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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 0-23999
MANHATTAN ASSOCIATES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Georgia 58-2373424
(State or Other Jurisdiction of Incorporation or I.R.S Employer Identification No.)
Organization)
2300 WINDY RIDGE PARKWAY, SUITE 700 30339
ATLANTA, GEORGIA (Zip Code)
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 955-7070
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
The number of shares of the Registrant's class of capital stock as of May 12,
1999, the latest practicable date, is as follows: 24,021,037 shares of common
stock, $0.01 par value per share.
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Form 10-Q
Page 1 of 17
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Page
----
ITEM 1. FINANCIAL STATEMENTS.
Condensed Consolidated Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Income for the three months
ended March 31, 1999 and 1998 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 and 1998 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 15
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 16
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 16
ITEM 5. OTHER INFORMATION. 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 16
SIGNATURES. 17
Form 10-Q
Page 2 of 17
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
March 31, 1999 December 31, 1998
--------------- -----------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents............................................. $ 20,095 $ 27,751
Short-term investments................................................ 10,055 5,012
Accounts receivable, net of allowance for doubtful accounts of $2,240
and $1,600 at March 31, 1999 and December 31, 1998, respectively..... 19,939 20,806
Deferred income taxes................................................. 622 622
Refundable income taxes............................................... 332 342
Prepaid expenses and other current assets............................. 1,131 1,328
------------ ------------
Total current assets.............................................. 52,174 55,861
Property and equipment, net.............................................. 8,458 7,431
Deferred taxes........................................................... 155 155
Intangible and other assets.............................................. 4,684 4,328
------------ ------------
Total assets...................................................... $ 65,471 $ 67,775
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities.............................. $ 5,224 $ 8,196
Current portion of capital lease obligations.......................... 97 126
Deferred revenue...................................................... 3,041 2,978
------------ ------------
Total current liabilities......................................... 8,362 11,300
Long-term portion of capital lease obligations........................... 807 840
Shareholders' equity:
Preferred stock, no par value; 20,000,000 shares authorized, no shares
issued or outstanding at March 31, 1999 and December 31, 1998....... -- --
Common stock, $.01 par value; 100,000,000 shares authorized,
24,013,137 and 23,937,874 shares issued and outstanding at March
31, 1999 and December 31, 1998, respectively........................ 240 239
Additional paid-in capital............................................ 53,331 53,305
Retained earnings..................................................... 3,296 3,056
Accumulated foreign currency translation adjustment................... (26) (7)
Deferred compensation................................................. (539) (958)
------------ ------------
Total shareholders' equity........................................ 56,302 55,635
============ ============
Total liabilities and shareholders' equity.................... $ 65,471 $ 67,775
============ ============
See accompanying Notes to Condensed Consolidated Financial Statements.
Form 10-Q
Page 3 of 17
ITEM 1. FINANCIAL STATEMENTS (continued)
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
March 31,
-------------------------------
1999 1998
----------- -----------
Revenue:
Software license................................ $ 4,437 $ 2,152
Services........................................ 10,958 5,284
Hardware........................................ 2,755 3,934
--------- ----------
Total revenue............................... 18,150 11,370
Cost of revenue:
Software license................................ 190 69
Services........................................ 6,042 2,519
Hardware........................................ 2,044 3,080
--------- ----------
Total cost of revenue....................... 8,276 5,668
--------- ----------
Gross margin......................................... 9,874 5,702
Operating expenses:
Research and development........................ 2,719 1,285
Acquired research and development............... -- 1,602
Sales and marketing............................. 4,044 1,313
General and administrative...................... 3,008 1,127
--------- ----------
Total operating expenses.................... 9,771 5,327
--------- ----------
Operating income..................................... 103 375
Other income, net.................................... 262 14
--------- ----------
Income before income taxes........................... 365 389
Income tax expense:
Tax provision as a `C' Corporation............... 125 --
--------- ----------
Historical net income................................ $ 240 $ 389
========= ==========
Historical basic net income per share................ $ 0.01 $ 0.02
========= ===========
Historical diluted net income per share.............. $ 0.01 $ 0.02
========= ==========
Income before pro forma income taxes................. 365 389
Pro forma income taxes............................... 125 713
--------- ----------
Pro forma net income (loss).......................... $ 240 $ (324)
========= ==========
Pro forma basic net income (loss) per share.......... $ 0.01 $ (0.02)
========= ==========
Pro forma diluted net income (loss) per share........ $ 0.01 $ (0.02)
========= ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
Form 10-Q
Page 4 of 17
ITEM 1. FINANCIAL STATEMENTS (continued)
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
----------------------------------------
1999 1998
------------------ ------------------
OPERATING ACTIVITIES:
Net income or pro forma net loss.............................. $ 240 $ (324)
Adjustments to reconcile net income or pro forma net loss to
net cash provided by operating activities:
Pro forma income taxes.................................... -- 713
Depreciation and amortization............................. 814 218
Stock compensation........................................ 58 62
Acquired research and development......................... -- 1,602
Accrued interest on note payable to shareholder........... -- 27
Changes in operating assets and liabilities:
Accounts receivable, net................................ 856 (2,517)
Other assets............................................ 127 (719)
Accounts payable and accrued liabilities................ (2,966) 1,051
Deferred revenue........................................ 64 338
------------------ ------------------
Net cash provided by (used in) operating activities........... (807) 451
INVESTING ACTIVITIES:
Purchase of property and equipment......................... (1,639) (681)
Capitalized software development costs..................... (487) --
Purchase of short-term investments, net.................... (5,043) --
Payments in connection with the acquisition of Performance
Analysis Corporation, net of cash acquired............... -- (1,344)
------------------ ------------------
Net cash used in investing activities......................... (7,169) (2,025)
FINANCING ACTIVITIES:
Distributions to shareholders.............................. -- (1,406)
Payment of capital lease obligations....................... (62) --
Borrowings under note payable to shareholder............... -- 900
Proceeds from issuance of common stock..................... 388 1,000
------------------ ------------------
Net cash provided by financing activities..................... 326 494
Foreign currency impact on cash........................... (6) --
------------------ ------------------
Net decrease in cash and cash equivalents..................... (7,656) (1,080)
Cash and cash equivalents at beginning of period.............. 27,751 3,194
------------------ ------------------
Cash and cash equivalents at end of period.................... $ 20,095 $ 2,114
================== ==================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Issuance of common stock in connection with acquisition of
Performance Analysis Corporation......................... $ -- $ 1,067
================== ==================
Cash paid for income taxes................................. $ 113 $ --
================== ==================
See accompanying Notes to Condensed Consolidated Financial Statements.
FORM 10-Q
PAGE 5 of 17
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles 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 by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, these
consolidated financial statements contain all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the
financial position at March 31, 1999, the results of operations for the three
month periods ended March 31, 1999 and 1998 and changes in cash flows for the
three month periods ended March 31, 1999 and 1998. The interim results for the
three month period ended March 31, 1999 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 financial statements for the year ended December
31, 1998.
2. PRINCIPLES OF CONSOLIDATION
The accompanying 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. COMPLETION OF INITIAL PUBLIC OFFERING AND CONVERSION
On April 23, 1998, the Company completed its initial public offering (the
"Offering") of its $.01 par value per share common stock (the "Common Stock").
The Company sold 3,500,000 shares of Common Stock, excluding 525,000 shares sold
by certain selling shareholders as part of the underwriters' over-allotment, for
$52,500,000 less issuance costs of approximately $5,242,000.
In connection with the Offering, the assets and liabilities of Manhattan
Associates, LLC ("Manhattan LLC") were contributed to the Company in exchange
for Common Stock (the "Conversion"). Manhattan LLC then distributed the Common
Stock received to its shareholders. Prior to the completion of the Offering,
Manhattan LLC distributed all undistributed earnings, calculated on a tax basis,
to the shareholders of Manhattan LLC. The amount distributed subsequent to
December 31, 1997 and prior to completion of the Offering was approximately
$11,720,000.
4. REVENUE RECOGNITION
The Company recognizes revenue in accordance with Statement of Position No.
97-2, "Software Revenue Recognition" ("SOP 97-2"), which superseded Statement of
Position No. 91-1, "Software Revenue Recognition." Under SOP 97-2, the Company
recognizes software license revenue when the following criteria are met: (1) a
signed contract is obtained; (2) shipment of the product has occurred; (3) the
license fee is fixed and determinable; (4) collectibility is probable; and (5)
remaining obligations under the license agreement are insignificant. Consulting
services are generally billed on an hourly basis and revenue is recognized as
the work is performed. Maintenance revenue from ongoing customer support is
billed in advance for a one year period and recorded as revenue ratably over the
billing period. Hardware revenue is billed and recognized upon shipment.
FORM 10-Q
PAGE 6 of 17
5. COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," which establishes standards for reporting
and display of "comprehensive income" and its components. Comprehensive income
for the Company consists of net income and foreign currency translation
adjustments. Total historical comprehensive income was $221,000 and $389,000 for
the three month periods ended March 31, 1999 and 1998, respectively.
6. EARNINGS PER SHARE
Subsequent to the completion of the initial public offering, pro forma and
historical basic net income per share is calculated using the weighted average
number of shares outstanding during the period. Pro forma and historical diluted
net income per share is computed on the basis of the weighted average number of
common shares outstanding plus the dilutive effect of outstanding stock options
using the "treasury stock" method.
Prior to the completion of the initial public offering, pro forma basic net
income per share was computed using pro forma net income divided by (i) the
weighted average number of shares of Common Stock outstanding ("Weighted
Shares") for the period presented and (ii) pursuant to the Securities and
Exchange Commission Staff Accounting Bulletin 1B.3, the number of shares that,
at the assumed public offering price, would yield proceeds in the amount
necessary to pay the shareholder distribution discussed in Note 3 that is not
covered by the earnings for the one year period through the date of distribution
("Distribution Shares"). Pro forma diluted net income per share was computed
using pro forma net income divided by (i) the Weighted Shares, (ii) the
Distribution Shares and (iii) the treasury stock method effect of common
equivalent shares ("CES's") outstanding for each period presented.
No adjustment is necessary for historical and pro forma net income for net
income per share presentation. The following is a reconciliation of the shares
used in the computation of net income per share:
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
----------------------------- ----------------------------
Basic Diluted Basic Diluted
------------ ------------- ------------ ------------
Historical Historical
----------------------------- ----------------------------
(in thousands) (in thousands)
Weighted Shares........................... 23,983 23,983 20,097 20,097
Effect of CES's........................... -- 3,236 -- 2,241
============ ============= ============ ============
23,983 27,219 20,097 22,338
============ ============= ============ ============
Basic Diluted Basic Diluted
------------ ------------- ------------ ------------
Pro Forma Pro Forma
----------------------------- ----------------------------
Weighted Shares........................... 23,983 23,983 20,097 20,097
Shares sold to Minority Holder............ -- -- 54 54
Distribution Shares....................... -- -- 90 90
Effect of CES's........................... -- 3,236 -- --
============ ============= ============ ============
23,983 27,219 20,241 20,241
============ ============= ============ ============
Form 10-Q
Page 7 of 17
7. INCOME TAXES
Prior to the Conversion, the Company elected to report as a limited
liability company that was treated as a partnership for income tax purposes (see
Note 3), and as a result, the Company was not subject to federal and state
income taxes. After the Conversion, the Company became subject to federal and
state income taxes. In connection with the Conversion, the Company recognized a
one-time benefit in April 1998 of $316,000 by recording the asset related to the
future reduction of income tax payments due to temporary differences between the
recognition of income for financial statements and income tax regulations. Pro
forma net income amounts discussed herein include provisions for income taxes on
a pro forma basis as if the Company were liable for federal and state income
taxes as a taxable corporate entity throughout the periods presented. Pro forma
income tax provisions reflect the Company's anticipated effective annual tax
rate of 36% for the three month period ended March 31, 1998. For the three month
period ended March 31, 1999, the pro forma income tax provision equals the
historical income tax provision. The historical income tax provision reflects
the Company's anticipated effective annual tax rate of 34% for the three month
period ended March 31, 1999.
8. ACQUISITION
On February 16, 1998, the Company purchased all of the outstanding stock of
Performance Analysis Corporation ("PAC") for $2,200,000 in cash and 106,666
shares of the Company's common stock valued at $10.00 per share (the "PAC
Acquisition"). PAC is a developer of distribution center slotting software. The
PAC Acquisition has been accounted for as a purchase.
The purchase price of approximately $3,300,000 has been allocated to the
assets acquired and liabilities assumed of $490,000, acquired research and
development of $1,602,000, purchased software of $500,000, and other intangible
assets of $750,000. Purchased software will be amortized over an estimated two-
year useful life and other intangible assets will be amortized over a seven-year
useful life. In connection with the PAC Acquisition, the Company recorded a
charge to income of $1,602,000 in the first quarter of 1998 for acquired
research and development.
Form 10-Q
Page 8 of 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company provides information technology solutions for distribution
centers that are designed to enable the efficient movement of goods through the
supply chain. The Company's solutions are designed to optimize the receipt,
storage and distribution of inventory and the management of equipment and
personnel within a distribution center, and to meet the increasingly complex
information requirements of manufacturers, distributors and retailers. The
Company's solutions consist of software, including PkMS, a comprehensive and
modular software system; services, including design, configuration,
implementation, training and support; and hardware. The Company currently
provides solutions to manufacturers, distributors and retailers primarily in the
apparel, consumer products, food service and grocery markets.
The Company recognizes revenue in accordance with Statement of Position No.
97-2, "Software Revenue Recognition" ("SOP 97-2"), which superseded Statement of
Position No. 91-1, "Software Revenue Recognition." Under SOP 97-2, the Company
recognizes software license revenue when the following criteria are met: (1) a
signed contract is obtained; (2) shipment of the product has occurred; (3) the
license fee is fixed and determinable; (4) collectibility is probable; and (5)
remaining obligations under the license agreement are insignificant. Consulting
services are generally billed on an hourly basis, and revenue is recognized as
the work is performed. Maintenance revenue from ongoing customer support is
billed in advance for a one year period and recorded as revenue ratably over the
billing period. Hardware revenue is billed and recognized upon shipment.
Prior to the Conversion, the Company elected to report as a limited
liability company that was treated as a partnership for income tax purposes, and
as a result, the Company was not subject to federal and state income taxes. Pro
forma net income amounts discussed herein include additional provisions for
income taxes on a pro forma basis as if the Company was liable for federal and
state income taxes as a taxable corporate entity throughout the periods
presented. The pro forma tax provision is calculated by applying the Company's
statutory tax rate to pretax income, adjusted for permanent tax differences. The
Company's status as a limited liability company terminated immediately prior to
the effectiveness of the Offering, and the Company will thereafter be taxed as a
business corporation. See Notes to Condensed Consolidated Financial Statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998
Revenue
Total revenue increased 60% to $18.2 million for the three months ended
March 31, 1999 from $11.4 million for the three months ended March 31, 1998.
Total revenue consists of software license revenue, revenue derived from
consulting, maintenance and other services and revenue from the sale of
hardware. The increase in total revenue was primarily due to an increase in
revenue from services and software licenses.
Software License. Software license revenue increased 106% to $4.4 million
for the three months ended March 31, 1999 from $2.2 million for the three months
ended March 31, 1998. The increase in revenue from software licenses was
primarily due to an increase in the number of licenses of the Company's
products.
Form 10-Q
Page 9 of 17
Services. Services revenue increased 107% to $11.0 million for the three
months ended March 31, 1999 from $5.3 million for the three months ended March
31, 1998. The increase in revenue from services was principally due to the
increased demand for these services resulting from the increased demand for the
Company's products.
Hardware. Hardware revenue decreased 30% to $2.8 million for the three
months ended March 31, 1999 from $3.9 million for the three months ended March
31, 1998. The decrease in revenue from hardware was principally a result of a
higher demand for hardware products during the three months ended March 31, 1998
as compared to the three months ended March 31, 1999.
Cost of Revenue
Cost of Software License. Cost of software license revenue consists of the
costs of software reproduction and delivery, media, packaging, documentation and
other related costs and the amortization of purchased software and capitalized
research and development costs. Cost of software license revenue increased to
$190,000, or 4% of software license revenue, for the three months ended March
31, 1999 from $69,000, or 3% of software license revenue, for the three months
ended March 31, 1998. Cost of software license revenue increased primarily due
to the amortization of purchased software from the PAC Acquisition, the
amortization of capitalized research and development expenses and due to an
increase in royalties associated with the sale of certain products developed by
third parties.
Cost of Services. Cost of services revenue consists primarily of consultant
salaries and other personnel-related expenses incurred in system implementation
projects and software support services. Cost of services revenue increased to
$6.0 million, or 55% of services revenue, for the three months ended March 31,
1999 from $2.5 million, or 48% of services revenue, for the three months ended
March 31, 1998. The increase in cost of services revenue was primarily due to
increased personnel as a result of the increased demand for services.
Cost of Hardware. Cost of hardware revenue decreased to $2.0 million, or
74% of hardware revenue, for the three months ended March 31, 1999 from $3.1
million, or 78% of hardware revenue, for the three months ended March 31, 1998.
The decrease in the cost of hardware as a percentage of hardware revenue is
principally due to an increase in the percentage of hardware products sold with
relatively higher gross margins during the three month period ended March 31,
1999 as compared to hardware sales during the three month period ended March 31,
1998.
Operating Expenses
Research and Development. Research and development expenses principally
consist of salaries and other personnel-related costs. The Company's research
and development expenses increased by 112% to $2.7 million, or 15% of total
revenue, for the three months ended March 31, 1999 from $1.3 million, or 11% of
total revenue, for the three months ended March 31, 1998. The increase in
research and development expenses resulted from an increase in the number of
research and development personnel during the three months ended March 31, 1999
as compared to the three months ended March 31, 1998. Significant product
development efforts include the continued development of PkMS, the continued
development of the N-Tier version of PkMS and, to a lesser extent, the continued
development of SLOT-IT and the development of the Windows NT based version of
SLOT-IT. During the three months ended March 31, 1999, the Company capitalized
$487,000 of research and development expenses. Those capitalized costs will be
amortized over three years commencing upon the availability of the anticipated
products. The Company believes that a continued commitment to product
development will be required for the Company to remain competitive and expects
the dollar amount of research and development expenses to continue to increase
in the near future.
Form 10-Q
Page 10 of 17
Acquired Research and Development. In February 1998, the Company purchased
all of the outstanding stock of PAC for approximately $2.2 million in cash and
106,666 shares of Common Stock valued at $10.00 per share. The acquisition has
been accounted for as a purchase. In connection with the Acquisition,
approximately $1.6 million of the purchase price was allocated to acquired
research and development and expensed during the first quarter of 1998.
Sales and Marketing. Sales and marketing expenses include salaries,
commissions and other personnel-related costs, travel expenses, advertising
programs and other promotional activities. Sales and marketing expenses
increased by 208% to $4.0 million, or 22% of total revenue, for the three months
ended March 31, 1999 from $1.3 million, or 12% of total revenue, for the three
months ended March 31, 1998. The increase in sales and marketing expenses was
the result of additional sales and marketing personnel and expanded marketing
program activities.
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related costs of executive, financial
and human resources and administrative personnel, as well as facilities, legal,
insurance, accounting and other administrative expenses. General and
administrative expenses increased by 167% to $3.0 million, or 17% of total
revenue, for the three months ended March 31, 1999 from $1.1 million, or 10% of
total revenue, for the three months ended March 31, 1998. The increase in
general and administrative expenses was primarily due to increased personnel and
other administrative expenses necessary to support the Company's growth.
Income Taxes
Provision for Income Taxes. Prior to the initial public offering in April
1998, the Company's predecessor, Manhattan Associates Software, LLC, was treated
as a partnership and was not subject to federal income taxes. The income or loss
of Manhattan Associates Software, LLC was included in the owners' individual
federal and state tax returns, and as such, no provision for income taxes was
recorded in the accompanying statements of income for the three months ended
March 31, 1998. The provision for income taxes for the three months ended March
31, 1999 was $125,000 as compared to a pro forma provision for income taxes of
$713,000 for the three months ended March 31, 1998. The decrease in the
provision for income taxes during the three months ended March 31, 1998 was due
to the in-process research and development charge not being tax deductible.
Earnings per Share
Pro Forma Net Income (Loss) per Share. Net income was $240,000, or $0.01
per diluted share, for the three months ended March 31, 1999, compared to pro
forma net loss of $324,000, or $0.02 per diluted share, for the three months
ended March 31, 1998. Excluding the effect of the one-time acquired research and
development charge of $1.6 million during the three months ended March 31, 1998,
pro forma net income was $1.3 million, or $0.06 per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations primarily through
cash generated from operations and the Offering. In addition, the Company has
previously borrowed money from its majority shareholder. As of March 31, 1999,
the Company had $30.2 million in cash, cash equivalents and short-term
investments.
Form 10-Q
Page 11 of 17
Cash used for operating activities was approximately $807,000 for the three
months ended March 31, 1999 while the operating activities provided cash of
$451,000 for the three months ended March 31, 1998. The Company's use of cash
for the three months ended March 31, 1999 was primarily due to a decrease in
accounts payable and accrued liabilities during the period.
Cash used for investing activities was approximately $7.2 million for the
three months ended March 31, 1999 and $2.0 million for the three months ended
March 31, 1998. The use of cash for the three months ended March 31, 1999 was
primarily for the purchase of short term investments and the purchase of capital
equipment, such as computer equipment and furniture and fixtures, to support the
Company's growth. In addition, the Company capitalized $487,000 of research and
development costs during the three months ended March 31, 1999.
Cash provided by financing activities was approximately $326,000 for the
three months ended March 31, 1999 and $494,000 for the three months ended March
31, 1998. The principal source of cash provided by financing activities for the
three months ended March 31, 1999 was the proceeds from the issuance of Common
Stock pursuant to the exercise of stock options, partially reduced by the
payment of capital lease obligations.
Prior to the Offering, the Company entered into a line of credit with
Silicon Valley Bank to fund its distribution to the Company's shareholders and
to fund its continuing working capital needs. The line of credit does not
contain any conditions or restrictive covenants that would materially affect the
Company's business, financial condition or results of operations. In April 1998,
the Company borrowed approximately $7.0 million under the line of credit. The
Company repaid the borrowings and accrued interest with the proceeds from the
Offering.
In April 1998, the Company completed the Offering, in which the Company
received net proceeds of approximately $47.3 million after deducting
underwriting discounts and offering expenses. The Company applied a portion of
the net proceeds to repay all of the Company's outstanding indebtedness to
Silicon Valley Bank ($7.0 million) and a note payable to the Company's Chairman
of the Board, Chief Executive Officer and President ($1.9 million). Prior to the
Offering, the Company made payments of $11.7 million in distributions to its
shareholders. The balance of the net proceeds of the Offering (approximately
$34.0 million) have been and will continue to be utilized for general corporate
purposes. Such purposes may also include possible acquisitions of, or
investments in, businesses and technologies that are complementary to those of
the Company. There can be no assurance that the remaining net proceeds from the
Offering will be sufficient to pay for future acquisitions, planned research and
development projects or other growth-oriented activities, which could require
the Company to incur additional debt or other financing that could impose
restrictive covenants and other terms having a material adverse effect on the
Company's business, financial condition and results of operations.
The Company anticipates that existing cash and cash equivalents will be
adequate to meet its cash requirements for the next twelve months.
YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are coded
to accept only two digit entries in date code fields. Beginning in the year
2000, many of these systems will need to be modified to accept four digit
entries or otherwise distinguish twenty-first century dates from twentieth
century dates. As a result, over the next three quarters, many companies will
need to upgrade their computer systems and software products to comply with
these "Year 2000" requirements.
Form 10-Q
Page 12 of 17
In September 1998, the Company formed its Year 2000 Readiness Committee to
oversee the Company's Year 2000 Readiness Assessment Program, which includes the
following tasks:
. establishing a standard for Year 2000 Readiness;
. designing test parameters for the Company's products, information
technology ("IT") and non-IT systems;
. overseeing the remediation program, including establishing
priorities for remediation and allocating available resources;
. overseeing the communication of the status of the Company's efforts to
its customers; and
. establishing contingency plans in the event that the Company
experiences Year 2000 disruptions.
The Company describes its products as "Year 2000 Ready" when they have been
successfully tested using the procedure prescribed in the Readiness Assessment
Program. This procedure defines the criteria used to design tests that seek to
determine the Year 2000 readiness of a product. Under the Company's criteria, a
software product is Year 2000 Ready if it:
. will completely and accurately address, present (in a two-digit
format), produce, store and calculate data involving dates beginning
January 1, 2000 and will not produce abnormally ending or incorrect
results involving such dates as used in many forward or regression
date based functions;
. will provide that all "date" related functionalities and data fields
include the indication of century and millennium, whether shown on-
screen or internally noted; and
. will perform calculations that involve a four-digit year field,
provided that the data input into the software from any other source
has the same Year 2000 capabilities and is in a format that is
compatible with the Company's software.
Because the latest versions of the Company's products are designed to be
Year 2000 compliant, the Year 2000 remediation efforts with respect to our own
products have focused on determining the compliance of our earlier software
products as implemented in our installed customer base, as well as the impact of
any non-compliance on us and our customers. The Company offers its customers the
alternatives of implementing a modification to their non-compliant versions of
the software or migrating to a later version of the software that is Year 2000
Ready. Because the Company's software is often marketed as an integrated system
that includes hardware and operating or interface software from third parties
over which the Company can assert little control, the Year 2000 Readiness
Committee is evaluating the Year 2000 Readiness of such systems and the risks
associated with the failure of such third parties to adequately address the Year
2000 issue.
The Company's Year 2000 Readiness Committee is also addressing Year 2000
readiness with respect to both IT and non-IT systems on which the Company's
operations rely. As a result of the Company's recent rapid growth, it has, or
expects it will have by the end of 1999, replaced or significantly upgraded
substantially all of the core IT systems, including those related to sales,
customer service, human resources, finance and other enterprise resource
planning functions. The Company believes that the upgraded systems are all Year
2000 Ready, and it has received assurances from the vendors of these systems
Form 10-Q
Page 13 of 17
to that effect. The Company is reviewing its remaining IT systems for Year 2000
Readiness and expects to modify, replace or discontinue the use of non-compliant
systems before the end of 1999. In addition, the Company is in the process of
evaluating its Year 2000 readiness with respect to non-IT systems, including
systems embedded in its communications and office facilities. In many cases
these facilities have been recently upgraded or are scheduled to be upgraded
before year-end 1999 as a result of the Company's recent growth. Finally,
because the Company relies upon relationships with third parties, such as
providers of telecommunications and similar infrastructure services, over which
it can assert little control, the Year 2000 Readiness Committee is also
assessing the risks associated with the failure of these third parties to
adequately address Year 2000 issues.
The Company does not currently believe that the effects of any Year 2000
non-compliance in its installed base of software will result in a material
adverse effect on its business, financial condition or results of operations.
However, the Company's investigation is in its preliminary stages, and the
Company may be exposed to potential claims resulting from system problems
associated with the century change. There can also be no assurance that the
Company's software products that are designed to be Year 2000 compliant contain
all necessary date code changes. In addition, Year 2000 non-compliance in the
Company's internal IT systems or certain non-IT systems on which the Company's
operations rely or by the Company's business partners may have an adverse impact
on our business, financial condition or results of operations.
The majority of the work performed for the Company's Year 2000 Readiness
Assessment Program has been completed by the Company's staff. The total costs
for completing the Year 2000 Readiness Assessment Program, including
modifications to the Company's software products, is estimated to be between
$0.5 million and $1.0 million, funded through the Company's internal operating
cash flows. This cost does not include the cost of new software, or for
modifications to existing software, or the Company's core IT and non-IT systems,
as these projects were not accelerated due to the Year 2000 issue.
The Company's evaluation of Year 2000 issues includes the development of
contingency plans for business functions that are most susceptible to a
substantive risk of disruption resulting from a Year 2000 related event. Because
the Company has not yet identified any business function that is materially
at risk of Year 2000 related disruption, the Company has not yet developed
detailed contingency plans specific to Year 2000 events for any business
function. The Company is prepared for the possibility, however, that it may
identify risks in certain business functions, and it will develop contingency
plans for these business functions when and if it identifies them as being at
risk.
FORWARD LOOKING STATEMENTS
Certain statements contained in this filing are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, including but not limited to statements related to plans for future
business development activities, anticipated costs of revenues, product mix and
service revenues, research and development and selling, general and
administrative activities, and liquidity and capital needs and resources. Such
forward-looking statements are subject to risks, uncertainties and other factors
that could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. For further information
about these and other factors that could affect the Company's future results,
please see Exhibit 99.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998. Investors are cautioned that any forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
contemplated by such forward-looking statements.
Form 10-Q
Page 14 of 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLAIMERS ABOUT MARKET RISK.
FOREIGN EXCHANGE
During 1998, the Company commenced operations in the United Kingdom. Total
revenues for the United Kingdom were approximately 5% of the Company's total
revenues for the three months ended March 31, 1999.
The Company's international business is subject to risks typical of an
international business, including, but not limited to: differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
the Company's future results could be materially adversely impacted by changes
in these or other factors. The effect of foreign exchange rate fluctuations on
the Company during the first quarter of 1999 was not material.
INTEREST RATES
The Company invests its cash in a variety of financial instruments,
including taxable and tax-advantaged variable rate and fixed rate obligations of
corporations, municipalities, and local, state and national governmental
entities and agencies. These investments are denominated in U.S. dollars. Cash
balances in foreign currencies overseas are operating balances.
Interest income on the Company's investments is carried in "Other income,
net" on our Consolidated Financial Statements. The Company accounts for its
investment instruments in accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). All of the cash equivalents and short-term investments
are treated as available-for-sale under SFAS 115.
Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment income
may fall short of expectations due to changes in interest rates, or the Company
may suffer losses in principal if forced to sell securities which have seen a
decline in market value due to changes in interest rates. The weighted-average
interest rate on investment securities at March 31, 1999 was approximately 4%.
The fair value of securities held at March 31, 1999 was $26.3 million.
Form 10-Q
Page 15 of 17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
No events occurred during the quarter covered by this Report that would
require a response to this Item.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
No events occurred during the quarter covered by this Report that would
require a response to this Item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
No events occurred during the quarter covered by this Report that would
require a response to this Item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No events occurred during the quarter covered by this Report that would
require a response to this Item.
ITEM 5. OTHER INFORMATION.
No events occurred during the quarter covered by this Report that would
require a response to this Item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following exhibits are filed with this Report:
Exhibit 27.1 Financial Data Schedule.
(b) Reports filed on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March
31, 1999.
Form 10-Q
Page 16 of 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MANHATTAN ASSOCIATES, INC.
Date: May 12, 1999 /s/ Alan J. Dabbiere
-----------------------------------------
Alan J. Dabbiere
Chairman of the Board, Chief Executive
Officer and President
(Principal Executive Officer)
Date: May 12, 1999 /s/ Michael J. Casey
-----------------------------------------
Michael J. Casey
Senior Vice President, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting
Officer)
Form 10-Q
Page 17 of 17