All statements, trend analyses, and other information contained in the following
discussion relative to markets for our products and trends in revenue, gross
margins, and anticipated expense levels, as well as other statements including
words such as "may," "expect," "forecast," "anticipate," "intend," "plan,"
"believe," "could," "seek," "project," "estimate," and other similar expressions
constitute forward-looking statements. These forward-looking statements are
subject to business and economic risks and uncertainties, including those
discussed under the caption "Risk Factors" in Item 1A of this Form 10-K, and our
actual results of operations may differ materially from those contained in the
forward-looking statements.

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 2020, we generated $586.4 million in total revenue, with a revenue mix of:
cloud subscriptions 14%; software license 6%; maintenance 25%; services revenue
52%; and hardware 3%.

We have three geographic reportable segments: the Americas, EMEA, and APAC.
Geographic revenue is based on the location of the sale. Our international
revenue was approximately $178.1 million, $189.1 million and $174.1 million for
the years ended December 31, 2020, 2019 and 2018, respectively, which represents
approximately 30%, 31% and 31% of our total revenue for the years ended
December 31, 2020, 2019 and 2018, respectively. International revenue includes
all revenue derived from sales to customers outside the United States. At
December 31, 2020, we employed approximately 3,400 employees worldwide. We have
offices in Australia, Chile, China, France, Germany, India, Italy, Japan, the
Netherlands, Singapore, Spain, and the United Kingdom, 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. In 2020, we experienced solid demand for our cloud-based supply
chain and omnichannel commerce solutions and our competitive win rates remain
strong. In May, we launched Manhattan Active® Warehouse Management, the next
generation of Warehouse Management solutions. We have rearchitected our
warehouse management solution from the ground up as a cloud-native,
microservices based, versionless application. The reception has been positive
and pipeline opportunities continue to build. Our solutions are mission
critical, supporting large and complex, global supply chains. While we are
experiencing strong demand and expect continued growth for our Cloud solutions,
sales cycles could be extended as customers and prospects continue to evaluate
our industry leading, modern solutions, including Manhattan Active Warehouse
Management. Our Professional Services revenue for the year ended December 31,
2020 is approximately 16% lower, and excluding billed travel, approximately 13%
lower than the year ended December 31, 2019, as clients delay projects due to
COVID-19. We have had no notable cancellations in 2020. For 2021, we expect
Services revenue to grow fueled by Cloud revenue growth. We expect Q1 2021
Services revenue to decrease

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against an all-time record Q1 2020 comparison. While COVID-19 could create some
near-term fluctuations, we are forecasting for improving year over year growth
for the remaining balance of 2021.

We have taken steps to best protect the health and safety of our employees
globally. Our daily execution has evolved largely into a virtual model, but we
believe we have been successful in maintaining our ability to effectively
communicate with and service our customers and customer prospects during the
pandemic period.

As previously announced, effective April 1, 2020, we took temporary actions to
manage operating expenses and cash flow, including reduction of officer salaries
and board of directors' fees, and suspension of our 401k plan company match.  We
also temporarily suspended our share repurchase program.  These actions did not
materially impact our ability to support our customers or make key investments
in research and development to further extend our competitive positioning. We
continue to monitor and aggressively managing operating expenses globally. We
also will continue to actively monitor the situation and may take further
actions that 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 2021, our five strategic goals continue to be:

•Focus on 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.

With the launch of Manhattan Active™ Solutions, in year 3 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 Cloud with 90% of our pipeline representing cloud. Cloud is our
fastest growing revenue line and represents 68% of total software revenue in
2020. We believe the reduction in License and maintenance revenue in favor of
our Cloud based offerings is positive for our customers and Manhattan
Associates.

Global Economic Trends and Industry Factors



Global macro-economic trends, technology spending, and supply chain management
market growth are important barometers for our business. In 2020, approximately
70% of our total revenue was generated in the United States, 16% in EMEA, and
the remaining balance in APAC, Canada, and Latin America. In addition, Gartner
Inc., an information technology research and advisory company, estimates that
nearly 80% of every supply chain software solutions dollar invested is spent in
North America and Western Europe; consequently, the health of the U.S. and the
Western European economies have a meaningful impact on our financial results.

We sell technology-based solutions with total pricing, including software and
services, in many cases exceeding $1.0 million. Our software is often a part of
our customers' and prospects' much larger capital commitment associated with
facilities expansion and business improvement. We believe that, given the
lingering uncertainty in the global macro environment primarily in the retail
industry, the current sales cycles for large license sales and cloud
subscriptions of $1.0 million or greater in our target markets have been
extended. The current business climate within the United States and geographic
regions in which we operate continues to 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.

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In January 2021, the International Monetary Fund (IMF) provided a World Economic
Outlook (WEO) update. The WEO update noted, "the global economy is projected to
grow 5.5 percent in 2021 and 4.2 percent in 2022. The 2021 forecast is revised
up 0.3 percentage point relative to the previous forecast, reflecting
expectations of a vaccine-powered strengthening of activity later in the year
and additional policy support in a few large economies."

The WEO update projected that advanced economies, which represent our primary
revenue markets, would grow at about 4.3 and 3.1 percent in 2021 and 2022, while
the emerging and developing economies would grow at about 6.3 percent in 2021
and 5.0 percent in 2022.

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, making it challenging to forecast sales cycles for our products and
the timing of large enterprise software license and cloud subscription sales.

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 license. 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 2020, cloud
subscriptions and software license revenue were 68% and 32%, respectively, of
our total cloud subscriptions and software license revenue mix. Going forward,
we expect cloud revenue to increase as a percentage of total software and cloud
revenue mix as market demand for cloud solutions is supplanting legacy perpetual
license demand.

In 2020, cloud subscriptions revenue totaled $79.8 million, or 14% of total
revenue. The Americas, EMEA, and APAC segments recognized $69.5 million, $8.4
million and $1.9 million in cloud subscriptions revenue, respectively, in 2020.
Cloud subscriptions revenue is recognized ratably over the term of the
agreement, typically 36 to 60 months.

In 2020, license revenue totaled $38.3 million, or 6% of total revenue, with
gross margins of 92.4%. The Americas, EMEA, and APAC segments totaled $30.5
million, $4.3 million, and $3.5 million in license revenue, respectively, in
2020. The percentage mix of new to existing customers for the combination of
cloud subscriptions and software license sales was approximately 20/80 in 2020.

Cloud subscriptions and software license revenue growth is influenced by the
strength of general economic and business conditions and the competitive
position of our software products. These revenues generally have long sales
cycles. In 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, $0.8
million of either pre-tax profit or expense in 2020 equates to approximately one
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 as ARC Advisory Group and Gartner. Our goal is to extend
our position as a leading global supply chain solutions provider by growing our
software license and cloud subscriptions revenues faster than our competitors
through investment in innovation. We expect to continue to face increased
competition from Enterprise Resource Planning (ERP) and Supply 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 totaled $147.7 million, or 25% of
total revenue. The Americas, EMEA and APAC segments recognized $116.3 million,
$22.2 million, and $9.2 million, respectively, in maintenance revenue in 2020.
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. The
growth of maintenance revenues 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.

                                       26

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Services Revenue: In 2020, our services revenue totaled $303.6 million, or 52%
of total revenue. The Americas, EMEA, and APAC segments recognized $232.9
million, $58.4 million, and $12.3 million, respectively. 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 do lower our operating margin
profile as services margins are inherently lower than the margin for software
license revenue and some of our other revenue sources.

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 software license revenue, cloud
subscriptions 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
as of January 1, 2018, totaled $16.9 million in 2020 representing 3% 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 for the years ended December 31, 2020, 2019 and 2018 were $84.3
million, $87.6 million, and $71.9 million, 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.

Cash Flow and Financial Condition



For 2020, we generated cash flow from operating activities of $140.9 million and
have generated a cumulative total of $425.1 million for the three years ended
December 31, 2020. Our cash at December 31, 2020 totaled $204.7 million, with no
debt on our balance sheet. We currently have no credit facilities. During the
past three years, our primary uses of cash have been for funding investments in
R&D, in operations to drive earnings growth, and in repurchases of our common
stock.

During 2020, we repurchased approximately $25.0 million of Manhattan Associates'
outstanding common stock under the share repurchase program approved by our
Board of Directors. In April 2020, the Company suspended its share repurchase
program because of COVID-19-related considerations. Accordingly, during the
second, third and fourth quarters of 2020, the Company did not

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repurchase any shares of Manhattan Associates common stock under the share repurchase program. The Company's authorized repurchase limit remains at $50 million.



In 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
weigh our share repurchase options against cash for acquisitions and investing
in the business. We do not anticipate any borrowing requirements in 2021 for
general corporate purposes.




Full Year 2020 Financial Summary

? Diluted earnings per share: $1.36 for 2020 compared to $1.32 for 2019;

? Consolidated revenue: $586.4 million for 2020 compared to $617.9 million for

2019;

? Cloud subscription revenue: $79.8 million for 2020 compared to $46.8 million

for 2019;

? License revenue: $38.3 million for 2020 compared to $48.9 million for 2019;

? Operating income: $114.1 million for 2020 compared to $115.9 million for 2019;

? Operating margins: 19.5% for 2020 compared to operating margins of 18.8% for

2019;

? Cash flow from operations: $140.9 million for 2020 compared to $146.9 million

for 2019;

? Cash and investments: $204.7 million at December 31, 2020 compared to $110.7


    million at December 31, 2019; and


  ? Share repurchases: During the three months ended March 31, 2020, we

repurchased 337,007 shares of Manhattan Associates' outstanding common stock

for approximately $25.0 million under the share repurchase program approved by

our Board of Directors. In April 2020, the Company suspended its share

repurchase program because of COVID-19-related considerations. Accordingly,

during the second, third and fourth quarters of 2020, the Company did not

repurchase any shares of Manhattan Associates common stock under the share

repurchase program. In January 2021, our Board of Directors authorized the

Company to repurchase up to an aggregate of $50 million of the Company's


    common stock.


Results of Operations

In the following table, we present a selection of certain Statement of Income data for 2020, 2019 and 2018. With our transition to and growth in cloud subscriptions, which began in 2017, we believe separate disclosures of our software license, cloud subscriptions, maintenance and services revenue is meaningful to investors and provides an important measure of our business performance.



                                                            Year Ended December 31,
                                                                                 % Change vs. Prior Year
                                   2020          2019          2018            2020                   2019
                                           (in thousands)
Revenue:
Cloud subscriptions              $  79,830     $  46,831     $  23,104         70%                    103%
Software license                    38,284        48,855        45,368         -22%                    8%
Maintenance                        147,748       149,230       147,033         -1%                     1%
Services                           303,569       360,516       329,685         -16%                    9%
Hardware                            16,941        12,517        13,967         35%                    -10%
Total revenue                      586,372       617,949       559,157         -5%                    11%
Costs and expenses:
Cost of software license             2,894         2,626         5,297         10%                    -50%
Cost of cloud subscriptions,
maintenance and services           266,993       282,341       235,584         -5%                    20%
Research and development            84,276        87,608        71,896         -4%                    22%
Sales and marketing                 47,758        56,860        51,262         -16%                   11%

General and administrative 61,444 64,603 52,618

    -5%                    23%

Depreciation and amortization 8,946 7,987 8,613


   12%                    -7%
Total costs and expenses           472,311       502,025       425,270         -6%                    18%
Income from operations           $ 114,061     $ 115,924     $ 133,887         -2%                    -13%
Operating margin                      19.5 %        18.8 %        23.9 %


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We have three geographic reportable segments: the Americas, EMEA, and APAC.
Geographic revenue information is based on the location of sale. The revenues
represented below are from external customers only. The geography-based expenses
include costs of personnel, direct sales, marketing expenses, and general and
administrative costs to support the business. There are certain corporate
expenses included in the Americas segment that we do not charge to the other
segments including 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 our
operations in India. During 2020, 2019, or 2018, we derived the majority of our
revenues from sales to customers within our Americas segment. In the following
table, we present a summary of revenue and operating profit by segment:



                                                         Year Ended December 31,
                                                                           

% Change vs. Prior Year


                               2020           2019           2018            2020                    2019
Revenue:                                 (in thousands)
Cloud subscriptions
Americas                    $   69,469     $   40,927     $   20,611          70%                     99%
EMEA                             8,465          4,762          2,075          78%                    129%
APAC                             1,896          1,142            418          66%                    173%

Total cloud subscriptions 79,830 46,831 23,104


  70%                    103%

Software license
Americas                        30,509         34,544         28,423         -12%                     22%
EMEA                             4,308         11,518         11,406         -63%                     1%
APAC                             3,467          2,793          5,539          24%                    -50%
Total software license          38,284         48,855         45,368         -22%                     8%

Maintenance
Americas                       116,309        118,891        117,489          -2%                     1%
EMEA                            22,208         21,322         20,933          4%                      2%
APAC                             9,231          9,017          8,611          2%                      5%
Total maintenance              147,748        149,230        147,033          -1%                     1%

Services
Americas                       232,954        283,008        265,165         -18%                     7%
EMEA                            58,360         60,618         50,328          -4%                     20%
APAC                            12,255         16,890         14,192         -27%                     19%
Total services                 303,569        360,516        329,685         -16%                     9%

Hardware
Americas                        16,698         12,464         13,798          34%                    -10%
EMEA                               241             53              2         355%                    2550%
APAC                                 2              -            167          NA                     -100%
Total hardware                  16,941         12,517         13,967          35%                    -10%

Total Revenue
Americas                       465,939        489,834        445,486          -5%                     10%
EMEA                            93,582         98,273         84,744          -5%                     16%
APAC                            26,851         29,842         28,927         -10%                     3%
Total revenue               $  586,372     $  617,949     $  559,157          -5%                     11%

Operating income:
Americas                    $   81,109     $   78,624     $   97,529          3%                     -19%
EMEA                            24,637         26,934         26,437          -9%                     2%
APAC                             8,315         10,366          9,921         -20%                     4%
Total operating income      $  114,061     $  115,924     $  133,887          -2%                    -13%



The consolidated results of our operations for the years ended December 31, 2020, 2019 and 2018 are discussed below.


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Revenue

Our revenue consists of fees generated from cloud subscriptions, software licensing, maintenance, professional services, and hardware sales.





                                                                 Year Ended December 31,
                                                                    % Change vs. Prior Year                % of Total Revenue
                        2020          2019          2018           2020                2019           2020        2019        2018
                                 (in thousands)
Cloud subscriptions   $  79,830     $  46,831     $  23,104              70 %               103 %         14 %         8 %         4 %
Software license         38,284        48,855        45,368             -22 %                 8 %          6 %         8 %         8 %
Maintenance             147,748       149,230       147,033              -1 %                 1 %         25 %        24 %        26 %
Services                303,569       360,516       329,685             -16 %                 9 %         52 %        58 %        59 %
Hardware                 16,941        12,517        13,967              35 %               -10 %          3 %         2 %         3 %
Total revenue         $ 586,372     $ 617,949     $ 559,157              -5 %                11 %        100 %       100 %       100 %

Cloud Subscriptions Revenue

Year 2020 compared with year 2019



In 2017, we released Manhattan Active™ Solutions accelerating our business
transition to cloud subscriptions. As a result, cloud subscriptions revenue
increased $33.0 million to $79.8 million in 2020 compared to 2019 as customers
continue 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
$28.5 million, $3.7 million and $0.8 million, respectively.

Year 2019 compared with year 2018



Cloud subscriptions revenue increased $23.7 million to $46.8 million in 2019
compared to 2018 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 $20.3 million, $2.7 million and $0.7 million,
respectively.

Software License Revenue

Year 2020 compared with year 2019



Software license revenue decreased $10.6 million to $38.3 million in 2020
compared to 2019 as customers continue to purchase our SaaS offerings rather
than a traditional perpetual license. Our license revenue performance depends on
the number and relative value of large deals we close in the period. License
revenue for the Americas and EMEA segments decreased $4.0 million and $7.2
million, respectively, and license revenue for the APAC segment increased $0.6
million, in 2020 over 2019.

The perpetual license sales percentage mix across our product suite in 2020 was approximately 80% warehouse management solutions.

Year 2019 compared with year 2018



Software license revenue increased $3.5 million to $48.9 million in 2019
compared to 2018. License revenue for the Americas and EMEA segments increased
$6.1 million and $0.1 million, respectively, and license revenue for the APAC
segment decreased $2.7 million, in 2019 over 2018.

The perpetual license sales percentage mix across our product suite in 2019 was approximately 80% warehouse management solutions.


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Maintenance Revenue

Year 2020 compared with year 2019



Maintenance revenue decreased $1.5 million in 2020 compared to 2019. Maintenance
revenue for the Americas segments decreased $2.6 million, while the EMEA and
APAC segments increased $0.9 million and $0.2 million compared to 2019,
respectively.

Year 2019 compared with year 2018



Maintenance revenue increased $2.2 million in 2019 compared to 2018 primarily
due to (1) an increase in the first-year maintenance revenue; (2) our annual
renewal rate of customers subscribing to maintenance, which was greater than
90%; and (3) increases in the maintenance renewal prices. Maintenance revenue
for the Americas, EMEA and APAC segments increased $1.4 million, $0.4 million
and $0.4 million, respectively, compared to 2018.


Services Revenue

Year 2020 compared with year 2019



Services revenue decreased $56.9 million in 2020 compared to 2019. The Americas,
EMEA and APAC segments decreased $50.0 million, $2.3 million and $4.6 million,
respectively, compared to 2019. The decline in services revenue was primarily
due to some customers delaying project implementation and upgrades as a result
of the COVID-19 pandemic.

Year 2019 compared with year 2018



Services revenue increased $30.8 million in 2019 compared to 2018. The Americas,
EMEA and APAC segments increased $17.8 million, $10.3 million and $2.7 million,
respectively, compared to 2018.

Hardware Revenue



Hardware revenue, net increased $4.4 million in 2020 compared to 2019. Hardware
revenue, net decreased $1.5 million in 2019 compared to 2018. The majority of
hardware sales are derived from our Americas segment. Sales of hardware are
largely dependent upon customer-specific desires, which fluctuate.

Cost of Revenue



                                                            Year Ended December 31,
                                                                                 % Change vs. Prior Year
                                   2020          2019          2018            2020                   2019
                                            (in thousands)

Cost of software license         $   2,894     $   2,626     $   5,297         10%                    -50%
Cost of cloud subscriptions,
maintenance and services           266,993       282,341       235,584         -5%                    20%
Total cost of revenue            $ 269,887     $ 284,967     $ 240,881         -5%                    18%

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. In 2020, cost of license increased by $0.3 million, compared to 2019.
In 2019, cost of software license decreased $2.7 million compared to 2018
principally due to a $1.7 million decrease in third-party software license fees
and a $1.0 million decrease in royalty costs.

Cost of Cloud Subscriptions, Maintenance and Services

Year 2020 compared with year 2019



Cost of cloud subscriptions, maintenance and services consists 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 $15.3 million decrease in 2020 compared to 2019 was
principally due to a $18.7 million decrease in travel expense, a $7.4 million

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decrease in performance-based compensation expense and a $0.7 million decrease
in facilities expense, offset by a $6.1 million increase in compensation and
other personnel-related expense, and a $7.0 million increase in computer
infrastructure costs related to cloud business transition.



Year 2019 compared with year 2018



The $46.8 million increase in 2019 compared to 2018 was principally due to a
$25.8 million increase in compensation and other personnel-related expense
resulting from increased headcount in cloud operations and professional
services, a $9.4 million increase in performance-based compensation expense, and
a $8.5 million increase in computer infrastructure costs related to cloud
business transition.

Operating Expenses



                                                                   Year Ended December 31,
                                                                                        % Change vs. Prior Year
                                            2020          2019          2018           2020                 2019
                                                     (in thousands)

Research and development                  $  84,276     $  87,608     $  71,896        -4%                  22%
Sales and marketing                          47,758        56,860        51,262        -16%                 11%
General and administrative                   61,444        64,603        52,618        -5%                  23%
Depreciation and amortization                 8,946         7,987         8,613        12%                  -7%
Operating expenses                        $ 202,424     $ 217,058     $ 184,389        -7%                  18%


Research and Development

Our principal research and development (R&D) activities during 2020, 2019 and
2018 focused on the expansion and integration of new products and releases,
while expanding the product footprint of our software solution suites in Supply
Chain, Inventory Optimization and Omnichannel including cloud-based solutions,
point-of-sale and tablet retailing.

For 2020, 2019 and 2018, 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.

Year 2020 compared with year 2019



R&D expenses primarily consist of salaries and other personnel-related costs for
personnel involved in our research and development activities. Research and
development expenses in 2020 decreased by $3.3 million compared to 2019. This
decrease is principally due to a $2.0 million decrease in performance-based
compensation expense, and a $1.1 million decrease in travel related expense.

Year 2019 compared with year 2018



Research and development expenses in 2019 increased by $15.7 million compared to
2018. This increase is primarily due to a $10.6 million increase in compensation
and other personnel-related expenses, $3.0 million increase in performance-based
compensation expense, and $1.7 million increase in computer infrastructure
costs, resulting from increased headcount to support R&D activities.

Sales and Marketing

Year 2020 compared with year 2019



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 decreased by $9.1 million in
2020 compared to 2019, primarily due to a $3.1 million decrease in marketing and
campaign programs, a $2.7 million decrease in performance-based compensation
expense, and a $2.6 million decrease in travel expenses.

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Year 2019 compared with year 2018



Sales and marketing expenses increased $5.6 million in 2019 compared to 2018,
primarily due to a $4.9 million increase in performance-based compensation
expense and a $2.5 million increase in compensation and other personnel-related
expenses, offset by a $1.9 million decrease in marketing related expenses.

General and Administrative

Year 2020 compared with year 2019



General and administrative 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. General and
administrative expenses decreased $3.2 million in 2020 primarily due to a $1.5
million decrease in performance-based compensation expense, a $0.5 million
decrease in compensation and other personnel-related expenses, and a $0.5
million decrease in corporate event-related expenses.

Year 2019 compared with year 2018



   General and administrative expenses increased $12.0 million in 2019 primarily
attributable to a $8.9 million increase in compensation and other
personnel-related expenses resulting from increased headcount, a $1.9 million
increase in performance-based compensation expense, and a $1.1 million increase
in computer infrastructure costs.

Depreciation and Amortization



Depreciation and amortization of intangibles and software expense amounted to
$8.9 million, $8.0 million, and $8.6 million in 2020, 2019 and 2018,
respectively. Amortization of intangibles was immaterial in 2020, 2019 and 2018.
We have recorded goodwill and other acquisition-related intangible assets as
part of the purchase accounting associated with various acquisitions.

Operating Income



Operating income in 2020 decreased $1.8 million to $114.1 million, compared to
$115.9 million for 2019. Operating margins were 19.5% for 2020 versus 18.8% for
2019. Operating income has decreased due to lower services revenue as we noticed
some delays as a result of the COVID-19 pandemic. In 2020, operating income in
the Americas segment increased by $2.5 million, and decreased in the EMEA and
APAC segments by $2.3 million and $2.0 million, respectively.

Operating income in 2019 decreased $18.0 million to $115.9 million, compared to
$133.9 million for 2018. Operating margins were 18.8% for 2019 versus 23.9% for
2018. Operating income and margin decreased primarily due to our commitment to
strategically invest in a business transition to a cloud first company focused
on delivering long-term sustainable growth and earnings leverage. As a result,
we are investing significantly in R&D to deliver new innovation, cloud
operations headcount, infrastructure and technology to support our ability to
scale our cloud business to achieve our growth objectives. In addition, our
innovation releases have fueled strong demand for our global consulting services
and we are actively hiring to fulfill customer demand, which pressures operating
income and margins until new resources ramp to full utilization. Finally, our
performance-based compensation expense has increased over the prior year based
on strong execution against target objectives. In 2019, operating income in the
Americas segment decreased by $18.9 million and remained relatively flat in the
EMEA and APAC segments.

Other Income and Income Taxes





                                                 Year Ended December 31,
                                                                     % Change vs. Prior Year
                             2020         2019         2018         2020                2019

Other (loss) income, net   $   (285 )   $    153     $  2,344       -286%               -93%
Income tax provision         26,536       30,315       31,541       -12%                 -4%


Other (Loss) Income, net

Other (loss) income, net primarily includes interest income, foreign currency
gains and losses, and other non-operating expenses. Interest income was $0.1
million, $0.7 million and $1.1 million for 2020, 2019 and 2018, respectively.
The weighted-average interest rate earned on cash and investments was immaterial
for 2020, 2019 and 2018. We recorded net foreign currency losses of $0.4 million
and $1.0 million in 2020 and 2019, respectively, and a net foreign currency gain
of $1.3 million in 2018. The foreign currency gains

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and losses mainly resulted from 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 Euro and the
Indian Rupee.

Income Tax Provision

Our effective income tax rates were 23.3%, 26.1%, and 23.2% in 2020, 2019 and
2018, respectively. Our effective income tax rate takes into account the source
of taxable income, domestically by state and internationally by country, and
available income tax credits.

The effective tax rate in 2020 decreased from 2019 is mainly due to an increase
of excess tax benefits on restricted stock vesting and a decrease in expense for
tax contingencies.  These benefits were partially offset by a net increase in
non-deductible equity-based compensation.

The effective income tax rate in 2019 increased from 2018 mainly due to an increase in tax contingencies and a decrease in excess tax benefits on restricted stock vesting.

The income tax provision for 2020, 2019 and 2018 included excess tax benefits of $3.8 million, $0.2 million, and $0.8 million on vesting of restricted stock.

Liquidity and Capital Resources



During 2020, 2019 and 2018, we funded our business through cash generated from
operations. Our cash and investments as of December 31, 2020 included $167.0
million held in the U.S. and $37.7 million held by our foreign subsidiaries. We
believe that our cash balances in the U.S. are sufficient to fund our U.S.
operations, and we do not intend to further repatriate foreign funds to the U.S.
In the future, if we elect to repatriate the unremitted earnings of our foreign
subsidiaries, we would no longer be subject to additional U.S. income taxes on
such earnings due to the enactment of the Tax Cuts and Jobs Act in December
2017, but we could be subject to additional local withholding taxes.

Cash flow from operating activities totaled $140.9 million, $146.9 million, and
$137.3 million in 2020, 2019 and 2018, 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
2020 decreased $6.0 million compared to 2019, which is mainly due to an increase
in employee bonus payments and the timing of cash collections, partially offset
by a decrease in income tax payments. Cash flow from operating activities for
2019 increased $9.6 million compared to 2018 primarily attributable to the
timing of cash collections and income tax payments. Days sales outstanding was
68, 61 and 64 at December 31, 2020, 2019 and 2018, respectively, reflecting
solid cash collections.

Investing activities used cash of approximately $2.7 million, $13.8 million, and
$9.8 million in 2020, 2019 and 2018, respectively. Our investing activities for
2020, 2019 and 2018 consisted of capital spending to support company growth and
short-term investing. For 2020, 2019 and 2018, capital expenditure was $2.7
million, $15.2 million, and $7.3 million, respectively. Net investment proceeds
in 2019 was $1.4 million. Net investment purchases in 2018 was $2.5 million.

Financing activities used cash of approximately $43.6 million, $121.5 million,
and $149.3 million in 2020, 2019 and 2018, respectively. The principal use of
cash for financing activities in 2020, 2019 and 2018 was to purchase our common
stock, including shares withheld for taxes due upon vesting of restricted stock.
Repurchases of our common stock for 2020, 2019 and 2018 totaled $43.6 million,
$121.5 million, and $149.3 million, respectively, including shares withheld for
taxes of $18.6 million, $5.6 million and $6.0 million, respectively. We
suspended the share repurchase program, effective April 1, 2020, to position our
Company for uncertainty in the near-term as a result of the COVID-19 pandemic.
In January 2021, our Board of Directors authorized the Company to repurchase up
to an aggregate of $50 million of the Company's common stock

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 and investments 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 COVID-19 impact, we are
focused on preserving liquidity and protecting our headcount capacity to support
our customers and grow our business when global economic activity begins to
recover. In 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 growing 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 in 2021 for general corporate purposes.

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New Accounting Pronouncements Adopted in Fiscal Year 2020

Credit Impairment



In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting
Standard Update (ASU) No. 2016-13, Financial Instruments-Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments, which requires the
measurement and recognition of expected credit losses for financial assets held
at amortized cost, including trade receivables. ASU No. 2016-13 replaces the
existing incurred loss impairment model with an expected loss model that
requires the use of forward-looking information to calculate credit loss
estimates. This guidance is effective for annual reporting periods beginning
after December 15, 2019, with early adoption permitted.

On January 1, 2020, we adopted ASU 2016-13 using the modified retrospective
method applied for all financial assets measured at amortized cost. Our analysis
involved utilizing a model of internal historical losses data. In estimating the
allowance for credit losses, we considered the age of the accounts receivable,
our historical write-offs, and the historical creditworthiness of the customer,
among other factors. Should any of these factors change, the estimates made by
us will also change accordingly, which could affect the level of our future
allowances. We also analyzed future expected credit losses given ever present
changes to future risks in projected economic conditions and future risks of
customer collection. The net impact of the adoption of ASU 2016-13 was
immaterial on our consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

Income Taxes



In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes. The new guidance eliminates certain
exceptions related to the approach for intraperiod tax allocation, the
methodology for calculating taxes during the quarters and the recognition of
deferred tax liabilities for outside basis differences. This guidance also
simplifies aspects of the accounting for franchise taxes and changes in tax laws
or rates, as well as clarifies the accounting for transactions that result in a
step-up in the tax basis of goodwill. ASU 2019-12 is effective for the Company
beginning January 1, 2021, with early adoption permitted. It would require us to
recognize a cumulative effect adjustment to the opening balance of reinvested
earnings, if applicable. We do not expect our adoption of this guidance to have
a material impact on our consolidated financial statements.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations



Our principal commitments as of December 31, 2020 consist of obligations under
operating leases. As we continue our business transition to a cloud subscription
model, we have entered into multiple non-cancellable contracts for cloud
infrastructure services. As of December 31, 2020, our cloud infrastructure
obligations are approximately $68.0 million over the next 5 years. We also enter
into non-cancellable subscriptions in the ordinary course of business for
internal software to support our operations. Our obligations, as of December 31,
2020, are approximately $6.9 million over the next 3 years. We expect to fulfill
all of these commitments from our working capital. We have no off-balance sheet
arrangements within the meaning of the rules of the Securities and Exchange
Commission.

Lease Commitments



We lease our facilities and some of our equipment under noncancelable operating
lease arrangements that expire at various dates through 2029. Rent expense for
these leases aggregated $7.9 million, $8.4 million, and $7.1 million during
2020, 2019 and 2018, respectively.

In the following table, we present a summary of our contractual commitments as of December 31, 2020 (in thousands):



                 Total       2021       2022       2023       2024       2025     Thereafter
Operating
Lease
Obligations      $39,981     $7,034     $6,437     $6,594     $6,384     $5,488       $8,044




Indemnities

Our customer contracts generally contain infringement indemnity provisions.
Under those provisions, we generally agree, subject to certain exceptions, to
indemnify, defend, and hold harmless the customer in connection with third party
claims against the customer alleging that the customer's use of our software
products in compliance with their license infringe the third party's patent,
copyright, or other intellectual property rights. Conditions to our obligations
generally include that we are provided the right to control the defense of the
claims and, in general, to control settlement negotiations. Those provisions
generally provide also that, if the customer

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is prevented from using our software because of a third party infringement
claim, our sole obligation (in addition to the indemnification, defense, and
hold harmless obligation referred to above) is to, at our expense, (i) procure
for the customer the right to continue to use the software, (ii) to replace or
modify the product so that its use by the customer does not infringe, or, if
either of the foregoing are not reasonably feasible, to terminate the customer
contract and provide a refund of the unamortized portion of the customer's
license fee (based on a five year amortization period). Our customer contracts
sometimes also require us to indemnify, defend, and hold harmless the customer
in connection with death, personal injury, or property damage claims made by
third parties with respect to actions of our personnel or contractors. The
indemnity obligations contained in our customer contracts generally have no
specified expiration date and no specified monetary limitation on liability. We
have not previously incurred costs to settle claims or pay awards under these
indemnification obligations. We account for these indemnity obligations in
accordance with the FASB guidance on accounting for contingencies, and record a
liability for these obligations when a loss is probable and reasonably
estimable. We have not recorded any liabilities for these contracts as of
December 31, 2020.

Warranties



In general, in our customer software license contracts, we warrant to our
customers that our software products will perform in all material respects in
accordance with our standard published specifications in effect at the time of
delivery of the licensed products to the customer for six months after first use
of the licensed products, but no more than 24 months after execution of the
license agreement. We also generally warrant in our cloud subscription
agreements that we will perform the Cloud services in all material respects as
defined in the agreement during the service period. Additionally, we warrant to
our customers that our services will be performed consistent with generally
accepted industry standards or specific service levels through completion of the
agreed upon services. If necessary, we would provide for the estimated cost of
product and service warranties based on specific warranty claims and claims
history. However, we have not incurred significant recurring expense under our
product or service warranties. As a result, we believe the estimated fair value
of these agreements is nominal. Accordingly, we have no liabilities recorded for
these agreements as of December 31, 2020.



Application of Critical Accounting Policies and Estimates



The SEC defines "critical accounting policies" as those that require application
of management's most difficult, subjective, or complex judgments, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain and may change in subsequent periods.

Our Consolidated Financial Statements are prepared in accordance with U.S. GAAP.
The preparation of financial statements in conformity with GAAP requires us to
make estimates and assumptions in certain circumstances that affect amounts
reported in the accompanying consolidated financial statements and related
footnotes. We believe that the estimates, judgments, and assumptions upon which
we rely are reasonable based on information available to us at the time that
these estimates, judgments, and assumptions are made. To the extent there are
material differences between those estimates, judgments, or assumptions and
actual results, our financial statements will be affected. The accounting
policies that reflect our more significant estimates, judgments, and assumptions
are: Revenue Recognition and Accounting for Income Taxes.

Revenue Recognition



We recognize revenue when we transfer control of the promised products or
services to our customers, in an amount that reflects the consideration we
expect to be entitled to in exchange for those products or services. We derive
our revenue from software licenses, cloud subscriptions, customer support
services and software enhancements ("maintenance"), implementation and training
services, and sales of hardware. We exclude sales and usage-based taxes from
revenue.

Nature of Products and Services



Our perpetual software licenses provide the customer with a right to use the
software as it exists at the time of purchase. We recognize revenue for distinct
software licenses once the license period has begun and we have made the
software available to the customer.

Cloud subscriptions includes software as a service and arrangements which
provide customers with the right to use our software within a cloud-based
environment that we provide and manage where the customer does not have the
right to take possession of the software without significant penalty. SaaS and
hosting revenues are recognized ratably over the contract period. For contracts
that include a perpetual license and hosting services, we generally consider the
arrangement as an overall service, recognized over the initial hosting term. The
software license fee typically due at the outset of the arrangement is not
payable again if the customer renews the hosting services, so that the
customer's option to renew the hosting services is a material right, the revenue
from which, if the option is exercised, we will recognize over the applicable
renewal period.

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Our perpetual software licenses are typically sold with maintenance under which
we provide a comprehensive 24 hours per day, 365 days per year program that
provides customers with software upgrades, when and if available, which include
additional or improved functionality and technological advances incorporating
emerging supply chain and industry initiatives. Revenue related to maintenance
is generally paid in advance and recognized ratably over the term of the
agreement, typically twelve months.

Our services revenue consists of fees generated from implementation, training
and application managed services, including reimbursements of out-of-pocket
expenses in connection with our implementation services. Implementation services
include system planning, design, configuration, testing, and other software
implementation support, and are typically optional and distinct from our
software. Following implementation, customers may purchase application managed
services to support and maintain our software. Fees for our services are
separately priced and are generally billed on an hourly basis, and revenue is
recognized over time as the services are performed. In certain situations, we
render professional services under agreements based upon a fixed fee for
portions of or all of the engagement. Revenue related to fixed-fee-based
services contracts is recognized over time based on the proportion performed.

As part of a complete solution, our customers periodically purchase hardware
products developed and manufactured by third parties from us for use with the
software licenses purchased from us. These products include computer hardware,
radio frequency terminal networks, RFID chip readers, bar code printers and
scanners, and other peripherals. As we do not physically control the hardware
which we sell, we are acting as an agent in the transaction and recognize our
hardware revenue net of the related costs. We recognize hardware revenue when
control is transferred to the customer upon shipment.

Significant Judgements



Our contracts with customers typically contain promises to transfer multiple
products and services to a customer. Judgement is required to determine whether
each product and service is considered to be a distinct performance obligation
that should be accounted for separately under the contract. We allocate the
transaction price to the distinct performance obligations based on relative
standalone selling price ("SSP"). We estimate SSP based on the prices charged to
customers, or by using information such as market conditions and other
observable inputs. However, the selling price of our software licenses is highly
variable. Thus, we estimate SSP for software licenses using the residual
approach, determined based on total transaction price less the SSP of other
goods and services promised in the contract.

Contract Balances



Timing of invoicing to customers may differ from timing of revenue recognition.
Payment terms for our software licenses vary. We have an established history of
collecting under the terms of our software license contracts without providing
refunds or concessions to our customers. Cloud subscriptions and maintenance are
typically billed annually in advance. Services are typically billed monthly as
performed. In instances where the timing of revenue recognition differs from the
timing of invoicing, we have determined that our contracts generally do not
include a significant financing component. The primary purpose of our invoicing
terms is to provide customers with predictable ways to purchase our software and
services, not to provide or receive financing. Additionally, we are applying the
practical expedient to exclude from consideration any contracts with payment
terms of one year or less as we rarely offer terms extending beyond one year.

Deferred revenue mainly represents amounts collected prior to having completed performance of maintenance, cloud subscriptions and professional services.

Accounting for Income Taxes



We provide for the effect of income taxes on our financial position and results
of operations in accordance with the Income Taxes Topic of the ASC. Under this
accounting pronouncement, income tax expense is recognized for the amount of
income taxes payable or refundable for the current year and for the change in
net deferred tax assets or liabilities resulting from events that are recorded
for financial reporting purposes in a different reporting period than recorded
in the tax return. Management must make significant assumptions, judgments, and
estimates to determine our current provision for income taxes and also our
deferred tax assets and liabilities and any valuation allowance to be recorded
against our net deferred tax asset.

Our judgments, assumptions, and estimates relative to the current provision for
income tax take into account current tax laws, our interpretation of current tax
laws, allowable deductions, projected tax credits, and possible outcomes of
current and future audits conducted by foreign and domestic tax authorities. We
do not recognize a tax benefit unless we conclude that it is more likely than
not that the benefit will be sustained on audit by the taxing authority based
solely on the technical merits of the associated tax position. If the
recognition threshold is met, we recognize a tax benefit measured at the largest
amount of the tax benefit that, in our judgment, is greater than 50 percent
likely to be realized. Changes in tax law or our interpretation of tax laws and
the resolution of current and future tax audits could significantly impact the
amounts provided for income taxes in our statement of financial position and our
statements of income. Our assumptions, judgments, and estimates relative to the
value of our net deferred tax asset take into account

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predictions of the amount and category of future taxable income. Actual operating results and the underlying amount and category of income in future years could render our current assumptions, judgments, and estimates of recoverable net deferred taxes inaccurate, thus materially impacting our financial position and results of operations.

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