MANHATTAN ASSOCIATES, INC. The following discussion should be read in conjunction with the condensed consolidated financial statements for the three and nine months endedSeptember 30, 2021 and 2020, 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 endedDecember 31, 2020 . 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 toManhattan 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 supply chains, 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 nine months ended September 30, 2021 , we generated $169.2
million and $492.1 million in total revenue, respectively. The revenue mix for
the three months ended September 30, 2021 was: cloud subscriptions 19%; software
license 5%; maintenance 20%; services 52%; and hardware 4%. The revenue mix for
the nine months ended September 30, 2021 was: cloud subscriptions 18%; software
license 5%; maintenance 22%; services 51%; 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 $49.1 million and $146.8 million for the three and
nine months ended September 30, 2021 , respectively, which represents
approximately 29% and 30% our total revenue for the three and nine months ended
September 30, 2021 , respectively. International revenue includes all revenue
derived from sales to customers outside the United States . At September 30,
2021 , we employed approximately 3,500 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 novel coronavirus disease ("COVID-19") pandemic, we
remain cautious about the global recovery, which we expect to be slow and
protracted. Despite the COVID-19 pandemic, our results for the first nine months
of 2021 exceeded our expectations due to solid demand for our cloud solutions.
Our solutions are mission critical, supporting complex global supply chains.
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. 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 a largely virtual 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.
15
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We continue to monitor and aggressively manage operating expenses globally. We
also will continue to actively monitor the COVID-19 pandemic and will take
further actions to modify our business operations as may be required by federal,
state or local authorities or that we determine are in the best interests of our
employees, customers, and partners.
Going forward, we are investing significantly in our transition to a cloud
business, including enterprise investments in innovation, and strategic
operating expenses to support growth objectives. Our pace of investment and
timing combined with global macroeconomic conditions and disruptions related to
COVID-19 as a whole, have impacted and may continue to impact revenue and
earnings growth, based on timing of recovery. The pace at which the market for
our products transitions from perpetual license to 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 for our future expectations, impacting our ability to
accurately forecast bookings and revenues from quarter to quarter and over the
longer term.
For the remainder of 2021, 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 Historically, our software licenses were sold as perpetual licenses, under which customers own the software license and revenue is recognized at the time of sale. 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-based 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 year 4 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 90% of our pipeline representing cloud solutions. Cloud solutions are our fastest growing revenue line and represents 78% of total software revenue in the first nine months of 2021. We believe the growth reduction in license and maintenance revenue in favor of our cloud-based offerings is positive for our customers andManhattan 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 nine months endedSeptember 30, 2021 , approximately 71% and 70% of our total revenue was generated inthe United States , respectively, 16% and 17% in EMEA, respectively, and the remaining balance in APAC,Canada , andLatin 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 inNorth America andWestern Europe ; consequently, the health of theU.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 including the COVID-19 pandemic and geopolitical uncertainty, the current sales cycles for large cloud subscriptions and, to a lesser degree, license sales of$1.0 million or greater in our target markets could be extended. While demand for our solutions is solid, the current business climate withinthe United States and geographic regions in which we operate may affect customers' and prospects' decisions regarding timing of strategic capital expenditures. Delays with respect to such decisions can have a material adverse impact on our business and may further intensify competition in our already highly competitive markets. While we are encouraged by our results, we, along with many of our customers, still remain cautious regarding the pace of global economic growth. We believe global geopolitical and economic volatility associated with the pandemic likely will continue to shape customers' and prospects' enterprise software buying decisions. 16
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Revenue
Cloud Subscriptions and Software License Revenue. Cloud subscriptions revenue and remaining performance obligation growth are the leading indicators of our business performance, primarily derived from cloud subscription fees that customers pay for supply chain solutions. Since we announced our transition to becoming a cloud-first company in 2017 with our launch of Manhattan Active 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 full year ended 2021, we estimate revenue mix for cloud subscriptions and software license revenue to be approximately 80% and 20%, respectively. In the nine months endedSeptember 30, 2021 , cloud subscriptions revenue was 78% of total cloud and software license revenue. Going forward, we expect cloud revenue to increase as a percentage of total software and cloud revenue as market demand for cloud solutions is supplanting legacy perpetual license demand.
In the three months ended
TheAmericas , EMEA and APAC segments recognized$27.3 million ,$4.2 million and$0.7 million in cloud subscriptions revenue, respectively, in the three months endedSeptember 30, 2021 . TheAmericas , EMEA and APAC segments recognized$74.5 million ,$10.9 million and$2.0 million in cloud subscriptions revenue, respectively, in the nine months endedSeptember 30, 2021 . Cloud subscriptions revenue is recognized ratably over the term of the agreement, typically 36 to 60 months. In the three and nine months endedSeptember 30, 2021 , the percentage mix of new to existing customers for the combination of software license and cloud subscriptions sales was approximately 40/60 and 20/80, respectively. In the three months endedSeptember 30, 2021 , software license revenue totaled$8.5 million , or 5% of total revenue. In the nine months endedSeptember 30, 2021 , software license revenue totaled$25.1 million or 5% of total revenue. Software license revenue recognized by theAmericas , EMEA, and APAC segments totaled$7.1 million ,$1.0 million , and$0.4 million , respectively, in the three months endedSeptember 30, 2021 . Software license revenue recognized by theAmericas , EMEA, and APAC segments totaled$18.6 million ,$5.0 million , and$1.5 million , respectively, in the nine months endedSeptember 30, 2021 . Cloud subscriptions and software license revenue growth are 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 addition, the timing of the closing of a few large software license transactions can have a material impact on our software license revenues, operating profit, operating margins and earnings per share. For example,$0.7 million of either pre-tax profit or expense in the third quarter of 2021 equates to approximatelyone cent of diluted earnings per share impact. Our software solutions are focused on core supply chain commerce operations (Warehouse Management, Transportation Management and Labor Management), Inventory optimization and Omnichannel operations (e-commerce, retail store operations and point of sale), 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 asARC 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. We expect to continue to face increased competition from Enterprise Resource Planning (ERP) andSupply Chain Management applications vendors and business application software vendors that may broaden their solutions offerings by internally developing, or by acquiring or partnering with independent developers of supply chain planning and execution software. Increased competition could result in price reductions, fewer customer orders, reduced gross margins, and loss of market share. Maintenance Revenue. Our maintenance revenue for the three months endedSeptember 30, 2021 totaled$34.5 million , or 20% of total revenue. For the nine months endedSeptember 30, 2021 , maintenance revenue totaled$108.4 million or 22% of total revenue. TheAmericas , EMEA and APAC segments recognized$26.6 million ,$5.6 million and$2.3 million in maintenance revenue, respectively, in the three months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2021 , maintenance revenue recognized by theAmericas , EMEA, and APAC segments totaled$84.0 million ,$17.4 million and$7.0 million , respectively. For maintenance, we offer a comprehensive 24 hours per day, 365 days per year program that provides our 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. Over the last three years, our annual revenue renewal rate of customers subscribing to comprehensive support and enhancements has been greater than 90%. 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 endedSeptember 30, 2021 , our services revenue totaled$88.2 million , or 52% of total revenue. TheAmericas , EMEA and APAC segments recognized$68.4 million ,$16.6 million and$3.2 million in services revenue, respectively, in the three months endedSeptember 30, 2021 . In the nine months endedSeptember 30, 2021 , our services revenue 17 -------------------------------------------------------------------------------- totaled$253.2 million , or 51% of total revenue. TheAmericas , EMEA and APAC segments recognized$195.4 million ,$49.4 million and$8.4 million in services revenue, respectively, in the nine months endedSeptember 30, 2021 . Due to our large services revenue mix as a percentage of total revenue, our consolidated operating margin profile may be lower than those of our competitors, and while we believe our services margins are strong, they may impact our operating margin profile. 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 our cloud subscriptions, software license revenue 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. All of these factors potentially create the risk of pricing pressure, fewer customer orders, reduced gross margins, and loss of market share. Hardware Revenue. Our hardware revenue, which we recognize net of related costs, totaled$5.9 million in the three months endedSeptember 30, 2021 representing 4% of total revenue. For the nine months endedSeptember 30, 2021 , hardware revenue totaled$18.0 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 solutions that help global retailers, manufacturers, wholesalers, distributors, and logistics providers 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 point of sale. Our R&D expenses were$23.4 million and$70.8 million for the three and nine months endedSeptember 30, 2021 , respectively. 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, to address 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 nine months endedSeptember 30, 2021 , we generated cash flow from operating activities of$59.7 million and$145.1 million , respectively. Our cash and cash equivalents atSeptember 30, 2021 totaled$246.4 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 and across our enterprise in transition to becoming a cloud-first company to drive revenue and earnings growth. During the nine months endedSeptember 30, 2021 , we repurchased 580,826 shares ofManhattan Associates' outstanding common stock for approximately$79.9 million under the share repurchase program approved by our Board of Directors. InOctober 2021 , our Board of Directors approved raising the Company's remaining share repurchase authority to an aggregate of$50.0 million of our common stock. For the remainder of 2021, our priorities for use of cash will continue to be investments in product development and in our business supporting the transition to cloud. We expect to continue to evaluate acquisition opportunities that are complementary to our product footprint and technology direction. We also expect to continue to weigh our share repurchase options against cash for acquisitions and investing in the business. We do not anticipate any borrowing requirements for the remainder of 2021 for general corporate purposes.
Results of Operations
In the following table, we present a summary of our consolidated results for the
three and nine months ended
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(in thousands, except per share data)
Revenue $ 169,185 $ 149,757 $ 492,149 $ 439,290
Costs and expenses 126,777 114,781 384,959 353,426
Operating income 42,408 34,976 107,190 85,864
Other (loss) income, net (42 ) (891 ) (29 ) 371
Income before income taxes 42,366 34,085 107,161 86,235
Net income $ 36,654 $ 24,966 $ 89,890 $ 66,700
Diluted earnings per share $ 0.57 $ 0.39 $ 1.40 $ 1.04
Diluted weighted average number of shares 64,238 64,427 64,339 64,298
19
-------------------------------------------------------------------------------- We have three geographic reportable segments: theAmericas , 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 theAmericas 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 theAmericas costs are all R&D costs, including the costs associated with our operations inIndia . During the three and nine months endedSeptember 30, 2021 and 2020, we derived the majority of our revenues from sales to customers within ourAmericas segment. In the following table, we present a summary of revenue and operating income by segment: Three Months Ended September 30, Nine Months Ended September 30, % Change vs. % Change vs. 2021 2020 Prior Year 2021 2020 Prior Year Revenue: (in thousands) (in thousands)
Cloud subscriptions Americas 27,355 18,112 51 % 74,498 49,700 50 % EMEA 4,182 2,447 71 % 10,947 5,746 91 % APAC 659 505 30 % 1,989 1,381 44 % Total cloud subscriptions 32,196 21,064 53 % 87,434 56,827 54 % Software license Americas 7,065 11,468 -38 % 18,646 23,771 -22 % EMEA 1,024 1,048 -2 % 5,018 2,487 102 % APAC 372 717 -48 % 1,458 2,391 -39 % Total software license 8,461 13,233 -36 % 25,122 28,649 -12 % Maintenance Americas 26,551 29,164 -9 % 84,000 85,835 -2 % EMEA 5,639 5,630 0 % 17,409 16,392 6 % APAC 2,289 2,511 -9 % 6,961 6,720 4 % Total maintenance 34,479 37,305 -8 % 108,370 108,947 -1 % Services Americas 68,421 57,789 18 % 195,391 180,227 8 % EMEA 16,521 12,546 32 % 49,482 42,906 15 % APAC 3,230 3,135 3 % 8,361 9,521 -12 % Total services 88,172 73,470 20 % 253,234 232,654 9 % Hardware Americas 5,841 4,635 26 % 17,819 12,149 47 % EMEA 36 50 -28 % 170 61 179 % APAC - - - - 3 -100 % Total hardware and other 5,877 4,685 25 % 17,989 12,213 47 % Total Revenue Americas 135,233 121,168 12 % 390,354 351,682 11 % EMEA 27,402 21,721 26 % 83,026 67,592 23 % APAC 6,550 6,868 -5 % 18,769 20,016 -6 % Total revenue$ 169,185 $ 149,757 13 %$ 492,149 $ 439,290 12 % Operating income: Americas 29,727 27,296 9 % 74,433 62,562 19 % EMEA 10,485 5,319 97 % 27,502 17,147 60 % APAC 2,196 2,361 -7 % 5,255 6,155 -15 % Total operating income$ 42,408 $ 34,976 21 %$ 107,190 $ 85,864 25 % 20
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Condensed Consolidated Financial Summary - Third Quarter 2021
• Consolidated total revenue:
compared to
• Cloud subscription revenue:
compared to
• Software license revenue:
compared to
• Operating income:
• Operating margins: 25.1% for the third quarter of 2021, compared to 23.4%
for the third quarter of 2020;
• Diluted earnings per share:
• Cash flow from operations:
compared to
• Days sales outstanding: 63 days at
at
• Cash:
• Share repurchases: In the three months ended
our common shares outstanding by approximately 0.2%, primarily through the
repurchase of approximately 0.1 million shares of our common stock, under
the share repurchase program authorized by our board of directors for a
total investment of
approved raising the Company's remaining share repurchase authority to an
aggregate of $50.0 million of our outstanding common stock.
Below we discuss our consolidated results of operations for the third quarters
of 2021 and 2020.
Revenue
Three Months Ended September 30,
% Change vs. % of Total Revenue
2021 2020 Prior Year 2021 2020
(in thousands)
Cloud subscriptions $ 32,196 $ 21,064 53 % 19 % 14 %
Software license 8,461 13,233 -36 % 5 % 9 %
Maintenance 34,479 37,305 -8 % 20 % 25 %
Services 88,172 73,470 20 % 52 % 49 %
Hardware 5,877 4,685 25 % 4 % 3 %
Total revenue $ 169,185 $ 149,757 13 % 100 % 100 %
Cloud Subscriptions Revenue. In 2017, we released Manhattan Active™ Solutions
accelerating our business transition to cloud subscriptions. In the third
quarter of 2021, cloud subscriptions revenue increased $11.1 million compared to
the same quarter in the prior year, as customer demand for our SaaS offerings is
outpacing traditional perpetual license solutions. Our customers increasingly
prefer 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 $9.2 million , $1.7 million and $0.2
million in the third quarter of 2021, respectively.
Software License Revenue. Software license revenue decreased $4.8 million in the
third quarter of 2021 compared to the same quarter in the prior year. License
revenue for the Americas , EMEA and APAC segments decreased $4.4 million , $0.1
million and $0.3 million in the third quarter of 2021, respectively.
The perpetual license sales percentage mix across our product suite in the third
quarter ended
Maintenance Revenue. Maintenance revenue decreased$2.8 million in the third quarter of 2021 compared to the same quarter in the prior year. Maintenance revenue for theAmericas and APAC segments decreased$2.6 million and$0.2 million in the third quarter of 2021 respectively, while maintenance revenue for EMEA was in line with the same quarter in the prior year. 21 -------------------------------------------------------------------------------- Services Revenue. Services revenue increased$14.7 million in the third quarter of 2021 compared to the same quarter in the prior year. Services revenue for theAmericas , EMEA and APAC segments increased$10.6 million ,$4.0 million , and$0.1 million , respectively, compared to the same quarter in the prior year.
Hardware Revenue. Hardware sales increased
Cost of Revenue
Three Months Ended September 30,
% Change vs.
2021 2020 Prior Year
Cost of software license $ 690 $ 527 31 %
Cost of cloud subscriptions, maintenance and
services 70,813 64,672 9 %
Total cost of revenue $ 71,503 $ 65,199 10 %
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$0.2
million in the third quarter of 2021 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 $6.1 million increase in the quarter ended September 30, 2021 compared
to the same quarter in the prior year was principally due to a $3.4 million
increase in compensation and other personnel-related expenses, a $1.8 million
increase in performance-based compensation, and a $1.1 million increase in
travel expenses.
Operating Expenses
Three Months Ended September 30,
% Change vs.
2021 2020 Prior Year
(in thousands)
Research and development $ 23,372 $ 20,454 14 %
Sales and marketing 14,057 11,399 23 %
General and administrative 15,928 15,536 3 %
Depreciation and amortization 1,917 2,193 -13 %
Operating expenses $ 55,274 $ 49,582 11 %
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 September 30, 2021 and 2020, 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
September 30, 2021 increased by $2.9 million , compared to the same quarter of
2020 principally due to a $2.3 million increase in compensation and other
personnel-related expenses and a $0.8 million increase in the computer
infrastructure costs.
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
$2.7 million in the quarter ended September 30, 2021 compared to the same
quarter in the prior year primarily due to a $1.6 million increase in
performance-based compensation expense, a $0.5 million increase in compensation
and other personnel-related expenses, and a $0.5 million increase in marketing
and campaign programs.
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 $0.4 million , in the current year quarter compared to the same quarter
in the prior year.
22
-------------------------------------------------------------------------------- Depreciation and Amortization. Depreciation and amortization of intangibles and software expense for the third quarter of 2021 and 2020 was$1.9 million and$2.2 million , respectively. Amortization of acquisitions expense for the third quarter of 2021 and 2020 was immaterial.
Operating Income
Operating income in the third quarter of 2021 was$42.4 million compared to$35.0 million in the same quarter in the prior year. Operating margin was 25.1% for the third quarter of 2021 versus 23.4% for the same quarter in the prior year. Operating income and operating margin increased primarily due to increased cloud subscriptions and services revenues.
Other Income and Income Taxes
Three Months Ended September 30,
% Change vs.
2021 2020 Prior Year
Other loss, net $ (42 ) $ (891 ) -95 %
Income tax provision 5,712 9,119 -37 %
Other loss, net. Other loss, net primarily includes interest income, foreign
currency gains and losses, and other non-operating expenses. Other loss, net
increased $0.8 million in the third quarter of 2021 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. The net foreign currency loss was immaterial and $0.9 million in the
third quarter of 2021 and 2020, respectively.
Income tax provision. Our effective income tax rate was 13.5% and 26.8% for the
quarters ended September 30, 2021 and 2020, respectively. The decrease in the
effective tax rate for the three months ended September 30, 2021 is due to
statute of limitations expiry on tax reserves, foreign jurisdiction business
incentives, true-up of prior year provisional tax estimates, and income earned
in lower tax jurisdictions.
Condensed Consolidated Financial Summary - First Nine Months of 2021
• Consolidated revenue:
September 30, 2021 compared to$439.3 million for the nine months endedSeptember 30, 2020 . • Cloud subscription revenue:$87.4 million for the nine months endedSeptember 30, 2021 compared to$56.8 million for the nine months endedSeptember 30, 2020 . • Software license revenue:$25.1 million for the nine months endedSeptember 30, 2021 , compared to$28.6 million for the nine months endedSeptember 30, 2020 .
• Operating income:
2021, compared to $85.9 million for the nine months ended September 30,
2020 .
• Operating margins: 21.8% for the nine months ended
compared to 19.5% for the nine months ended
• Diluted earnings per share:
2021 compared to
• Cash flow from operations: $145.1 million for the nine months ended
September 30, 2021 , compared to $102.9 million for the nine months ended
September 30, 2020 .
• Cash:
• Share repurchases: During the nine months ended
reduced our common shares outstanding by approximately 0.4% primarily
through the repurchase of approximately 0.6 million shares of our common
stock, under the share repurchase program authorized by our board of
directors, for a total investment of $79.9 million .
23
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Below we discuss our consolidated results of operations for the nine months
ended
Nine Months Ended September 30,
% Change vs. % of Total Revenue
2021 2020 Prior Year 2021 2020
(in thousands)
Cloud subscriptions $ 87,434 $ 56,827 54 % 18 % 13 %
Software license 25,122 28,649 -12 % 5 % 6 %
Maintenance 108,370 108,947 -1 % 22 % 25 %
Services 253,234 232,654 9 % 51 % 53 %
Hardware 17,989 12,213 47 % 4 % 3 %
Total revenue $ 492,149 $ 439,290 12 % 100 % 100 %
Cloud Subscription Revenue. Due to the release of Manhattan Active™ Solutions,
cloud subscriptions revenue increased $30.6 million in the nine months ended
September 30, 2021 compared to the same period in the prior year, as customers
began to purchase our SaaS offerings rather than a traditional perpetual
license. Our customers increasingly prefer 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
$24.8 million , $5.2 million and $0.6 million , respectively, in the nine months
ended September 30, 2021 .
Software License Revenue. Software license revenue decreased $3.5 million in the
nine months ended September 30, 2021 compared to the same period in the prior
year. Our license revenue performance depends on the number and relative value
of large deals we close in the period. License revenue for the EMEA segment
increased $2.5 million in the nine months ended September 30, 2021 , while
license revenue for the Americas and APAC segments decreased $5.1 million and
$0.9 million , respectively.
The license sales percentage mix across our product suite in the nine months
ended
Maintenance Revenue. Maintenance revenue decreased$0.6 million in the nine months endedSeptember 30, 2021 compared to the same period in the prior year. Maintenance revenue for theAmericas segment decreased$1.8 million in the nine months endedSeptember 30, 2021 compared to the same period in the prior year, while maintenance revenue for the EMEA and APAC segments increased$1.0 million and$0.2 million respectively. Services Revenue. Services revenue increased$20.6 million in the nine months endedSeptember 30, 2021 compared to the same period in the prior year. Services revenue for theAmericas and EMEA segments increased$15.2 million and$6.6 million , respectively, in the nine months endedSeptember 30, 2021 compared with the same period in the prior year, while service revenue for the APAC segment decreased$1.2 million . Hardware Revenue. Hardware sales increased$5.8 million in the nine months endedSeptember 30, 2021 compared to the same period in the prior year. The majority of our hardware revenue is derived from ourAmericas segment. Sales of hardware is largely dependent upon customer-specific desires, which fluctuate. Cost of Revenue Nine Months Ended September 30, % Change vs. 2021 2020 Prior Year Cost of software license$ 1,802 $ 1,673 8 % Cost of cloud subscriptions, maintenance and services 214,394 201,382 6 % Total cost of revenue$ 216,196 $ 203,055 6 % Cost of Software License. Cost of software license was relatively flat in the nine months endedSeptember 30, 2021 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$13.0 million increase in the nine months endedSeptember 30, 2021 compared to the same period in the prior year was principally due to a$11.5 million increase in performance-based compensation expense and a$6.6 million increase in compensation and other personnel-related expenses, offset by a$2.7 million decrease in travel expense, and a$2.1 million decrease in computer infrastructure costs. Operating Expenses Nine Months Ended September 30, % Change vs. 2021 2020 Prior Year (in thousands) Research and development$ 70,845 $ 63,713 11 % Sales and marketing 41,203 34,196 20 % General and administrative 50,579 45,666 11 % Depreciation and amortization 6,136 6,796 -10 % Operating expenses$ 168,763 $ 150,371 12 % Research and Development. R&D expenses for the nine months endedSeptember 30, 2021 increased$7.1 million compared to the same period in the prior year principally due to a$3.9 million increase in performance-based compensation expense and a$2.8 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 nine months endedSeptember 30, 2021 and 2020. Sales and Marketing. Sales and marketing expenses increased$7.0 million in the nine months endedSeptember 30, 2021 compared to the same period in the prior year primarily due to a$5.6 million increase in performance-based compensation expense and a$1.9 million increase in compensation and other personnel related expenses. General and Administrative. General and administrative expenses increased$4.9 million in the nine months endedSeptember 30, 2021 compared to the same period in the prior year, primarily due to a$3.0 million increase in compensation and other personnel related expenses, and a$2.2 million increase performance-based compensation expense. Depreciation and Amortization. Depreciation and amortization of intangibles and software expense for the nine months endedSeptember 30, 2021 and 2020 was$6.1 million and$6.8 million , respectively. Amortization of acquisitions expense for the nine months endedSeptember 30, 2021 and 2020 was immaterial.
Operating Income
Operating income for the nine months endedSeptember 30, 2021 was$107.2 million compared to$85.9 million for the same period in the prior year. Operating margin was 21.8% the first nine months of 2021 versus 19.5% for the same period in the prior year. Operating income and operating margin increased primarily due to increased cloud subscriptions, services and hardware revenues. Other Income and Income Taxes Nine Months Ended September 30, % Change vs. 2021 2020 Prior Year Other (loss) income, net$ (29 ) $ 371 -108 % Income tax provision 17,271 19,535 -12 % Other (loss) income, net. Other (loss) income, net decreased$0.4 million in the nine months endedSeptember 30, 2021 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 theU.S. dollar relative to other foreign currencies, primarily the Indian Rupee. Income tax provision. Our effective income tax rate was 16.1% and 22.7% for the nine months endedSeptember 30, 2021 and 2020, respectively. The decrease in the effective tax rate for the nine months endedSeptember 30, 2021 is due to statue of limitations 25
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expiry on tax reserves, foreign jurisdiction business incentives, true-up of prior year provisional tax estimates, and income earned in lower tax jurisdictions.
Liquidity and Capital Resources
During the first nine months of 2021, we funded our business exclusively through cash generated from operations. Our cash and cash equivalents as ofSeptember 30, 2021 included$207.3 million held in theU.S. and$39.1 million held by our foreign subsidiaries. We believe that our cash balances in theU.S. are sufficient to fund ourU.S. operations. In the future, if we elect to repatriate the unremitted earnings of our foreign subsidiaries, we would no longer be subject to additionalU.S. income taxes on such earnings due to the enactment of the Tax Cuts and Jobs Act inDecember 2017 , but we could be subject to additional local withholding taxes. Cash flow from operating activities totaled$145.1 million and$102.9 million in the nine months endedSeptember 30, 2021 and 2020, 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 nine months endedSeptember 30, 2021 increased$42.2 million compared to the same period in the prior year, which is mainly due to a decrease in employee bonus payments and an increase in net income. Cash flow used in investing activities totaled$2.2 million and$1.9 million in the nine months endedSeptember 30, 2021 and 2020, respectively. Our investing activities for both the nine months endedSeptember 30, 2021 and 2020 consisted of capital spending to support company growth. Financing activities used cash of$100.2 million and$43.5 million for the nine months endedSeptember 30, 2021 and 2020, 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 nine months endedSeptember 30, 2021 and 2020 totaled$100.2 million and$43.5 million , respectively, including shares withheld for taxes of$20.4 million and$18.5 million , respectively. Our principal commitments consist of obligations under operating leases and non-cancellable contracts for cloud infrastructure services. As ofSeptember 30, 2021 , our cloud infrastructure obligations are approximately$67 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 ofSeptember 30, 2021 , are approximately$12 million over the next 3 years. We expect to fulfill all these commitments from our working capital. 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. With the continuing COVID-19 impact, 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 2021, 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 evaluate acquisition opportunities that are complementary to our product footprint and technology direction. We will also continue to weigh our share repurchase options against cash for acquisitions and investing in the business. At this time, we do not anticipate any borrowing requirements for the remainder of 2021 for general corporate purposes.
Critical Accounting Policies and Estimates
In the first nine months of 2021, 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 endedDecember 31, 2020 other than the adoption of the ASU 2019-12, Income Taxes (Topic 740).
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
26
--------------------------------------------------------------------------------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;
• 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 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;
• economic conditions and regulatory changes caused by the
exit from the
• the possible effects on international commerce of new or increased tariffs,
or a "trade war"; and
• other risks described under the heading "Risk Factors" in this Form 10-Q
and in our Annual Report on Form 10-K for the year ended
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.
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