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Manhattan Associates 10-Q 2015

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5. Ex-32
manh-10q_20150930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10‑Q

 

[Mark One]

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number:  0-23999

 

MANHATTAN ASSOCIATES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Georgia

 

58-2373424

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

2300 Windy Ridge Parkway, Tenth Floor

 

 

Atlanta, Georgia

 

30339

(Address of Principal Executive Offices)

 

(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  x   No  o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  T   No  o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

x

 

Accelerated filer

o

Non-accelerated filer

o

(Do not check if a smaller reporting company)

Smaller reporting company

o

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  o   No  T

The number of shares of the Registrant’s class of capital stock outstanding as of October 20, 2015, the latest practicable date, is as follows: 73,064,283 shares of common stock, $0.01 par value per share.

 

 

 

 


MANHATTAN ASSOCIATES, INC.

FORM 10-Q

Quarter Ended September 30, 2015

TABLE OF CONTENTS

PART I

 

 

Financial Information

 

 

 

 

Item 1.

Financial Statements.

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014

3

 

 

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2015 and 2014 (unaudited)

4

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 and 2014 (unaudited)

5

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 (unaudited)

6

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

7

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

13

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

24

 

 

 

Item 4.

Controls and Procedures.

25

 

 

 

 

PART II

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings.

25

 

 

 

Item 1A.

Risk Factors.

25

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

26

 

 

 

Item 3.

Defaults Upon Senior Securities.

26

 

 

 

Item 4.

Mine Safety Disclosures.

26

 

 

 

Item 5.

Other Information.

26

 

 

 

Item 6.

Exhibits.

27

 

 

 

Signatures.

28

 

 

 

 

2


PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

September 30, 2015

 

 

December 31, 2014

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

109,029

 

 

$

115,708

 

Short-term investments

 

 

10,117

 

 

 

8,730

 

Accounts receivable, net of allowance of $6,863 and $4,164, respectively

 

 

92,045

 

 

 

86,828

 

Deferred income taxes

 

 

9,352

 

 

 

9,900

 

Prepaid expenses and other current assets

 

 

11,092

 

 

 

8,695

 

Total current assets

 

 

231,635

 

 

 

229,861

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

21,351

 

 

 

17,265

 

Goodwill, net

 

 

62,237

 

 

 

62,250

 

Deferred income taxes

 

 

260

 

 

 

270

 

Other assets

 

 

7,264

 

 

 

8,524

 

Total assets

 

$

322,747

 

 

$

318,170

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

10,095

 

 

$

12,483

 

Accrued compensation and benefits

 

 

24,914

 

 

 

30,889

 

Accrued and other liabilities

 

 

12,258

 

 

 

12,501

 

Deferred revenue

 

 

65,180

 

 

 

58,968

 

Income taxes payable

 

 

7,204

 

 

 

7,974

 

Total current liabilities

 

 

119,651

 

 

 

122,815

 

 

 

 

 

 

 

 

 

 

Other non-current liabilities

 

 

12,733

 

 

 

13,332

 

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, no par value; 20,000,000 shares authorized, no shares issued or outstanding in 2015 and 2014

 

 

-

 

 

 

-

 

Common stock, $0.01 par value; 200,000,000 shares authorized; 73,064,213 and 74,104,064 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively

 

 

731

 

 

 

741

 

Retained earnings

 

 

201,673

 

 

 

191,305

 

Accumulated other comprehensive loss

 

 

(12,041

)

 

 

(10,023

)

Total shareholders' equity

 

 

190,363

 

 

 

182,023

 

Total liabilities and shareholders' equity

 

$

322,747

 

 

$

318,170

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

3


Item 1.

Financial Statements (continued)

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(in thousands, except per share amounts)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software license

 

$

19,130

 

 

$

16,945

 

 

$

58,202

 

 

$

52,041

 

Services

 

 

112,549

 

 

 

98,518

 

 

 

321,096

 

 

 

278,950

 

Hardware and other

 

 

10,625

 

 

 

10,145

 

 

 

35,638

 

 

 

30,710

 

Total revenue

 

 

142,304

 

 

 

125,608

 

 

 

414,936

 

 

 

361,701

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of license

 

 

2,305

 

 

 

1,679

 

 

 

7,348

 

 

 

5,140

 

Cost of services

 

 

46,682

 

 

 

43,689

 

 

 

137,930

 

 

 

123,606

 

Cost of hardware and other

 

 

9,109

 

 

 

8,496

 

 

 

29,819

 

 

 

25,240

 

Research and development

 

 

13,589

 

 

 

12,236

 

 

 

40,402

 

 

 

35,906

 

Sales and marketing

 

 

10,904

 

 

 

11,476

 

 

 

34,640

 

 

 

36,344

 

General and administrative

 

 

14,058

 

 

 

10,856

 

 

 

37,223

 

 

 

32,761

 

Depreciation and amortization

 

 

1,977

 

 

 

1,675

 

 

 

5,656

 

 

 

4,652

 

Total costs and expenses

 

 

98,624

 

 

 

90,107

 

 

 

293,018

 

 

 

263,649

 

Operating income

 

 

43,680

 

 

 

35,501

 

 

 

121,918

 

 

 

98,052

 

Other income (loss), net

 

 

604

 

 

 

(55

)

 

 

1,225

 

 

 

24

 

Income before income taxes

 

 

44,284

 

 

 

35,446

 

 

 

123,143

 

 

 

98,076

 

Income tax provision

 

 

16,387

 

 

 

13,106

 

 

 

46,038

 

 

 

36,430

 

Net income

 

$

27,897

 

 

$

22,340

 

 

$

77,105

 

 

$

61,646

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.38

 

 

$

0.30

 

 

$

1.05

 

 

$

0.82

 

Diluted earnings per share

 

$

0.38

 

 

$

0.30

 

 

$

1.04

 

 

$

0.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

73,259

 

 

 

74,687

 

 

 

73,616

 

 

 

75,255

 

Diluted

 

 

73,761

 

 

 

75,466

 

 

 

74,162

 

 

 

76,104

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

4


Item 1.

Financial Statements (continued)

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(in thousands)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Net income

 

$

27,897

 

 

$

22,340

 

 

$

77,105

 

 

$

61,646

 

Foreign currency translation adjustment

 

 

(1,891

)

 

 

(1,697

)

 

 

(2,018

)

 

 

(420

)

Comprehensive income

 

$

26,006

 

 

$

20,643

 

 

$

75,087

 

 

$

61,226

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

5


 

Item 1.

Financial Statements (continued) 

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

 

(unaudited)

 

 

(unaudited)

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

77,105

 

 

$

61,646

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,656

 

 

 

4,652

 

Equity-based compensation

 

 

11,087

 

 

 

6,967

 

Gain on disposal of equipment

 

 

(38

)

 

 

(23

)

Tax benefit of stock awards exercised/vested

 

 

8,435

 

 

 

7,395

 

Excess tax benefits from equity-based compensation

 

 

(8,413

)

 

 

(7,359

)

Deferred income taxes

 

 

712

 

 

 

122

 

Unrealized foreign currency loss (gain)

 

 

86

 

 

 

(36

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(6,609

)

 

 

(17,147

)

Other assets

 

 

(1,592

)

 

 

(6,408

)

Accounts payable, accrued and other liabilities

 

 

(8,444

)

 

 

1,564

 

Income taxes

 

 

(602

)

 

 

(2,442

)

Deferred revenue

 

 

6,651

 

 

 

4,786

 

Net cash provided by operating activities

 

 

84,034

 

 

 

53,717

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(9,619

)

 

 

(6,676

)

Net purchases of investments

 

 

(1,825

)

 

 

(1,849

)

Payment in connection with acquisition

 

 

-

 

 

 

(2,773

)

Net cash used in investing activities

 

 

(11,444

)

 

 

(11,298

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Purchase of common stock

 

 

(86,839

)

 

 

(73,706

)

Proceeds from issuance of common stock from options exercised

 

 

568

 

 

 

1,014

 

Excess tax benefits from equity-based compensation

 

 

8,413

 

 

 

7,359

 

Net cash used in financing activities

 

 

(77,858

)

 

 

(65,333

)

 

 

 

 

 

 

 

 

 

Foreign currency impact on cash

 

 

(1,411

)

 

 

(345

)

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(6,679

)

 

 

(23,259

)

Cash and cash equivalents at beginning of period

 

 

115,708

 

 

 

124,375

 

Cash and cash equivalents at end of period

 

$

109,029

 

 

$

101,116

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

6


Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.

Basis of Presentation and Principles of Consolidation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Manhattan Associates, Inc. and its subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, with the instructions to Form 10-Q and with 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 management, these condensed consolidated financial statements contain all normal recurring adjustments considered necessary for a fair presentation of the Company’s financial position at September 30, 2015, the results of operations for the three and nine months ended September 30, 2015 and 2014, and cash flows for the nine months ended September 30, 2015 and 2014. The results for the three and nine months ended September 30, 2015 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 and management’s discussion and analysis included in the Company’s annual report on Form 10-K for the year ended December 31, 2014.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the Company’s accounts and the accounts of its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

 

2.

Revenue Recognition

The Company’s revenue consists of fees from the licensing and hosting of software (collectively included in “Software license” revenue in the Condensed Consolidated Statements of Income), fees from implementation and training services (collectively, “professional services”) and customer support services and software enhancements (collectively with professional services revenue included in “Services” revenue in the Condensed Consolidated Statements of Income), and sales of hardware and other revenue, which consists of reimbursements of out-of-pocket expenses incurred in connection with our professional services (collectively included in “Hardware and other” revenue in the Condensed Consolidated Statements of Income).  All revenue is recognized net of any related sales taxes.

The Company recognizes license revenue when the following criteria are met: (1) a signed contract is obtained covering all elements of the arrangement, (2) delivery of the product has occurred, (3) the license fee is fixed or determinable, and (4) collection is probable.  Revenue recognition for software with multiple-element arrangements requires recognition of revenue using the “residual method” when (a) there is vendor-specific objective evidence (VSOE) of the fair values of all undelivered elements in a multiple-element arrangement that is not accounted for using long-term contract accounting, (b) VSOE of fair value does not exist for one or more of the delivered elements in the arrangement, and (c) all other applicable revenue-recognition criteria for software revenue recognition are satisfied. For those contracts that contain significant customization or modifications, license revenue is recognized using contract accounting.

The Company allocates revenue to customer support services and software enhancements and any other undelivered elements of the arrangement based on VSOE of fair value of each element, and such amounts are deferred until the applicable delivery criteria and other revenue recognition criteria have been met.  The balance of the revenue, net of any discounts inherent in the arrangement, is recognized at the outset of the arrangement using the residual method as the product licenses are delivered.  If the Company cannot objectively determine the fair value of each undelivered element based on the VSOE of fair value, the Company defers revenue recognition until all elements are delivered, all services have been performed, or until fair value can be objectively determined.  The Company must apply judgment in determining all elements of the arrangement and in determining the VSOE of fair value for each element, considering the price charged for each product on a stand-alone basis or applicable renewal rates.  For arrangements that include future software functionality deliverables, the Company accounts for these deliverables as a separate element of the arrangement.  Because the Company does not sell these deliverables on a standalone basis, the Company is not able to establish VSOE of fair value of these deliverables.  As a result, the Company defers all revenue under the arrangement until the future functionality has been delivered to the customer.

Payment terms for the Company’s software licenses vary.  Each contract is evaluated individually to determine whether the fees in the contract are fixed or determinable and whether collectability is probable.  Judgment is required in assessing the probability of collection, which is generally based on evaluation of customer-specific information, historical collection experience, and economic market conditions.  If market conditions decline, or if the financial conditions of customers deteriorate, the Company may be unable to determine that collectability is probable, and the Company could be required to defer the recognition of revenue until the Company receives customer payments.  The Company has an established history of collecting under the terms of its software license contracts without providing refunds or concessions to its customers.  Therefore, the Company has determined that the presence of payment

 

7


Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

terms that extend beyond contract execution in a particular contract do not preclude the conclusion that the fees in the contract are fixed or determinable.  Although infrequent, when payment terms in a contract extend beyond twelve months, the Company has determined that such fees are not fixed or determinable and recognizes revenue as payments become due provided that all other conditions for revenue recognition have been met.

The Company’s services revenue consists of fees generated from professional services and customer support and software enhancements related to the Company’s software products.  Professional services include system planning, design, configuration, testing, and other software implementation support, and are not typically essential to the functionality of the software.  Fees from professional services performed by the Company are separately priced and are generally billed on an hourly basis, and revenue is recognized as the services are performed.  In certain situations, professional services are rendered under agreements in which billings are limited to contractual maximums or based upon a fixed fee for portions of or all of the engagement.  Revenue related to fixed-fee-based contracts is recognized on a proportional performance basis based on the hours incurred on discrete projects within an overall services arrangement.  The Company has determined that output measures, or services delivered, approximate the input measures associated with fixed-fee services arrangements.  Project losses are provided for in their entirety in the period in which they become known.  Revenue related to customer support services and software enhancements is generally paid in advance and recognized ratably over the term of the agreement, typically twelve months.

Hardware and other 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 solution, the Company’s customers periodically purchase hardware from the Company for use with the software licenses purchased from the Company. These products include computer hardware, radio frequency terminal networks, radio frequency identification (RFID) chip readers, bar code printers and scanners, and other peripherals. Hardware revenue is recognized upon shipment to the customer when title passes. The Company generally purchases hardware from the Company’s vendors only after receiving an order from a customer. As a result, the Company generally does not maintain hardware inventory.

In accordance with the other presentation matters within the Revenue Recognition Topic of the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC), the Company recognizes amounts associated with reimbursements from customers for out-of-pocket expenses as revenue. Such amounts have been included in “Hardware and other” revenue in the Condensed Consolidated Statements of Income. The total amount of expense reimbursement recorded to revenue was $5.2 million and $5.4 million for the three months ended September 30, 2015 and 2014, respectively, and $15.4 million and $13.9 million for the nine months ended September 30, 2015 and 2014, respectively.

 

 

3.

Fair Value Measurement

The Company measures its 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 its 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.

The Company’s investments are categorized as available-for-sale securities and recorded at fair market value.  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 September 30, 2015, the Company’s cash, cash equivalents, and short-term investments balances were $70.1 million, $38.9 million, and $10.1 million, respectively. The Company currently has no long-term investments. Cash equivalents consist of highly liquid money market funds and certificates of deposit. Short-term investments consist of certificates of deposit. The Company uses

 

8


Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

quoted prices from active markets that are classified at Level 1 as a highest level observable input in the disclosure hierarchy framework for all available-for-sale securities. At both September 30, 2015 and December 31, 2014, the Company had $30.4 million in money market funds, which are classified as Level 1 and are included in cash and cash equivalents on the Condensed Consolidated Balance Sheets. The Company has no investments classified as Level 2 or Level 3.

 

 

4.

Equity-Based Compensation

 

The Company granted 222,601 and 34,143 restricted stock and restricted stock units (collectively “restricted stock awards”) during the three months ended September 30, 2015 and 2014, respectively, and 576,882 and 390,070 restricted stock awards during the nine months ended September 30, 2015 and 2014, respectively. The Company recorded equity-based compensation expense related to restricted stock awards of $5.3 million and $2.3 million during the three months ended September 30, 2015 and 2014, respectively, and $11.1 million and $7.0 million during the nine months ended September 30, 2015 and 2014, respectively.

A summary of changes in unvested shares/units for the nine months ended September 30, 2015 is as follows:

 

 

 

Number of shares/units

 

Outstanding at December 31, 2014

 

 

1,346,062

 

Granted

 

 

576,882

 

Vested

 

 

(637,310

)

Forfeited

 

 

(69,154

)

Outstanding at September 30, 2015

 

 

1,216,480

 

 

No amounts were recorded for equity-based compensation expense related to stock options during the three and nine months ended September 30, 2015 and 2014 as all stock options vested prior to 2014.  The Company does not currently grant stock options.

A summary of changes in outstanding options for the nine months ended September 30, 2015 is as follows:

 

 

 

Number of Options

 

Outstanding at December 31, 2014

 

 

153,764

 

Exercised

 

 

(113,352

)

Forfeited and expired

 

 

-

 

Outstanding at September 30, 2015

 

 

40,412

 

 

 

5.

Income Taxes

 

The Company’s effective tax rate was 37.0% for both the three months ended September 30, 2015 and 2014, and 37.4% and 37.1% for the nine months ended September 30, 2015 and 2014, respectively.  The increase in the effective tax rate for the nine months ended September 30, 2015 was primarily due to increases in state tax rates.

The Company applies the provisions for income taxes related to, among other things, accounting for uncertain tax positions and disclosure requirements in accordance with the Income Taxes Topic of the FASB Accounting Standards Codification (ASC 740). For the three months ended September 30, 2015, there was an increase of $0.2 million to the Company’s uncertain tax positions primarily due to increased reserves for certain state tax positions. There has been no change to the Company’s policy that recognizes potential interest and penalties related to uncertain tax positions within its global operations in income tax expense.

 

The Company currently plans to permanently reinvest all of its remaining undistributed foreign earnings.  Accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to adjustment for foreign tax credits) and withholding taxes payable to various foreign countries. It is impractical to calculate the tax impact until such repatriation occurs.

 

 

9


Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The Company is no longer subject to U.S. federal income tax examinations, substantially all state and local income tax examinations and substantially all non-U.S. income tax examinations for years before 2011.

 

 

6.

Net Earnings Per Share

Basic net earnings per share is computed using net income divided by the weighted average number of shares of common stock outstanding (“Weighted Shares”) for each period presented. Diluted net earnings per share is computed using net income divided by the sum of Weighted Shares and common equivalent shares (“CESs”) outstanding for each period presented using the treasury stock method.

The following is a reconciliation of the net income and share amounts used in the computation of basic and diluted net earnings per common share for the three and nine months ended September 30, 2015 and 2014 (in thousands, except per share data):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(in thousands, except per share data)

 

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

27,897

 

 

$

22,340

 

 

$

77,105

 

 

$

61,646

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.38

 

 

$

0.30

 

 

$

1.05

 

 

$

0.82

 

Effect of CESs

 

 

-

 

 

 

-

 

 

 

(0.01

)

 

 

(0.01

)

Diluted

 

$

0.38

 

 

$

0.30

 

 

$

1.04

 

 

$

0.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

73,259

 

 

 

74,687

 

 

 

73,616

 

 

 

75,255

 

Effect of CESs

 

 

502

 

 

 

779

 

 

 

546

 

 

 

849

 

Diluted

 

 

73,761

 

 

 

75,466

 

 

 

74,162

 

 

 

76,104

 

 

There were no anti-dilutive CESs during 2015 and 2014.

 

 

7.

Contingencies

From time to time, the Company may be involved in litigation relating to claims arising out of its ordinary course of business, and occasionally legal proceedings not in the ordinary course. Many of the Company’s installations involve products that are critical to the operations of its clients’ businesses. Any failure in a Company product could result in a claim for substantial damages against the Company, regardless of the Company’s responsibility for such failure. Although the Company attempts to limit contractually its 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 its contracts will be enforceable in all instances. The Company is not currently a party to any legal proceedings the result of which it believes is likely to have a material adverse impact upon its business, financial position, results of operations, or cash flows. The Company expenses legal costs associated with loss contingencies as such legal costs are incurred.

 

 

8.

Operating Segments

The Company manages the business by geographic segment. The Company has three geographic reportable segments: North America and Latin America (the “Americas”); Europe, Middle East and Africa (“EMEA”); and Asia Pacific (“APAC”). All segments derive revenue from the sale and implementation of the Company’s supply chain execution and planning 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. The Company uses 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 sold by those reportable segments. The royalties, which totaled approximately $0.5 million and $0.3 million for the three months ended September 30, 2015 and 2014, respectively, and approximately $2.1 million and $2.6 million for the nine months ended September 30, 2015 and 2014, respectively,

 

10


Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

are included in cost of revenue for each segment with a corresponding reduction in America’s cost of revenue. The revenues represented below are from external customers only. The geographical-based costs consist of costs of professional services personnel, direct sales and marketing expenses, cost of infrastructure to support the employees and customer base, billing and financial systems, management and general and administrative support.  There are certain corporate expenses included in the Americas segment that are not charged to the other segments, including research and development, certain marketing and general and administrative costs that support the global organization, and the amortization of acquired developed technology. Included in the Americas’ costs are all research and development costs including the costs associated with the Company’s India operations.

The following table presents the revenues, expenses and operating income by reportable segment for the three and nine months ended September 30, 2015 and 2014 (in thousands):

 

 

 

Three Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License

 

$

16,977

 

 

$

1,347

 

 

$

806

 

 

$

19,130

 

 

$

15,650

 

 

$

589

 

 

$

706

 

 

$

16,945

 

Services

 

 

93,513

 

 

 

14,700

 

 

 

4,336

 

 

 

112,549

 

 

 

78,452

 

 

 

13,139

 

 

 

6,927

 

 

 

98,518

 

Hardware and other

 

 

9,628

 

 

 

782

 

 

 

215

 

 

 

10,625

 

 

 

9,317

 

 

 

525

 

 

 

303

 

 

 

10,145

 

Total revenue

 

 

120,118

 

 

 

16,829

 

 

 

5,357

 

 

 

142,304

 

 

 

103,419

 

 

 

14,253

 

 

 

7,936

 

 

 

125,608

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

47,305

 

 

 

7,891

 

 

 

2,900

 

 

 

58,096

 

 

 

42,970

 

 

 

7,312

 

 

 

3,582

 

 

 

53,864

 

Operating expenses

 

 

34,630

 

 

 

2,893

 

 

 

1,028

 

 

 

38,551

 

 

 

30,168

 

 

 

3,242

 

 

 

1,158

 

 

 

34,568

 

Depreciation and amortization

 

 

1,776

 

 

 

136

 

 

 

65

 

 

 

1,977

 

 

 

1,531

 

 

 

82

 

 

 

62

 

 

 

1,675

 

Total costs and expenses

 

 

83,711

 

 

 

10,920

 

 

 

3,993

 

 

 

98,624

 

 

 

74,669

 

 

 

10,636

 

 

 

4,802

 

 

 

90,107

 

Operating income

 

$

36,407

 

 

$

5,909

 

 

$

1,364

 

 

$

43,680

 

 

$

28,750