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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
Commission File Number: 0-23999
MANHATTAN ASSOCIATES, INC.
(Exact Name of Registrant as Specified in Its Charter)
GEORGIA 58-2373424
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2300 WINDY RIDGE PARKWAY, SUITE 700 30339
ATLANTA, GEORGIA (Zip Code)
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 955-7070
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
The number of shares of the issuer's class of capital stock as of August 12,
1998, the latest practicable date, is as follows: 23,706,674 shares of Common
Stock, $0.01 par value per share.
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1
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MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Page
----
ITEM 1. FINANCIAL STATEMENTS.
Condensed Consolidated Balance Sheets as of June 30, 1998
(unaudited) and December 31, 1997.................................. 3
Condensed Consolidated Statements of Income for the three months
ended June 30, 1998 and 1997 (unaudited) and for the six months
ended June 30, 1998 and 1997 (unaudited)........................... 4
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and 1997 (unaudited)........................... 5
Notes to Condensed Consolidated
Financial Statements (unaudited)................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................... 10
PART II
OTHER INFORMATION
Item 1. Legal Proceedings................................................... 17
Item 2. Changes in Securities and Use of Proceeds........................... 17
Item 3. Defaults Upon Senior Securities..................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................. 17
Item 5. Other Information................................................... 17
Item 6. Exhibits and Reports on Form 8-K.................................... 18
Signatures.................................................................. 19
2
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................................... $36,107 $ 3,194
Accounts receivable, net of allowance for doubtful accounts of $1,013 and
$970 at June 30, 1998 and December 31, 1997, respectively.................... 14,735 9,242
Prepaid expenses and other current assets..................................... 722 384
------- -------
Total current assets....................................................... 51,564 12,820
Property and equipment, net..................................................... 4,559 1,943
Intangible and other assets..................................................... 1,498 243
------- -------
Total assets............................................................... $57,621 $15,006
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities...................................... $ 5,846 $ 3,687
Note payable to stockholder................................................... -- 1,019
Deferred revenue.............................................................. 3,004 1,846
------- -------
Total current liabilities.................................................. 8,850 6,552
Stockholders' equity:
Preferred stock, no par value; 20,000,000 shares authorized, no shares
issued or outstanding at June 30, 1998 and December 31, 1997................. -- --
Common stock, $.01 par value; 100,000,000 shares authorized, 23,706,674 and
20,000,008 shares issued and outstanding at June 30, 1998 and
December 31, 1997, respectively.............................................. 237 200
Additional paid-in capital.................................................... 51,352 1,459
Retained earnings (accumulated deficit)....................................... (1,674) 7,458
Deferred compensation......................................................... (1,144) (663)
------- -------
Total stockholders' equity................................................. 48,771 8,454
------- -------
Total liabilities and stockholders' equity............................... $57,621 $15,006
======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
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ITEM 1. FINANCIAL STATEMENTS (continued)
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- --------------------------------
1998 1997 1998 1997
-------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenue:
Software license..................................... $ 2,849 $ 1,833 $ 5,001 $ 3,327
Services............................................. 7,169 3,466 12,453 5,975
Hardware............................................. 4,076 2,469 8,010 4,710
------- ------- ------- -------
Total revenue........................................ 14,094 7,768 25,464 14,012
Cost of revenue:
Software license..................................... 171 105 240 194
Services............................................. 3,377 1,326 5,896 2,309
Hardware............................................. 2,924 1,953 6,004 3,597
------- ------- ------- -------
Total cost of revenue............................. 6,472 3,384 12,140 6,100
------- ------- ------- -------
Gross margin........................................... 7,622 4,384 13,324 7,912
Operating expenses:
Research and development............................. 1,937 662 3,222 1,090
Acquired research and development.................... -- -- 1,602 --
Sales and marketing.................................. 2,008 913 3,321 1,420
General and administrative........................... 1,370 589 2,497 987
------- ------- ------- -------
Total operating expenses.......................... 5,315 2,164 10,642 3,497
------- ------- ------- -------
Operating income....................................... 2,307 2,220 2,682 4,415
Other income, net...................................... 278 16 292 39
------- ------- ------- -------
Income before income taxes............................. 2,585 2,236 2,974 4,454
Income tax expense (benefit)
Tax provision as a `C' Corporation.................... 702 -- 702 --
Deferred tax adjustment............................... (316) -- (316) --
------- ------- ------- -------
Historical net income.................................. $ 2,199 $ 2,236 $ 2,588 $ 4,454
======= ======= ======= =======
Historical basic net income per share.................. $ 0.10 $ 0.11 $ 0.12 $ 0.22
======= ======= ======= =======
Historical diluted net income per share................ $ 0.09 $ 0.11 $ 0.11 $ 0.22
======= ======= ======= =======
Income before pro forma income taxes................... 2,585 2,236 2,974 4,454
Pro forma income taxes................................. 904 811 1,617 1,615
------- ------- ------- -------
Pro forma net income................................... $ 1,681 $ 1,425 $ 1,357 $ 2,839
======= ======= ======= =======
Pro forma basic net income per share................... $ 0.07 $ 0.07 $ 0.06 $ 0.14
======= ======= ======= =======
Pro forma diluted net income per share................. $ 0.07 $ 0.07 $ 0.06 $ 0.14
======= ======= ======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
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ITEM 1. FINANCIAL STATEMENTS (continued)
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------------
1998 1997
------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Pro forma net income................................................. $ 1,357 $ 2,839
Adjustments to reconcile pro forma net income to net cash provided
by operating activities:
Pro forma income taxes.............................................. 1,231 1,615
Depreciation and amortization....................................... 584 185
Stock compensation.................................................. 124 75
Acquired research and development................................... 1,602 --
Deferred income taxes............................................... (386) --
Accrued interest on note payable to stockholder..................... 34 25
Changes in operating assets and liabilities:
Accounts receivable, net........................................... (5,399) (2,541)
Other assets....................................................... (24) --
Accounts payable and accrued liabilities........................... 1,741 621
Deferred revenue................................................... 953 247
-------- -------
Net cash provided by operating activities............................. 1,817 3,066
INVESTING ACTIVITIES:
Purchase of property and equipment.................................... (3,039) (534)
Payments in connection with the acquisition of Performance Analysis
Corporation, net of cash acquired................................... (1,351) --
-------- -------
Net cash used in investing activities................................. (4,390) (534)
FINANCING ACTIVITIES:
Distributions to stockholders......................................... (11,720) (4,049)
Borrowings under note payable to stockholder.......................... 900 --
Repayment of note payable to stockholder.............................. (1,953) --
Proceeds from issuance of common stock................................ 48,259 --
-------- -------
Net cash provided by (used in) financing activities................... 35,486 (4,049)
-------- -------
Net increase (decrease) in cash and cash equivalents.................. 32,913 (1,517)
Cash and cash equivalents at beginning of period...................... 3,194 3,199
-------- -------
Cash and cash equivalents at end of period............................ $ 36,107 $ 1,682
======== =======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Issuance of common stock in connection with acquisition of
Performance Analysis Corporation.................................... $ 1,067 $ --
======== =======
Cash paid for income taxes............................................ $ 839 $ --
======== =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the Company's management,
these consolidated financial statements contain all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation of the
financial position at June 30, 1998, the results of operations for the three
month and six month periods ended June 30, 1998 and 1997 and changes in cash
flows for the six month periods ended June 30, 1998 and 1997. The interim
results for the three month and six month periods ended June 30, 1998 are not
necessarily indicative of the results to be expected for the full year. These
statements should be read in conjunction with the Company's financial statements
for the year ended December 31, 1997, as filed in its Prospectus dated April 23,
1998.
2. PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
3. COMPLETION OF INITIAL PUBLIC OFFERING AND CONVERSION
On April 23, 1998, the Company completed its initial public offering (the
"Offering") of its $.01 par value per share common stock (the "Common Stock").
The Company sold 3,500,000 shares of Common Stock, excluding 525,000 shares sold
by certain selling stockholders as part of the underwriters' over-allotment, for
$52,500,000 less issuance costs of approximately $5,242,000.
In connection with the Offering, the assets and liabilities of Manhattan
Associates, LLC ("Manhattan LLC") were contributed to the Company in exchange
for Common Stock of the Company (the "Conversion"). Manhattan LLC then
distributed the Common Stock of the Company received to its stockholders. Prior
to the completion of the Offering, Manhattan LLC distributed all undistributed
earnings, calculated on a tax basis, to the stockholders of Manhattan LLC. The
amount distributed subsequent to December 31, 1997 and prior to completion of
the Offering was approximately $11,720,000.
6
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4. REVENUE RECOGNITION
Effective January 1, 1998, the Company adopted Statement of Position No.
97-2, "Software Revenue Recognition" ("SOP 97-2"), that supersedes Statement of
Position No. 91-1, "Software Revenue Recognition." Under SOP 97-2, the Company
recognizes software license revenue when the following criteria are met: (1) a
signed contract is obtained; (2) shipment of the product has occurred; (3) the
license fee is fixed and determinable; (4) collectibility is probable; and (5)
remaining obligations under the license agreement are insignificant. Consulting
services are generally billed on an hourly basis and revenue is recognized as
the work is performed. Maintenance revenue from ongoing customer support is
billed in advance for a one year period and recorded as revenue ratably over the
billing period. Hardware revenue is billed and recognized upon shipment. The
adoption of SOP 97-2 did not have a significant impact on the Company's
financial statements for the three month or six month periods ended June 30,
1998.
5. NOTE PAYABLE TO STOCKHOLDER
At December 31, 1997, the Company had approximately $1 million outstanding
under a note payable to a stockholder. In February 1998, the Company borrowed
an additional $900,000 from the Company's majority stockholder pursuant to a
Grid Promissory Note (the "Note"). The Company repaid the Note, together with
accrued interest of approximately $131,000 during the second quarter.
6. EARNINGS PER SHARE
Pro forma basic net income per share is computed using pro forma net income
divided by (i) the weighted average number of shares of Common Stock outstanding
("Weighted Shares") for the period presented and (ii) pursuant to the Securities
and Exchange Commission Staff Accounting Bulletin 1B.3, the number of shares
that, at the assumed public offering price, would yield proceeds in the amount
necessary to pay the stockholder distribution discussed in Note 3 that is not
covered by the earnings for the one year period through the date of distribution
("Distribution Shares").
Pro forma diluted net income per share is computed using pro forma net
income divided by (i) Weighted Shares, (ii) the Distribution Shares and (iii)
the treasury stock method effect of common equivalent shares ("CES's")
outstanding for each period presented.
7
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No adjustment is necessary for historical and pro forma net income for net
income per share presentation. The following is a reconciliation of the shares
used in the computation of net income per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
----------------------------------- --------------------------------
BASIC DILUTED BASIC DILUTED
--------------- --------------- -------------- --------------
HISTORICAL HISTORICAL
----------------------------------- --------------------------------
<S> <C> <C> <C> <C>
(in thousands)
Weighted Share............................ 22,822 22,822 20,000 20,000
Effect of CES's........................... -- 2,603 -- 583
------ ------ ------ ------
22,822 25,425 20,000 20,583
====== ====== ====== ======
BASIC DILUTED BASIC DILUTED
--------------- --------------- -------------- --------------
PRO FORMA PRO FORMA
----------------------------------- --------------------------------
Weighted Shares........................... 22,822 22,822 20,000 20,000
Distribution Shares....................... -- -- 90 90
Effect of CES's........................... -- 2,603 -- 583
------ ------ ------ ------
22,822 25,425 20,090 20,673
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
----------------------------------- --------------------------------
BASIC DILUTED BASIC DILUTED
--------------- --------------- -------------- --------------
HISTORICAL HISTORICAL
----------------------------------- --------------------------------
<S> <C> <C> <C> <C>
(in thousands)
Weighted Share............................ 21,459 21,459 20,000 20,000
Effect of CES's........................... -- 2,422 -- 445
------ ------ ------ ------
21,459 23,881 20,000 20,445
====== ====== ====== ======
BASIC DILUTED BASIC DILUTED
--------------- --------------- -------------- --------------
PRO FORMA PRO FORMA
----------------------------------- --------------------------------
Weighted Shares........................... 21,459 21,459 20,000 20,000
Shares to Minority Holder................. 27 27 -- --
Distribution Shares....................... 45 45 90 90
Effect of CES's........................... -- 2,422 -- 445
------ ------ ------ ------
21,531 23,953 20,090 20,535
====== ====== ====== ======
</TABLE>
8
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7. INCOME TAXES
Prior to the Conversion, the Company elected to report as a limited
liability company that was treated as a partnership for income tax purposes (see
Note 3), and as a result, the Company was not subject to federal and state
income taxes. After the Conversion, the Company became subject to federal and
state income taxes. In connection with the Conversion, the Company recognized a
one-time benefit in April 1998 of $316,000 by recording the asset related to the
future reduction of income tax payments due to temporary differences between the
recognition of income for financial statements and income tax regulations. Pro
forma net income amounts discussed herein include provisions for income taxes on
a pro forma basis as if the Company were liable for federal and state income
taxes as a taxable corporate entity throughout the periods presented. Pro forma
income tax provisions reflect the Company's anticipated effective annual tax
rate of 35% and 36% for the three month and six month periods ended June 30,
1998 and 1997, respectively.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company provides information technology solutions for distribution
centers that are designed to enable the efficient movement of goods through the
supply chain. The Company's solutions are designed to optimize the receipt,
storage and distribution of inventory and the management of equipment and
personnel within a distribution center, and to meet the increasingly complex
information requirements of manufacturers, distributors and retailers. The
Company's solutions consist of software, including PkMS, a comprehensive and
modular software system; services, including design, configuration,
implementation, training and support; and hardware. The Company currently
provides solutions to manufacturers, distributors and retailers primarily in the
apparel, consumer products, food service and grocery markets.
Effective January 1, 1998, the Company adopted Statement of Position No.
97-2, "Software Revenue Recognition" ("SOP 97-2"), that supersedes Statement of
Position No. 91-1, "Software Revenue Recognition." Under SOP 97-2, the Company
recognizes software license revenue when the following criteria are met: (1) a
signed contract is obtained; (2) shipment of the product has occurred; (3) the
license fee is fixed and determinable; (4) collectibility is probable; and (5)
remaining obligations under the license agreement are insignificant. Consulting
services are generally billed on an hourly basis and revenue is recognized as
the work is performed. Maintenance revenue from ongoing customer support is
billed in advance for a one year period and recorded as revenue ratably over the
billing period. Hardware revenue is billed and recognized upon shipment. The
adoption of SOP 97-2 did not have a significant impact on the Company's
financial statements for the three month period ended June 30, 1998.
Prior to the Conversion, the Company elected to report as a limited
liability company that was treated as a partnership for income tax purposes, and
as a result, the Company was not subject to federal and state income taxes. Pro
forma net income amounts discussed herein include additional provisions for
income taxes on a pro forma basis as if the Company were liable for federal and
state income taxes as a taxable corporate entity throughout the periods
presented. The pro forma tax provision is calculated by applying the Company's
statutory tax rate to pretax income, adjusted for permanent tax differences.
The Company's status as a limited liability company terminated immediately prior
to the effectiveness of the Offering, and the Company will thereafter be taxed
as a business corporation. See Notes to Condensed Consolidated Financial
Statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Revenue
Total revenue increased 81% to $14.1 million for the three months ended
June 30, 1998 from $7.8 million for the three months ended June 30, 1997. Total
revenue consists of software license revenue, revenue derived from consulting,
maintenance and other services and revenue from the sale of hardware.
Software License. Software license revenue increased 55% to $2.8 million
for the three months ended June 30, 1998 from $1.8 million for the three months
ended June 30, 1997. The increase in revenue from software licenses was
primarily due to an increase in the number of licenses of the Company's PkMS
product and, to a lesser extent, license revenue as a result of the acquisition
of Performance Analysis Corporation ("PAC") in February 1998.
Services. Services revenue increased 107% to $7.2 million for the three
months ended June 30, 1998 from $3.5 million for the three months ended June 30,
1997. The increase in revenue from services was principally due to the
10
<PAGE>
increased demand for these services resulting from the increased demand for the
Company's PkMS product.
Hardware. Hardware revenue increased 65% to $4.1 million for the three
months ended June 30, 1998 from $2.5 million for the three months ended June 30,
1997. The increase in revenue from hardware was principally due to the
increased demand for the Company's PkMS product.
Cost of Revenue
Cost of Software License. Cost of software license revenue consists of the
costs of software reproduction and delivery, media, packaging, documentation and
other related costs and the amortization of purchased software. Cost of
software license revenue increased to $171,000, or 6% of software license
revenue, for the three months ended June 30, 1998 from $105,000, or 6% of
software license revenue, for the three months ended June 30, 1997. Cost of
software license revenue increased principally due to the amortization of
purchased software from the PAC acquisition.
Cost of Services. Cost of services revenue consists primarily of
consultant salaries and other personnel-related expenses incurred in system
implementation projects and software support services. Cost of services revenue
increased to $3.4 million, or 47% of services revenue, for the three months
ended June 30, 1998 from $1.3 million, or 38% of services revenue, for the three
months ended June 30, 1997. The increase in cost of services revenue was
primarily due to increased personnel as a result of the increased demand for
services. The increase in cost of services revenue as a percentage of services
revenue is principally due to increased training and other cost related to an
increase in services personnel.
Cost of Hardware. Cost of hardware revenue increased to $2.9 million, or
72% of hardware revenue, for the three months ended June 30, 1998 from $2
million, or 79% of hardware revenue, for the three months ended June 30, 1997.
The decrease in the cost of hardware as a percentage of hardware revenue is
principally due to an increase in the sale of hardware products with relatively
higher gross margins during the three month period ended June 30, 1997 as
compared to sales during the three month period ended June 30, 1997.
Operating Expenses
Research and Development. Research and development expenses principally
consist of salaries and other personnel-related costs. The Company's research
and development expenses increased by 193% to $1.9 million, or 14% of total
revenue, for the three months ended June 30, 1998 from $662,000, or 9% of total
revenue, for the three months ended June 30, 1997. The increase in research and
development expenses resulted from an increase in the number of research and
development personnel during the three months ended June 30, 1998 as compared to
the three months ended June 30, 1997. Significant product development efforts
include the continued development of PkMS, the development of a client/server
version of PkMS and, to a lesser extent, the continued development of SLOT-IT
and the development of the Windows NT based version of SLOT-IT. The Company
believes that a continued commitment to product development will be required for
the Company to remain competitive and expects the dollar amount of research and
development expenses to continue to increase in the near future.
Sales and Marketing. Sales and marketing expenses include salaries,
commissions and other personnel-related costs, travel expenses, advertising
programs and other promotional activities. Sales and marketing expenses
increased by 120% to $2 million, or 14% of total revenue, for the three months
ended June 30, 1998 from $913,000, or 12% of total revenue, for the three months
ended June 30, 1997. The increase in sales and marketing expenses was the
result of additional sales and marketing personnel and expanded marketing
program activities.
11
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General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related costs of executive, financial
and human resources and administrative personnel, as well as facilities, legal,
insurance, accounting and other administrative expenses. General and
administrative expenses increased by 133% to $1.4 million, or 10% of total
revenue, for the three months ended June 30, 1998 from $589,000, or 8% of total
revenue, for the three months ended June 30, 1997. The increase in general and
administrative expenses was principally due to increased personnel and other
administrative expenses necessary to support the Company's growth.
Income Taxes
Pro Forma Provision for Income Taxes. The pro forma provision for income
taxes was $904,000 for the three months ended June 30, 1998, as compared to
$811,000 for the three months ended June 30, 1997. The increase in the pro
forma provision for income taxes is a result of an increase in income before
income taxes for the three months ended June 30, 1998 compared to the income for
the three months ended June 30, 1997.
Earnings per Share
Pro Forma Net Income (Loss) per Share. Pro forma net income was $1.7
million, or $0.07 per diluted share, for the three months ended June 30, 1998,
compared to pro forma net income of $1.4 million, or $0.07 per diluted share,
for the three months ended June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenue
Total revenue increased 82% to $25.5 million for the six months ended June
30, 1998 from $14.0 million for the six months ended June 30, 1997. Total
revenue consists of software license revenue, revenue derived from consulting,
maintenance and other services and revenue from the sale of hardware.
Software License. Software license revenue increased 50% to $5.0 million
for the six months ended June 30, 1998 from $3.3 million for the six months
ended June 30, 1997. The increase in revenue from software licenses was
primarily due to an increase in the number of licenses of the Company's PkMS
product and, to a lesser extent, new license revenue as a result of the
acquisition of PAC.
Services. Services revenue increased 108% to $12.5 million for the six
months ended June 30, 1998 from $6.0 million for the six months ended June 30,
1997. The increase in revenue from services was principally due to the
increased demand for these services resulting from the increased demand for the
Company's PkMS product.
Hardware. Hardware revenue increased 70% to $8.0 million for the six
months ended June 30, 1998 from $4.7 million for the six months ended June 30,
1997. The increase in revenue from hardware was principally due to the
increased demand for the Company's PkMS product.
Cost of Revenue
Cost of Software License. Cost of software license revenue consists of the
costs of software reproduction and delivery, media, packaging, documentation and
other related costs and the amortization of purchased software. Cost of
software license revenue increased to $240,000, or 5% of software license
revenue, for the six months ended June 30, 1998 from $194,000, or 6% of software
license revenue, for the six months ended June 30, 1997. Cost of software
license revenue remained relatively constant for the six months ended June 30,
1998 as compared to the six months ended June 30, 1997.
12
<PAGE>
Cost of Services. Cost of services revenue consists primarily of
consultant salaries and other personnel-related expenses incurred in system
implementation projects and software support services. Cost of services revenue
increased to $5.9 million, or 47% of services revenue, for the six months ended
June 30, 1998 from $2.3 million, or 39% of services revenue, for the six months
ended June 30, 1997. The increase in cost of services revenue was primarily due
to increased personnel as a result of increased demand for services. The
increase in cost of services revenue as a percentage of services revenue is
principally due to increased training and other costs related to the increase in
services personnel.
Cost of Hardware. Cost of hardware revenue increased to $6.0 million, or
75% of hardware revenue, for the six months ended June 30, 1998 from $3.6
million, or 76% of hardware revenue, for the six months ended June 30, 1997.
The decrease in the cost of hardware as a percentage of hardware revenue is
principally due to an increase in the sale of hardware products with relatively
higher gross margins as compared to the six months ended June 30, 1997.
Operating Expenses
Research and Development. Research and development expenses principally
consist of salaries and other personnel-related costs. The Company's research
and development expenses increased by 196% to $3.2 million, or 13% of total
revenue, for the six months ended June 30, 1998 from $1.1 million, or 8% of
total revenue, for the six months ended June 30, 1997. The increase in research
and development expenses resulted from an increase in the number of research and
development personnel during the six months ended June 30, 1998 as compared to
the six months ended June 30, 1997.
Acquired Research and Development. In February 1998, the Company purchased
all of the outstanding stock of PAC for approximately $2.2 million in cash and
106,666 shares of the Company's Common Stock valued at $10.00 per share. The
acquisition has been accounted for as a purchase. In connection with this
acquisition, approximately $1.6 million of the purchase price was allocated to
acquired research and development and expensed during the quarter.
Sales and Marketing. Sales and marketing expenses include salaries,
commissions and other personnel-related costs, travel expenses, advertising
programs and other promotional activities. Sales and marketing expenses
increased by 134% to $3.3 million, or 13% of total revenue, for the six months
ended June 30, 1998 from $1.4 million, or 10% of total revenue, for the six
months ended June 30, 1997. The increase in sales and marketing expenses was
the result of additional sales and marketing personnel and expanded marketing
program activities.
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related costs of executive, financial
and human resources and administrative personnel, as well as facilities, legal,
insurance, accounting and other administrative expenses. General and
administrative expenses increased by 153% to $2.5 million, or 10% of total
revenue, for the six months ended June 30, 1998 from $1.0 million, or 7% of
total revenue, for the six months ended June 30, 1997. The increase in general
and administrative expenses was principally due to increased personnel and other
administrative expenses necessary to support the Company's growth.
Income Taxes
Pro Forma Provision for Income Taxes. The pro forma provision for income
taxes was $1.6 million for the six months ended June 30, 1998, as compared to
$1.6 million for the six months ended June 30, 1997.
13
<PAGE>
Earnings per Share
Pro Forma Net Income (Loss) per Share. Pro forma net income, excluding the
effect of a one-time acquired research and development charge of $1.6 million,
was $3.0 million, or $0.12 per diluted share, for the six months ended June 30,
1998, compared to pro forma net income of $2.8 million, or $0.14 per diluted
share, for the six months ended June 30, 1997. Including the effect of the one-
time acquired research and development charge, the Company's pro forma net
income was $1.4 million, or $0.06 per diluted share, for the six months ended
June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations to date primarily
through cash generated from operations and an initial public offering in April
1998 (the "Offering"). In addition, the Company has also borrowed money from its
majority stockholder. As of June 30, 1998, the Company had $36.1 million in
cash and cash equivalents.
The Company's operating activities provided cash of $1.8 million for the
six months ended June 30, 1998 and $3.1 million for the six months ended June
30, 1997. Cash from operating activities arose principally from the Company's
profitable operations and was utilized for working capital purposes, principally
increases in accounts receivable. The increase in accounts receivable was
primarily the result of the Company's continued revenue growth.
Cash used for investing activities was approximately $4.4 million for the
three months ended June 30, 1998 and $534,000 for the three months ended June
30, 1997. The Company's use of cash for the six months ended June 30, 1998 was
primarily for the acquisition of PAC and the purchase of capital equipment, such
as computer equipment and furniture and fixtures, to support the Company's
growth.
Cash provided by financing activities was approximately $35.5 million for
the six months ended June 30, 1998. Cash used for financing activities was
approximately $4.0 million for the six months ended June 30, 1997. The
principal source of cash provided by financing activities for the six months
ended June 30, 1998 was additional borrowings under a Grid Promissory Note with
a stockholder and proceeds from the issuance of Common Stock, partially reduced
by distributions to the Company's stockholders prior to the Offering and the
repayment of the note payable to a stockholder.
The Company entered into a line of credit with Silicon Valley Bank to fund
its distribution to the Company's stockholders prior to the Offering and to fund
its continuing working capital needs. The line of credit does not contain any
conditions or restrictive covenants that would materially affect the Company's
business, financial condition or results of operations. In April 1998, the
Company borrowed approximately $7 million under the line of credit. The Company
repaid the borrowings and accrued interest with the proceeds from the Offering.
14
<PAGE>
In April 1998, the Company completed the Offering, in which the Company
received net proceeds of approximately $47.3 million after deducting
underwriting discounts and offering expenses. The Company applied a portion of
the net proceeds to repay all of the Company's outstanding indebtedness to
Silicon Valley Bank ($7.0 million) and a note payable to the Company's Chairman
of the Board, Chief Executive Officer and President ($1.9 million). Prior to
the Offering, the Company made payments of $11.7 million in distributions to
stockholders. The balance of the net proceeds of the Offering (approximately
$34 million) will be utilized for general corporate purposes. Such purposes may
also include possible acquisitions of, or investments in, businesses and
technologies that are complementary to those of the Company. There can be no
assurance that the remaining net proceeds from the Offering will be sufficient
to pay for future acquisitions, planned research and development projects or
other growth-oriented activities, which could require the Company to incur
additional debt or other financing that could impose restrictive covenants and
other terms having a material adverse effect on the Company's business,
financial condition and results of operations.
The Company anticipates that existing cash and cash equivalents will be
adequate to meet its cash requirements for the next twelve months.
IMPACT OF THE YEAR 2000 ISSUE
Many currently installed computer systems and software products are coded to
accept only two digit entries in date code fields. Beginning in the year 2000,
many of these systems will need to be modified to accept four digit entries or
otherwise distinguish twenty-first century dates from twentieth century dates.
As a result, over the next year and one half, computer systems and/or software
used by many companies may need to be upgraded to comply with such "Year 2000"
requirements.
The management of the Company is currently evaluating the Company's Year 2000
issues. Because the latest versions of the Company's products are designed to
be Year 2000 compliant, this evaluation has focused on determining the
compliance of the Company's earlier software products as implemented in the
Company's installed customer base, as well as the impact of any non-compliance
on the Company and its customers. In addition, the evaluation is designed to
address the Company's Year 2000 readiness with respect to both information
technology ("IT") and non-IT systems on which the Company's operations rely.
Finally, because the Company relies upon relationships with third parties over
which it can assert little control, the Year 2000 evaluation is also assessing
the risks associated with the failure of such third parties to adequately
address the Year 2000 issue.
The Company does not currently believe that the effects of any Year 2000 non-
compliance in the Company's installed base of software will result in a material
adverse effect on the Company's business, financial condition or results of
operations. However, the Company's investigation is in its preliminary stages,
and no assurance can be given that the Company will not be exposed to potential
claims resulting from system problems associated with the century change. There
can also be no assurance that the Company's software products that are designed
to be Year 2000 compliant contain all necessary date code changes. In addition,
Year 2000 non-compliance in the Company's internal IT systems or certain non-IT
systems on which its operations rely or by the Company's business partners may
have an adverse impact on the Company's business, financial condition or results
of operations. Because the evaluation of the Company's Year 2000 issue is
ongoing, the Company has not estimated its total Year 2000 remediation costs.
The Company believes that the purchasing patterns of customers and potential
customers may be affected by Year 2000 issues in a variety of ways. Many
companies are expending significant resources to correct or patch their current
software systems for Year 2000 compliance. These expenditures may result in
15
<PAGE>
reduced funds available to purchase software products such as those offered by
the Company. Potential customers may also choose to defer purchasing Year 2000
compliant products until they believe it is absolutely necessary, thus
potentially resulting in stalled market sales within the industry. Conversely,
Year 2000 issues may cause other companies to accelerate purchases, thereby
causing an increase in short-term demand and a consequent decrease in long-term
demand for software products. Additionally, Year 2000 issues could cause a
significant number of companies, including current Company customers, to
reevaluate their current software needs and as a result switch to other systems
or suppliers. Any of the foregoing could result in a material adverse effect on
the Company's business, financial condition and results of operations.
The Company's evaluation of its Year 2000 issue includes the development of
contingency plans for business functions that are susceptible to a substantive
risk of disruption resulting from a Year 2000 related event. Because the
Company has not yet identified any business function that is materially at risk
of Year 2000 related disruption, it has not yet developed detailed contingency
plans specific to Year 2000 events for any business function. The Company is
prepared for the possibility, however, that certain business functions may be
hereafter identified as at risk and will develop contingency plans for such
business functions when and if such determinations are made.
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 plans for future
business development activities, anticipated costs of revenues, product mix and
service revenues, research and development and selling, general and
administrative activities, and liquidity and capital needs and resources. Such
forward-looking statements are subject to risks, uncertainties and other factors
which could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. For further
information about these and other factors that could affect the Company's future
results, please see Exhibit 99.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998. Investors are cautioned that any forward
looking statements are not guarantees of future performance and involve risks
and uncertainties, and that actual results may differ materially from those
contemplated by such forward-looking statements.
16
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
No events occurred during the quarter covered by the report that would
require a response to this item.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In connection with the conversion of the Company from a limited liability
company to a business corporation (the "Conversion"), the Company issued
20,206,674 shares of Common Stock to stockholders of Manhattan Associates
Software, LLC ("Manhattan LLC") on April 23, 1998 in consideration for their
contribution of all of the assets and liabilities of Manhattan LLC to the
Company in a transaction exempt under Section 4(2) of the Securities Act.
On April 23, 1998, the Company completed an initial public offering (the
"Offering") of 3,500,000 shares of its Common Stock (the "Common Stock"). The
managing underwriters in the Offering were Deutsche Morgan Grenfell Inc.,
Hambrecht & Quist LLC and SoundView Financial Group, Inc. (the "Underwriters").
The shares of Common Stock were registered under the Securities Act of 1933, as
amended, on a Registration Statement on Form S-1 (the "Registration Statement,"
registration number 333-47095). The Registration Statement was declared
effective by the Securities and Exchange Commission on April 23, 1998.
All of the 3,500,000 shares of Common Stock were sold by the Company, which
resulted in gross proceeds of $52.5 million. The Company received net proceeds
of approximately $47.3 million after deducting underwriting discounts of $3.7
million and Offering expenses of $1.5 million. As of June 1, 1998, the proceeds
of the Offering had been used as follows: (i) to repay all of the Company's
outstanding indebtedness to Silicon Valley Bank ($7.0 million) and (ii) to repay
a Grid Promissory Note payable to the Company's Chairman of the Board, Chief
Executive Officer and President, Alan J. Dabbiere ($1.9 million). The balance
of the net proceeds of the Offering will be utilized to finance potential future
acquisitions and for general corporate purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
No events occurred during the quarter covered by the report that would
require a response to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No events occurred during the quarter covered by the report that would
require a response to this item.
ITEM 5. OTHER INFORMATION.
No events occurred during the quarter covered by the report that would
require a response to this item.
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The following exhibits are filed with this Report:
Exhibit 27.1 Financial Data Schedule
(b) Reports to be filed on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1998.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MANHATTAN ASSOCIATES, INC.
Date: August 14, 1998 /s/ Alan J. Dabbiere
--------------------------------------------
Alan J. Dabbiere
Chairman of the
Board, Chief Executive Officer and
President
(Principal Executive Officer)
Date: August 14, 1998 /s/ Michael J. Casey
--------------------------------------------
Michael J. Casey
Chief Financial
Officer and Treasurer
(Principal Financial and Accounting Officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF MANHATTAN ASSOCIATES, INC. FOR THE SIX
MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 36,107
<SECURITIES> 0
<RECEIVABLES> 15,748
<ALLOWANCES> (1,013)
<INVENTORY> 0
<CURRENT-ASSETS> 51,564
<PP&E> 5,533
<DEPRECIATION> (974)
<TOTAL-ASSETS> 57,621
<CURRENT-LIABILITIES> 8,850
<BONDS> 0
0
0
<COMMON> 237
<OTHER-SE> 48,534
<TOTAL-LIABILITY-AND-EQUITY> 57,621
<SALES> 25,464
<TOTAL-REVENUES> 25,464
<CGS> 12,140
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,642
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,974
<INCOME-TAX> 1,617
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,357
<EPS-PRIMARY> 0.06
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