QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| [Mark One] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-23999
MANHATTAN ASSOCIATES, INC.
| Georgia (State or Other Jurisdiction of Incorporation or Organization) |
58-2373424 (I.R.S. Employer Identification No.) |
|
| 2300 Windy Ridge Parkway, Suite 700 Atlanta, Georgia (Address of Principal Executive Offices) |
30339 (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (770) 955-7070
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes No
The number of shares of the Issuer’s class of capital stock outstanding as of August 13, 2002, the latest practicable date, is as follows: 28,884,814 shares of common stock, $0.01 par value per share.
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
FORM 10-Q
Quarter Ended June 30, 2002
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
| Page | ||||
| Item 1. | Financial Statements. | |||
| Condensed Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001 | 3 | |||
| Condensed Consolidated Statements of Income for the three and six months ended June 30, 2002 and 2001 (unaudited) | 4 | |||
| Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001 (unaudited) | 5 | |||
| Notes to Condensed Consolidated Financial Statements (unaudited) | 6 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 10 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 20 | ||
| PART II | ||||
| OTHER INFORMATION | ||||
| Item 1. | Legal Proceedings. | 22 | ||
| Item 2. | Changes in Securities and Use of Proceeds. | 22 | ||
| Item 3. | Defaults Upon Senior Securities. | 22 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders. | 22 | ||
| Item 5. | Other Information. | 23 | ||
| Item 6. | Exhibits and Reports on Form 8-K. | 23 | ||
| Signatures. | 24 |
Form 10-Q
Page 2 of 24
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
| June 30, 2002 | December 31, 2001 | |||||||||||
| (unaudited) | ||||||||||||
ASSETS |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 73,466 | $ | 84,029 | ||||||||
Short-term investments |
52,474 | 20,160 | ||||||||||
Accounts receivable, net of allowance for
doubtful accounts of $9,417 and $8,533 at June 30, 2002 and December 31, 2001, respectively |
31,201 | 26,660 | ||||||||||
Deferred income taxes |
2,088 | 1,870 | ||||||||||
Refundable income taxes |
— | 1,624 | ||||||||||
Prepaid expenses and other current assets |
3,991 | 4,215 | ||||||||||
Total current assets |
163,220 | 138,558 | ||||||||||
Property and equipment, net |
11,343 | 11,185 | ||||||||||
Deferred income taxes |
3,428 | 3,322 | ||||||||||
Acquisition-related intangible assets, net |
25,514 | 26,582 | ||||||||||
Other assets |
785 | 1,056 | ||||||||||
Total assets |
$ | 204,290 | $ | 180,703 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable and accrued liabilities |
$ | 19,843 | $ | 18,997 | ||||||||
Current portion of note payable |
— | 3,500 | ||||||||||
Current portion of capital lease obligations |
185 | 163 | ||||||||||
Income taxes payable |
1,006 | 389 | ||||||||||
Deferred revenue |
16,161 | 14,285 | ||||||||||
Total current liabilities |
37,195 | 37,334 | ||||||||||
Long-term portion of note payable |
— | 1,750 | ||||||||||
Long-term portion of capital lease obligations |
349 | 432 | ||||||||||
Shareholders’ equity: |
||||||||||||
Preferred stock, no par value; 20,000,000
shares authorized, no shares issued or
outstanding at June 30, 2002 and December 31, 2001 |
— | — | ||||||||||
Common stock, $.01 par value; 100,000,000
shares authorized, 28,827,222 and
27,719,753 shares issued and outstanding at June 30, 2002 and December 31, 2001,
respectively
|
288 | 277 | ||||||||||
Additional paid-in capital |
117,738 | 104,445 | ||||||||||
Retained earnings |
48,368 | 36,612 | ||||||||||
Accumulated other comprehensive loss |
424 | (42 | ) | |||||||||
Deferred compensation |
(72 | ) | (105 | ) | ||||||||
Total shareholders’ equity |
166,746 | 141,187 | ||||||||||
Total liabilities and shareholders’ equity |
$ | 204,290 | $ | 180,703 | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
Form 10-Q
Page 3 of 24
Item 1. Financial Statements (continued)
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited and in thousands, except per share amounts)
| Three Months Ended | Six Months Ended | ||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||
Revenue: |
|||||||||||||||||||
Software fees |
$ | 10,239 | $ | 9,362 | $ | 19,612 | $ | 17,203 | |||||||||||
Services |
28,152 | 23,890 | 54,557 | 47,387 | |||||||||||||||
Hardware and other |
6,722 | 4,206 | 13,087 | 10,164 | |||||||||||||||
Total revenue |
45,113 | 37,458 | 87,256 | 74,754 | |||||||||||||||
Costs and Expenses: |
|||||||||||||||||||
Cost of software fees |
470 | 385 | 862 | 870 | |||||||||||||||
Cost of services |
11,808 | 10,041 | 23,430 | 19,939 | |||||||||||||||
Cost of hardware and other |
5,539 | 3,697 | 10,859 | 8,526 | |||||||||||||||
Research and development |
5,387 | 4,706 | 10,244 | 9,744 | |||||||||||||||
Sales and marketing |
6,994 | 5,513 | 12,750 | 10,826 | |||||||||||||||
General and administrative |
5,307 | 4,657 | 10,401 | 8,849 | |||||||||||||||
Amortization of acquisition-related intangibles |
534 | 1,310 | 1,068 | 2,620 | |||||||||||||||
Total costs and expenses |
36,039 | 30,309 | 69,614 | 61,374 | |||||||||||||||
Operating income |
9,074 | 7,149 | 17,642 | 13,380 | |||||||||||||||
Other income, net |
1,014 | 478 | 1,187 | 1,028 | |||||||||||||||
Income before income taxes |
10,088 | 7,627 | 18,829 | 14,408 | |||||||||||||||
Income tax provision |
3,839 | 2,833 | 7,073 | 5,342 | |||||||||||||||
Net income |
$ | 6,249 | $ | 4,794 | $ | 11,756 | $ | 9,066 | |||||||||||
Basic net income per share |
$ | 0.22 | $ | 0.18 | $ | 0.41 | $ | 0.34 | |||||||||||
Diluted net income per share |
$ | 0.20 | $ | 0.16 | $ | 0.38 | $ | 0.30 | |||||||||||
Weighted average number of shares: |
|||||||||||||||||||
Basic |
28,687 | 26,937 | 28,427 | 26,741 | |||||||||||||||
Diluted |
30,753 | 30,748 | 30,617 | 30,699 | |||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
Form 10-Q
Page 4 of 24
Item 1. Financial Statements (continued)
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
| Six Months Ended | ||||||||||||
| June 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
Operating activities: |
||||||||||||
Net income |
$ | 11,756 | $ | 9,066 | ||||||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||||||
Depreciation and amortization |
3,345 | 2,913 | ||||||||||
Amortization of acquisition-related intangibles |
1,068 | 2,620 | ||||||||||
Stock compensation |
33 | 43 | ||||||||||
Loss on disposal of equipment |
11 | — | ||||||||||
Tax benefit of options exercised |
7,645 | 3,910 | ||||||||||
Deferred income taxes |
(324 | ) | (29 | ) | ||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable, net |
(4,139 | ) | 673 | |||||||||
Other assets |
212 | (371 | ) | |||||||||
Accounts payable and accrued liabilities |
608 | (8,648 | ) | |||||||||
Income taxes |
2,227 | 4,808 | ||||||||||
Deferred revenue |
1,748 | 2,510 | ||||||||||
Net cash provided by operating activities |
24,190 | 17,495 | ||||||||||
Investing activities: |
||||||||||||
Purchase of property and equipment |
(3,027 | ) | (3,915 | ) | ||||||||
Net sales (purchases) of short-term investments |
(32,304 | ) | 8,815 | |||||||||
Net cash provided by (used in) investing activities |
(35,331 | ) | 4,900 | |||||||||
Financing activities: |
||||||||||||
Repayment of note payable |
(5,250 | ) | — | |||||||||
Payment of capital lease obligations |
(61 | ) | (91 | ) | ||||||||
Proceeds from issuance of common stock |
5,660 | 3,657 | ||||||||||
Net cash provided by financing activities |
349 | 3,566 | ||||||||||
Foreign currency impact on cash |
229 | (68 | ) | |||||||||
Net change in cash and cash equivalents |
(10,563 | ) | 25,893 | |||||||||
Cash and cash equivalents at beginning of period |
84,029 | 51,032 | ||||||||||
Cash and cash equivalents at end of period |
$ | 73,466 | $ | 76,925 | ||||||||
Supplemental cash flow disclosures: |
||||||||||||
Net cash received for income taxes |
$ | 2,662 | $ | 3,344 | ||||||||
Cash paid for interest |
$ | 232 | $ | 416 | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
Form 10-Q
Page 5 of 24
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2002
(unaudited)
| 1. | Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of the Company’s management, these condensed consolidated financial statements contain all adjustments considered necessary for a fair presentation of the financial position at June 30, 2002, the results of operations for the three and six month periods ended June 30, 2002 and 2001 and changes in cash flows for the six month periods ended June 30, 2002 and 2001. The results for the three month and six month periods ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2001.
| 2. | Principles of Consolidation |
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
| 3. | Revenue Recognition |
The Company’s revenue consists of revenues from the licensing of software; fees from consulting, implementation and training services (collectively, “professional services”), plus customer support services and software upgrades; and sales of complementary radio frequency and computer equipment.
Effective January 1, 1998, the Company adopted Statement of Position No. 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended by Statement of Position No. 98-9, “Software Revenue Recognition, With Respect to Certain Transactions” (“SOP 98-9”). Under SOP 97-2, the Company recognizes software license revenue when the following criteria are met: (1) a signed contract is obtained; (2) delivery of the product has occurred; (3) the license fee is fixed or determinable; (4) collectibility is probable; and (5) remaining obligations under the license agreement are insignificant. SOP 98-9 requires recognition of revenue using the “residual method” when (1) there is vendor-specific objective evidence of the fair values of all undelivered elements in a multiple-element arrangement that is not accounted for using long-term contract accounting; (2) vendor-specific objective evidence of fair value does not exist for one or more of the delivered elements in the arrangement; and (3) all revenue-recognition criteria in SOP 97-2 other than the requirement for vendor-specific objective evidence of the fair value of each delivered element of the arrangement are satisfied. SOP 98-9 was effective for transactions entered into after March 15, 1999, and the Company adopted the residual method for such arrangements at that time. For those contracts that contain significant future obligations, license revenue is recognized as the obligations are fulfilled.
The Company’s services revenue consists of fees generated from professional services, customer support services and software enhancement subscriptions related to the Company’s software products. Professional services are typically contracted for under separate service agreements. Fees from professional services performed by the Company are generally billed on an hourly basis, and revenue is recognized as the services are performed. Professional services are sometimes rendered under fixed-fee
Form 10-Q
Page 6 of 24
based contracts, but principally in instances when the scope of the project is reasonably quantifiable in the Company’s judgment. Revenue related to fixed-fee based contracts is recognized on a percent complete basis based on the hours incurred. Revenue related to customer support services and software enhancement subscriptions are generally paid in advance and recognized ratably over the term of the agreement, typically 12 months.
Hardware revenue is generated from the resale of a variety of hardware products, developed and manufactured by third parties, that are integrated with and complementary to the Company’s software solutions. As part of a complete extended supply chain execution (“x-SCE”) solution the Company’s customers frequently purchase hardware from the Company in conjunction with the licensing of software. These products include computer hardware, radio frequency terminal networks, bar code printers and scanners, and other peripherals. Hardware revenue is recognized upon shipment to the customer. The Company generally purchases hardware from its vendors only after receiving an order from a customer. As a result, the Company does not maintain significant hardware inventory.
| 4. | Comprehensive Net Income |
Comprehensive net income includes foreign currency translation gains and losses and unrealized gains and losses on investments that have been previously excluded from net income and reflected in shareholders’ equity.
The following table sets forth the calculation of comprehensive income:
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||
Net income |
$ | 6,249 | $ | 4,794 | |||||||||||||