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Manhattan Associates Reports Fourth Quarter and Full Year 2017 Performance

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ATLANTA, Feb. 06, 2018 (GLOBE NEWSWIRE) -- Leading Supply Chain and Omnichannel Commerce Solutions provider Manhattan Associates, Inc. (NASDAQ:MANH) today reported GAAP diluted earnings per share for the fourth quarter ended December 31, 2017, of $0.36 compared to $0.42 in Q4 2016, on license revenue of $14.7 million, cloud subscriptions revenue of $3.2 million and total revenue of $144.1 million. Non-GAAP adjusted diluted earnings per share for Q4 2017 was $0.45 compared to $0.46 in Q4 2016. 

"Q4 and full-year 2017 marked a pivotal beginning to our cloud transformation.  Deal volume and competitive win rates were strong with better than anticipated market enthusiasm for our recently launched Manhattan Active Omni Solution.  Perpetual license sales and enterprise deal timelines, in contrast, saw delays as some pushed into 2018," said Eddie Capel, president and chief executive officer of Manhattan Associates.  "It's encouraging to see the market demanding the cloud delivery model and validating Manhattan's differentiation.  We expect ongoing growth of our Manhattan Active cloud offerings as customers seek a cloud-first approach." 

FOURTH QUARTER 2017 FINANCIAL SUMMARY: 

  • Certain line items in prior period financial statements have been reclassified to conform to the current period presentation in the consolidated statements of income due to the business transition to cloud subscriptions.
  • GAAP diluted earnings per share was $0.36 in Q4 2017 compared to $0.42 in Q4 2016.
  • Adjusted diluted earnings per share, a non-GAAP measure, was $0.45 in Q4 2017, compared to $0.46 in Q4 2016.
  • Consolidated total revenue was $144.1 million in Q4 2017, compared to $147.6 million in Q4 2016. License revenue was $14.7 million in Q4 2017, compared to $20.7 million in Q4 2016. Cloud subscriptions revenue was $3.2 million in Q4 2017 compared to $1.4 million in Q4 2016.
  • GAAP operating income was $43.6 million in Q4 2017, compared to $45.4 million in Q4 2016.
  • Adjusted operating income, a non-GAAP measure, was $48.8 million in Q4 2017, compared to $49.7 million in Q4 2016.
  • Cash flow from operations was $47.4 million in Q4 2017, compared to $37.8 million in Q4 2016. Days Sales Outstanding was 59 days at December 31, 2017, compared to 58 days at September 30, 2017.
  • Cash and investments totaled $125.5 million at December 31, 2017, compared to $129.7 million at September 30, 2017.
  • During the three months ended December 31, 2017, the Company repurchased 1,156,087 shares of Manhattan Associates common stock under the share repurchase program authorized by the Board of Directors for a total investment of $50.0 million. In February 2018, the Board of Directors authorized the Company to repurchase up to an aggregate of $50 million of the Company's common stock. 

FULL YEAR 2017 FINANCIAL SUMMARY: 

  • Certain line items in prior period financial statements have been reclassified to conform to the current period presentation in the consolidated statements of income due to the business transition to cloud subscriptions.
  • GAAP diluted earnings per share for the twelve months ended December 31, 2017, was $1.68, compared to $1.72 for the twelve months ended December 31, 2016.  
  • Adjusted diluted earnings per share, a non-GAAP measure, was $1.87 for both the twelve months ended December 31, 2017, and 2016.
  • Consolidated revenue for the twelve months ended December 31, 2017, was $594.6 million, compared to $604.6 million for the twelve months ended December 31, 2016. License revenue was $72.3 million for the twelve months ended December 31, 2017, compared to $79.2 million for the twelve months ended December 31, 2016.  Cloud subscriptions revenue was $9.6 million for the twelve months ended December 31, 2017, compared to $5.8 million for the twelve months ended December 31, 2016.
  • GAAP operating income was $185.6 million for the twelve months ended December 31, 2017, compared to $194.3 million for the twelve months ended December 31, 2016.
  • Adjusted operating income, a non-GAAP measure, was $205.2 million for the twelve months ended December 31, 2017, compared to $210.7 million for the twelve months ended December 31, 2016. 
  • Cash flow from operations was a record $164.1 million in the twelve months ended December 31, 2017, compared to $139.3 million in the twelve months ended December 31, 2016.
  • During the twelve months ended December 31, 2017, the Company repurchased 2,695,295 shares of Manhattan Associates common stock under the share repurchase program authorized by the Board of Directors, for a total investment of $124.9 million. 

NEW PRESENTATION OF CONSOLIDATED STATEMENTS OF INCOME 

Certain line items in prior period financial statements have been reclassified to conform to the current period presentation in the consolidated statements of income due to the business transition to cloud subscriptions. These reclassifications include: all revenue line items; cost of license; cost of cloud subscriptions, maintenance and services; and cost of hardware. Such reclassifications did not affect total revenues, operating income or net income. For further detail, please see note 8 in the supplemental financial information accompanying this press release. 

2018 GUIDANCE 

Manhattan Associates provides the following revenue and diluted earnings per share guidance for the full year 2018: 

     
    Guidance Range - 2018 Full Year    
  ($'s in millions, except EPS) $ Range     % Growth Range    
                      
      
   
  Total revenue $ 546     $ 558     -8%     -6%    
                      
      
   
  Operating Margin:
                           
  GAAP operating margin   20.0%       20.4%     -11.2%     -10.8%    
  Equity-based compensation, net of tax   4.0%       3.9%                
  Adjusted operating margin(1)   24.0%       24.3%     -10.5%     -10.2%    
                               
  Diluted earnings per share (EPS):                         
   
  GAAP EPS $ 1.23     $ 1.27     -27%     -24%    
  Equity-based compensation, net of tax   0.25       0.25       
      
   
  Adjusted EPS(1) $ 1.48     $ 1.52     -21%     -19%    
                                   
  (1) Adjusted operating margin and adjusted EPS are Non-GAAP measures that exclude the impact of equity-based compensation and acquisition-related costs, and the related income tax effects of both.    
                                   

Manhattan Associates currently intends to publish, in each quarterly earnings release, certain expectations with respect to future financial performance. Those statements, including the guidance provided above, are forward looking. Actual results may differ materially. Those statements, including the guidance provided above, do not reflect the potential impact of mergers, acquisitions or other business combinations that may be completed after the date of the release.

Manhattan Associates will make its earnings release and published expectations available on its website (www.manh.com). Following publication of this earnings release, any expectations with respect to future financial performance contained in this release, including the guidance above, should be considered historical only, and Manhattan Associates disclaims any obligation to update them. 

CONFERENCE CALL 

The Company's conference call regarding its fourth quarter and twelve months ended December 31, 2017, financial results will be held today, February 6, 2018, at 4:30 p.m. Eastern Time. Investors are invited to listen to a live webcast of the conference call through the investor relations section of Manhattan Associates' website at www.manh.com. To listen to the live webcast, please go to the website at least 15 minutes before the call to download and install any necessary audio software. 

For those who cannot listen to the live broadcast, a replay can be accessed shortly after the call by dialing +1.855.859.2056 in the U.S. and Canada, or +1.404.537.3406 outside the U.S., and entering the conference identification number ­­­­­­­­3099957 or via the web at www.manh.com. The phone replay will be available for two weeks after the call, and the Internet webcast will be available until Manhattan Associates' first quarter 2018 earnings release. 

GAAP VERSUS NON-GAAP PRESENTATION 

The Company provides adjusted operating income, adjusted net income and adjusted diluted earnings per share in this press release as additional information regarding the Company's historical and projected operating results. These measures are not in accordance with – or alternatives to – GAAP, and may be different from non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share measures used by other companies. The Company believes that the presentation of these non-GAAP financial measures facilitates investors' ability to understand and compare the Company's results and guidance, because the measures provide supplemental information in evaluating the operating results of its business, as distinct from results that include items that are not indicative of ongoing operating results, and because the Company believes its peers typically publish similar non-GAAP measures. This release should be read in conjunction with the Company's Form 8-K earnings release filing for the quarter and twelve months ended December 31, 2017.  

Non-GAAP adjusted operating income, adjusted income tax provision, adjusted net income and adjusted diluted earnings per share exclude the impact of equity-based compensation, acquisition-related costs and the amortization thereof, and a restructuring charge – all net of income tax effects, and the impact of the Tax Cuts and Jobs Acts. Reconciliations of the Company's GAAP financial measures to non-GAAP adjustments are included in the supplemental information attached to this release.

ABOUT MANHATTAN ASSOCIATES 

Manhattan Associates is a technology leader in supply chain and omnichannel commerce. We unite information across the enterprise, converging front-end sales with back-end supply chain execution. Our software, platform technology and unmatched experience help drive both top-line growth and bottom-line profitability for our customers.  

Manhattan Associates designs, builds and delivers leading edge cloud and on-premise solutions so that across the store, through your network or from your fulfillment center, you are ready to reap the rewards of the omnichannel marketplace. For more information, please visit www.manh.com

This press release contains "forward-looking statements" relating to Manhattan Associates, Inc.  Forward-looking statements in this press release include, without limitation, the information set forth under "2018 Guidance," statements we make about market adoption of our cloud-based solution and other statements identified by words such as "may," "expect," "forecast," "anticipate," "intend," "plan," "believe," "could," "seek," "project," "estimate," and similar expressions.  Prospective investors are cautioned that any such 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. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: uncertainty about the global economy, risks related from transitioning our business from a traditional perpetual license software company (generally hosted by our customers on their own premises and equipment) to a subscription-based software-as-service/cloud-based model, delays in product development, competitive pressures, software errors, information security breaches and the risk factors set forth in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2016. Manhattan Associates undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results. 

   
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
 
   
  Three Months Ended December 31,     Year Ended December 31,  
  2017     2016     2017     2016  
  (unaudited)     (unaudited)                  
Revenue:                              
Software license $ 14,712     $ 20,702     $ 72,313     $ 79,213  
Cloud subscriptions   3,188       1,423       9,596       5,783  
Maintenance   37,325       34,826       142,998       133,848  
Services   77,183       81,571       326,502       351,785  
Hardware   11,678       9,070       43,190       33,928  
Total revenue   144,086       147,592       594,599       604,557  
Costs and expenses:                              
Cost of license   1,377       1,429       5,483       6,818  
Cost of cloud subscriptions, maintenance and services   48,934       53,374       208,045       219,635  
Cost of hardware   8,416       6,068       32,205       23,426  
Research and development   14,630       13,183       57,704       54,736  
Sales and marketing   13,222       13,617       47,482       48,223  
General and administrative   11,764       12,281       46,054       48,322  
Depreciation and amortization   2,197       2,284       9,060       9,090  
Restructuring charge   (24 )     -       2,921       -  
Total costs and expenses   100,516       102,236       408,954       410,250  
Operating income   43,570       45,356       185,645       194,307  
Other (loss) income, net   (580 )     416       (812 )     1,800  
Income before income taxes   42,990       45,772       184,833       196,107  
Income tax provision   18,476       15,855       68,352       71,873  
Net income $ 24,514     $ 29,917     $ 116,481     $ 124,234  
                               
Basic earnings per share $ 0.36     $ 0.42     $ 1.68     $ 1.73  
Diluted earnings per share $ 0.36     $ 0.42     $ 1.68     $ 1.72  
                               
Weighted average number of shares:                              
Basic   68,485       70,742       69,175       71,674  
Diluted   68,791       71,148       69,424       72,060  

  

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Reconciliation of Selected GAAP to Non-GAAP Measures
(in thousands, except per share amounts)
 
    Three Months Ended December 31,     Year Ended December 31,  
    2017     2016     2017     2016  
                                 
Operating income   $ 43,570     $ 45,356     $ 185,645     $ 194,307  
Equity-based compensation (a)     5,188       4,210       16,229       15,934  
Purchase amortization (c)     107       108       430       430  
Restructuring charge (d)     (24 )     -       2,921       -  
Adjusted operating income (Non-GAAP)   $ 48,841     $ 49,674     $ 205,225     $ 210,671  
                                 
                                 
Income tax provision   $ 18,476     $ 15,855     $ 68,352     $ 71,873  
Equity-based compensation (a)     1,934       1,451       5,964       5,789  
Tax benefit of stock awards vested (b)     14       -       1,911       -  
Purchase amortization (c)     40       37       158       156  
Restructuring charge (d)     (2 )     -       1,073       -  
U.S. Tax Cuts and Jobs Act impact (e)     (2,825 )     -       (2,825 )     -  
Adjusted income tax provision (Non-GAAP)   $ 17,637     $ 17,343     $ 74,633     $ 77,818  
                                 
                                 
Net income   $ 24,514     $ 29,917     $ 116,481     $ 124,234  
Equity-based compensation (a)     3,254       2,759       10,265       10,145  
Tax benefit of stock awards vested (b)     (14 )     -       (1,911 )     -  
Purchase amortization (c)     67       71       272       274  
Restructuring charge (d)     (22 )     -       1,848       -  
U.S. Tax Cuts and Jobs Act impact (e)     2,825       -       2,825       -  
Adjusted net income (Non-GAAP)   $ 30,624     $ 32,747     $ 129,780     $ 134,653  
                                 
                                 
Diluted EPS   $ 0.36     $ 0.42     $ 1.68     $ 1.72  
Equity-based compensation (a)     0.05       0.04       0.15       0.14  
Tax benefit of stock awards vested (b)     -       -       (0.03 )     -  
Purchase amortization (c)     -       -       -       -  
Restructuring charge (d)     -       -       0.03       -  
U.S. Tax Cuts and Jobs Act impact (e)     0.04       -       0.04       -  
Adjusted diluted EPS (Non-GAAP)   $ 0.45     $ 0.46     $ 1.87     $ 1.87  
                                 
Fully diluted shares     68,791       71,148       69,424       72,060  

(a)  Adjusted results exclude all equity-based compensation, to facilitate comparison with our peers and for the other reasons explained in our Current Report on Form 8-K filed with the SEC on the date hereof. Equity-based compensation is included in the following GAAP operating expense lines for the three and twelve months ended December 31, 2017 and 2016: 

    Three Months Ended December 31,     Year Ended December 31,  
    2017     2016     2017     2016  
                                 
Cost of services   $ 1,398     $ 819     $ 3,994     $ 3,794  
Research and development     1,280       567       3,208       2,489  
Sales and marketing     690       593       2,240       2,431  
General and administrative     1,820       2,231       6,787       7,220  
Total equity-based compensation   $ 5,188     $ 4,210     $ 16,229     $ 15,934  

(b)  During the first quarter of 2017, we adopted Accounting Standards Update (ASU) 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting, to improve the accounting for employee share-based payments. Under the new guidance, all excess tax benefits and certain tax deficiencies are recognized as income tax expense or benefit in the income statements on a prospective basis, rather than recorded in additional paid-in capital. The adjustment represents the excess tax benefits and tax deficiencies of the stock awards vested during the period. Excess tax benefits (deficiencies) occur when the amount deductible for an award of equity instruments on our tax return is more (less) than the cumulative compensation cost recognized for financial reporting purposes, respectively. As discussed above, we excluded equity-based compensation from adjusted non-GAAP results to be consistent with other companies in the software industry and for the other reasons explained in our Current Report on Form 8-K filed the SEC.  Therefore, we also excluded the related tax benefit (expense) generated upon their vesting. 

(c)  Adjustments represent purchased intangibles amortization from a prior acquisition. Such amortization is excluded from adjusted results to facilitate comparison with our peers, to facilitate comparisons of the results of our core operations from period to period and for the other reasons explained in our Current Report on Form 8-K filed with the SEC. 

(d)  In May 2017, we eliminated about 100 positions due to the headwinds in the retail sector and to align our services capacity with demand. This action does not impair or alter our strategic investment plans in innovation and sales and marketing to increase market share and extend our competitive advantage. As a result of this initiative, we recorded a charge of approximately $2.9 million in 2017. The charge primarily consists of employee severance and employee transition and outplacement costs. We do not believe that the charge is a cost resulting from normal operating activities. Consequently, we have excluded this charge from adjusted non-GAAP results. 

(e)  The enactment of the Tax Cuts and Jobs Act in December 2017 resulted in a provisional net one-time tax of $2.8 million in the fourth quarter of 2017 based on a reasonable estimate of the income tax effects, primarily from a tax on accumulated foreign earnings and the remeasurement of deferred tax assets. As this was a one-time charge, we have excluded this charge from adjusted non-GAAP results. We continue to finalize the analysis of the tax reform provisions in 2018. 

   
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
 
   
    December 31,
2017
    December 31,
2016
 
                 
ASSETS                
Current Assets:                
Cash and cash equivalents   $ 125,522     $ 95,615  
Short-term investments     -       -  
Accounts receivable, net of allowance of $2,692 and $3,595 in 2017 and 2016, respectively     92,231       100,285  
Prepaid expenses and other current assets     10,320       11,118  
Total current assets     228,073       207,018  
                 
Property and equipment, net     15,493       17,424  
Goodwill, net     62,248       62,228  
Deferred income taxes     1,877       2,867  
Other assets     7,304       7,603  
Total assets   $ 314,995     $ 297,140  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
Current liabilities:                
Accounts payable   $ 14,028     $ 12,052  
Accrued compensation and benefits     15,826       20,700  
Accrued and other liabilities     12,105       12,510  
Deferred revenue     75,068       63,457  
Income taxes payable     7,228       8,924  
Total current liabilities     124,255       117,643  
                 
Other non-current liabilities     15,784       10,131  
                 
Shareholders' equity:                
Preferred stock, no par value; 20,000,000 shares authorized, no shares issued or outstanding in 2017 and 2016     -       -  
Common stock, $.01 par value; 200,000,000 shares authorized; 67,776,138 and 70,233,955 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively     678       702  
Retained earnings     186,117       184,558  
Accumulated other comprehensive loss     (11,839 )     (15,894 )
Total shareholders' equity     174,956       169,366  
Total liabilities and shareholders' equity   $ 314,995     $ 297,140  

  

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
 
     Year Ended December 31,
    2017     2016    
                   
Operating activities:                  
Net income   $ 116,481     $ 124,234    
Adjustments to reconcile net income to net cash provided by operating activities:                  
Depreciation and amortization     9,060       9,090    
Equity-based compensation     16,229       15,934    
Loss on disposal of equipment     152       30    
Tax benefit of stock awards exercised/vested     -       5,209    
Excess tax benefits from equity-based compensation     -       (5,214 )  
Deferred income taxes     1,574       1,797    
Unrealized foreign currency loss (gain)     196       (393 )  
Changes in operating assets and liabilities:                  
Accounts receivable, net     10,139       (4,358 )  
Other assets     661       299    
Accounts payable, accrued and other liabilities     (5,354 )     (9,261 )  
Income taxes     1,876       6,129    
Deferred revenue     13,052       (4,150 )  
Net cash provided by operating activities     164,066       139,346    
                   
Investing activities:                  
Purchases of property and equipment     (6,199 )     (6,843 )  
Maturities of short-term investments     429       10,201    
Net cash (used in) provided by investing activities     (5,770 )     3,358    
                   
Financing activities:                  
Purchase of common stock     (131,707 )     (167,933 )  
Proceeds from issuance of common stock from options exercised     -       18    
Excess tax benefits from equity-based compensation     -       5,214    
Net cash used in financing activities     (131,707 )     (162,701 )  
                   
Foreign currency impact on cash     3,318       (2,804 )  
                   
Net change in cash and cash equivalents     29,907       (22,801 )  
Cash and cash equivalents at beginning of period     95,615       118,416    
Cash and cash equivalents at end of period   $ 125,522     $ 95,615    
                   

MANHATTAN ASSOCIATES, INC.  
SUPPLEMENTAL INFORMATION

1.  GAAP and Adjusted earnings per share by quarter are as follows: 

   2016     2017  
  1st Qtr     2nd Qtr     3rd Qtr     4th Qtr     Full Year     1st Qtr     2nd Qtr     3rd Qtr     4th Qtr     Full Year  
GAAP Diluted EPS $ 0.38     $ 0.46     $ 0.47     $ 0.42     $ 1.72     $ 0.40     $ 0.45     $ 0.47     $ 0.36     $ 1.68  
Adjustments to GAAP:                                                                              
Equity-based compensation   0.04       0.03       0.03       0.04       0.14       0.04       0.03       0.03       0.05       0.15  
Tax benefit of stock awards vested   -       -       -       -       -       (0.03 )     -       -       -       (0.03 )
Purchase amortization   -       -       -       -       -       -       -       -       -       -  
Restructuring charge   -       -       -       -       -       -       0.03       -       -       0.03  
U.S. Tax Cuts and Jobs Act impact   -       -       -       -       -       -       -       -       0.04       0.04  
Adjusted Diluted EPS $ 0.42     $ 0.49     $ 0.50     $ 0.46     $ 1.87     $ 0.42     $ 0.50     $ 0.51     $ 0.45     $ 1.87  
Fully Diluted Shares   73,020       72,228       71,743       71,148       72,060       70,247       69,421       69,135       68,791       69,424  
                                                                               

2.  Revenues and operating income by reportable segment are as follows (in thousands): 

   2016     2017  
  1st Qtr     2nd Qtr     3rd Qtr     4th Qtr     Full Year     1st Qtr     2nd Qtr     3rd Qtr     4th Qtr     Full Year  
Revenue:  
Americas $ 128,807     $ 131,018     $ 130,099     $ 123,660     $ 513,584     $ 113,115     $ 123,658     $ 124,833     $ 115,543     $ 477,149  
EMEA   15,686       18,185       15,078       17,333       66,282       23,360       22,028       18,453       21,508       85,349  
APAC   5,367       5,689       7,036       6,599       24,691       7,014       8,455       9,597       7,035       32,101  
  $ 149,860     $ 154,892     $ 152,213     $ 147,592     $ 604,557     $ 143,489     $ 154,141     $ 152,883     $ 144,086     $ 594,599  
                                                                               
GAAP Operating Income:  
Americas $ 37,454     $ 44,126     $ 46,213     $ 37,154     $ 164,947     $ 28,713     $ 35,717     $ 39,295     $ 32,968     $ 136,693  
EMEA   4,439       6,854       4,822       5,945       22,060       10,754       9,995       7,128       7,952       35,829  
APAC   1,206       1,288       2,549       2,257       7,300       2,253       3,547       4,673       2,650       13,123  
  $ 43,099     $ 52,268     $ 53,584     $ 45,356     $ 194,307     $ 41,720     $ 49,259     $ 51,096     $ 43,570     $ 185,645  
                                                                               
Adjustments (pre-tax):  
Americas:                                                                              
Equity-based compensation $ 4,688     $ 3,495     $ 3,541     $ 4,210     $ 15,934     $ 4,472     $ 2,796       3,773     $ 5,188     $ 16,229  
Purchase amortization   107       108       107       108       430       107       108       108       107       430  
Restructuring charge   -       -       -       -       -       -       2,908       (77 )     (18 )     2,813  
  $ 4,795     $ 3,603     $ 3,648     $ 4,318     $ 16,364     $ 4,579     $ 5,812     $ 3,804     $ 5,277     $ 19,472  
                                                                               
EMEA:                                                                              
Restructuring charge   -       -       -       -       -       -       114       -       (6 )     108  
                                                                               
Adjusted non-GAAP Operating Income:  
Americas $ 42,249     $ 47,729     $ 49,861     $ 41,472     $ 181,311     $ 33,292     $ 41,529     $ 43,099     $ 38,245     $ 156,165  
EMEA   4,439       6,854       4,822       5,945       22,060       10,754       10,109       7,128       7,946       35,937  
APAC   1,206       1,288       2,549       2,257       7,300       2,253       3,547       4,673       2,650       13,123  
  $ 47,894     $ 55,871     $ 57,232     $ 49,674     $ 210,671     $ 46,299     $ 55,185     $ 54,900     $ 48,841     $ 205,225  
                                                                               

3.  Impact of Currency Fluctuation 

The following table reflects the increases (decreases) in the results of operations for each period attributable to the change in foreign currency exchange rates from the prior period as well as foreign currency gains (losses) included in other income, net for each period (in thousands): 

  2016     2017  
  1st Qtr     2nd Qtr     3rd Qtr     4th Qtr     Full Year     1st Qtr     2nd Qtr     3rd Qtr     4th Qtr     Full Year  
Revenue $ (810 )   $ (474 )   $ (784 )   $ (1,425 )   $ (3,493 )   $ (1,547 )   $ (1,219 )   $ 536     $ 1,820     $ (410 )
Costs and expenses   (1,292 )     (702 )     (782 )     (1,028 )     (3,804 )     (789 )     (396 )     723       1,485       1,023  
Operating income   482       228       (2 )     (397 )     311       (758 )     (823 )     (187 )     335       (1,433 )
Foreign currency gains (losses) in other income   165       331       (72 )     211       635       (646 )     (348 )     (81 )     (771 )     (1,846 )
  $ 647     $ 559     $ (74 )   $ (186 )   $ 946     $ (1,404 )   $ (1,171 )   $ (268 )   $ (436 )   $ (3,279 )

Manhattan Associates has a large research and development center in Bangalore, India.  The following table reflects the increases (decreases) in the financial results for each period attributable to changes in the Indian Rupee exchange rate (in thousands): 

   2016     2017  
  1st Qtr     2nd Qtr     3rd Qtr     4th Qtr     Full Year     1st Qtr     2nd Qtr     3rd Qtr     4th Qtr     Full Year  
Operating income $ 682     $ 459     $ 259     $ 159     $ 1,559     $ (70 )   $ (326 )   $ (338 )   $ (345 )   $ (1,079 )
Foreign currency gains (losses) in other income   (109 )     212       (44 )     159       218       (320 )     (190 )     71       (43 )     (482 )
Total impact of changes in the Indian Rupee $ 573     $ 671     $ 215     $ 318     $ 1,777     $ (390 )   $ (516 )   $ (267 )   $ (388 )   $ (1,561 )
 

4.  Other income includes the following components (in thousands): 

   2016     2017  
  1st Qtr     2nd Qtr     3rd Qtr     4th Qtr     Full Year     1st Qtr     2nd Qtr     3rd Qtr     4th Qtr     Full Year  
Interest income $ 335     $ 329     $ 281     $ 216     $ 1,161     $ 293     $ 264     $ 314     $ 303     $ 1,174  
Foreign currency gains (losses)   165       331       (72 )     211       635       (646 )     (348 )     (81 )     (771 )     (1,846 )
Other non-operating income (expense)   20       (6 )     1       (11 )     4       (18 )     16       (26 )     (112 )     (140 )
Total other income (loss) $ 520     $ 654     $ 210     $ 416     $ 1,800     $ (371 )   $ (68 )   $ 207     $ (580 )   $ (812 )
   

5.  Capital expenditures are as follows (in thousands): 

   2016     2017  
  1st Qtr     2nd Qtr     3rd Qtr     4th Qtr     Full Year     1st Qtr     2nd Qtr     3rd Qtr     4th Qtr     Full Year  
Capital expenditures $ 1,906     $ 2,201     $ 1,358     $ 1,378     $ 6,843     $ 789     $ 1,914     $ 1,194     $ 2,302     $ 6,199  
   

6.  Stock Repurchase Activity (in thousands): 

   2016     2017  
  1st Qtr     2nd Qtr     3rd Qtr     4th Qtr     Full Year     1st Qtr     2nd Qtr     3rd Qtr     4th Qtr     Full Year  
Shares purchased under publicly-announced buy-back program   892       552       420       957       2,821       1,004       535       -       1,156       2,695  
Shares withheld for taxes due upon vesting of restricted stock   163       -       3       1       167       131       1       2       1       135  
Total shares purchased   1,055       552       423       958       2,988       1,135       536       2       1,157       2,830  
                                                                               
Total cash paid for shares purchased under publicly-announced buy-back program $ 48,499     $ 34,995     $ 24,998     $ 49,901     $ 158,393     $ 49,978     $ 24,974     $ -     $ 49,953     $ 124,905  
Total cash paid for shares withheld for taxes due upon vesting of restricted stock   9,292       26       158       64       9,540       6,641       27       80       54       6,802  
Total cash paid for shares repurchased $ 57,791     $ 35,021     $ 25,156     $ 49,965     $ 167,933     $ 56,619     $ 25,001     $ 80     $ 50,007     $ 131,707  
   

7.  As mentioned in footnote b to the reconciliation of selected GAAP to Non-GAAP Measures, during the first quarter of 2017, we adopted ASU 2016-09 Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. Had we adopted the guidance during the first quarter of 2016, the cash provided by operating activities and cash used in financing activities for the twelve months ended December 31, 2016, as compared to December 31, 2017, would have been as follows: 

                   Twelve Months Ended December 31,  
                  2016     2017  
                               
Net cash provided by operating activities, as stated   $ 139,346     $ 164,066  
Add: excess tax benefit from equity-based compensation     5,214       -  
Revised net cash provided by operating activities   $ 144,560     $ 164,066  
                               
Net cash used in financing activities, as stated   $ (162,701 )   $ (131,707 )
Less: excess tax benefit from equity-based compensation     (5,214 )     -  
Revised net cash used in financing activities   $ (167,915 )   $ (131,707 )
   

8.  Certain line items in prior period financial statements have been reclassified to conform to the current period presentation in the consolidated statements of income. These reclassifications include all revenue line items, cost of license, cost of cloud, subscriptions, maintenance and services, and cost of hardware. Such reclassifications did not affect total revenues, operating income or net income. The following table reflects the comparison between the former and new presentation (in thousands):

                                       
  2016   2017
  1st Qtr   2nd Qtr   3rd Qtr   4th Qtr   Full Year   1st Qtr   2nd Qtr   3rd Qtr   4th Qtr   Full Year
                                       
Former Presentation:
Software license $ 20,607     $ 20,631     $ 21,633     $ 22,125     $ 84,996     $ 22,773     $ 22,442     $ 18,794     $ 17,900     $ 81,909  
Services   116,263       119,833       119,267       111,923       467,286       108,833       116,828       115,555       110,394       451,610  
Hardware and other   12,990       14,428       11,313       13,544       52,275       11,883       14,871       18,534       15,792       61,080  
  $ 149,860     $ 154,892     $ 152,213     $ 147,592     $ 604,557     $ 143,489     $ 154,141     $ 152,883     $ 144,086     $ 594,599  
                                       
Cost of license $ 3,152     $ 2,283     $ 2,966     $ 2,419     $ 10,820     $ 2,240     $ 2,355     $ 2,830     $ 3,169     $ 10,594  
Cost of services   51,904       48,393       49,436       47,742       197,475       49,743       47,751       44,750       43,053       185,297  
Cost of hardware and other   9,757       11,841       9,276       10,710       41,584       9,638       12,207       15,492       12,505       49,842  
  $    64,813     $    62,517     $    61,678     $    60,871     $ 249,879     $    61,621     $    62,313     $    63,072     $    58,727     $ 245,733  
                                       
                                       
New Presentation:
Software license $ 19,617     $ 18,882     $ 20,012     $ 20,702     $ 79,213     $ 21,277     $ 20,064     $ 16,260     $ 14,712     $ 72,313  
Cloud subscriptions (a)   990       1,749       1,621       1,423       5,783       1,496       2,378       2,534       3,188       9,596  
Maintenance   31,757       32,841       34,424       34,826       133,848       33,376       35,959       36,338       37,325       142,998  
Services   88,735       91,866       89,613       81,571       351,785       79,781       85,327       84,211       77,183       326,502  
Hardware   8,761       9,554       6,543       9,070       33,928       7,559       10,413       13,540       11,678       43,190  
  $ 149,860     $ 154,892     $ 152,213     $ 147,592     $ 604,557     $ 143,489     $ 154,141     $ 152,883     $ 144,086     $ 594,599  
                                       
Cost of license $ 2,322     $ 1,361     $ 1,706     $ 1,429     $ 6,818     $ 1,352     $ 1,438     $ 1,316     $ 1,377     $ 5,483  
Cost of cloud subscriptions, maintenance and services (b)   56,862       54,053       55,346       53,374       219,635       54,899       53,109       51,103       48,934       208,045  
Cost of hardware   5,629       7,103       4,626       6,068       23,426       5,370       7,766       10,653       8,416       32,205  
  $ 64,813     $ 62,517     $ 61,678     $ 60,871     $ 249,879     $ 61,621     $ 62,313     $ 63,072     $ 58,727     $ 245,733  
                                       
                                       
Reconciliation of Selected GAAP to Non-GAAP Measure:
                                       
    2016       2017  
  1st Qtr   2nd Qtr   3rd Qtr   4th Qtr   Full Year   1st Qtr   2nd Qtr   3rd Qtr   4th Qtr   Full Year
                                       
Former Presentation:
Cost of services $ 51,904     $ 48,393     $ 49,436     $ 47,742     $ 197,475     $ 49,743     $ 47,751     $ 44,750     $ 43,053     $ 185,297  
Equity-based compensation (c)   (1,279 )     (868 )     (828 )     (819 )     (3,794 )     (1,141 )     (580 )     (875 )     (1,398 )     (3,994 )
Adjusted Cost of services $ 50,625     $ 47,525     $ 48,608     $ 46,923     $ 193,681     $ 48,602     $ 47,171     $ 43,875     $ 41,655     $ 181,303  
                                       
New Presentation:
Cost of cloud subscriptions, maintenance and services (b) $ 56,862     $ 54,053     $ 55,346     $ 53,374     $ 219,635     $ 54,899     $ 53,109     $ 51,103     $ 48,934     $ 208,045  
Equity-based compensation (c)   (1,279 )     (868 )     (828 )     (819 )     (3,794 )     (1,141 )     (580 )     (875 )     (1,398 )     (3,994 )
Adjusted Cost of cloud subscriptions, maintenance and services $ 55,583     $ 53,185     $ 54,518     $ 52,555     $ 215,841     $ 53,758     $ 52,529     $ 50,228     $ 47,536     $ 204,051  
                                       
                                       
(a) 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 provided by and managed by us where the customer does not have the right to take possession of the software without significant penalties.
                                       
(b) Cost of cloud subscriptions, maintenance and services consists primarily of salaries and other personnel-related expenses of employees dedicated to cloud subscriptions; maintenance services; and professional and technical services as well as hosting fees.
                                       
(c) Adjusted result exclude all equity-based compensation, to facilitate comparison with our competitors and peers and for the other reasons explained in our Current Report on Form 8-K filed with the SEC on the date hereof.
                                       

9.  We adopted the new revenue recognition standard, FASB ASC Topic 606, Revenue from Contracts with Customers, in the first quarter of 2018.  The new standard provides accounting guidance for all revenue arising from contracts with customers and affects substantially all entities. We adopted the standard using the modified retrospective method with the cumulative effect of initially adopting the standard recorded as an adjustment to retained earnings as of January 1, 2018. Historical hardware sales prior to the adoption of ASC606 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. We recognize and present our hardware revenue net of related cost under the new standard prospectively. For comparison purposes only, had we implemented ASC 606 using the full retrospective method, we would have presented hardware revenue net of expense in our 2016 and 2017 quarterly financial results below: 

  2016     2017  
  1st Qtr     2nd Qtr     3rd Qtr     4th Qtr     Full Year     1st Qtr     2nd Qtr     3rd Qtr     4th Qtr     Full Year  
                                                                               
Presentation of Hardware Revenue - Pre ASC 606 adoption:  
                                                                               
Revenue                                                                              
Hardware Revenue $ 8,761     $ 9,554     $ 6,543     $ 9,070     $ 33,928     $ 7,559     $ 10,413     $ 13,540     $ 11,678     $ 43,190  
                                                                               
Cost of Revenue                                                                              
Cost of Hardware   (5,629 )     (7,103 )     (4,626 )     (6,068 )     (23,426 )     (5,370 )     (7,766 )     (10,653 )     (8,416 )     (32,205 )
                                                                               
Hardware Revenue, net $ 3,132     $ 2,451     $ 1,917     $ 3,002     $ 10,502     $ 2,189     $ 2,647     $ 2,887     $ 3,262     $ 10,985  
                                                                               
Proforma Presentation of Hardware Revenue - Post ASC 606 Using Full Retrospective Method:  
                                                                               
Hardware Revenue $ 3,132     $ 2,451     $ 1,917     $ 3,002     $ 10,502     $ 2,189     $ 2,647     $ 2,887     $ 3,262     $ 10,985  
                                                                               

 

Contact:   Dennis Story   Rick Fernandez
    Chief Financial Officer   Senior Manager, Corporate Communications
    Manhattan Associates, Inc.        Manhattan Associates, Inc.
    770-955-7070   678-597-6988
    dstory@manh.com   rfernandez@manh.com
         

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