assets

 

 

7,111

 

 

 

7,275

 

Total assets

 

$

293,876

 

 

$

332,243

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

11,546

 

 

$

11,219

 

Accrued compensation and benefits

 

 

19,653

 

 

 

29,284

 

Accrued and other liabilities

 

 

13,231

 

 

 

13,853

 

Deferred revenue

 

 

63,913

 

 

 

68,757

 

Income taxes payable

 

 

1,762

 

 

 

4,072

 

Total current liabilities

 

 

110,105

 

 

 

127,185

 

 

 

 

 

 

 

 

 

 

Other non-current liabilities

 

 

8,789

 

 

 

9,566

 

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, no par value; 20,000,000 shares authorized, no shares issued or outstanding in 2016 and 2015

 

 

-

 

 

 

-

 

Common stock, $0.01 par value; 200,000,000 shares authorized; 71,604,493 and 72,766,383 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively

 

 

716

 

 

 

728

 

Retained earnings

 

 

188,362

 

 

 

207,070

 

Accumulated other comprehensive loss

 

 

(14,096

)

 

 

(12,306

)

Total shareholders' equity

 

 

174,982

 

 

 

195,492

 

Total liabilities and shareholders' equity

 

$

293,876

 

 

$

332,243

 

 

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,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software license

 

$

20,631

 

 

$

19,758

 

 

$

41,238

 

 

$

39,072

 

Services

 

 

119,833

 

 

 

107,344

 

 

 

236,096

 

 

 

208,547

 

Hardware and other

 

 

14,428

 

 

 

12,007

 

 

 

27,418

 

 

 

25,013

 

Total revenue

 

 

154,892

 

 

 

139,109

 

 

 

304,752

 

 

 

272,632

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of license

 

 

2,283

 

 

 

2,137

 

 

 

5,435

 

 

 

5,043

 

Cost of services

 

 

48,393

 

 

 

46,464

 

 

 

100,297

 

 

 

91,248

 

Cost of hardware and other

 

 

11,841

 

 

 

10,163

 

 

 

21,598

 

 

 

20,710

 

Research and development

 

 

13,458

 

 

 

13,257

 

 

 

28,164

 

 

 

26,813

 

Sales and marketing

 

 

12,015

 

 

 

11,889

 

 

 

24,603

 

 

 

23,736

 

General and administrative

 

 

12,368

 

 

 

11,927

 

 

 

24,816

 

 

 

23,165

 

Depreciation and amortization

 

 

2,266

 

 

 

1,898

 

 

 

4,472

 

 

 

3,679

 

Total costs and expenses

 

 

102,624

 

 

 

97,735

 

 

 

209,385

 

 

 

194,394

 

Operating income

 

 

52,268

 

 

 

41,374

 

 

 

95,367

 

 

 

78,238

 

Other income, net

 

 

654

 

 

 

359

 

 

 

1,174

 

 

 

621

 

Income before income taxes

 

 

52,922

 

 

 

41,733

 

 

 

96,541

 

 

 

78,859

 

Income tax provision

 

 

19,581

 

 

 

15,729

 

 

 

35,720

 

 

 

29,651

 

Net income

 

$

33,341

 

 

$

26,004

 

 

$

60,821

 

 

$

49,208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.46

 

 

$

0.35

 

 

$

0.84

 

 

$

0.67

 

Diluted earnings per share

 

$

0.46

 

 

$

0.35

 

 

$

0.84

 

 

$

0.66

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

71,880

 

 

 

73,618

 

 

 

72,264

 

 

 

73,797

 

Diluted

 

 

72,228

 

 

 

74,126

 

 

 

72,633

 

 

 

74,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Net income

 

$

33,341

 

 

$

26,004

 

 

$

60,821

 

 

$

49,208

 

Foreign currency translation adjustment

 

 

(1,845

)

 

 

244

 

 

 

(1,790

)

 

 

(127

)

Comprehensive income

 

$

31,496

 

 

$

26,248

 

 

$

59,031

 

 

$

49,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

2016

 

 

2015

 

 

 

(unaudited)

 

 

(unaudited)

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

60,821

 

 

$

49,208

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,472

 

 

 

3,679

 

Equity-based compensation

 

 

8,183

 

 

 

5,739

 

Loss (Gain) on disposal of equipment

 

 

14

 

 

 

(38

)

Tax benefit of stock awards exercised/vested

 

 

5,069

 

 

 

7,848

 

Excess tax benefits from equity-based compensation

 

 

(5,074

)

 

 

(7,825

)

Deferred income taxes

 

 

950

 

 

 

1,216

 

Unrealized foreign currency (gain) loss

 

 

(403

)

 

 

117

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

4,113

 

 

 

3,002

 

Other assets

 

 

(1,124

)

 

 

(97

)

Accounts payable, accrued and other liabilities

 

 

(10,624

)

 

 

(13,296

)

Income taxes

 

 

(2,313

)

 

 

(5,428

)

Deferred revenue

 

 

(4,577

)

 

 

(1,437

)

Net cash provided by operating activities

 

 

59,507

 

 

 

42,688

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(4,107

)

 

 

(5,769

)

Net maturities of investments

 

 

8,113

 

 

 

447

 

Net cash provided by (used in) investing activities

 

 

4,006

 

 

 

(5,322

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Purchase of common stock

 

 

(92,812

)

 

 

(61,330

)

Proceeds from issuance of common stock from options exercised

 

 

18

 

 

 

535

 

Excess tax benefits from equity-based compensation

 

 

5,074

 

 

 

7,825

 

Net cash used in financing activities

 

 

(87,720

)

 

 

(52,970

)

 

 

 

 

 

 

 

 

 

Foreign currency impact on cash

 

 

(1,074

)

 

 

52

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(25,281

)

 

 

(15,552

)

Cash and cash equivalents at beginning of period

 

 

118,416

 

 

 

115,708

 

Cash and cash equivalents at end of period

 

$

93,135

 

 

$

100,156

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

6


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”) 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 the Company’s financial position at June 30, 2016, the results of operations for the three and six months ended June 30, 2016 and 2015, and cash flows for the six months ended June 30, 2016 and 2015. The results for the three and six months ended June 30, 2016 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, 2015.

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.

Changes in Presentation of Comparative Financial Statements

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Balance Sheet Classification of Deferred Taxes, to simplify the presentation of the deferred income taxes. The ASU requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance does not change the existing requirement that only permits offsetting within a tax-paying component of an entity. This guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, but may be adopted earlier, and may be applied either prospectively or retrospectively. We adopted this guidance in the first three months ended March 31, 2016 reporting on a retrospective basis. Accordingly, we reclassified the current deferred taxes to noncurrent on our December 31, 2015 condensed consolidated balance sheet, that increased noncurrent deferred tax assets $4.6 million and decreased noncurrent deferred tax liabilities $5.7 million to conform with the current presentation.

 

 

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

 

7


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 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 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, 2016 and 2015, and $9.1 million and $10.2 million for the six months ended June 30, 2016 and 2015, 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.

 

8


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, 2016, the Company’s cash, cash equivalents, and short-term investments balances were $46.0 million, $47.1 million, and $2.1 million, respectively. The Company currently has no long-term investments. Cash equivalents consist of highly 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. At June 30, 2016 and December 31, 2015, the Company had $30.3 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 20,659 and 15,890 restricted stock units (“RSUs”) during the three months ended June 30, 2016 and 2015, respectively, and 349,231 and 354,281 RSUs during the six months ended June 30, 2016 and 2015, respectively. The Company recorded equity-based compensation expense related to restricted stock and RSUs of $3.5 million and $2.7 million during the three months ended June 30, 2016 and 2015, respectively, and $8.2 million and $5.7 million during the six months ended June 30, 2016 and 2015, respectively.

A summary of changes in unvested shares/units for the six months ended June 30, 2016 is as follows:

 

 

 

Number of shares/units

 

Outstanding at December 31, 2015

 

 

1,205,533

 

Granted

 

 

349,231

 

Vested

 

 

(459,914

)

Forfeited

 

 

(112,360

)

Outstanding at June 30, 2016

 

 

982,490

 

 

No amounts were recorded for equity-based compensation expense related to stock options during the three and six months ended June 30, 2016 and 2015 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, 2016 is as follows:

 

 

 

Number of Options

 

Outstanding at December 31, 2015

 

 

3,610

 

Exercised

 

 

(3,610

)

Forfeited and expired

 

 

-

 

Outstanding at June 30, 2016

 

 

-

 

 

 

5.

Income Taxes

 

The Company’s effective tax rate was 37.0% and 37.7% for the three months ended June 30, 2016 and 2015, respectively, and 37.0% and 37.6% for the six months ended June 30, 2016 and 2015, respectively.  The decrease in the effective tax rate for the quarter and the six months ended June 30, 2016 was primarily due to the U.S. research and development credit claimed for the quarter and the six month period ended June 30, 2016, as the credit became permanent in December 2015 and was not claimed during the quarter and the six months ended June 30, 2015.

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 ASC 740. For the three and six months ended June 30, 2016, there were no material changes to the Company’s uncertain tax positions. There has been no change to the Company’s

 

9


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.

 

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 2012.

 

 

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, 2016 and 2015 (in thousands, except per share data):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(in thousands, except per share data)

 

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

33,341

 

 

$

26,004

 

 

$

60,821

 

 

$

49,208

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.46

 

 

$

0.35

 

 

$

0.84

 

 

$

0.67

 

Effect of CESs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(0.01

)

Diluted

 

$

0.46

 

 

$

0.35

 

 

$

0.84

 

 

$

0.66

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

71,880

 

 

 

73,618

 

 

 

72,264

 

 

 

73,797

 

Effect of CESs

 

 

348

 

 

 

508

 

 

 

369

 

 

 

569

 

Diluted

 

 

72,228

 

 

 

74,126

 

 

 

72,633

 

 

 

74,366

 

 

The anti-dilutive CESs during 2016 and 2015 were immaterial.

 

 

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.

 

 

 

10


8.

Operating Segments

The Company manages its 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 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. The Company uses the same accounting policies for each reportable segment. The chief executive officer and interim 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 $0.8 million and $0.6 million for the three months ended June 30, 2016 and 2015, respectively, and approximately $1.2 million and $1.6 million for the six months ended June 30, 2016 and 2015, respectively, are 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, 2016 and 2015 (in thousands):

 

 

 

Three Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software license

 

$

17,261

 

 

$

2,236

 

 

$

1,134

 

 

$

20,631

 

 

$

17,294

 

 

$

2,115

 

 

$

349

 

 

$

19,758

 

Services

 

 

99,993

 

 

 

15,400

 

 

 

4,440

 

 

 

119,833

 

 

 

88,563

 

 

 

14,504

 

 

 

4,277

 

 

 

107,344

 

Hardware and other

 

 

13,764

 

 

 

549

 

 

 

115

 

 

 

14,428

 

 

 

11,297

 

 

 

556

 

 

 

154

 

 

 

12,007

 

Total revenue

 

 

131,018

 

 

 

18,185

 

 

 

5,689

 

 

 

154,892

 

 

 

117,154

 

 

 

17,175

 

 

 

4,780

 

 

 

139,109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

50,945

 

 

 

8,387

 

 

 

3,185

 

 

 

62,517

 

 

 

47,251

 

 

 

8,639

 

 

 

2,874

 

 

 

58,764

 

Operating expenses

 

 

33,885

 

 

 

2,808

 

 

 

1,148

 

 

 

37,841

 

 

 

32,013

 

 

 

3,908

 

 

 

1,152

 

 

 

37,073

 

Depreciation and amortization

 

 

2,062

 

 

 

136

 

 

 

68

 

 

 

2,266

 

 

 

1,676

 

 

 

112

 

 

 

110

 

 

 

1,898

 

Total costs and expenses

 

 

86,892

 

 

 

11,331

 

 

 

4,401

 

 

 

102,624

 

 

 

80,940

 

 

 

12,659

 

 

 

4,136

 

 

 

97,735

 

Operating income

 

$

44,126

 

 

$

6,854

 

 

$

1,288

 

 

$

52,268

 

 

$

36,214

 

 

$

4,516

 

 

$

644

 

 

$

41,374

 

 

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software license

 

$

36,293

 

 

$

2,972

 

 

$

1,973

 

 

$

41,238

 

 

$

32,777

 

 

$

5,648

 

 

$

647

 

 

$

39,072

 

Services

 

 

197,371

 

 

 

29,869

 

 

 

8,856

 

 

 

236,096

 

 

 

170,775

 

 

 

28,704

 

 

 

9,068

 

 

 

208,547

 

Hardware and other

 

 

26,161

 

 

 

1,030

 

 

 

227

 

 

 

27,418

 

 

 

23,561

 

 

 

1,128

 

 

 

324

 

 

 

25,013

 

    Total revenue

 

 

259,825

 

 

 

33,871

 

 

 

11,056

 

 

 

304,752

 

 

 

227,113

 

 

 

35,480

 

 

 

10,039

 

 

 

272,632

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

105,184

 

 

 

16,072

 

 

 

6,074

 

 

 

127,330

 

 

 

93,652

 

 

 

17,546

 

 

 

5,803

 

 

 

117,001

 

Operating expenses

 

 

68,997

 

 

 

6,232

 

 

 

2,354

 

 

 

77,583

 

 

 

63,794

 

 

 

7,671

 

 

 

2,249

 

 

 

73,714

 

Depreciation and amortization

 

 

4,064

 

 

 

274

 

 

 

134

 

 

 

4,472

 

 

 

3,271

 

 

 

225

 

 

 

183

 

 

 

3,679

 

    Total costs and expenses

 

 

178,245

 

 

 

22,578

 

 

 

8,562

 

 

 

209,385