Company Raises EPS Guidance and Narrows its Full-Year Total Revenue Guidance Range

ATLANTA, Oct. 23, 2018 (GLOBE NEWSWIRE) -- Leading Supply Chain and Omnichannel Commerce Solutions provider Manhattan Associates Inc. (NASDAQ: MANH) today reported GAAP diluted earnings per share for the third quarter ended September 30, 2018, of $0.43 compared to $0.47 in Q3 2017, on license revenue of $11.5 million, cloud subscriptions revenue of $6.5 million and total revenue of $142.4 million. Non-GAAP adjusted diluted earnings per share for Q3 2018 was $0.49 compared to $0.51 in Q3 2017.

“We posted solid operating results for Q3 highlighted by ongoing progress in our cloud transition and the strengthening of our Global Services business,” said Manhattan Associates president and CEO Eddie Capel. “Q3 total revenue and earnings per share performance improved over Q2 in line with expectations and we expect to exit 2018 stronger than we entered the year. Based on our outlook for the remainder of the year, we are raising our 2018 full-year earnings guidance and are narrowing the range of our full-year total revenue estimate.” 

“While cautious regarding global geopolitical and economic volatility, we continue to be very bullish on the market opportunity ahead with supply chain complexity and retail evolution in our target markets bringing continued need for our solutions among our customers. Customer feedback and win rates are strong, and our product advancements are enabling our clients to Push Possible® with their commerce supply chains,” added Mr. Capel.

THIRD QUARTER 2018 FINANCIAL SUMMARY:

  • We have reclassified certain line items in prior period financial statements to conform to the current period presentation in the consolidated statements of income because of our business transition to cloud subscriptions.
  • GAAP diluted earnings per share was $0.43 in Q3 2018 compared to $0.47 in Q3 2017.
  • Adjusted diluted earnings per share, a non-GAAP measure, was $0.49 in Q3 2018, compared to $0.51 in Q3 2017.
  • Consolidated total revenue was $142.4 million in Q3 2018, compared to $152.9 million in Q3 2017. License revenue was $11.5 million in Q3 2018, compared to $16.3 million in Q3 2017. Cloud subscription revenue was $6.5 million in Q3 2018, compared to $2.5 million in Q3 2017.
  • GAAP operating income was $36.1 million in Q3 2018, compared to $51.1 million in Q3 2017.
  • Adjusted operating income, a non-GAAP measure, was $41.5 million in Q3 2018, compared to $54.9 million in Q3 2017.
  • Cash flow from operations was $35.2 million in Q3 2018, compared to $44.0 million in Q3 2017. Days Sales Outstanding was 60 days at September 30, 2018, compared to 64 days at June 30, 2018.
  • Cash and investments totaled $93.9 million at September 30, 2018, compared to $83.4 million at June 30, 2018.
  • During the three months ended September 30, 2018, the Company repurchased 388,562 shares of Manhattan Associates common stock under the share repurchase program authorized by our Board of Directors for a total investment of $20.7 million. In October 2018, our Board authorized the Company to repurchase up to an aggregate of $50 million of the Company’s common stock.

NINE MONTH 2018 FINANCIAL SUMMARY:

  • We have reclassified certain line items in prior period financial statements to conform to the current period presentation in the consolidated statements of income because of our business transition to cloud subscriptions.
  • GAAP diluted earnings per share for the nine months ended September 30, 2018, was $1.18, compared to $1.32 for the nine months ended September 30, 2017.  
  • Adjusted diluted earnings per share, a non-GAAP measure, was $1.33 for the nine months ended September 30, 2018, compared to $1.42 for the nine months ended September 30, 2017.
  • Consolidated revenue for the nine months ended September 30, 2018, was $414.8 million, compared to $450.5 million for the nine months ended September 30, 2017. License revenue was $32.1 million for the nine months ended September 30, 2018, compared to $57.6 million for the nine months ended September 30, 2017. Cloud subscription revenue was $16.3 million for the nine months ended September 30, 2018, compared to $6.4 million for the nine months ended September 30, 2017.
  • GAAP operating income was $99.6 million for the nine months ended September 30, 2018, compared to $142.1 million for the nine months ended September 30, 2017.
  • Adjusted operating income, a non-GAAP measure, was $114.5 million for the nine months ended September 30, 2018, compared to $156.4 million for the nine months ended September 30, 2017. 
  • Cash flow from operations was $103.3 million in the nine months ended September 30, 2018, compared to $116.6 million in the nine months ended September 30, 2017.
  • During the nine months ended September 30, 2018, the Company repurchased 2,628,918 shares of Manhattan Associates common stock under the share repurchase program authorized by our Board of Directors, for a total investment of $118.5 million.

NEW PRESENTATION OF CONSOLIDATED STATEMENTS OF INCOME

We have reclassified certain line items in prior period financial statements to conform to the current period presentation in the consolidated statements of income because of our business transition to cloud subscriptions. These reclassifications include: all revenue line items; cost of license; cost of cloud subscriptions, maintenance and services; and cost of hardware. These reclassifications did not affect total revenue, operating income or net income. For further detail, please see note 7 in the supplemental financial information accompanying this press release.

2018 GUIDANCE

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

  Guidance Range - 2018 Full Year
 ($'s in millions, except operating margin and EPS)$ Range  % Growth Range  
                  
 Total revenue - current guidance$552  $555  -7%  -7%  
                  
 Total revenue - previous guidance$548  $560  -8%  -6%  
                  
 Operating Margin:                
 GAAP operating margin - current guidance 22.6%  22.9%         
 Equity-based compensation 3.7%  3.6%         
 Adjusted operating margin(1) - current guidance 26.3%  26.5%         
                  
 GAAP operating margin - previous guidance 21.1%  21.4%         
 Equity-based compensation 3.7%  3.6%         
 Adjusted operating margin(1) - previous guidance 24.8%  25.0%         
                  
 Diluted earnings per share (EPS):                
 GAAP EPS - current guidance$1.48  $1.50  -12%  -11%  
 Equity-based compensation, net of tax 0.21   0.21          
 Adjusted EPS(1) - current guidance$1.69  $1.71  -10%  -9%  
                  
 GAAP EPS - previous guidance$1.32  $1.36  -21%  -19%  
 Equity-based compensation, net of tax 0.25   0.25          
 Adjusted EPS(1) - previous guidance$1.57  $1.61  -16%  -14%  
                  
                  
 (1) Adjusted operating margin and adjusted EPS are non-GAAP measures that exclude the impact of equity-based compensation and acquisition-related costs, and the related income tax effects of these items if applicable.  
                  

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

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

CONFERENCE CALL

The Company’s conference call regarding its third quarter financial results will be held today, October 23, 2018, at 4:30 p.m. Eastern Time. We invite investors to a live webcast of the conference call through the Investor Relations section of Manhattan Associates' website at www.manh.com. To listen to the live webcast, please go to the website at least 15 minutes before the call to download and install any necessary audio software.

Those who cannot listen to the live broadcast may access a replay shortly after the call by dialing +1.855.859.2056 in the U.S. and Canada, or +1.404.537.3406 outside the U.S., and entering the conference identification number ­­­­­­­­5088866 or via the web at www.manh.com. The phone replay will be available for two weeks after the call, and the Internet webcast will be available until Manhattan Associates’ fourth quarter 2018 earnings release.

GAAP VERSUS NON-GAAP PRESENTATION

The Company provides adjusted operating income and margin, adjusted income tax provision, adjusted net income, adjusted diluted earnings per share, adjusted cost of services, and adjusted cost of cloud subscriptions, maintenance and services in this press release as additional information regarding the Company’s historical and projected operating results. These measures are not in accordance with – or alternatives to – GAAP, and may be different from similarly titled non-GAAP measures used by other companies. The Company believes the presentation of these non-GAAP financial measures facilitates investors’ ability to understand and compare the Company’s results and guidance, because the measures provide supplemental information in evaluating the operating results of its business, as distinct from results that include items not indicative of ongoing operating results, and because the Company believes its peers typically publish similar non-GAAP measures. This release should be read in conjunction with the Company’s Form 8-K earnings release filing for the three and nine months ended September 30, 2018. 

Non-GAAP adjusted operating income and margin, adjusted income tax provision, adjusted net income and adjusted diluted earnings per share exclude the impact of equity-based compensation, acquisition-related costs and the amortization of these costs, and a restructuring charge – all net of income tax effects, and the impact of the Tax Cuts and Jobs Act. Adjusted cost of services and adjusted cost of cloud subscriptions, maintenance and services exclude the impact of equity-based compensation. We include reconciliations of the Company’s GAAP financial measures to non-GAAP adjustments in the supplemental information attached to this release.

ABOUT MANHATTAN ASSOCIATES

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

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

This press release contains “forward-looking statements” relating to Manhattan Associates, Inc.  Forward-looking statements in this press release include, without limitation, the information set forth under “2018 Guidance,” statements we make about market adoption of our cloud-based solution and other statements identified by words such as “may,” “expect,” “forecast,” “anticipate,” “intend,” “plan,” “believe,” “could,” “seek,” “project,” “estimate,” and similar expressions.  Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: uncertainty about the global economy, risks related from transitioning our business from a traditional perpetual license software company (generally hosted by our customers on their own premises and equipment) to a subscription-based software-as-a service/cloud-based model, disruption in the retail sector, the possible effect of new U.S. tariffs on imports from other countries (and possible responsive tariffs on U.S. exports by other countries) on international commerce, delays in product development, competitive pressures, software errors, information security breaches and the risk factors set forth in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 and in Item 1A of Part II in subsequent Quarterly Reports on Form 10-Q. Manhattan Associates undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results.

  
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES 
Condensed Consolidated Statements of Income 
(in thousands, except per share amounts) 
  
  Three Months Ended September 30,  Nine Months Ended September 30, 
  2018  2017  2018  2017 
  (unaudited)  (unaudited)  (unaudited)  (unaudited) 
Revenue:                
Software license $11,526  $16,260  $32,054  $57,601 
Cloud subscriptions  6,455   2,534   16,301   6,408 
Maintenance  37,177   36,338   110,567   105,673 
Services  84,136   84,211   245,160   249,319 
Hardware  3,057   13,540   10,709   31,512 
Total revenue  142,351   152,883   414,791   450,513 
Costs and expenses:                
Cost of license  1,211   1,316   4,615   4,106 
Cost of cloud subscriptions, maintenance and services  59,975   51,103   173,446   159,111 
Cost of hardware  -   10,653   -   23,789 
Research and development  18,453   14,747   53,688   43,074 
Sales and marketing  10,726   10,739   37,419   34,260 
General and administrative  13,711   11,031   39,396   34,290 
Depreciation and amortization  2,179   2,275   6,616   6,863 
Restructuring charge  -   (77)  -   2,945 
Total costs and expenses  106,255   101,787   315,180   308,438 
Operating income  36,096   51,096   99,611   142,075 
Other income (loss), net  1,538   207   3,245   (232)
Income before income taxes  37,634   51,303   102,856   141,843 
Income tax provision  9,179   18,704   24,081   49,876 
Net income $28,455  $32,599  $78,775  $91,967 
                 
Basic earnings per share $0.43  $0.47  $1.18  $1.33 
Diluted earnings per share $0.43  $0.47  $1.18  $1.32 
                 
Weighted average number of shares:                
Basic  65,658   68,928   66,539   69,389 
Diluted  65,901   69,135   66,717   69,614 
                 


 
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Reconciliation of Selected GAAP to Non-GAAP Measures
(in thousands, except per share amounts)
 
  Three Months Ended September 30,  Nine Months Ended September 30, 
  2018  2017  2018  2017 
                 
Operating income $36,096  $51,096  $99,611  $142,075 
Equity-based compensation (a)  5,303   3,773   14,573   11,041 
Purchase amortization (c)  107   108   322   323 
Restructuring charge (d)  -   (77)  -   2,945 
Adjusted operating income (Non-GAAP) $41,506  $54,900  $114,506  $156,384 
                 
                 
Income tax provision $9,179  $18,704  $24,081  $49,876 
Equity-based compensation (a)  1,299   1,377   3,570   4,030 
Tax benefit of stock awards vested (b)  41   22   771   1,897 
Purchase amortization (c)  26   40   79   118 
Restructuring charge (d)  -   (28)  -   1,075 
U.S. Tax Cuts and Jobs Act impact (e)  -   -   348   - 
Adjusted income tax provision (Non-GAAP) $10,545  $20,115  $28,849  $56,996 
                 
                 
Net income $28,455  $32,599  $78,775  $91,967 
Equity-based compensation (a)  4,004   2,396   11,003   7,011 
Tax benefit of stock awards vested (b)  (41)  (22)  (771)  (1,897)
Purchase amortization (c)  81   68   243   205 
Restructuring charge (d)  -   (49)  -   1,870 
U.S. Tax Cuts and Jobs Act impact (e)  -   -   (348)  - 
Adjusted net income (Non-GAAP) $32,499  $34,992  $88,902  $99,156 
               - 
                 
Diluted EPS $0.43  $0.47  $1.18  $1.32 
Equity-based compensation (a)  0.06   0.03   0.16   0.10 
Tax benefit of stock awards vested (b)  -   -   (0.01)  (0.03)
Purchase amortization (c)  -   -   -   - 
Restructuring charge (d)  -   -   -   0.03 
U.S. Tax Cuts and Jobs Act impact (e)  -   -   (0.01)  - 
Adjusted diluted EPS (Non-GAAP) $0.49  $0.51  $1.33  $1.42 
                 
Fully diluted shares  65,901   69,135   66,717   69,614 

(a) Adjusted results exclude all equity-based compensation, to facilitate comparison with our peers and for the other reasons explained in our Current Report on Form 8-K filed today with the SEC on the date hereof. Equity-based compensation is included in the following GAAP operating expense lines for the three and nine months ended September 30, 2018, and 2017:

  Three Months Ended September 30,
 Nine Months Ended September 30,
  2018
  2017 2018
  2017
               
Cost of services $1,531  $875 $4,204  $2,596
Research and development  1,074   774  3,135   1,928
Sales and marketing  591   490  1,496   1,550
General and administrative  2,107   1,634  5,738   4,967
Total equity-based compensation $5,303  $3,773 $14,573  $11,041

(b) Adjustments represent the excess tax benefits and tax deficiencies of the stock awards vested during the period. Excess tax benefits (deficiencies) occur when the amount deductible for an award of equity instruments on our tax return is more (less) than the cumulative compensation cost recognized for financial reporting purposes. As discussed above, we excluded equity-based compensation from adjusted non-GAAP results to be consistent with other companies in the software industry and for the other reasons explained in our Current Report on Form 8-K filed with the SEC. Therefore, we also excluded the related tax benefit (expense) generated upon their vesting.

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

(d) In May 2017, we eliminated about 100 positions due to retail sector headwinds and to align our services capacity with demand. That action did not impair or alter our strategic investment plans in innovation and sales and marketing to increase market share and extend our competitive advantage. As a result of that initiative, we recorded a charge of approximately $3.0 million in the second quarter of 2017. The charge primarily consisted of employee severance, employee transition and outplacement costs. We excluded that charge from adjusted non-GAAP results because we do not believe the charge was a cost resulting from normal operating activities and for the other reasons explained in our Current Report on Form 8-K filed with the SEC.

(e) In the fourth quarter of 2017, we recorded a provisional net one-time tax of $2.8 million because of the enactment of the Tax Cuts and Jobs Act in December 2017. We calculated that amount based on a reasonable estimate of the income tax effects, primarily from a tax on accumulated foreign earnings and the remeasurement of deferred tax assets. We adjusted our provisional estimate by $0.3 million during the nine months ended September 30, 2018.

  
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES 
Condensed Consolidated Balance Sheets 
(in thousands, except share and per share data) 
  
  September 30, 2018  December 31, 2017 
  (unaudited)     
ASSETS        
Current assets:        
Cash and cash equivalents $89,749  $125,522 
Short-term investments  4,148   - 
Accounts receivable, net of allowance of $2,792 and $2,692, respectively  92,966   92,231 
Prepaid expenses and other current assets  16,292   10,320 
Total current assets  203,155   228,073 
         
Property and equipment, net  14,501   15,493 
Goodwill, net  62,243   62,248 
Deferred income taxes  1,424   1,877 
Other assets  9,685   7,304 
Total assets $291,008  $314,995 
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
Current liabilities:        
Accounts payable $14,273  $14,028 
Accrued compensation and benefits  26,711   15,826 
Accrued and other liabilities  11,247   12,105 
Deferred revenue  83,020   75,068 
Income taxes payable  1,355   7,228 
Total current liabilities  136,606   124,255 
         
Other non-current liabilities  14,724   15,784 
         
Shareholders' equity:        
Preferred stock, no par value; 20,000,000 shares authorized, no shares issued or outstanding in 2018 and 2017  -   - 
Common stock, $0.01 par value; 200,000,000 shares authorized; 65,378,469 and 67,776,138 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively  654   678 
Retained earnings  156,912   186,117 
Accumulated other comprehensive loss  (17,888)  (11,839)
Total shareholders' equity  139,678   174,956 
Total liabilities and shareholders' equity $291,008  $314,995 
         


  
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES 
Condensed Consolidated Statements of Cash Flows 
(in thousands) 
  
  Nine Months Ended September 30, 
  2018  2017 
  (unaudited)  (unaudited) 
Operating activities:        
Net income $78,775  $91,967 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  6,616   6,863 
Equity-based compensation  14,573   11,041 
Loss on disposal of equipment  56   34 
Deferred income taxes  (244)  741 
Unrealized foreign currency (gain) loss  (1,373)  93 
Changes in operating assets and liabilities:        
  Accounts receivable, net  (1,995)  5,095 
  Other assets  (5,296)  (940)
  Accounts payable, accrued and other liabilities  11,059   (2,273)
  Income taxes  (7,488)  (2,151)
  Deferred revenue  8,635   6,169 
Net cash provided by operating activities  103,318   116,639 
         
Investing activities:        
Purchase of property and equipment  (5,536)  (3,897)
Net purchases of investments  (5,196)  (4,487)
Net cash used in investing activities  (10,732)  (8,384)
         
Financing activities:        
Purchase of common stock  (124,558)  (81,700)
Net cash used in financing activities  (124,558)  (81,700)
         
Foreign currency impact on cash  (3,801)  2,648 
         
Net change in cash and cash equivalents  (35,773)  29,203 
Cash and cash equivalents at beginning of period  125,522   95,615 
Cash and cash equivalents at end of period $89,749  $124,818 
         


MANHATTAN ASSOCIATES, INC.
SUPPLEMENTAL INFORMATION

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

 2017  2018 
 1st Qtr  2nd Qtr  3rd Qtr  4th Qtr  Full Year  1st Qtr  2nd Qtr  3rd Qtr  YTD 
GAAP Diluted EPS$0.40  $0.45  $0.47  $0.36  $1.68  $0.33  $0.42  $0.43  $1.18 
Adjustments to GAAP:                                   
Equity-based compensation 0.04   0.03   0.03   0.05   0.15   0.05   0.06   0.06   0.16 
Tax benefit of stock awards vested (0.03)  -   -   -   (0.03)  (0.01)  -   -   (0.01)
Purchase amortization -   -   -   -   -   -   -   -   - 
Restructuring charge -   0.03   -   -   0.03   -   -   -   - 
U.S. Tax Cuts and Jobs Act impact -   -   -   0.04   0.04   (0.01)  -   -   (0.01)
Adjusted Diluted EPS$0.42  $0.50  $0.51  $0.45  $1.87  $0.37  $0.47  $0.49  $1.33 
Fully Diluted Shares 70,247   69,421   69,135   68,791   69,424   67,736   66,535   65,901   66,717 
                                    

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

 2017  2018 
 1st Qtr  2nd Qtr  3rd Qtr  4th Qtr  Full Year  1st Qtr  2nd Qtr  3rd Qtr  YTD 
Revenue: 
Americas$113,115  $123,658  $124,833  $115,543  $477,149  $104,615  $112,945  $113,886  $331,446 
EMEA 23,360   22,028   18,453   21,508   85,349   19,164   21,356   21,181   61,701 
APAC 7,014   8,455   9,597   7,035   32,101   6,790   7,570   7,284   21,644 
 $143,489  $154,141  $152,883  $144,086  $594,599  $130,569  $141,871  $142,351  $414,791 
                                    
GAAP Operating Income: 
Americas$28,713  $35,717  $39,295  $32,968  $136,693  $20,318  $26,589  $26,200  $73,107 
EMEA 10,754   9,995   7,128   7,952   35,829   5,475   6,252   7,413   19,140 
APAC 2,253   3,547   4,673   2,650   13,123   2,037   2,844   2,483   7,364 
 $41,720  $49,259  $51,096  $43,570  $185,645  $27,830  $35,685  $36,096  $99,611 
                                    
Adjustments (pre-tax): 
Americas:                                   
Equity-based compensation$4,472  $2,796  $3,773  $5,188  $16,229  $4,343  $4,927  $5,303  $14,573 
Purchase amortization 107   108   108   107   430   107   108   107   322 
Restructuring charge -   2,908   (77)  (18)  2,813   -   -   -   - 
 $4,579  $5,812  $3,804  $5,277  $19,472  $4,450  $5,035  $5,410  $14,895 
                                    
EMEA:                                   
Restructuring charge -   114   -   (6)  108   -   -   -   - 
                                    
Adjusted non-GAAP Operating Income: 
Americas$33,292  $41,529  $43,099  $38,245  $156,165  $24,768  $31,624  $31,610  $88,002 
EMEA 10,754   10,109   7,128   7,946   35,937   5,475   6,252   7,413   19,140 
APAC 2,253   3,547   4,673   2,650   13,123   2,037   2,844   2,483   7,364 
 $46,299  $55,185  $54,900  $48,841  $205,225  $32,280  $40,720  $41,506  $114,506 
                                    

3. Impact of Currency Fluctuation

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

                                    
 2017  2018 
 1st Qtr  2nd Qtr  3rd Qtr  4th Qtr  Full Year  1st Qtr  2nd Qtr  3rd Qtr  YTD 
Revenue$(1,547) $(1,219) $536  $1,820  $(410) $2,781  $1,699  $(581) $3,899 
Costs and expenses (789)  (396)  723   1,485   1,023   2,328   831   (1,177)  1,982 
Operating income (758)  (823)  (187)  335   (1,433)  453   868   596   1,917 
Foreign currency (losses) gains in other income (646)  (348)  (81)  (771)  (1,846)  366   705   1,431   2,502 
 $(1,404) $(1,171) $(268) $(436) $(3,279) $819  $1,573  $2,027  $4,419 
                                    

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

 2017  2018 
 1st Qtr  2nd Qtr  3rd Qtr  4th Qtr  Full Year  1st Qtr  2nd Qtr  3rd Qtr  YTD 
Operating income$(70) $(326) $(338) $(345) $(1,079) $(360) $359  $828  $827 
Foreign currency (losses) gains in other income (320)  (190)  71   (43)  (482)  210   1,120   1,572   2,902 
Total impact of changes in the Indian Rupee$(390) $(516) $(267) $(388) $(1,561) $(150) $1,479  $2,400  $3,729 
                                    

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

 2017  2018 
 1st Qtr  2nd Qtr  3rd Qtr  4th Qtr  Full Year  1st Qtr  2nd Qtr  3rd Qtr  YTD 
Interest income$293  $264  $314  $303  $1,174  $347  $241  $201  $789 
Foreign currency (losses) gains (646)  (348)  (81)  (771)  (1,846)  366   705   1,431   2,502 
Other non-operating (expense) income (18)  16   (26)  (112)  (140)  8   40   (94)  (46)
Total other (loss) income$(371) $(68) $207  $(580) $(812) $721  $986  $1,538  $3,245 
                                    

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

 2017  2018 
 1st Qtr  2nd Qtr  3rd Qtr  4th Qtr  Full Year  1st Qtr  2nd Qtr  3rd Qtr  YTD 
Capital expenditures$789  $1,914  $1,194  $2,302  $6,199  $2,174  $1,881  $1,481  $5,536 
                                    

6. Stock Repurchase Activity (in thousands):

 2017  2018 
 1st Qtr  2nd Qtr  3rd Qtr  4th Qtr  Full Year  1st Qtr  2nd Qtr  3rd Qtr  YTD 
Shares purchased under publicly-announced buy-back program 1,004   535   -   1,156   2,695   1,158   1,082   389   2,629 
Shares withheld for taxes due upon vesting of restricted stock 131   1   2   1   135   111   1   3   115 
Total shares purchased 1,135   536   2   1,157   2,830   1,269   1,083   392   2,744 
                                    
Total cash paid for shares purchased under publicly-announced buy-back program$49,978  $24,974  $-  $49,953  $124,905  $49,972  $47,876  $20,669  $118,517 
Total cash paid for shares withheld for taxes due upon vesting of restricted stock 6,641   27   80   54   6,802   5,843   23   175   6,041 
Total cash paid for shares repurchased$56,619  $25,001  $80  $50,007  $131,707  $55,815  $47,899  $20,844  $124,558 
                                    

7. Impact of Cloud Transition

Because of our business transition to Cloud Subscriptions, we have revised our presentations of revenue and related cost line items in our consolidated statements of income. We have reclassified certain line items in prior period financial statements to conform to the current period presentation in the consolidated statements of income. These reclassifications include: all revenue line items; cost of license; cost of cloud subscriptions, maintenance and services; and cost of hardware. These reclassifications did not affect total revenue, operating income or net income. The following table reflects the comparison between the former and new presentation (in thousands):

 2016  2017  2018 
 Full Year  1st Qtr  2nd Qtr  3rd Qtr  4th Qtr  Full Year  1st Qtr  2nd Qtr  3rd Qtr  YTD 
                                        
Former Presentation:                                       
Software license$84,996  $22,773  $22,442  $18,794  $17,900  $81,909  $12,024  $18,350  $17,981  $48,355 
Services 467,286   108,833   116,828   115,555   110,394   451,610   111,701   115,051   116,911   343,663 
Hardware and other 52,275   11,883   14,871   18,534   15,792   61,080   6,844   8,470   7,459   22,773 
 $604,557  $143,489  $154,141  $152,883  $144,086  $594,599  $130,569  $141,871  $142,351  $414,791 
                                        
Cost of license$10,820  $2,240  $2,355  $2,830  $3,169  $10,594  $3,982  $5,534  $5,789  $15,305 
Cost of services 197,475   49,743   47,751   44,750   43,053   185,297   50,348   49,475   50,984   150,807 
Cost of hardware and other 41,584   9,638   12,207   15,492   12,505   49,842   3,464   4,072   4,413   11,949 
 $249,879  $61,621  $62,313  $63,072  $58,727  $245,733  $57,794  $59,081  $61,186  $178,061 
                                        
                                        
New Presentation:                                       
Software license$79,213  $21,277  $20,064  $16,260  $14,712  $72,313  $7,555  $12,973  $11,526  $32,054 
Cloud subscriptions (a) 5,783   1,496   2,378   2,534   3,188   9,596   4,469   5,377   6,455   16,301 
Maintenance 133,848   33,376   35,959   36,338   37,325   142,998   36,397   36,993   37,177   110,567 
Services 351,785   79,781   85,327   84,211   77,183   326,502   78,757   82,267   84,136   245,160 
Hardware 33,928   7,559   10,413   13,540   11,678   43,190   3,391   4,261   3,057   10,709 
 $604,557  $143,489  $154,141  $152,883  $144,086  $594,599  $130,569  $141,871  $142,351  $414,791 
                                        
Cost of license$6,818  $1,352  $1,438  $1,316  $1,377  $5,483  $1,308  $2,096  $1,211  $4,615 
Cost of cloud subscriptions, maintenance and services (b) 219,635   54,899   53,109   51,103   48,934   208,045   56,486   56,985   59,975   173,446 
Cost of hardware 23,426   5,370   7,766   10,653   8,416   32,205   -   -   -   - 
 $249,879  $61,621  $62,313  $63,072  $58,727  $245,733  $57,794  $59,081  $61,186  $178,061 
                                        


                                        
Reconciliation of GAAP to Non-GAAP Measures:             
                                        
 2016  2017  2018 
 Full Year  1st Qtr  2nd Qtr  3rd Qtr  4th Qtr  Full Year  1st Qtr  2nd Qtr  3rd Qtr  YTD 
                                        
Former Presentation:                                       
Cost of services$197,475  $49,743  $47,751  $44,750  $43,053  $185,297  $50,348  $49,475  $50,984  $150,807 
Equity-based compensation (c) (3,794)  (1,141)  (580)  (875)  (1,398)  (3,994)  (1,117)  (1,556)  (1,531)  (4,204)
Adjusted Cost of services$193,681  $48,602  $47,171  $43,875  $41,655  $181,303  $49,231  $47,919  $49,453  $146,603 
                                        
New Presentation:                                       
Cost of cloud subscriptions, maintenance and services (b)$219,635  $54,899  $53,109  $51,103  $48,934  $208,045  $56,486  $56,985  $59,975  $173,446 
Equity-based compensation (c) (3,794)  (1,141)  (580)  (875)  (1,398)  (3,994)  (1,117)  (1,556)  (1,531)  (4,204)
Adjusted Cost of cloud subscriptions, maintenance and services$215,841  $53,758  $52,529  $50,228  $47,536  $204,051  $55,369  $55,429  $58,444  $169,242 
                                        
                                        
(a) Cloud subscriptions includes software as a service (SaaS) and arrangements that provide customers the right to use our software within a cloud-based environment that we manage where the customer does not have the right to take possession of the software without significant penalties. 
                                        
(b) Cost of cloud subscriptions, maintenance and services consists primarily of salaries and other personnel-related expenses of employees dedicated to cloud subscriptions; maintenance services; and professional and technical services as well as hosting fees. 
                                        
(c) Adjusted results exclude all equity-based compensation to facilitate comparison with our competitors and peers and for the other reasons explained in our Current Report on Form 8-K filed today with the SEC. 
  

8. ASC 606 Adoption

We adopted the new revenue recognition standard, FASB ASC Topic 606, Revenue from Contracts with Customers, in the first quarter of 2018. The new standard provides accounting guidance for all revenue arising from contracts with customers and affects substantially all entities. We adopted the standard using the modified retrospective method with the cumulative effect of initially adopting the standard recorded as an adjustment to retained earnings as of January 1, 2018. We recorded historical hardware sales prior to the adoption of ASC 606 on a gross basis, as we were the principal in the transaction in accordance with ASC 605-45. Under the new standard, we are an agent in the transaction as we do not physically control the hardware we sell. Accordingly, we recognize our hardware revenue net of related cost, which reduces both hardware revenue and cost of sales as compared to our accounting prior to 2018. We recognize and present our hardware revenue net of related cost under the new standard prospectively. For comparison purposes only, had we implemented ASC 606 using the full retrospective method, we would have presented hardware revenue net of expense in our 2017 quarterly financial results below (in thousands):

 2016  2017  2018 
 Full Year  1st Qtr  2nd Qtr  3rd Qtr  4th Qtr  Full Year  1st Qtr  2nd Qtr  3rd Qtr  YTD 
                                        
Presentation of Hardware Revenue - Pre ASC 606 adoption:         
                                        
Revenue                                       
Hardware Revenue$33,928  $7,559  $10,413  $13,540  $11,678  $43,190  $11,224  $16,252  $10,575  $38,051 
                                        
Cost of Revenue                                       
Cost of Hardware (23,426)  (5,370)  (7,766)  (10,653)  (8,416)  (32,205)  (7,833)  (11,991)  (7,518)  (27,342)
                                        
Hardware Revenue, net$10,502  $2,189  $2,647  $2,887  $3,262  $10,985  $3,391  $4,261  $3,057  $10,709 
                                        
Proforma Presentation of Hardware Revenue - Post ASC 606 Using Full Retrospective Method:             
                                        
Hardware Revenue$10,502  $2,189  $2,647  $2,887  $3,262  $10,985  $3,391  $4,261  $3,057  $10,709 
                                        



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