Management of Manhattan Associates, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As of the end of the Company’s 2018 fiscal year, management conducted an assessment of the Company’s internal control over financial reporting based on the framework established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2018 was effective.
Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s financial statements for the year ended December 31, 2018, has audited the Company’s internal control over financial reporting as of December 31, 2018 and has issued a report regarding the Company’s internal control over financial reporting appearing on page 41, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018.
The accompanying notes are an integral part of these Consolidated Statements of Income.
The accompanying notes are an integral part of these Consolidated Statements of Comprehensive Income.
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
The accompanying notes are an integral part of these Consolidated Balance Sheets.
The accompanying notes are an integral part of these Consolidated Statements of Cash Flows.
The accompanying notes are an integral part of these Consolidated Statements of Shareholders’ Equity.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017 and 2016
1. Organization, Consolidation and Summary of Significant Accounting Policies
Organization and Business
Manhattan Associates, Inc. (“Manhattan”, the “Company”, “we”, “our”, or “us”) is a developer and provider of supply chain commerce solutions that help organizations optimize the effectiveness, efficiency, and strategic advantages of their supply chains. Our solutions consist of software, services, and hardware, which coordinate people, workflows, assets, events, and tasks holistically across the functions linked in a supply chain from planning through execution. These solutions also help coordinate the actions, data exchange, and communication of participants in supply chain ecosystems, such as manufacturers, suppliers, distributors, trading partners, transportation providers, channels (such as catalogers, store retailers, and Web outlets), and consumers.
Our operations are in North and South America (the Americas), Europe (EMEA), and the Asia/Pacific (APAC) region. The Americas operation are conducted through the Parent Company, Manhattan Associates, Inc., and its wholly-owned subsidiary, Manhattan Associates Chile Spa. The European operations are conducted through our wholly-owned subsidiaries, Manhattan Associates Limited, Manhattan Associates Europe B.V., Manhattan France SARL, and Manhattan Associates GmbH, in the United Kingdom, the Netherlands, France, and Germany, respectively. Our Asia/Pacific operations are conducted through our wholly-owned subsidiaries, Manhattan Associates Pty Ltd., Manhattan Associates KK, Manhattan Associates Software (Shanghai), Co. Ltd., Manhattan Associates Software Pte Ltd., and Manhattan Associates (India) Development Centre Private Limited in Australia, Japan, China, Singapore, and India, respectively. We occasionally sell our products and services in other countries, such as countries in Latin America, Eastern Europe, Middle East, and Asia, through our direct sales channel as well as various reseller channels.
Risks Associated with Single Business Line, Technological Advances, and Foreign Operations
We currently derive a substantial portion of our revenues from sales of our software and related services and hardware. The markets for supply chain commerce solutions are highly competitive, subject to rapid technological change, changing customer needs, frequent new product introductions, and evolving industry standards that may render existing products and services obsolete. As a result, our position in these markets could be eroded rapidly by unforeseen changes in customer requirements for application features, functions, and technologies. Our growth and future operating results will depend, in part, upon our ability to enhance existing applications and develop and introduce new applications that meet changing customer requirements that respond to competitive products and that achieve market acceptance. Any factor adversely affecting the markets for supply chain commerce solutions could have an adverse effect on our business, financial condition, results of operations and operating cash flows.
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. We recognized foreign exchange gains of $1.3 million and $0.6 million in 2018 and 2016, respectively, and a foreign exchange loss of $1.8 million in 2017. Foreign exchange rate transaction gains and losses are classified in “Other income (loss), net” on the Consolidated Statements of Income.
In addition, we have a large development center in Bangalore, India, that does not have a natural in-market revenue hedge to mitigate currency risk to our operating expenses in India. Fluctuations in the value of other currencies, particularly the Indian Rupee, could significantly affect our revenues, expenses, operating profit and net income.
Principles of Consolidation and Foreign Currency Translation
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.
The financial statements of foreign subsidiaries have been translated into United States dollars in accordance with the foreign currency matters topic in the FASB’s Accounting Standards Codification (the “Codification”). Revenues and expenses from international operations were denominated in the respective local currencies and translated using the average monthly exchange rates for the year. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date and the effect of changes in exchange rates from year to year are disclosed as a separate component of shareholders’ equity and comprehensive income.
48
New Accounting Pronouncements Adopted in Fiscal Year 2018
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09,
Revenue Recognition – Revenue from Contracts with Customers (Topic 606)
, which, along with its subsequent amendments, replaced substantially all revenue recognition guidance. The new standard provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers unless the contracts are in the scope of other standards.
On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results of reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the previous revenue recognition standard (Topic 605). Historical hardware sales prior to the adoption of Accounting Standards Codification (ASC) 606 were recorded on a gross basis, as we were the principal in the transaction in accordance with ASC 605-45. Under the new standard, we are an agent in the transaction as we do not physically control the hardware which we sell; accordingly, we recognize our hardware revenue net of related cost which reduces both hardware revenue and cost of sales as compared to our accounting prior to 2018. Otherwise, the adoption of ASC 606 does not have a material impact on the measurement or recognition of revenue in any prior or current reporting periods.
However, based on expected renewals of maintenance and multi-year cloud subscriptions, we must defer a portion of our sales commission expense and amortize it over time as the corresponding services are transferred to the customer under the new standard. As a result, we recorded a net increase to opening retained earnings of $2.0 million, net of tax, as of January 1, 2018 for commissions expense required to be deferred on contracts not completed as of that date.
Had we presented the results for 2018 under Topic 605, we would have presented hardware revenue gross which would have increased hardware revenue and cost of hardware each by $35.9 million. We would have also expensed all sales commissions upon contract completion which would have increased sales and marketing expense by $2.5 million in 2018.
Stock Compensation
In June 2018, the FASB issued ASU 2018-07,
Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting
(ASU 2018-07). The new guidance expands the scope of ASC 718,
Compensation – Stock Compensation
, to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entity’s operations, and supersedes the guidance in ASC 505-50,
Equity-Based Payments to NonEmployees
. Once adopted, the fair value of awards granted to nonemployees will be determined as of the grant date and recognized, in expense, over the service period. Previous guidance required the fair value of awards granted to nonemployees to be remeasured at intervals in determining the expense to be recognized. ASU 2018-07 is effective for public business entities in annual periods beginning after December 15, 2018 (first quarter 2019 for us). We early adopted ASU 2018-07 in the third quarter of 2018, and the adoption did not impact our financial statements.
New Accounting Pronouncements Not Yet Adopted as of December 31, 2018
Leases
In February 2016, the FASB issued ASU 2016-02,
Leases
, which established new ASC Topic 842 (ASC 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP which requires only capital leases to be recognized on the balance sheet, the new standard will require both types of leases to be recognized on the balance sheet. ASC 842 also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.
ASC 842 was previously required to be adopted using the modified retrospective approach. However, in July 2018, the FASB issued ASU 2018-11, which allows for retrospective application with the recognition of a cumulative-effect adjustment to the opening
49
balance of retained earnings in the period of adoption. Under this option, entities would not need to apply ASC 842 (along with its disclosure requirements) to the comparative prior periods presented.
ASC 842 is effective for us in the first quarter of 2019 and we expect that most of our operating leases (primarily office space) will be recognized as operating lease liabilities and right of use assets on our balance sheet. The right of use assets and lease liabilities that we recognize on our balance sheet, as of the adoption date, will depend on our lease portfolio and discount rates on the date of adoption. We are continuing to evaluate the impact that the adoption of this standard will have on our financial statements but currently believe it is likely that we will elect to adopt certain of the optional practical expedients, including the package of practical expedients, which, among other things, gives us the option to not reassess: 1) whether expired or existing contracts are or contain leases; 2) the lease classification for expired or existing leases; and 3) initial direct costs for existing leases. We also believe that we will elect the optional transition method that allows for a cumulative-effect adjustment as of the adoption date coupled with the option to not restate prior periods. We do not expect the adoption of ASC 842 to materially impact our Consolidated Statements of Income or our Consolidated Statements of Cash Flows.
Summary of Significant Accounting Policies
Cash and Cash Equivalents
We consider all highly liquid investments purchased with original maturities of three months or less to be cash or cash equivalents.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. We maintain cash and cash equivalents with various financial institutions. Amounts held are above the federally insured limit.
Our sales are primarily to companies located in the United States, Europe and Asia. We perform periodic credit evaluations of our customers’ financial condition and do not require collateral. Accounts receivable are due principally from large U.S., European and Asia Pacific companies under stated contract terms. Accounts receivable, net as of December 31, 2018 for the Americas, EMEA, and APAC companies were $80.5 million, $15.2 million, and $4.4 million, respectively. Accounts receivable, net as of December 31, 2017 for the Americas, EMEA, and APAC companies were $71.8 million, $16.1 million, and $4.3 million, respectively. Our top five customers in aggregate accounted for 13%, 9%, and 12% of total revenue recognized for the year ended December 31, 2018 (“2018”), the year ended December 31, 2017 (“2017”) and the year ended December 31, 2016 (“2016”), respectively. No single customer accounted for more than 10% of revenue in 2018, 2017 and 2016 or more than 10% of accounts receivable as of December 31, 2018 and 2017.
Fair Value Measurement
We measure our investments based on a fair value hierarchy disclosure framework that prioritizes and ranks the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is affected by a number of factors, including the type of asset or liability and their characteristics. This hierarchy prioritizes the inputs into three broad levels as follows:
|
•
|
Level 1–Quoted prices in active markets for identical instruments.
|
|
•
|
Level 2–Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
|
|
•
|
Level 3–Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
Investments with maturities of 90 days or less from the date of purchase are classified as cash equivalents; investments with maturities of greater than 90 days from the date of purchase but less than one year are generally classified as short-term investments; and investments with maturities of one year or greater from the date of purchase are generally classified as long-term investments. Unrealized holding gains and losses are reflected as a net amount in a separate component of shareholders’ equity until realized. For the purposes of computing realized gains and losses, cost is determined on a specific identification basis.
At December 31, 2018, our cash, cash equivalents, and short-term investments were $78.5 million, $20.7 million, and $1.4 million, respectively. We currently have no long-term investments. Cash equivalents consist of highly liquid money market funds of $9.7 million and certificates of deposit of $11.0 million. Short-term investments consist of certificates of deposit. For money market funds,
50
we use quoted prices from active markets that are classified at Level 1, the highest level of observable input in the disclosure hierarchy framework. We have
no
investments classified at Level 2 or Level 3 at December 31, 2018.
The carrying values of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable included in the accompanying Consolidated Balance Sheets approximate their fair values principally due to the short-term maturities of these instruments.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates include the allowance for doubtful accounts, which is based upon an evaluation of historical amounts written-off, the customers’ ability to pay, and general economic conditions; self-insurance accruals; impairment testing of goodwill; and our effective income tax rate (including the impact of unrecognized tax benefits) and deferred tax assets, which are based upon our expectations of future taxable income, allowable deductions, and projected tax credits. Actual results will differ from these estimates.
Revenue Recognition
We recognize revenue when we transfer control of the promised products or services to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services. We derive our revenue from software licenses, cloud subscriptions, customer support services and software enhancements (“maintenance”), implementation and training services, and sales of hardware. We exclude sales and usage-based taxes from revenue.
Nature of Products and Services
Our perpetual software licenses provide the customer with a right to use the software as it exists at the time of purchase. We recognize revenue for distinct software licenses once the license period has begun and we have made the software available to the customer.
Cloud subscriptions includes software as a service (“SaaS”) and arrangements which provide customers with the right to use our software within a cloud-based environment that we provide and manage where the customer does not have the right to take possession of the software without significant penalty. SaaS and hosting revenues are recognized ratably over the contract period. For contracts that include a perpetual license and hosting services, we generally consider the arrangement as an overall service, recognized over the initial hosting term. The software license fee typically due at the outset of the arrangement is not payable again if the customer renews the hosting services, so that the customer’s option to renew the hosting services is a material right, the revenue from which, if the option is exercised, we will recognize over the applicable renewal period.
Our perpetual software licenses are typically sold with maintenance under which we provide a comprehensive 24 hours per day, 365 days per year program that provides customers with software upgrades, when and if available, which include additional or improved functionality and technological advances incorporating emerging supply chain and industry initiatives. Revenue related to maintenance is generally paid in advance and recognized ratably over the term of the agreement, typically twelve months.
Our services revenue consists of fees generated from implementation, training and application managed services, including reimbursements of out-pocket expenses in connection with our implementation services. Implementation services include system planning, design, configuration, testing, and other software implementation support, and are typically optional and distinct from our software. Following implementation, customers may purchase application managed services to support and maintain our software. Fees for our services are separately priced and are generally billed on an hourly basis, and revenue is recognized over time as the services are performed. In certain situations, we render professional services under agreements based upon a fixed fee for portions of or all of the engagement. Revenue related to fixed-fee-based services contracts is recognized over time based on the proportion performed.
The total amount of expense reimbursement included in services revenue was $16.8 million, $17.9 million and $18.3 million for 2018, 2017 and 2016, respectively.
As part of a complete solution, our customers periodically purchase hardware products developed and manufactured by third parties from us for use with the software licenses purchased from us. These products include computer hardware, radio frequency terminal networks, radio frequency identification (RFID) chip readers, bar code printers and scanners, and other peripherals. As we do not physically control the hardware that we sell, we are acting as an agent in the transaction and recognize our hardware revenue net of related cost. We recognize hardware revenue when control is transferred to the customer upon shipment.
51
Significant Judgements
Our contracts with customers typically contain promises to transfer multiple products and services to a customer. Judgement is required to determine whether each product and service is considered to be a distinct performance obligation that should be accounted for separately under the contract. We allocate the transaction price to the distinct performance obligations based on relative standalone selling price (“SSP”). We estimate SSP based on the prices charged to customers, or by using information such as market conditions and other observable inputs. However, the selling price of our software licenses is highly variable. Thus, we estimate SSP for software licenses using the residual approach, determined based on total transaction price less the SSP of other goods and services promised in the contract.
Contract Balances
Timing of invoicing to customers may differ from timing of revenue recognition. Payment terms for our software licenses vary. We have an established history of collecting under the terms of our software license contracts without providing refunds or concessions to our customers. Cloud subscriptions and maintenance are typically billed annually in advance. Services are typically billed monthly as performed. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with predictable ways to purchase our software and services, not to provide or receive financing. Additionally, we are applying the practical expedient to exclude from consideration any contracts with payment terms of one year or less as we rarely offer terms extending beyond one year.
Deferred revenue mainly represents amounts collected prior to having completed performance of maintenance, cloud subscriptions and professional services. $72.8 million of revenue that was included in the deferred revenue balance as of December 31, 2017 was recognized in 2018.
No revenue was recognized in 2018 from performance obligations that were satisfied in prior periods.
Remaining Performance Obligations
As of December 31, 2018, approximately $77.0 million of revenue is expected to be recognized from remaining performance obligations for cloud subscriptions, maintenance contracts, and application managed services with a non-cancelable term greater than 1 year (including deferred revenue as well as amounts that will be invoiced and recognized as revenue in future periods). We expect to recognize revenue on approximately 60% of these remaining performance obligations over the next 24 months with the balance recognized thereafter. We have elected not to provide disclosures regarding remaining performance obligations for contracts with a term of 1 year or less.
Returns and Allowances
We have not experienced significant returns or warranty claims to date and, as a result, have not recorded a provision for the cost of returns and product warranty claims.
We record an allowance for doubtful accounts based on historical experience of write-offs and a detailed assessment of accounts receivable. Additions to the allowance for doubtful accounts generally represent a sales allowance on services revenue, which are recorded to operations as a reduction to services revenue. Total amount charged to operations in 2018, 2017 and 2016 was $3.9 million, $1.6 million and $4.9 million, respectively. In estimating the allowance for doubtful accounts, we consider the age of the accounts receivable, our historical write-offs, and the creditworthiness of the customer, among other factors. Should any of these factors change, the estimates made by us will also change accordingly, which could affect the level of our future allowances. Uncollectible accounts are written off when it is determined that the specific balance is not collectible.
Deferred Commissions
We consider sales commissions to be incremental costs of obtaining a contract with a customer. We defer and recognize an asset for sales commissions related to performance obligations with an expected period of benefit of more than one year. We apply the practical expedient to expense sales commissions when the amortization period would have been one year or less. Deferred commissions were $3.5 million as of December 31, 2018, of which $2.4 million is included in other assets and $1.1 million is included in prepaid expenses. Sales commission expense is included in Sales and Marketing expense in the accompanying consolidated statement of operations. Amortization of sales commissions in 2018 was $1.0 million. No impairment losses were recognized during
2018.
52
Property and Equipment
Property and equipment is recorded at cost and consists of furniture, computers, other office equipment, and leasehold improvements. We depreciate the cost of furniture, computers, and other office equipment on a straight-line basis over their estimated useful lives (five years for office equipment, seven years for furniture and fixtures). Leasehold improvements are depreciated over the lesser of their useful lives or the term of the lease. Depreciation expense for property and equipment for 2018, 2017 and 2016 was approximately $7.5 million, $7.7 million, and $7.5 million, respectively. Amortization of intangibles was $1.2 million, $1.3 million and $1.6 million in 2018, 2017 and 2016, respectively. Depreciation expense as well as amortization expense are included in “Depreciation and amortization” in the Consolidated Statements of Income.
Property and equipment consist of the following (in thousands):
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Office equipment
|
|
$
|
39,633
|
|
|
$
|
39,644
|
|
Furniture and fixtures
|
|
|
4,610
|
|
|
|
4,662
|
|
Leasehold improvement
|
|
|
19,430
|
|
|
|
18,494
|
|
Property and equipment, gross
|
|
|
63,673
|
|
|
|
62,800
|
|
Less accumulated depreciation
|
|
|
(49,355
|
)
|
|
|
(47,307
|
)
|
Property and equipment, net
|
|
$
|
14,318
|
|
|
$
|
15,493
|
|
Software Development Costs
Research and development expenses are charged to expense as incurred. For 2018, 2017 and 2016, we did not capitalize any internal research and development costs because the costs incurred between the attainment of technological feasibility for the related software product through the date that the product was available for general release to customers were insignificant.
We determine the amount of development costs capitalizable in accordance with the FASB Codification provisions relating to costs of computer software to be sold, leased, or marketed. Under this guidance, computer software development costs are charged to R&D expense until technological feasibility is established, after which remaining software production costs are capitalized. We have defined technological feasibility as the point in time at which we have a detailed program design or a working model of the related product, depending on the type of development efforts, and high-risk development issues have been resolved through end-to-end system testing.
Impairment of Long-Lived Assets
We review the values assigned to long-lived assets, including property and certain intangible assets, to determine whether events and circumstances have occurred which indicate that the remaining estimated useful lives may warrant revision or that the remaining balances may not be recoverable. In such reviews, undiscounted cash flows associated with these assets are compared with their carrying value to determine if a write-down to fair value is required. During 2018, 2017 and 2016, we recognize no impairment charges associated with our long-lived or intangible assets.
The evaluation of asset impairment requires management to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment, and actual results may differ from assumed and estimated amounts.
Goodwill and Impairment of Goodwill
Goodwill
Goodwill represents the excess of purchase price over fair value of net identified tangible and intangible assets and liabilities acquired. We do not amortize goodwill. Instead, we test goodwill for impairment on at least an annual basis. Goodwill was $62.2 million at the end of each of the years ended December 31, 2018 and 2017.
Impairment of Goodwill
We evaluate the carrying value of goodwill annually as of December 31 and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to, (1) a significant adverse change in legal factors or in the business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator.
53
We applied the simplified goodwill impairment test for 2018, which permits companies to perform a qualitative assessment based on economic, industry and company-specific factors as the initial step in the annual goodwill impairment test for all or selected reporting units. Based on the results of the qualitative assessment, companies are only required to perform Step 1 of the annual impairment test for a reporting unit if the company concludes that it is not more likely than not that the unit’s fair value is less than its carrying amount. To the extent we conclude that it is more likely than not that a reporting unit’s estimated fair value is less than its carrying amount, the two-step approach is applied. The first step would require a comparison of each reporting unit’s fair value to the respective carrying value. If the carrying value exceeds the fair value, a second step is performed to measure the amount of impairment loss, if any. We did not identify any macroeconomic or industry conditions as of
December 31, 2018
, that would indicate that the fair value of the reporting units were more likely than not to be less than their
respective carrying values. If circumstances change or events occur to indicate that it is more likely than not that the fair value of any reporting units have fallen below their carrying value, we would record an impairment charge based on that difference. We performed our periodic review of goodwill for impairment as of
December 31, 2018 and 2017
, and did
no
t identify any impairment as a result of the review.
Guarantees and Indemnities
We account for guarantees in accordance with the guarantee accounting topic in the FASB Codification
.
Our customer contracts generally contain infringement indemnity provisions. Under those provisions, we generally agree, subject to certain exceptions, to indemnify, defend, and hold harmless the customer in connection with third party claims against the customer alleging that the customer’s use of our software products in compliance with their license infringe the third party’s patent, copyright, or other intellectual property rights. Conditions to our obligations generally include that we are provided the right to control the defense of the claims and, in general, to control settlement negotiations. Those provisions generally provide also that, if the customer is prevented from using our software because of a third party infringement claim, our sole obligation (in addition to the indemnification, defense, and hold harmless obligation referred to above) is to, at our expense, (i) procure for the customer the right to continue to use the software, (ii) to replace or modify the product so that its use by the customer does not infringe, or, if either of the foregoing are not reasonably feasible, to terminate the customer contract and provide a refund of the unamortized portion of the customer’s license fee (based on a five year amortization period). Our customer contracts sometimes also require us to indemnify, defend, and hold harmless the customer in connection with death, personal injury, or property damage claims made by third parties with respect to actions of our personnel or contractors. The indemnity obligations contained in our customer contracts generally have no specified expiration date and no specified monetary limitation on liability. We have not previously incurred costs to settle claims or pay awards under these indemnification obligations. We account for these indemnity obligations in accordance with FASB guidance on accounting for contingencies, and record a liability for these obligations when a loss is probable and reasonably estimable. We have not recorded any liabilities for these contracts as of December 31, 2018, or 2017.
In general, in our customer contracts, we warrant to our customers that our software products will perform in all material respects in accordance with the standard published specifications in effect at the time of delivery of the licensed products to the customer for six months after first use of the licensed products, but no more than 24 months after execution of the license agreement. Additionally, we warrant to our customers that services will be performed consistent with generally accepted industry standards or specific service levels through completion of the agreed upon services. If necessary, we will provide for the estimated cost of product and service warranties based on specific warranty claims and claims history. However, we have not incurred significant recurring expenses under product or service warranties. As a result, we believe the estimated fair value of these agreements is nominal. Accordingly, we have no liabilities recorded for these agreements as of December 31, 2018 and 2017.
Segment Information
We have three reportable segments as defined by the FASB Codification topic for segment reporting: Americas, EMEA, and APAC. See Note 7 for a discussion of our reportable segments.
Basic and Diluted 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”) for the period presented.
54
Diluted net income per share is computed using net income divided by Weighted Shares and the treasury stock method effect of common equivalent shares (“CESs”) outstanding for each period presented.
In the following table, we present a reconciliation of earnings per share and the shares used in the computation of earnings per share for
2018, 2017 and 2016
(in thousands, except per share data):
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands, except per share data)
|
|
Net income
|
|
$
|
104,690
|
|
|
$
|
116,481
|
|
|
$
|
124,234
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.58
|
|
|
$
|
1.68
|
|
|
$
|
1.73
|
|
Effect of CESs
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.01
|
)
|
Diluted
|
|
$
|
1.58
|
|
|
$
|
1.68
|
|
|
$
|
1.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
66,201
|
|
|
|
69,175
|
|
|
|
71,674
|
|
Effect of CESs
|
|
|
233
|
|
|
|
249
|
|
|
|
386
|
|
Diluted
|
|
|
66,434
|
|
|
|
69,424
|
|
|
|
72,060
|
|
The number of anti-dilutive CESs in 2018, 2017 and 2016 was immaterial. See Note 2 for further information on those securities.
Accumulated Other Comprehensive Income
Comprehensive income includes net income and foreign currency translation adjustments that are excluded from net income and reflected in shareholders’ equity. The entire accumulated other comprehensive income balance as of December 31, 2018 and 2017 represents foreign currency translation adjustments.
Accounting for Income Taxes
We provide for the effect of income taxes on our financial position and results of operations in accordance with the Income Taxes Topic of the Codification. Under this accounting pronouncement, income tax expense is recognized for the amount of income taxes payable or refundable for the current year and for the change in net deferred tax assets or liabilities resulting from events that are recorded for financial reporting purposes in a different reporting period than recorded in the tax return. Management must make significant assumptions, judgments, and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset.
Our judgments, assumptions, and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws, allowable deductions, projected tax credits, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. We do not recognize a tax benefit unless we conclude that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, we recognize a tax benefit measured at the largest amount of the tax benefit that, in our judgment, is greater than 50 percent likely to be realized. Changes in tax law or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our financial position and results of operations. Our assumptions, judgments, and estimates relative to the value of our net deferred tax asset take into account predictions of the amount and category of future taxable income. Actual operating results and the underlying amount and category of income in future years could render our current assumptions, judgments, and estimates of recoverable net deferred taxes inaccurate, thus materially impacting our financial position and results of operations.
Equity-Based Compensation
We account for equity-based compensation in accordance with ASC 718,
Compensation – Stock Compensation.
See Note 2 for further information.
Advertising costs
We expense advertising costs as incurred. Advertising expense was $2.9 million in 2018 and immaterial for 2017 and 2016.
55
2. Equity-Based Compensation
Equity Based Compensation Plans
In May 2007, the Manhattan Associates, Inc. 2007 Stock Incentive Plan (the “2007 Plan”) was approved by our shareholders and subsequently amended in May 2009 and May 2011. The amended 2007 Plan provides for the grant of stock options, restricted stock, restricted stock units, and stock appreciation rights. Vesting conditions can be service-based or performance-based, or a combination of both.
As amended, a maximum of 30,000,000 shares are available for grant under the amended 2007 Plan. Each stock option or stock appreciation right granted is counted against the maximum share limitation as one share, and each share of restricted stock or restricted stock unit granted (including those that are service based or performance based) counts against the maximum share limitation as two shares. Options and stock appreciation rights cannot have a term exceeding seven years. As of December 31, 2018, there were 9,844,416 shares available for issuance under the amended 2007 Plan. The amended 2007 Plan is administered by the Compensation Committee of the Board of Directors. The committee has the authority to interpret the provisions thereof.
The restricted stock awards contain vesting provisions that are 50% service based and 50% performance based for employee awards and 100% service based for non-employee members of the Board of Directors (“Outside Directors”). The employee awards have a four year vesting period, with the performance portion tied to annual revenue and earnings per share targets. The awards to Outside Directors have a one year vesting period. We recognize compensation cost for service-based restricted awards with graded vesting on a straight-line basis over the entire vesting period, with the amount of compensation cost recognized at any date at least equal to the portion of the grant-date value of the award that is vested at that date. For our performance-based restricted stock awards with graded vesting, we recognize compensation cost on an accelerated basis applying straight-line expensing for each separately vesting portion of each award.
In January 2012, in order to simplify equity grant administration, we changed the practice of granting restricted stock in favor of granting restricted stock
units
, or RSUs, which convert to our common stock upon vesting. There is no material difference between the grant of restricted stock and the grant of RSUs to either us or the recipients receiving the grants; however, in contrast to the granting of restricted stock, no stock will actually be issued under the granting of RSUs until the units vest. Currently, we do not grant stock options.
Restricted Stock Awards
We present below a summary of changes during 2018 in our unvested units of restricted stock:
|
|
Number of Units
|
Grant Date Fair Value
|
Outstanding at January 1, 2018
|
|
1,036,635
|
$48.83
|
Granted
|
|
528,677
|
51.72
|
Vested
|
|
(379,971)
|
44.38
|
Forfeited
|
|
(188,168)
|
47.97
|
Outstanding at December 31, 2018
|
|
997,173
|
$52.22
|
We recorded equity-based compensation expense related to restricted stock and RSUs (collectively “restricted stock awards”) of $19.9 million, $16.2 million and $15.9 million, in 2018, 2017 and 2016,
respectively. The total fair value of restricted stock awards that vested in 2018, 2017 and 2016, based on the market value at the vesting dates was $18.1 million, $18.8 million, and $26.0 million, respectively. The weighted average grant-date fair value of RSUs granted in 2018, 2017 and 2016 was $51.72, $49.01, and $55.35, respectively. As of December 31, 2018, unrecognized compensation cost related to unvested RSUs totaled $30.2 million and is expected to be recognized over a weighted average period of approximately 2.3 years. In January 2017, we elected to recognize forfeitures of equity-based payments as they occur.
Included in RSU grants for 2018
were 232,591 units that have performance-based vesting criteria. The performance criteria are tied to our financial performance. As of December 31, 2018, the associated equity-based compensation expense has been recognized for the portion of the award attributable to the 2018 performance criteria.
56
3. Income Taxes
We are subject to future federal, state, and foreign income taxes and have recorded net deferred tax assets on the Consolidated Balance Sheets at December 31, 2018 and 2017. Deferred tax assets and liabilities are determined based on the difference between the financial accounting and tax bases of assets and liabilities. We present below significant components of our deferred tax assets and liabilities as of December 31, 2018 and 2017 (in thousands):
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
599
|
|
|
$
|
618
|
|
Accrued liabilities
|
|
|
5,075
|
|
|
|
2,571
|
|
Equity-based compensation
|
|
|
4,643
|
|
|
|
3,732
|
|
Capitalized costs
|
|
|
911
|
|
|
|
595
|
|
Accrued sales taxes
|
|
|
202
|
|
|
|
257
|
|
Deferred rent
|
|
|
96
|
|
|
|
336
|
|
State tax credits
|
|
|
5,495
|
|
|
|
5,870
|
|
Foreign subsidiary net operating losses
|
|
|
175
|
|
|
|
278
|
|
Valuation allowance
|
|
|
(3,846
|
)
|
|
|
(4,084
|
)
|
Other
|
|
|
778
|
|
|
|
297
|
|
|
|
|
14,128
|
|
|
|
10,470
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
7,502
|
|
|
|
7,480
|
|
Depreciation
|
|
|
1,237
|
|
|
|
1,182
|
|
|
|
|
8,739
|
|
|
|
8,662
|
|
Net deferred tax assets
|
|
$
|
5,389
|
|
|
$
|
1,808
|
|
We present below income from domestic and foreign operations before income tax expense for 2018, 2017 and 2016 (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Domestic
|
|
$
|
126,542
|
|
|
$
|
177,314
|
|
|
$
|
186,234
|
|
Foreign
|
|
|
9,689
|
|
|
|
7,519
|
|
|
|
9,873
|
|
Total
|
|
$
|
136,231
|
|
|
$
|
184,833
|
|
|
$
|
196,107
|
|
We present below the components of our income tax provision for 2018, 2017 and 2016 (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
22,606
|
|
|
$
|
53,998
|
|
|
$
|
56,053
|
|
State
|
|
|
6,182
|
|
|
|
6,595
|
|
|
|
8,204
|
|
Foreign
|
|
|
7,018
|
|
|
|
6,185
|
|
|
|
5,819
|
|
|
|
|
35,806
|
|
|
|
66,778
|
|
|
|
70,076
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(3,127
|
)
|
|
|
1,590
|
|
|
|
2,086
|
|
State
|
|
|
(674
|
)
|
|
|
35
|
|
|
|
(268
|
)
|
Foreign
|
|
|
(464
|
)
|
|
|
(51
|
)
|
|
|
(21
|
)
|
|
|
|
(4,265
|
)
|
|
|
1,574
|
|
|
|
1,797
|
|
Total
|
|
$
|
31,541
|
|
|
$
|
68,352
|
|
|
$
|
71,873
|
|
We did not have income tax benefits related to the exercise of stock options for the years ended December 31, 2018 or 2017 as the remaining outstanding stock options were exercised in 2016. The income tax benefits related to the exercise of stock options was approximately $0.1 million for 2016.
57
As a result of losses in foreign locations, we have net operating loss carry-forwards (“NOLs”) of approximately $0.7 million available to offset future income. Substantially all of the NOLs expire between 2019 and 2025. We have established a valuation allowance for substantially all of these NOLs because the ability to utilize them is not more likely than not to occur.
We have tax credit carry-forwards of approximately $7.0 million available to offset future state tax. These tax credit carry-forwards expire between 2019 and 2028. These credits represent a deferred tax asset of $5.5 million after consideration of the federal benefit of state tax deductions. A valuation allowance of $2.8 million has been established for these credits because the ability to use them is not more likely than not to occur.
At December 31, 2018, we had approximately $52.7 million of undistributed earnings and profits.
The undistributed earnings and profits are considered previously taxed income and would not be subject to U.S. income taxes upon repatriation of those earnings, in the form of dividends. The undistributed earnings and profits are considered to be permanently reinvested, accordingly no provision for local withholdings taxes have been provided, however, upon repatriation of those earnings, in the form of dividends, we could be subject to additional local withholding taxes.
We present below a summary of the items that cause recorded income taxes to differ from taxes computed using the statutory federal income tax rate for 2018, 2017 and 2016:
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory federal income tax rate
|
|
|
21.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income tax, net of federal benefit
|
|
|
3.4
|
|
|
|
2.3
|
|
|
|
2.7
|
|
State credit carryforwards
|
|
|
0.3
|
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
U.S. federal R&D tax credit
|
|
|
(1.7
|
)
|
|
|
(0.8
|
)
|
|
|
(0.7
|
)
|
Tax Reform
|
|
|
(0.1
|
)
|
|
|
1.5
|
|
|
|
-
|
|
Excess benefit of equity compensation
|
|
|
(0.6
|
)
|
|
|
(1.0
|
)
|
|
|
-
|
|
Foreign-derived intangible income (FDII) deduction
|
|
|
(1.6
|
)
|
|
|
-
|
|
|
|
-
|
|
Foreign operations
|
|
|
1.2
|
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
Tax contingencies
|
|
|
0.5
|
|
|
|
-
|
|
|
|
0.6
|
|
Other permanent differences
|
|
|
1.0
|
|
|
|
0.3
|
|
|
|
(0.5
|
)
|
Change in valuation allowance
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Income taxes
|
|
|
23.2
|
%
|
|
|
37.0
|
%
|
|
|
36.6
|
%
|
On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (“the Act”), resulting in significant modifications to existing law. We followed the guidance in SEC Staff Accounting Bulletin 118 (“SAB 118”), which provides additional clarification regarding the application of ASC Topic 740 in situations where we do not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Act for the reporting period in which the Act was enacted. SAB 118 provides for a measurement period beginning in the reporting period that includes the Act's enactment date and ending when we have obtained, prepared, and analyzed the information needed in order to complete the accounting requirements but in no circumstances should the measurement period extend beyond one year from the enactment date.
In December 2017, we recorded a provisional estimate of $3.3 million for the one-time deemed repatriation transition tax on unrepatriated foreign earnings. The provisional amount was based on information available at that time, including estimated tax earnings and profits from foreign investments. In the fourth quarter of 2018, we finalized our transition tax calculation and recorded additional tax expense of $0.3 million. In December 2017, we also recorded a provisional write-down to deferred tax assets of $0.7 million related to changes in Section 162(m), Internal Revenue Code of 1986, regarding deductions for excessive employee compensation. In 2018, we finalized our calculation under Section 162(m) and recorded a tax benefit of $0.5 million. We also recorded a one-time tax benefit in December 2017 of $1.2 million from the remeasurement of deferred tax assets and liabilities from 35% to 21%. As of December 31, 2018, we have completed the accounting for all of the impacts of the Act.
The Act provides for the global intangible low-taxed income (“GILTI”) provision which requires us, in our U.S. income tax return, to include foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets.
The FASB Staff provided additional guidance to address the accounting for the effects of the provisions related to the taxation of GILTI, noting that companies should make an accounting policy election to recognize deferred taxes for temporary basis differences expected to
58
reverse as GILTI in future years or to include the tax expense in the year it is incurred. We have elected to include the tax expense in the year that we incur it.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows for 2018, 2017 and 2016 (in thousands):
|
|
December 31,
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits at January 1,
|
|
$
|
(7,419
|
)
|
|
$
|
(6,938
|
)
|
|
$
|
(5,789
|
)
|
Gross amount of increases in unrecognized tax benefits as a result of tax positions taken during a prior period
|
|
|
(873
|
)
|
|
|
(789
|
)
|
|
|
(756
|
)
|
Gross amount of decreases in unrecognized tax benefits as a result of tax positions taken during a prior period
|
|
|
233
|
|
|
|
145
|
|
|
|
270
|
|
Gross amount of increases in unrecognized tax benefits as a result of tax positions taken during the current period
|
|
|
(78
|
)
|
|
|
-
|
|
|
|
(791
|
)
|
Reductions to unrecognized tax benefits relating to settlements with taxing authorities
|
|
|
349
|
|
|
|
-
|
|
|
|
-
|
|
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations
|
|
|
675
|
|
|
|
163
|
|
|
|
128
|
|
Unrecognized tax benefits at December 31,
|
|
$
|
(7,113
|
)
|
|
$
|
(7,419
|
)
|
|
$
|
(6,938
|
)
|
Our unrecognized tax benefits totaled $7.1 million and $7.4 million as of December 31, 2018 and 2017, respectively. Included in these amounts are unrecognized tax benefits totaling $5.4 million and $5.6 million as of December 31, 2018 and 2017, respectively, which, if recognized, would affect the effective tax rate.
We recognize potential accrued interest and penalties related to unrecognized tax benefits within our global operations in income tax expense. For 2018, 2017 and 2016, we recognized $0.5 million, $0.3 million, and $0.3 million, respectively, of expense for the potential payment of interest and penalties. Accrued interest and penalties were $2.1 million and $1.7 million as of December 31, 2018 and 2017. We conduct business globally and, as a result, file income tax returns in the United State federal jurisdiction and in many state and foreign jurisdictions. We are no longer subject to U.S. federal, state, and local, or non-US income tax examinations for the years before 2012. Due to the expiration of statutes of limitations in multiple jurisdictions globally during 2019, we anticipate it is reasonably possible that unrecognized tax benefits may decrease by $2.4 million.
4. Shareholders’ Equity
During 2018, 2017 and 2016, we purchased 3,147,466, 2,695,295, and 2,821,488 shares of our common stock for $143.3 million, $124.9 million, and $158.4 million, respectively, through open market transactions as part of a publicly-announced share repurchase program. In January 2019, our Board of Directors authorized us to repurchase up to an aggregate of $50 million of our common stock.
59
5. Commitments and Contingencies
Leases
Rent expense was $7.1 million, $7.1 million, and $6.8 million in 2018, 2017 and 2016, respectively. In 2014, we amended our Atlanta headquarters lease to obtain additional space and extended the lease term to September 2025. As part of such lease agreement, we received reimbursement of $1.3 million from the landlord in 2018 for leasehold improvements. The entire cash rent obligation is being amortized to expense on a straight-line basis over the lease term.
Aggregate future minimum lease payments under noncancellable operating leases as of December 31, 2018 are as follows (in thousands):
Year Ending December 31,
|
|
|
|
|
2019
|
|
$
|
6,196
|
|
2020
|
|
|
5,616
|
|
2021
|
|
|
5,359
|
|
2022
|
|
|
5,129
|
|
2023
|
|
|
5,185
|
|
Thereafter
|
|
|
10,451
|
|
Total minimum payments required
|
|
$
|
37,936
|
|
There are no future minimum lease payments under capital leases as of December 31, 2018.
Legal and Other Matters
From time to time, we may be involved in litigation relating to claims arising in the ordinary course of business, and occasionally legal proceeding not in the ordinary course. Many of our installations involve products that are critical to the operations of our clients’ businesses. Any failure in our company’s products could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although we attempt to contractually limit our liability for damages arising from product failures or negligent acts or omissions, there can be no assurance that the limitations of liability set forth in our contracts will be enforceable in all instances. We are not currently a party to any legal proceeding in the ordinary course of business or other legal proceedings the result of which we believe is likely to have a material adverse impact upon our business, financial position, results of operations, or cash flows. We expense legal costs associated with loss contingencies as such legal costs are incurred.
6. Employee Benefit Plan
We sponsor the Manhattan Associates 401(k) Plan and Trust (the “401(k) Plan”), a qualified profit sharing plan with a 401(k) feature covering substantially all our employees. Under the 401(k) Plan’s deferred compensation arrangement, eligible employees who elect to participate in the 401(k) Plan may contribute up to 60% of eligible compensation up to $18,500, as defined, to the 401(k) Plan. The Internal Revenue Service has set the eligible compensation limit at $275,000 for 2018. Since 2012, we have provided a
50%
matching contribution up to
6%
of eligible compensation being contributed after the participant’s first year of employment. During 2018, 2017 and 2016, we made matching contributions to the 401(k) Plan of $4.1 million, $4.1 million, and $4.0 million, respectively.
7. Segment Reporting
We manage our business by geographic segment and have three geographic reportable segments: the Americas, EMEA, and APAC. All segments derive revenue from the sale and implementation of our supply chain commerce solutions. The individual products sold by the segments are similar in nature and are all designed to help companies manage the effectiveness and efficiency of their supply chain commerce. We use the same accounting policies for each reportable segment. The chief executive officer and chief financial officer evaluate performance based on revenue and operating results for each reportable segment.
The Americas segment charges royalty fees to the other segments based on software licenses and cloud subscriptions sold by those reportable segments. The royalties, which totaled $4.2 million, $7.0 million, and $3.5 million in 2018, 2017 and 2016, respectively, are included in costs of revenue for each segment with a corresponding reduction in the America’s cost of revenue. The revenues represented below are from external customers only. The geography-based costs consist of costs for professional services personnel, direct sales and marketing expenses, infrastructure costs to support the employee and customer base, billing and financial systems, management and general and administrative support. There are certain corporate expenses included in the Americas segment that we do not charge to the other segments. Such expenses include research and development, certain marketing and general and
60
administrative costs that support the global organization, and the amortization of acquired developed technology. Costs in the Americas’ segment include all research and development costs including the costs associated with our operations in India.
Amortization expense on intangible assets in 2018, 2017 and 2016 was immaterial.
In accordance with the segment reporting topic of the FASB Codification, we present below certain financial information by reportable segment
for 2018, 2017 and 2016 (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Americas
|
|
|
EMEA
|
|
|
APAC
|
|
|
Consolidated
|
|
|
Americas
|
|
|
EMEA
|
|
|
APAC
|
|
|
Consolidated
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cloud subscriptions
|
|
$
|
20,611
|
|
|
$
|
2,075
|
|
|
$
|
418
|
|
|
$
|
23,104
|
|
|
$
|
9,274
|
|
|
$
|
322
|
|
|
$
|
-
|
|
|
$
|
9,596
|
|
Software license
|
|
|
28,423
|
|
|
|
11,406
|
|
|
|
5,539
|
|
|
|
45,368
|
|
|
|
44,145
|
|
|
|
22,875
|
|
|
|
5,293
|
|
|
|
72,313
|
|
Maintenance
|
|
|
117,489
|
|
|
|
20,933
|
|
|
|
8,611
|
|
|
|
147,033
|
|
|
|
116,426
|
|
|
|
18,710
|
|
|
|
7,862
|
|
|
|
142,998
|
|
Services
|
|
|
265,165
|
|
|
|
50,328
|
|
|
|
14,192
|
|
|
|
329,685
|
|
|
|
264,186
|
|
|
|
43,431
|
|
|
|
18,885
|
|
|
|
326,502
|
|
Hardware
|
|
|
13,798
|
|
|
|
2
|
|
|
|
167
|
|
|
|
13,967
|
|
|
|
43,118
|
|
|
|
11
|
|
|
|
61
|
|
|
|
43,190
|
|
Total revenue
|
|
|
445,486
|
|
|
|
84,744
|
|
|
|
28,927
|
|
|
|
559,157
|
|
|
|
477,149
|
|
|
|
85,349
|
|
|
|
32,101
|
|
|
|
594,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
183,563
|
|
|
|
43,080
|
|
|
|
14,238
|
|
|
|
240,881
|
|
|
|
195,152
|
|
|
|
36,124
|
|
|
|
14,457
|
|
|
|
245,733
|
|
Operating expenses
|
|
|
156,793
|
|
|
|
14,484
|
|
|
|
4,499
|
|
|
|
175,776
|
|
|
|
134,167
|
|
|
|
12,761
|
|
|
|
4,312
|
|
|
|
151,240
|
|
Depreciation and amortization
|
|
|
7,601
|
|
|
|
743
|
|
|
|
269
|
|
|
|
8,613
|
|
|
|
8,324
|
|
|
|
527
|
|
|
|
209
|
|
|
|
9,060
|
|
Restructuring charge
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,813
|
|
|
|
108
|
|
|
|
-
|
|
|
|
2,921
|
|
Total costs and expenses
|
|
|
347,957
|
|
|
|
58,307
|
|
|
|
19,006
|
|
|
|
425,270
|
|
|
|
340,456
|
|
|
|
49,520
|
|
|
|
18,978
|
|
|
|
408,954
|
|
Operating income
|
|
$
|
97,529
|
|
|
$
|
26,437
|
|
|
$
|
9,921
|
|
|
$
|
133,887
|
|
|
$
|
136,693
|
|
|
$
|
35,829
|
|
|
$
|
13,123
|
|
|
$
|
185,645
|
|
|
|
Year Ended December 31, 2016
|
|
|
|
Americas
|
|
|
EMEA
|
|
|
APAC
|
|
|
Consolidated
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cloud subscriptions
|
|
$
|
5,783
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,783
|
|
Software license
|
|
|
65,351
|
|
|
|
9,187
|
|
|
|
4,675
|
|
|
|
79,213
|
|
Maintenance
|
|
|
111,592
|
|
|
|
15,117
|
|
|
|
7,139
|
|
|
|
133,848
|
|
Services
|
|
|
296,983
|
|
|
|
41,969
|
|
|
|
12,833
|
|
|
|
351,785
|
|
Hardware
|
|
|
33,875
|
|
|
|
9
|
|
|
|
44
|
|
|
|
33,928
|
|
Total revenue
|
|
|
513,584
|
|
|
|
66,282
|
|
|
|
24,691
|
|
|
|
604,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
206,687
|
|
|
|
30,711
|
|
|
|
12,481
|
|
|
|
249,879
|
|
Operating expenses
|
|
|
133,637
|
|
|
|
12,983
|
|
|
|
4,661
|
|
|
|
151,281
|
|
Depreciation and amortization
|
|
|
8,313
|
|
|
|
528
|
|
|
|
249
|
|
|
|
9,090
|
|
Restructuring charge
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total costs and expenses
|
|
|
348,637
|
|
|
|
44,222
|
|
|
|
17,391
|
|
|
|
410,250
|
|
Operating income
|
|
$
|
164,947
|
|
|
$
|
22,060
|
|
|
$
|
7,300
|
|
|
$
|
194,307
|
|
In the following table, we present goodwill, long-lived assets, and total assets by reportable segment as of December 31, 2018 and 2017 (in thousands):
|
|
As of December 31, 2018
|
|
|
As of December 31, 2017
|
|
|
|
Americas
|
|
|
EMEA
|
|
|
APAC
|
|
|
Consolidated
|
|
|
Americas
|
|
|
EMEA
|
|
|
APAC
|
|
|
Consolidated
|
|
Goodwill, net
|
|
$
|
54,766
|
|
|
$
|
5,511
|
|
|
$
|
1,963
|
|
|
$
|
62,240
|
|
|
$
|
54,766
|
|
|
$
|
5,519
|
|
|
$
|
1,963
|
|
|
$
|
62,248
|
|
Long lived assets
|
|
|
20,251
|
|
|
|
3,161
|
|
|
|
674
|
|
|
|
24,086
|
|
|
|
19,424
|
|
|
|
2,846
|
|
|
|
527
|
|
|
|
22,797
|
|
Total assets
|
|
|
256,948
|
|
|
|
37,777
|
|
|
|
12,425
|
|
|
|
307,150
|
|
|
|
271,704
|
|
|
|
32,308
|
|
|
|
10,983
|
|
|
|
314,995
|
|
61
For 2018, 2017 and 2016, we derived revenue from sales to customers outside the United States of approximately $174.1 million, $168.3 million, and $144.8 million, respectively. Our remaining revenue was derived from domestic sales.
The majority of our software license revenue (70-80%) relates to our warehouse management product group. Cloud subscriptions revenue primarily relates to our Manhattan Active omnichannel and transportation management solutions.
8. Restructuring Charge
In May 2017, we eliminated about 100 positions due to retail sector headwinds and to align our services capacity with demand. We recorded a restructuring charge of approximately $2.9 million pretax ($1.8 million after-tax or $0.03 per fully diluted share) in 2017. The charge primarily consisted of employee severance, employee transition costs and outplacement services and is classified in “Restructuring charge” in our Consolidated Statements of Income.
The following table summarizes the segment activity in the restructuring accrual for 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
EMEA
|
|
|
APAC
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Restructuring charge
|
|
$
|
2,813
|
|
|
$
|
108
|
|
|
$
|
-
|
|
|
$
|
2,921
|
|
Cash payments
|
|
|
(2,813
|
)
|
|
|
(108
|
)
|
|
|
-
|
|
|
|
(2,921
|
)
|
Restructuring accrual balance at December 31, 2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Subsequent Events
We evaluated all subsequent events that occurred after the date of the accompanying financial statements and determined that there were no events or transactions during this subsequent event reporting period which require recognition or disclosure in our financial statements.
62
10. Quarterly Results of Operations (Unaudited)
In the table below, we present our quarterly results of operations for 2018 and 2017. Such unaudited quarterly results have been prepared on substantially the same basis as the audited Consolidated Financial Statements.
|
|
Quarter Ended
|
|
|
|
Mar 31, 2017
|
|
|
Jun 30, 2017
|
|
|
Sep 30, 2017
|
|
|
Dec 31, 2017
|
|
|
Mar 31, 2018
|
|
|
Jun 30, 2018
|
|
|
Sep 30, 2018
|
|
|
Dec 31, 2018
|
|
|
|
(In thousands, except per share data)
|
|
Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cloud subscriptions
|
|
$
|
1,496
|
|
|
$
|
2,378
|
|
|
$
|
2,534
|
|
|
$
|
3,188
|
|
|
$
|
4,469
|
|
|
$
|
5,377
|
|
|
$
|
6,455
|
|
|
$
|
6,803
|
|
Software license
|
|
|
21,277
|
|
|
|
20,064
|
|
|
|
16,260
|
|
|
|
14,712
|
|
|
|
7,555
|
|
|
|
12,973
|
|
|
|
11,526
|
|
|
|
13,314
|
|
Maintenance
|
|
|
33,376
|
|
|
|
35,959
|
|
|
|
36,338
|
|
|
|
37,325
|
|
|
|
36,397
|
|
|
|
36,993
|
|
|
|
37,177
|
|
|
|
36,466
|
|
Services
|
|
|
79,781
|
|
|
|
85,327
|
|
|
|
84,211
|
|
|
|
77,183
|
|
|
|
78,757
|
|
|
|
82,267
|
|
|
|
84,136
|
|
|
|
84,525
|
|
Hardware
|
|
|
7,559
|
|
|
|
10,413
|
|
|
|
13,540
|
|
|
|
11,678
|
|
|
|
3,391
|
|
|
|
4,261
|
|
|
|
3,057
|
|
|
|
3,258
|
|
Total revenue
|
|
|
143,489
|
|
|
|
154,141
|
|
|
|
152,883
|
|
|
|
144,086
|
|
|
|
130,569
|
|
|
|
141,871
|
|
|
|
142,351
|
|
|
|
144,366
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software license
|
|
|
1,352
|
|
|
|
1,438
|
|
|
|
1,316
|
|
|
|
1,377
|
|
|
|
1,308
|
|
|
|
2,096
|
|
|
|
1,211
|
|
|
|
682
|
|
Cost of cloud subscriptions, maintenance and services
|
|
|
54,899
|
|
|
|
53,109
|
|
|
|
51,103
|
|
|
|
48,934
|
|
|
|
56,486
|
|
|
|
56,985
|
|
|
|
59,975
|
|
|
|
62,138
|
|
Cost of hardware
|
|
|
5,370
|
|
|
|
7,766
|
|
|
|
10,653
|
|
|
|
8,416
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Research and development
|
|
|
14,225
|
|
|
|
14,102
|
|
|
|
14,747
|
|
|
|
14,630
|
|
|
|
17,059
|
|
|
|
18,176
|
|
|
|
18,453
|
|
|
|
18,208
|
|
Sales and marketing
|
|
|
11,789
|
|
|
|
11,732
|
|
|
|
10,739
|
|
|
|
13,222
|
|
|
|
12,884
|
|
|
|
13,809
|
|
|
|
10,726
|
|
|
|
13,843
|
|
General and administrative
|
|
|
11,872
|
|
|
|
11,387
|
|
|
|
11,031
|
|
|
|
11,764
|
|
|
|
12,800
|
|
|
|
12,885
|
|
|
|
13,711
|
|
|
|
13,222
|
|
Depreciation and amortization
|
|
|
2,262
|
|
|
|
2,326
|
|
|
|
2,275
|
|
|
|
2,197
|
|
|
|
2,202
|
|
|
|
2,235
|
|
|
|
2,179
|
|
|
|
1,997
|
|
Restructuring charge
|
|
|
-
|
|
|
|
3,022
|
|
|
|
(77
|
)
|
|
|
(24
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total costs and expenses
|
|
|
101,769
|
|
|
|
104,882
|
|
|
|
101,787
|
|
|
|
100,516
|
|
|
|
102,739
|
|
|
|
106,186
|
|
|
|
106,255
|
|
|
|
110,090
|
|
Operating income
|
|
|
41,720
|
|
|
|
49,259
|
|
|
|
51,096
|
|
|
|
43,570
|
|
|
|
27,830
|
|
|
|
35,685
|
|
|
|
36,096
|
|
|
|
34,276
|
|
Other (loss) income, net
|
|
|
(371
|
)
|
|
|
(68
|
)
|
|
|
207
|
|
|
|
(580
|
)
|
|
|
721
|
|
|
|
986
|
|
|
|
1,538
|
|
|
|
(901
|
)
|
Income before income taxes
|
|
|
41,349
|
|
|
|
49,191
|
|
|
|
51,303
|
|
|
|
42,990
|
|
|
|
28,551
|
|
|
|
36,671
|
|
|
|
37,634
|
|
|
|
33,375
|
|
Income tax provision
|
|
|
13,125
|
|
|
|
18,047
|
|
|
|
18,704
|
|
|
|
18,476
|
|
|
|
5,899
|
|
|
|
9,003
|
|
|
|
9,179
|
|
|
|
7,460
|
|
Net income
|
|
$
|
28,224
|
|
|
$
|
31,144
|
|
|
$
|
32,599
|
|
|
$
|
24,514
|
|
|
$
|
22,652
|
|
|
$
|
27,668
|
|
|
$
|
28,455
|
|
|
$
|
25,915
|
|
Basic earnings per share
|
|
$
|
0.40
|
|
|
$
|
0.45
|
|
|
$
|
0.47
|
|
|
$
|
0.36
|
|
|
$
|
0.34
|
|
|
$
|
0.42
|
|
|
$
|
0.43
|
|
|
$
|
0.40
|
|
Diluted earnings per share
|
|
$
|
0.40
|
|
|
$
|
0.45
|
|
|
$
|
0.47
|
|
|
$
|
0.36
|
|
|
$
|
0.33
|
|
|
$
|
0.42
|
|
|
$
|
0.43
|
|
|
$
|
0.40
|
|
Shares used in computing basic earnings per share
|
|
|
69,973
|
|
|
|
69,227
|
|
|
|
68,928
|
|
|
|
68,485
|
|
|
|
67,553
|
|
|
|
66,429
|
|
|
|
65,658
|
|
|
|
65,199
|
|
Shares used in computing diluted earnings per share
|
|
|
70,247
|
|
|
|
69,421
|
|
|
|
69,135
|
|
|
|
68,791
|
|
|
|
67,736
|
|
|
|
66,535
|
|
|
|
65,901
|
|
|
|
65,526
|
|
63