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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 SEPTEMBER 30, 2000
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 outstanding as of
November 10, 2000, the latest practicable date, is as follows: 26,101,045
shares of common stock, $0.01 par value per share.
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<PAGE> 2
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Condensed Consolidated Balance Sheets as of September 30, 2000
(unaudited) and December 31, 1999 3
Condensed Consolidated Statements of Income for the three months
ended September 30, 2000 and 1999 (unaudited) and for the nine
months ended September 30, 2000 and 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 16
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. 17
SIGNATURES. 18
</TABLE>
Form 10-Q
Page 2 of 18
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................. $ 59,607 $ 19,695
Short-term investments .................................................... 16,503 20,220
Accounts receivable, net of allowance for doubtful accounts of $5,287
and $5,473 at September 30, 2000 and December 31, 1999, respectively .... 24,442 24,275
Deferred income taxes ..................................................... 2,915 2,695
Prepaid expenses and other current assets ................................. 1,321 1,492
---------- ----------
Total current assets ................................................. 104,788 68,377
Property and equipment, net .................................................. 9,431 9,245
Intangible and other assets, net ............................................. 2,668 3,301
---------- ----------
Total assets ...................................................... $ 116,887 $ 80,923
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities .................................. $ 17,986 $ 12,215
Current portion of capital lease obligations .............................. 153 163
Deferred revenue .......................................................... 14,189 9,051
---------- ----------
Total current liabilities ............................................ 32,328 21,429
Long-term portion of capital lease obligations ............................... 664 799
Deferred income taxes ........................................................ -- 89
Shareholders' equity:
Preferred stock, no par value; 20,000,000 shares authorized, no shares
issued or outstanding at September 30, 2000 and December 31, 1999 ....... -- --
Common stock, $.01 par value; 100,000,000 shares authorized,
25,713,758 and 24,221,587 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively .................. 257 242
Additional paid-in capital ................................................ 67,105 54,563
Retained earnings ......................................................... 16,882 4,157
Accumulated other comprehensive loss ...................................... (131) (51)
Deferred compensation ..................................................... (218) (305)
---------- ----------
Total shareholders' equity ........................................... 83,895 58,606
---------- ----------
Total liabilities and shareholders' equity ........................ $ 116,887 $ 80,923
========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
Form 10-Q
Page 3 of 18
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS (continued)
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Software fees ..................... $ 6,529 $ 2,753 $ 17,251 $ 10,285
Services .......................... 21,207 14,488 57,979 38,257
Hardware .......................... 5,968 2,814 21,445 9,502
-------- -------- -------- --------
Total revenue ................. 33,704 20,055 96,675 58,044
Cost of revenue:
Software fees ..................... 192 599 1,008 1,175
Services .......................... 8,753 8,778 24,944 22,362
Hardware .......................... 4,759 2,174 17,448 7,218
-------- -------- -------- --------
Total cost of revenue ......... 13,704 11,551 43,400 30,755
-------- -------- -------- --------
Gross margin ........................... 20,000 8,504 53,275 27,289
Operating expenses:
Research and development .......... 4,213 2,265 10,301 8,066
Sales and marketing ............... 4,298 3,235 12,906 11,322
General and administrative ........ 3,836 3,225 11,386 9,499
-------- -------- -------- --------
Total operating expenses ...... 12,347 8,725 34,593 28,887
-------- -------- -------- --------
Operating income (loss) ................ 7,653 (221) 18,682 (1,598)
Other income, net ...................... 851 323 1,841 856
-------- -------- -------- --------
Income (loss) before income taxes ...... 8,504 102 20,523 (742)
Income tax provision (benefit) ......... 3,231 41 7,798 (283)
-------- -------- -------- --------
Net income (loss) ...................... $ 5,273 $ 61 $ 12,725 $ (459)
======== ======== ======== ========
Basic net income (loss) per share ...... $ 0.21 $ 0.00 $ 0.51 $ (0.02)
======== ======== ======== ========
Diluted net income (loss) per share .... $ 0.17 $ 0.00 $ 0.42 $ (0.02)
======== ======== ======== ========
Weighted average number of shares:
Basic .............................. 25,408 24,112 24,818 24,042
======== ======== ======== ========
Diluted ............................ 30,868 25,706 30,108 24,042
======== ======== ======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
Form 10-Q
Page 4 of 18
<PAGE> 5
ITEM 1. FINANCIAL STATEMENTS (continued)
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
2000 1999
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ........................................ $ 12,725 $ (459)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ......................... 4,012 3,529
Stock compensation .................................... 64 124
Gain on sale of equipment ............................. -- (22)
Deferred income taxes ................................. (461) (759)
Changes in operating assets and liabilities:
Accounts receivable, net ............................ (527) (2,967)
Other assets ........................................ 117 132
Accounts payable and accrued liabilities ............ 7,964 (884)
Income taxes payable ................................ 2,491 --
Deferred revenue .................................... 5,299 6,083
---------- ----------
Net cash provided by operating activities ................ 31,684 4,777
INVESTING ACTIVITIES:
Purchase of property and equipment .................... (3,465) (4,073)
Proceeds from the sale of equipment .................. -- 22
Capitalized software development costs ................ -- (909)
Net sales (purchases) of short-term investments ....... 3,738 (14,438)
---------- ----------
Net cash provided by (used in) investing activities ...... 273 (19,398)
FINANCING ACTIVITIES:
Payment of capital lease obligations .................. (145) (138)
Proceeds from issuance of common stock ................ 8,037 722
---------- ----------
Net cash provided by financing activities ................. 7,892 584
Foreign currency impact on cash ....................... 63 5
---------- ----------
Net increase (decrease) in cash and cash equivalents ...... 39,912 (14,032)
Cash and cash equivalents at beginning of period .......... 19,695 27,751
---------- ----------
Cash and cash equivalents at end of period ................ $ 59,607 $ 13,719
========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Assets acquired under capital lease .................... $ -- $ 151
========== ==========
Cash paid for income taxes, net ........................ $ 5,743 $ 253
========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
Form 10-Q
Page 5 of 18
<PAGE> 6
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States 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 for complete financial statements.
In the opinion of the Company's management, these condensed consolidated
financial statements contain all adjustments considered necessary for a fair
presentation of the financial position at September 30, 2000, the results of
operations for the three and nine month periods ended September 30, 2000 and
1999 and changes in cash flows for the nine month periods ended September 30,
2000 and 1999. The results for the three month and nine month periods ended
September 30, 2000 are not necessarily indicative of the results to be expected
for the full year. These statements should be read in conjunction with the
Company's audited consolidated financial statements for the year ended December
31, 1999.
2. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated 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. REVENUE RECOGNITION
The Company's revenue consists of fees generated from the licensing of
software; consulting, implementation and training services (collectively,
"professional services"); customer support services and software enhancement
subscriptions; and sales of complementary radio frequency and computer
equipment.
The Company recognizes software fees in accordance with Statement of
Position No. 97-2, "Software Revenue Recognition" ("SOP 97-2"), as amended by
Statement of Position No. 98-9, "Software Revenue Recognition, With Respect to
Certain Transactions" ("SOP 98-9"). Under SOP 97-2, the Company recognizes
software fees 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. SOP 98-9 requires recognition of
revenue using the "residual method" when (1) there is vendor-specific objective
evidence of the fair values of all undelivered elements in a multiple-element
arrangement that is not accounted for using long-term contract accounting; (2)
vendor-specific objective evidence of fair value does not exist for one or more
of the delivered elements in the arrangement; and (3) all revenue-recognition
criteria in SOP 97-2 other than the requirement for vendor-specific objective
evidence of the fair value of each delivered element of the arrangement are
satisfied. SOP 98-9 was effective for transactions entered into after March 15,
1999, and the Company adopted the residual method for such arrangements at that
time. For those contracts that contain significant future obligations, software
fees are recognized under the percentage of completion method.
The Company's services revenue consists of fees generated from
professional services, customer support services and software enhancement
subscriptions related to the Company's software products. Fees related to
professional services performed by the Company are generally billed on an hourly
basis and revenue is recognized as the services are performed. Fees from
customer support services and software enhancement subscriptions are generally
paid in advance and recognized as revenue ratably over the term of the
agreements, typically 12 months.
Form 10-Q
Page 6 of 18
<PAGE> 7
Hardware revenue is generated from the resale of a variety of hardware
products, developed and manufactured by third parties, that are integrated with
and complementary to the Company's warehouse management systems. These products
include computer hardware, radio frequency terminal networks, bar code printers
and scanners, and other peripherals. As part of a complete warehouse management
system, the Company's customers frequently purchase hardware from the Company in
conjunction with the licensing of software. Hardware revenue is recognized upon
shipment by the vendor to the customer. The Company generally purchases hardware
from its vendors only after receiving an order from a customer. As a result, the
Company does not maintain significant amounts of hardware inventory.
4. COMPREHENSIVE INCOME
Comprehensive income includes foreign currency translation gains and
losses and unrealized gains and losses on investments that have been previously
excluded from net income and reflected in shareholders' equity.
The following table sets forth the calculation of comprehensive income
(loss):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
-------- ---- -------- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net income (loss) .................... 5,273 61 12,725 (459)
Unrealized gain on investments ....... 9 -- 21 --
Foreign currency gain (loss) ......... (45) 86 (101) 37
-------- ---- -------- ----
Total comprehensive income (loss) .... 5,237 147 12,645 (422)
======== ==== ======== ====
</TABLE>
5. NET INCOME PER SHARE
Basic net income per share is computed using net income divided by the
weighted average number of shares of common stock outstanding ("Weighted
Shares"). Diluted net income per share is computed using net income divided by
Weighted Shares plus common equivalent shares ("CESs") outstanding calculated
using the Treasury Stock method.
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
September 30, 2000 September 30, 1999
---------------------- ----------------------
Basic Diluted Basic Diluted
-------- -------- -------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Weighted Shares .... 25,408 25,408 24,112 24,112
Effect of CESs ..... -- 5,460 -- 1,594
-------- -------- -------- --------
25,408 30,868 24,112 25,706
======== ======== ======== ========
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
---------------------- ----------------------
Basic Diluted Basic Diluted
-------- -------- -------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Weighted Shares .... 24,818 24,818 24,042 24,042
Effect of CESs ..... -- 5,290 -- --
-------- -------- -------- --------
24,818 30,108 24,042 24,042
======== ======== ======== ========
</TABLE>
Form 10-Q
Page 7 of 18
<PAGE> 8
6. SUBSEQUENT EVENT
On October 24, 2000, the Company closed an Asset Purchase Agreement
(the "Agreement") with Intrepa, L.L.C. ("Intrepa") to acquire substantially all
of the assets of Intrepa for a purchase price of $30.0 million. The purchase
price consists of a cash payment at closing of $13.0 million, the issuance in
January 2001 of $10.0 million of the Company's $.01 par value per share common
stock, and the issuance by the Company of a promissory note for $7.0 million
payable by April 2003 (the "Note"). The purchase also includes the assumption of
substantially all of the liabilities of Intrepa, including immediate payment by
the Company of the remaining $2.0 million of principal and up to $15,000
interest on a promissory note previously issued by Intrepa. The Company paid the
cash portion of the purchase price and the previously-issued promissory note,
and anticipates paying off the Note, out of available cash and cash equivalents
held by the Company.
Substantially all of the assets of Intrepa were acquired by the Company
pursuant to the Agreement. These assets principally include Intrepa's
intellectual property, including its Warehousing Management System and
Transportation Management System; Intrepa's customer base, which consists of
traditional manufacturing, retailing and distribution businesses in the
publishing, consumer products, retail, automotive parts, food, beverage and
healthcare industries; and the experience of both Intrepa and its key employees,
who have entered into employment agreements with the Company.
Form 10-Q
Page 8 of 18
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Manhattan is a leading provider of technology-based solutions to
improve supply chain effectiveness and efficiencies. Our solutions enhance
distribution efficiencies through the integration of supply chain constituents,
including manufacturers, distributors, retailers, suppliers, transportation
providers and end consumers. Our solutions are designed to optimize the receipt,
storage, assembly and distribution of inventory and the management of equipment
and personnel within a distribution center, and to enhance communications
between the distribution center and its trading partners. Our solutions consist
of software, including PkMS, a comprehensive and modular software system;
services, including design, configuration, implementation, and training
services, plus customer support and software upgrades; and hardware. We
currently provide solutions to manufacturers, distributors, retailers and
transportation providers primarily in the following markets:
direct-to-consumer/e-commerce, retail, apparel/footwear, consumer products
manufacturing, food/grocery and third party logistics.
Revenue
Our revenue consists of fees generated from the licensing of software;
consulting, implementation and training services (collectively, "professional
services"), customer support services and software enhancement subscriptions;
and sales of complementary radio frequency and computer equipment.
We recognize software fees in accordance with Statement of Position No.
97-2, "Software Revenue Recognition" ("SOP 97-2"), as amended by Statement of
Position No. 98-9, "Software Revenue Recognition, With Respect to Certain
Transactions" ("SOP 98-9"). Under SOP 97-2, we recognize software fees when the
following criteria are met: (i) a signed contract is obtained; (ii) shipment of
the product has occurred; (iii) the license fee is fixed and determinable; (iv)
collectibility is probable; and (v) remaining obligations under the license
agreement are insignificant. SOP 98-9 requires recognition of revenue using the
"residual method" when (i) there is vendor-specific objective evidence of the
fair values of all undelivered elements in a multiple-element arrangement that
is not accounted for using long-term contract accounting; (ii) vendor-specific
objective evidence of fair value does not exist for one or more of the delivered
elements in the arrangement; and (iii) all revenue-recognition criteria in SOP
97-2 other than the requirement for vendor-specific objective evidence of the
fair value of each delivered element of the arrangement are satisfied. SOP 98-9
was effective for transactions entered into after March 15, 1999, and we adopted
the residual method for such arrangements at that time. For those contracts that
contain significant future obligations, software fees are recognized under the
percentage of completion method.
Our services revenue consists of fees generated from professional
services, customer support services and software enhancement subscriptions
related to our software products. Fees related to professional services
performed by us are generally billed on an hourly basis and revenue is
recognized as the services are performed. Fees related to customer support
services and software enhancement subscriptions are generally paid in advance
and recognized as revenue ratably over the term of the agreement, typically 12
months.
Form 10-Q
Page 9 of 18
<PAGE> 10
Hardware revenue is generated from the resale of a variety of hardware
products, developed and manufactured by third parties, that are integrated with
and complementary to our warehouse management systems. These products include
computer hardware, radio frequency terminal networks, bar code printers and
scanners, and other peripherals. We generally purchase hardware from our vendors
only after receiving an order from a customer and revenue is recognized upon
shipment by the vendor to the customer. The amount of hardware purchases by
customers may vary significantly from period to period depending on the
technological sophistication and purchasing power of the customers and the scope
of the implementations. In addition, our gross margins on sales of hardware may
vary depending upon the type of hardware sold.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
REVENUE
Our revenue consists of fees generated from the licensing of software;
consulting, implementation and training services (collectively, "professional
services"), customer support services and software enhancement subscriptions;
and sales of complementary radio frequency and computer equipment. Total revenue
increased 68% to $33.7 million for the quarter ended September 30, 2000 from
$20.1 million for the quarter ended September 30, 1999.
Software Fees. Software fees increased to $6.5 million for the quarter
ended September 30, 2000 from $2.8 million for the quarter ended September 30,
1999, an increase of $3.7 million or 137%. The increase in revenue from software
fees is primarily due to an increase in the size of sales of user-based and
site-specific licenses of PkMS and other complementary products. In recent
quarters, we have experienced an increase in the average sales price and sale
size principally due to increased product functionality and market acceptance of
PkMS and our other complementary products.
Services. Services revenue increased to $21.2 million for the quarter
ended September 30, 2000 from $14.5 million for the quarter ended September 30,
1999, an increase of $6.7 million or 46%. The increase in revenue from services
is principally due to increases in the number and scope of PkMS implementations
contracted for in the first nine months of 2000, many of which took place in the
third quarter of 2000, the utilization of professional services personnel and
renewals of customer support services and software enhancement subscription
agreements on a growing installed base.
Hardware. Hardware revenue increased to $6.0 million for the quarter
ended September 30, 2000 from $2.8 million for the quarter ended September 30,
1999, an increase of $3.2 million or 112%. Sales of hardware are largely
dependent upon the number of PkMS licenses sold, the scope of such PkMS
implementations and the technological sophistication and purchasing power of
customers buying PkMS. The increase in the third quarter of fiscal year 2000 is
attributable to PkMS implementations of larger scope, prompting customers
seeking a unified solution to purchase hardware from Manhattan.
COST OF REVENUE
Cost of Software Fees. Cost of software fees consists of the costs
associated with software reproduction and delivery; media, packaging,
documentation and other related costs; and the amortization of purchased
software and capitalized research and development costs. Cost of software fees
decreased to $192,000 for the quarter ended September 30, 2000, or 3% of
software fees, from
Form 10-Q
Page 10 of 18
<PAGE> 11
$599,000 for the quarter ended September 30, 1999, or 22% of software fees. The
decrease in cost of software fees is principally due to the absence of $292,000
of purchased software and capitalized research and development costs relating to
discontinued projects expensed during the three months ended September 30, 1999.
Cost of Services. Cost of services revenue consists primarily of
salaries and other personnel-related expenses of employees dedicated to
professional services and customer support services. Cost of services revenue
was $8.8 million for the quarter ended September 30, 2000, or 41% of services
revenue, and $8.8 million for the quarter ended September 30, 1999, or 61% of
services revenue. The decrease in cost of services revenue as a percentage of
services revenue is due to increased efficiencies in the delivery of
professional services, principally an increase in the utilization of services
personnel.
Cost of Hardware. Cost of hardware revenue increased to $4.8 million
for the quarter ended September 30, 2000, or 80% of hardware revenue, from $2.2
million for the quarter ended September 30, 1999, or 77% of hardware revenue.
The increase in the cost of hardware as a percentage of hardware revenue is
principally due to an increase in the percentage of hardware products sold with
relatively lower gross margins during the quarter ended September 30, 2000, as
compared to hardware sales during the quarter ended September 30, 1999.
OPERATING EXPENSES
Research and Development. Research and development expenses principally
consist of salaries and other personnel-related costs for personnel involved in
our research and development activities. Our research and development expenses
increased by 86% to $4.2 million for the quarter ended September 30, 2000, or
13% of total revenue, from $2.3 million for the quarter ended September 30,
1999, or 11% of total revenue. We capitalized no research and development costs
in the quarter ended September 30, 2000. The increase in research and
development expenses is principally attributable to additional personnel
dedicated to i) the continued development and enhancement of PkMS, including the
N-Tier version of PkMS; ii) the development of Infolink, our business community
integration product; and iii) the development of Manager's Workbench, our
warehouse business intelligence product.
Sales and Marketing. Sales and marketing expenses include salaries,
commissions, travel and other personnel-related costs of sales and marketing
personnel and the costs of our marketing programs and related activities. Sales
and marketing expenses increased by 33% to $4.3 million for the quarter ended
September 30, 2000, or 13% of total revenue, from $3.2 million for the quarter
ended September 30, 1999, or 16% of total revenue. The increase in sales and
marketing expenses is principally attributable to higher incentive compensation
for sales and marketing personnel related to higher revenues, and to expanded
marketing program activities for the quarter ended September 30, 2000.
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related costs of executive, financial,
human resources and administrative personnel, as well as depreciation and
amortization, legal, insurance, accounting and other administrative expenses.
General and administrative expenses increased by 19% to $3.8 million for the
quarter ended September 30, 2000, or 11% of total revenue, from $3.2 million for
the quarter ended September 30, 1999, or 16% of total revenue. The increase in
general and administrative expenses is principally due to increases in
depreciation and amortization expense, accounting and legal fees, executive
bonuses, and other administrative expenses to support our business and improve
our infrastructure. Depreciation and amortization expense included in general
and administrative expenses was $1.1 million and $0.9 million for the quarters
ended September 30, 2000 and 1999, respectively.
Form 10-Q
Page 11 of 18
<PAGE> 12
Operating Income. Operating income increased $7.9 million to $7.7
million for the quarter ended September 30, 2000, or 23% of total revenue, from
an operating loss of $221,000 for the quarter ended September 30, 1999. The
increase in operating income is primarily due to an increase in software fees
and services, as described above, and, to a lesser extent, improved efficiencies
in our business.
INCOME TAXES
The provision for income taxes was $3.2 million for the quarter ended
September 30, 2000 compared to $41,000 for the quarter ended September 30, 1999.
The increase of $3.2 million from the quarter ended September 30, 1999 is a
direct result of the Company's increased income for the quarter ended September
30, 2000. For the quarter ended September 30, 2000, the Company's effective
income tax rate was 38.0%. The quarterly income tax rate reflects our estimated
annual effective income tax rate and considers estimated taxable income,
effective state and international income tax rates and anticipated tax credits.
The provision for income taxes does not include the tax benefit from options
exercised, which reduces the Company's tax liability. For the quarter ended
September 30, 2000, the tax benefit from options exercised was $2.6 million,
which was included in additional paid-in capital.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
REVENUE
Total revenue increased 67% to $96.7 million for the nine months ended
September 30, 2000 from $58.0 million for the nine months ended September 30,
1999. The increase in total revenue is primarily attributable to an increase in
the number and size of user-based and site-specific software licenses to new and
existing customers leading to increased services and hardware revenue.
Software Fees. Software fees increased to $17.3 million for the nine
months ended September 30, 2000 from $10.3 million for the nine months ended
September 30, 1999, an increase of $7.0 million or 68%. The increase in revenue
from software fees is primarily due to an increase in the sales of user and
site-specific licenses of PkMS and other complementary products. In recent
quarters, we have experienced an increase in the average sales price and sale
size principally due to increased product functionality and market acceptance of
PkMS and our other complementary products.
Services. Services revenue increased to $58.0 million for the nine
months ended September 30, 2000 from $38.3 million for the nine months ended
September 30, 1999, an increase of $19.7 million or 52%. The increase in revenue
from services is principally due to increases in the scope and number of PkMS
implementations contracted for in the first nine months of 2000, the utilization
of professional services personnel and renewals of customer support services
agreements on a growing installed base.
Hardware. Hardware revenue increased to $21.4 million for the nine
months ended September 30, 2000 from $9.5 million for the nine months ended
September 30, 1999, an increase of $11.9 million or 126%. Sales of hardware are
largely dependent upon the number of PkMS licenses sold, the scope of such PkMS
implementations and the technological sophistication and purchasing power of
customers buying PkMS. The increase in the first nine months of fiscal year 2000
is attributable to more customers seeking a unified solution to purchase
hardware from us as part of their PkMS implementations.
Form 10-Q
Page 12 of 18
<PAGE> 13
COST OF REVENUE
Cost of Software Fees. Cost of software fees consists of the costs
associated with software reproduction and delivery; media, packaging,
documentation and other related costs; and the amortization of purchased
software and capitalized research and development costs. Cost of software fees
decreased to $1.0 million for the nine months ended September 30, 2000, or 6% of
software fees, from $1.2 million for the nine months ended September 30, 1999,
or 11% of software fees. The decrease in cost of software fees is principally
due to the absence of $472,000 of purchased software and capitalized research
and development costs relating to discontinued projects expensed during the nine
months ended September 30, 1999.
Cost of Services. Cost of services revenue consists primarily of
salaries and other personnel-related expenses of employees dedicated to
professional services and customer support services. Cost of services revenue
increased to $24.9 million for the nine months ended September 30, 2000, or 43%
of services revenue, from $22.4 million for the nine months ended September 30,
1999, or 58% of services revenue. The dollar increase in cost of services
revenue is directly related to an increase in the number of employees and
contracted personnel dedicated to services activities. The decrease in cost of
services revenue as a percentage of services revenue is principally due to
increased efficiencies in the delivery of professional services, principally an
increase in the utilization of services personnel.
Cost of Hardware. Cost of hardware revenue increased to $17.4 million
for the nine months ended September 30, 2000, or 81% of hardware revenue, from
$7.2 million for the nine months ended September 30, 1999, or 76% of hardware
revenue. The increase in the cost of hardware as a percentage of hardware
revenue is principally due to an increase in the percentage of hardware products
sold with relatively lower gross margins during the nine months ended September
30, 2000 as compared to hardware sales during the nine months ended September
30, 1999.
OPERATING EXPENSES
Research and Development. Research and development expenses principally
consist of salaries and other personnel-related costs for personnel involved in
our research development efforts. Excluding the effect of $909,000 of research
and development costs capitalized in the nine months ended September 30, 1999,
our research and development expenses increased by 15% to $10.3 million for the
nine months ended September 30, 2000, or 11% of total revenue, from $9.0 million
for the nine months ended September 30, 1999, or 15% of total revenue. We
capitalized no research and development costs in the nine months ended September
30, 2000. The increase in research and development expenses is principally
attributable to additional personnel dedicated to i) the continued development
and enhancement of PkMS, including the N-Tier version of PkMS; ii) the
development of Infolink, our business community integration product; and iii)
the development of Manager's Workbench, our warehouse business intelligence
product.
Sales and Marketing. Sales and marketing expenses include salaries,
commissions, travel and other personnel-related costs of sales and marketing
personnel and the costs of our marketing programs and related activities. Sales
and marketing expenses increased by 14% to $12.9 million for the nine months
ended September 30, 2000, or 13% of total revenue, from $11.3 million for the
nine months ended September 30, 1999, or 20% of total revenue. The increase in
sales and marketing expenses is attributable to higher incentive compensation
for sales and marketing personnel related to the increase in revenues and to
expanded marketing program activities, including our User Conference held in May
of 2000.
Form 10-Q
Page 13 of 18
<PAGE> 14
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related costs of executive, financial,
human resources and administrative personnel, as well as depreciation and
amortization, legal, insurance, accounting and other administrative expenses.
General and administrative expenses increased by 20% to $11.4 million for the
nine months ended September 30, 2000, or 12% of total revenue, from $9.5 million
for the nine months ended September 30, 1999, or 16% of total revenue. The
increase in general and administrative expenses is principally due to increases
in depreciation and amortization expense, accounting and legal fees, executive
bonuses, and other administrative expenses to support our business and improve
our infrastructure. Depreciation and amortization expense included in general
and administrative expenses was $3.5 million and $2.7 million for the nine
months ended September 30, 2000 and 1999, respectively.
Operating Income. Operating income increased $20.3 million to $18.7
million for the nine months ended September 30, 2000, or 19% of total revenue,
from an operating loss of $1.6 million for the nine months ended September 30,
1999. The increase in operating income is primarily due to increased revenue
from sales of software licenses, services and hardware combined with improved
efficiencies in our business.
INCOME TAXES
The provision for income taxes was $7.8 million for the nine months
ended September 30, 2000 compared to a benefit of $283,000 for the nine months
ended September 30, 1999. The increase of $8.1 million from the nine months
ended September 30, 1999 is a direct result of our increased income for the nine
months ended September 30, 2000. For the nine months ended September 30, 2000,
our effective income tax rate was 38.0%. The income tax rate reflects our
estimated annual effective income tax rate and considers estimated taxable
income, effective state and international income tax rates and anticipated tax
credits. The provision for income taxes does not include the tax benefit from
options exercised, which reduces the Company's tax liability. For the nine
months ended September 30, 2000, the tax benefit from options exercised was $4.5
million, which was included in additional paid-in capital.
LIQUIDITY AND CAPITAL RESOURCES
Since the Company's initial public offering ("IPO") in April 1998, we
have funded our operations primarily through cash generated from operations, the
IPO proceeds and option exercises. As of September 30, 2000, we had
approximately $76.1 million in cash, cash equivalents and short-term
investments, as compared to approximately $39.9 million at December 31, 1999.
Our operating activities provided cash of approximately $31.7 million
for the nine months ended September 30, 2000 and $4.8 million for the nine
months ended September 30, 1999. Cash from operating activities arose
principally from increases in operating income, accounts payable, accrued
liabilities and deferred revenue, partially reduced by an increase in accounts
receivable.
Our investing activities provided cash of approximately $273,000 for
the nine months ended September 30, 2000. Cash from investing activities arose
principally from the net sales of short-term investments, reduced by the
purchase of capital equipment to support our business and infrastructure. Our
investing activities used cash of approximately $19.4 million for the nine
months ended September 30, 1999. Our uses of cash were primarily for purchases
of short-term investments and capital equipment.
Our financing activities provided cash of approximately $7.9 million
and $584,000 for the nine months ended September 30, 2000 and 1999,
respectively. The principal sources of cash provided by
Form 10-Q
Page 14 of 18
<PAGE> 15
financing activities are the proceeds from the issuance of common stock pursuant
to the exercise of stock options, partially reduced by payments under capital
lease obligations.
We believe that existing balances of cash, cash equivalents and
short-term investments, less the $15.0 million paid in connection with the
Intrepa acquisition, will be sufficient to meet our working capital and capital
expenditure needs at least for the next twelve months.
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
that 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 our future results, please see
Exhibit 99.1 to our Annual Report on Form 10-K for the year ended December 31,
1999. 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.
Form 10-Q
Page 15 of 18
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
FOREIGN EXCHANGE
Total international revenue was approximately $10.7 million and $4.4
million for the nine months ended September 30, 2000 and 1999, respectively,
which represents 11% and 8% of our total revenue for the nine months ended
September 30, 2000 and 1999, respectively. For the three months ended September
30, 2000 and 1999, international revenue was approximately $4.1 million and $2.0
million, respectively, which represents 12% and 10% of our total revenue,
respectively. International revenue includes all revenue associated with sales
of licenses, services and hardware outside the United States.
We conduct our direct European operations principally out of an office
in the United Kingdom, consisting of approximately 55 employees. Total revenue
for the European operations was approximately $5.5 million and $3.0 million for
the nine months ended September 30, 2000 and 1999, respectively, which
represents 6% and 5% of our total revenue for the nine months ended September
30, 2000 and 1999, respectively. For the three months ended September 30, 2000
and 1999, revenue from European operations was approximately $2.0 million and
$1.2 million, respectively, which represents 6% of our total revenue in each
three month period.
Our international business is subject to risks typical of an
international business, including, but not limited to: differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
our future results could be materially adversely impacted by changes in these or
other factors. We recognized a foreign exchange rate loss of approximately
$170,000 during the nine months ended September 30, 2000, classified in "Other
income, net" on our Condensed Consolidated Statements of Income. The effect of
foreign exchange rate fluctuation was not material during the nine months ended
September 30, 1999; therefore, no foreign exchange rate gain or loss was
recognized during that period.
INTEREST RATES
We invest our cash in a variety of financial instruments, including
taxable and tax-advantaged floating rate and fixed rate obligations of
corporations, municipalities, and local, state and national governmental
entities and agencies. These investments are denominated in U.S. dollars. Cash
balances in foreign currencies overseas are operating balances.
Interest income on our investments is classified in "Other income, net"
on our Condensed Consolidated Statements of Income. We account for our
investment instruments in accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). All of the cash equivalents and short-term investments
are treated as available-for-sale under SFAS 115.
Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, our future investment income may fall
short of expectations due to changes in interest rates, or we may suffer losses
in principal if forced to sell securities which have seen a decline in market
value due to changes in interest rates. The weighted-average interest rate on
investment securities at September 30, 2000 was approximately 6.3%. The fair
value of securities held at September 30, 2000 was $28.3 million.
Form 10-Q
Page 16 of 18
<PAGE> 17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Many of our installations involve products that are critical to the
operations of our clients' businesses. Any failure in our products could result
in a claim for substantial damages against us, regardless of our responsibility
for such failure. Although we attempt to limit contractually our liability for
damages arising from product failures or negligent acts or omissions, there can
be no assurance the limitations of liability set forth in our contracts will be
enforceable in all instances.
We are a party to an action filed on July 3, 2000 by a customer
alleging breach of warranty with respect to the purchase of one of our products.
We believe the allegations raised in the complaint are without merit and intend
to vigorously defend the lawsuit. We do not believe that this suit will have a
material impact on either our financial results or operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
No events occurred during the quarter covered by the report that would
require a response to this item.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following exhibit is filed with this Report:
<TABLE>
<S> <C>
Exhibit 27.1 Financial Data Schedule (for SEC use only).
</TABLE>
(b) Reports to be filed on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
September 30, 2000.
Form 10-Q
Page 17 of 18
<PAGE> 18
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: November 14, 2000 /s/ Richard M. Haddrill
---------------------------------------------------
Richard M. Haddrill
Chief Executive Officer, President and Director
(Principal Executive Officer)
Date: November 14, 2000 /s/ Thomas Williams
---------------------------------------------------
Thomas Williams
Senior Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
Form 10-Q
Page 18 of 18
