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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Manhattan Associates, Inc.    MANH

MANHATTAN ASSOCIATES, INC.

(MANH)
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MANHATTAN ASSOCIATES : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

11/02/2020 | 04:51pm EST
The following discussion should be read in conjunction with the condensed
consolidated financial statements for the three and nine months ended
September 30, 2020 and 2019, including the notes to those statements, included
elsewhere in this quarterly report. We also recommend the following discussion
be read in conjunction with management's discussion and analysis and
consolidated financial statements included in our annual report on Form 10-K for
the year ended December 31, 2019. Statements in the following discussion that
are not statements of historical fact are "forward-looking statements." Actual
results may differ materially from the results predicted in such forward-looking
statements, for a variety of factors. See "Forward-Looking Statements" below.

References in this filing to the "Company," "Manhattan," "Manhattan Associates,"
"we," "our," and "us" refer to Manhattan Associates, Inc., our predecessors, and
our wholly owned and consolidated subsidiaries.

Business Overview


We develop, sell, deploy, service and maintain software solutions designed to
manage supply chains, inventory and omnichannel operations for retailers,
wholesalers, manufacturers, logistics providers and other organizations. Our
customers include many of the world's most premier and profitable brands.

Our business model is singularly focused on the development and implementation
of complex commerce enablement software solutions that are designed to optimize
supply chains, and retail store operations including point of sale effectiveness
and efficiency for our customers.

We have five principal sources of revenue:

• cloud subscriptions, including software as a service (SaaS) and hosting of

       software;


  • licenses of our software;


    •  customer support services and software enhancements (collectively,
       "maintenance");

• professional services, including solutions planning and implementation,

related consulting, customer training, and reimbursements from customers

       for out-of-pocket expenses (collectively, "services"); and


  • hardware sales.


In the three and nine months ended September 30, 2020, we generated $149.8
million and $439.3 million in total revenue, respectively. The revenue mix for
the three months ended September 30, 2020 was: cloud subscriptions 14%; software
license 9%; maintenance 25%; services 49%; and hardware 3%. The revenue mix for
the nine months ended September 30, 2020 was: cloud subscriptions 13%; software
license 6%; maintenance 25%; services 53%; and hardware 3%.

We have three geographic reportable segments: North and Latin America (the
"Americas"), Europe, the Middle East and Africa (EMEA), and Asia-Pacific (APAC).
Geographic revenue is based on the location of the sale. Our international
revenue was approximately $41.7 million and $131.0 million for the three and
nine months ended September 30, 2020, respectively, which represents
approximately 28% and 30% of our total revenue for the three and nine months
ended September 30, 2020, respectively. International revenue includes all
revenue derived from sales to customers outside the United States. At
September 30, 2020, we employed approximately 3,500 employees worldwide. We have
offices in Australia, Chile, China, France, Germany, India, Italy, Japan, the
Netherlands, Singapore, Spain, the United Kingdom, and the United States, as
well as representatives in Mexico and reseller partnerships in Latin America,
Eastern Europe, the Middle East, South Africa, and Asia.

Future Expectations


Regarding the impact of the novel coronavirus disease ("COVID-19") pandemic, we
remain cautious about the global recovery, which we expect to be slow and
protracted. Through the third quarter, we experienced solid demand for our
cloud-based supply chain and omnichannel commerce solutions and our competitive
win rates remain strong. In May, we launched Manhattan Active® Warehouse
Management, the next generation of Warehouse Management solutions. We have
rearchitected our warehouse management solution from the ground up as a
cloud-native, microservices based, versionless application. The reception has
been positive and pipeline opportunities continue to build. Our solutions are
mission critical, supporting large and complex, global supply chains. While we
are experiencing strong demand and expect continued growth for our Cloud
solutions, sales cycles could extend as customers and prospects continue to
evaluate our industry leading, modern solutions, including Manhattan Active
Warehouse Management. Our Professional Services revenue through the nine months
ended September 30, 2020 is approximately 15% lower, and excluding billed
travel, approximately 12% lower than the nine months ending September 30, 2019,
as clients delay projects due to COVID-19. We have had no notable cancellations
in 2020. For the fourth quarter of 2020, we expect Services revenue to be lower
than the previous year, primarily driven by COVID-19, as well as our traditional
retail peak season impact, which typically occurs in the fourth quarter.
Therefore, we have taken a conservative approach and proactive measures to
position our company for uncertainty in the near-term while maintaining
flexibility to extend our market-leading position when a normalization of
business activity resumes.



                                       15
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We have taken steps to best ensure the health and safety of our employees globally. Our daily execution has evolved into a largely virtual model, and we continue to find innovative ways to engage with customers and prospects, ensuring that they are supported as they navigate their way through this period.


As previously announced, effective April 1, 2020, we reduced the salaries of the
chief executive officer and the fees of the board of directors by 25%; we
reduced the salary of the chief financial officer by 15% and other named
executive officers by 10%; we suspended our share repurchase program; and we
suspended our 401k plan company match. We are aggressively managing operating
expenses globally, including by continuing a partial hiring freeze that was
implemented during the second quarter.

Importantly, these expense reductions will not materially impact our ability to
support our customers or make key investments in research and development to
further extend our competitive positioning. We will continue to actively monitor
the situation and may take further actions that modify our business operations
as may be required by federal, state or local authorities or that we determine
are in the best interests of our employees, customers, and partners.

Going forward, we are investing significantly in our transition to a cloud
business, including enterprise investments in innovation, and strategic
operating expenses to support growth objectives. Our pace of investment and
timing combined with global macroeconomic conditions and disruptions related to
COVID-19 as a whole, have impacted and may continue to impact revenue and
earnings growth, based on timing of recovery. The pace at which the market for
our products transitions from perpetual license to cloud subscriptions,
resulting in revenue recognition spread out over the subscription period rather
than up front, combined with extended lead times for developing new business,
can cause uncertainty for our future expectations, impacting our ability to
accurately forecast bookings and revenues from quarter to quarter and over the
longer term.


For the remainder of 2020, our five strategic goals remain:

• Focus on customer success and drive sustainable long-term growth;

• Invest in innovation to expand our products and total addressable market;


  • Expand our Manhattan Active Suite of Cloud Solutions;

• Develop and grow our cloud business and cloud subscription revenue; and


  • Expand our global sales and marketing teams.




Cloud Subscription

Historically, our software licenses were sold as perpetual licenses, under which
customers own the software license and revenue is recognized at the time of
sale. In 2017, we released Manhattan Active™ Solutions, accelerating our
business transition to cloud subscriptions. Under a cloud subscription,
customers pay a periodic fee for the right to use our software within a
cloud-based environment that we provide and manage over a specified period of
time. As part of our subscription program, we allow our existing customers to
convert their maintenance contracts to cloud subscription contracts. Some
customers have converted their maintenance contracts to cloud subscriptions, and
we expect there will be continued opportunities to convert existing maintenance
contracts to cloud subscription contracts in the future.

With the launch of Manhattan Active™ Solutions, the transition to a cloud
subscription model has had, and may continue to have, an adverse impact on
revenue, earnings and cash flow relative to periods in which we primarily sell
perpetual licenses. This effect will continue until a stable, recurring mix of
perpetual license to cloud subscription revenue develops.

Global Economic Trends and Industry Factors


Global macro-economic trends, technology spending, and supply chain management
market growth are important barometers for our business. In the three and nine
months ended September 30, 2020, approximately 72% and 70% of our total revenue
was generated in the United States, respectively, 15% in EMEA in both periods,
and the remaining balance in APAC, Canada, and Latin America. In addition,
Gartner Inc. ("Gartner"), an information technology research and advisory
company, estimates that nearly 80% of every supply chain software solutions
dollar invested is spent in North America and Western Europe; consequently, the
health of the U.S. and the Western European economies have a meaningful impact
on our financial results.

We sell technology-based solutions with total pricing, including software and
services, in many cases exceeding $1.0 million. Our software is often a part of
our customers' and prospects' much larger capital commitment associated with
facilities expansion and business improvement. While we are encouraged by our
results, we, along with many of our customers, still remain cautious regarding
macroeconomic conditions. We believe global geopolitical and economic volatility
likely will continue to shape customers' and prospects' enterprise software
buying decisions, which could extend sales cycles for our products, the timing
of large enterprise cloud subscriptions and software license sales. Delays with
respect to such decisions can have a material adverse impact on our business and
may further intensify competition in our already highly competitive markets.



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Revenue


Cloud Subscriptions and Software License Revenue. Cloud subscriptions revenue
and remaining performance obligation growth are the leading indicators of our
business performance, primarily derived from cloud subscription fees that
customers pay for supply chain solutions. Since we announced our transition to
becoming a cloud-first company in 2017 with our launch of Manhattan Active
Solutions, we have continued to see a significant shift in demand for cloud
solutions versus software license. By comparison, in 2016, cloud subscriptions
and software license revenue represented 7% and 93%, respectively, of our total
cloud and software license revenue mix. In the full year ended 2020, we estimate
cloud subscriptions and software license revenue to be 70% and 30%,
respectively, of our total cloud and software license revenue mix. From 2016 to
2020 forecast, we estimate software license revenue to decline on an annual
compounded negative growth of 20%, driven by the overall strong demand for cloud
solutions. In the nine months ended September 30, 2020, cloud subscriptions
revenue surpassed software license revenue, representing 66% of the total cloud
and software license revenue mix. Going forward, we expect cloud revenue to
increase as a percentage of total software and cloud revenue mix as market
demand for cloud solutions is supplanting legacy perpetual license demand.

In the three months ended September 30, 2020, cloud subscriptions revenue totaled $21.1 million or 14% of total revenues. In the nine months ended September 30, 2020, cloud subscriptions revenue totaled $56.8 million or 13% of total revenues.


The Americas, EMEA and APAC segments recognized $18.1 million, $2.5 million and
$0.5 million in cloud subscriptions revenue, respectively, in the three months
ended September 30, 2020. The Americas, EMEA and APAC segments recognized $49.7
million, $5.7 million and $1.4 million in cloud subscriptions revenue,
respectively, in the nine months ended September 30, 2020. Cloud subscriptions
revenue is recognized ratably over the term of the agreement, typically 36 to 60
months. In the three and nine months ended September 30, 2020, the percentage
mix of new to existing customers for the combination of software license and
cloud subscriptions sales was approximately 25/75 and 20/80, respectively.

In the three months ended September 30, 2020, software license revenue totaled
$13.2 million, or 9% of total revenue. In the nine months ended September 30,
2020, software license revenue totaled $28.6 million or 6% of total revenue.
Software license revenue recognized by the Americas, EMEA, and APAC segments
totaled $11.5 million, $1.0 million, and $0.7 million, respectively, in the
three months ended September 30, 2020. Software license revenue recognized by
the Americas, EMEA, and APAC segments totaled $23.7 million, $2.5 million, and
$2.4 million, respectively, in the nine months ended September 30, 2020.

Cloud subscriptions and software license revenue growth are influenced by the
strength of general economic and business conditions and the competitive
position of our software products. These revenues generally have long sales
cycles. In addition, the timing of the closing of a few large software license
transactions can have a material impact on our software license revenues,
operating profit, operating margins and earnings per share. For example, $0.9
million of either pre-tax profit or expense in the third quarter of 2020 equates
to approximately one cent of diluted earnings per share impact.

Our software solutions are focused on core supply chain commerce operations
(Warehouse Management, Transportation Management and Labor Management),
Inventory optimization and Omnichannel operations (e-commerce, retail store
operations and point of sale), which are intensely competitive markets
characterized by rapid technological change. We are a market leader in the
supply chain management and omnichannel software solutions market as defined by
industry analysts such as ARC Advisory Group and Gartner. Our goal is to extend
our position as a leading global supply chain solutions provider by growing our
software license and cloud subscriptions revenues faster than our competitors
through investment in innovation. We expect to continue to face increased
competition from Enterprise Resource Planning (ERP) and Supply Chain Management
applications vendors and business application software vendors that may broaden
their solutions offerings by internally developing, or by acquiring or
partnering with independent developers of supply chain planning and execution
software. Increased competition could result in price reductions, fewer customer
orders, reduced gross margins, and loss of market share.

Maintenance Revenue. Our maintenance revenue for the three months ended
September 30, 2020 totaled $37.3 million, or 25% of total revenue. For the nine
months ended September 30, 2020, maintenance revenue totaled $108.9 million or
25% of total revenue. The Americas, EMEA and APAC segments recognized $29.2
million, $5.6 million and $2.5 million in maintenance revenue, respectively, in
the three months ended September 30, 2020. For the nine months ended
September 30, 2020, maintenance revenue recognized by the Americas, EMEA, and
APAC segments totaled $85.8 million, $16.4 million and $6.7 million,
respectively. For maintenance, we offer a comprehensive 24 hours per day, 365
days per year program that provides our customers with software upgrades, when
and if available, which include additional or improved functionality and
technological advances incorporating emerging supply chain and industry
initiatives. The growth of maintenance revenues is influenced by: (1) new
software license revenue growth; (2) annual renewal of support contracts;
(3) increase in customers through acquisitions; (4) fluctuations in currency
rates, and (5) conversion of maintenance contracts to cloud subscription
contracts. Substantially all of our customers renew their annual support
contracts. Over the last three years, our annual revenue renewal rate of
customers subscribing to comprehensive support and enhancements has been greater
than 90%. Maintenance revenue is generally paid in advance and recognized
ratably over the term of the agreement, typically twelve months. Maintenance
renewal revenue is recognized over the renewal period once we have a contract
upon payment from the customer.



                                       17

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Services Revenue. In the three months ended September 30, 2020, our services
revenue totaled $73.5 million, or 49% of total revenue. The Americas, EMEA and
APAC segments recognized $57.8 million, $12.6 million and $3.1 million in
services revenue, respectively, in the three months ended September 30, 2020. In
the nine months ended September 30, 2020, our services revenue totaled $232.7
million, or 53% of total revenue. The Americas, EMEA and APAC segments
recognized $180.3 million, $42.9 million and $9.5 million in services revenue,
respectively, in the nine months ended September 30, 2020. Due to our large
services revenue mix as a percentage of total revenue, our consolidated
operating margin profile may be lower than those of our competitors, and while
we believe our services margins are strong, they do lower our operating margin
profile.

Our professional services organization provides our customers with expertise and
assistance in planning and implementing our solutions. To ensure a successful
product implementation, consultants assist customers with the initial
installation of a system, the conversion and transfer of the customer's
historical data onto our system, and ongoing training, education, and system
upgrades. We believe our professional services enable customers to implement our
software rapidly, ensure the customer's success with our solutions, strengthen
our customer relationships, and add to our industry-specific knowledge base for
use in future implementations and product innovations.

Although our professional services are optional, the majority of our customers
use at least some portion of these services for their planning, implementation,
or related needs. Professional services are typically rendered under time and
materials-based contracts with services typically billed on an hourly
basis. Professional services are sometimes rendered under fixed-fee based
contracts with payments due on specific dates or milestones.

Services revenue growth is contingent upon our software license revenue, cloud
subscriptions and customer upgrade cycles, which are influenced by the strength
of general economic and business conditions and the competitive position of our
software products. In addition, our professional services business has
competitive exposure to offshore providers and other consulting companies. All
of these factors potentially create the risk of pricing pressure, fewer customer
orders, reduced gross margins, and loss of market share.

Hardware Revenue. Our hardware revenue, which we recognize net of related costs,
totaled $4.7 million in the three months ended September 30, 2020 representing
3% of total revenue. For the nine months ended September 30, 2020, hardware
revenue totaled $12.2 million, or 3% of total revenue. In conjunction with the
licensing of our software, and as a convenience for our customers, we resell a
variety of hardware products developed and manufactured by third parties. These
products include computer hardware, radio frequency terminal networks, RFID chip
readers, bar code printers and scanners, and other peripherals. We resell all
third-party hardware products and related maintenance pursuant to agreements
with manufacturers or through distributor-authorized reseller agreements
pursuant to which we are entitled to purchase hardware products and services at
discount prices. We generally purchase hardware from our vendors only after
receiving an order from a customer. As a result, we do not maintain hardware
inventory.

Product Development

We continue to invest significantly in research and development (R&D) to provide
leading solutions that help global retailers, manufacturers, wholesalers,
distributors, and logistics providers successfully manage accelerating and
fluctuating demands as well as the increasing complexity and volatility of their
local and global supply chains, retail store operations and point of sale. Our
R&D expenses were $20.5 million and $63.7 million for the three and nine months
ended September 30, 2020, respectively.

We expect to continue to focus our R&D resources on the development and
enhancement of our core supply chain, inventory optimization, omnichannel and
point of sale software solutions. We offer what we believe to be the broadest
solutions portfolio in the supply chain solutions marketplace, to address all
aspects of inventory optimization, transportation management, distribution
management, planning, and omnichannel operations including order management,
store inventory & fulfillment, call center and point of sale.

We also plan to continue to enhance our existing solutions and to introduce new
solutions to address evolving industry standards and market needs. We identify
opportunities to further enhance our solutions and to develop and provide new
solutions through our customer support organization, as well as through ongoing
customer consulting engagements and implementations, interactions with our user
groups, association with leading industry analysts and market research firms,
and participation in industry standards and research committees. Our solutions
address the needs of customers in various vertical markets, including retail,
consumer goods, food and grocery, logistics service providers, industrial and
wholesale, high technology and electronics, life sciences, and government.



                                       18

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Cash Flow and Financial Condition


For the three and nine months ended September 30, 2020, we generated cash flow
from operating activities of $42.5 million and $102.9 million, respectively. Our
cash and cash equivalents at September 30, 2020 totaled $166.3 million, with no
debt on our balance sheet. We currently have no credit facilities. Our primary
uses of cash have been for funding investments in R&D, in operations to drive
revenue and earnings growth, and repurchases of our common stock.

During the three months ended March 31, 2020, we repurchased 337,007 shares of
Manhattan Associates' outstanding common stock for approximately $25.0 million
under the share repurchase program approved by our Board of Directors. In April
2020, the Company suspended its share repurchase program because of
COVID-19-related considerations. Accordingly, during the second and third
quarters of 2020, the Company did not repurchase any shares of Manhattan
Associates common stock under the share repurchase program. The Company's
authorized repurchase limit remains at $50 million.

For the remainder of 2020, our priorities for use of cash will continue to be
investments in product development and growth of our business. We expect to
continue to evaluate acquisition opportunities that are complementary to our
product footprint and technology direction. We also expect to continue to weigh
our share repurchase options against cash for acquisitions and investing in the
business. We do not anticipate any borrowing requirements for the remainder of
2020 for general corporate purposes.

Results of Operations

In the following table, we present a summary of our consolidated results for the three and nine months ended September 30, 2020 and 2019.



                                                Three Months Ended          Nine Months Ended September
                                                   September 30,                        30,
                                               2020             2019           2020             2019
                                                       (in thousands, except per share data)

Revenue                                     $  149,757$  162,275$  439,290$  465,020
Costs and expenses                             114,781          127,278        353,426          374,165
Operating income                                34,976           34,997         85,864           90,855
Other (loss) income, net                          (891 )            810            371              368
Income before income taxes                      34,085           35,807         86,235           91,223
Net income                                  $   24,966$   27,107$   66,700$   69,004
Diluted earnings per share                  $     0.39$     0.42$     1.04$     1.06
Diluted weighted average number of shares       64,427           64,992         64,298           65,112






                                       19
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We have three geographic reportable segments: the Americas, EMEA, and APAC.
Geographic revenue information is based on the location of sale. The revenues
represented below are from external customers only. The geography-based expenses
include costs of personnel, direct sales, marketing expenses, and general and
administrative costs to support the business. There are certain corporate
expenses included in the Americas segment that we do not charge to the other
segments, including R&D, 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 R&D costs, including the
costs associated with our operations in India. During the three and nine months
ended September 30, 2020 and 2019, we derived the majority of our revenues from
sales to customers within our Americas segment. In the following table, we
present a summary of revenue and operating income by segment:



                                     Three Months Ended September 30,                       Nine Months Ended September 30,
                                                                  % Change vs.                                         % Change vs.
                                2020                2019           Prior Year           2020               2019         Prior Year
Revenue:                               (in thousands)                                         (in thousands)
Cloud subscriptions
Americas                           18,112              12,501                45 %          49,700           27,105                83 %
EMEA                                2,447               1,444                69 %           5,746            3,312                73 %
APAC                                  505                 297                70 %           1,381              693                99 %
Total cloud subscriptions          21,064              14,242                48 %          56,827           31,110                83 %

Software license
Americas                           11,468              13,753               -17 %          23,771           28,033               -15 %
EMEA                                1,048                 874                20 %           2,487            9,796               -75 %
APAC                                  717                 859               -17 %           2,391            1,792                33 %
Total software license             13,233              15,486               -15 %          28,649           39,621               -28 %

Maintenance
Americas                           29,164              30,342                -4 %          85,835           88,747                -3 %
EMEA                                5,630               5,235                 8 %          16,392           15,759                 4 %
APAC                                2,511               2,186                15 %           6,720            6,679                 1 %
Total maintenance                  37,305              37,763                -1 %         108,947          111,185                -2 %

Services
Americas                           57,789              72,274               -20 %         180,227          215,898               -17 %
EMEA                               12,546              15,425               -19 %          42,906           45,442                -6 %
APAC                                3,135               3,927               -20 %           9,521           12,868               -26 %
Total services                     73,470              91,626               -20 %         232,654          274,208               -15 %

Hardware
Americas                            4,635               3,158                47 %          12,149            8,896                37 %
EMEA                                   50                   -               N/A                61                -               N/A
APAC                                    -                   -               N/A                 3                -               N/A
Total hardware and other            4,685               3,158                48 %          12,213            8,896                37 %

Total Revenue
Americas                          121,168             132,028                -8 %         351,682          368,679                -5 %
EMEA                               21,721              22,978                -5 %          67,592           74,309                -9 %
APAC                                6,868               7,269                -6 %          20,016           22,032                -9 %
Total revenue               $     149,757$     162,275                -8 %   $     439,290$  465,020                -6 %

Operating income:
Americas                           27,296              26,310                 4 %          62,562           61,187                 2 %
EMEA                                5,319               6,371               -17 %          17,147           22,162               -23 %
APAC                                2,361               2,316                 2 %           6,155            7,506               -18 %
Total operating income      $      34,976$      34,997                 0 %   $      85,864$   90,855                -5 %






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Condensed Consolidated Financial Summary - Third Quarter 2020

• Consolidated total revenue: $149.8 million for the third quarter of 2020,

compared to $162.3 million for the third quarter of 2019;

• Cloud subscription revenue: $21.1 million for the third quarter of 2020,

compared to $14.2 million for the third quarter of 2019;

• Software license revenue: $13.2 million for the third quarter of 2020,

compared to $15.5 million for the third quarter of 2019;

• Operating income: $35.0 million for both the third quarter of 2020 and 2019;

• Operating margins: 23.4% for the third quarter of 2020, compared to 21.6%

for the third quarter of 2019;

• Diluted earnings per share: $0.39 for the third quarter of 2020 compared to

$0.42 for the third quarter of 2019;

• Cash flow from operations: $42.5 million in the third quarter of 2020,

compared to $39.9 million in the third quarter of 2019;

• Days sales outstanding: 65 days at September 30, 2020, compared to 73 days

at June 30, 2020;

• Cash and investments: $166.3 million at September 30, 2020, compared to

       $123.6 million at June 30, 2020;


    •  Share repurchases: In April 2020, the Company suspended its share

repurchase program because of COVID-19-related considerations. Accordingly,

       during the three months ended September 30, 2020, the Company did not
       repurchase any shares of Manhattan Associates common stock under the share

repurchase program. The Company's authorized repurchase limit remains at

       $50 million.




Below we discuss our consolidated results of operations for the third quarters
of 2020 and 2019.



Revenue



                                         Three Months Ended September 30,
                                                  % Change vs.         % of Total Revenue
                        2020          2019         Prior Year         2020            2019
                          (in thousands)

Cloud subscriptions   $  21,064$  14,242                48 %          14 %             9 %
Software license         13,233        15,486               -15 %           9 %            10 %
Maintenance              37,305        37,763                -1 %          25 %            23 %
Services                 73,470        91,626               -20 %          49 %            56 %
Hardware                  4,685         3,158                48 %           3 %             2 %
Total revenue         $ 149,757$ 162,275                -8 %         100 %           100 %




Cloud Subscriptions Revenue. In 2017, we released Manhattan Active™ Solutions
accelerating our business transition to cloud subscriptions. In the third
quarter of 2020, cloud subscriptions revenue increased $6.8 million compared to
the same quarter in the prior year, as customers began to purchase our SaaS
offerings rather than a traditional perpetual license. Our customers
increasingly prefer cloud-based solutions, including existing customers that are
migrating from on-premise to cloud-based offerings. Cloud subscriptions revenue
for the Americas, EMEA and APAC segments increased $5.6 million, $1.0 million
and $0.2 million in the third quarter of 2020, respectively.

Software License Revenue. Software license revenue decreased $2.3 million in the
third quarter of 2020 compared to the same quarter in the prior year as
customers began to purchase our SaaS offerings rather than a traditional
perpetual license. Our license revenue performance depends on the number and
relative value of large deals we close in the period. License revenue for the
Americas and APAC segments decreased $2.3 million and $0.2 million in the third
quarter of 2020, respectively, while license revenue for the EMEA segment
increased $0.2 million.

The perpetual license sales percentage mix across our product suite in the third quarter ended September 30, 2020 was over 65% warehouse management solutions.


Maintenance Revenue. Maintenance revenue decreased $0.5 million in the third
quarter of 2020 compared to the same quarter in the prior year. Maintenance
revenue for the Americas segment decreased $1.2 million in the third quarter of
2020 compared to the same quarter in the prior year, while the EMEA and APAC
segments increased $0.4 million and $0.3 million, respectively.



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Services Revenue. Services revenue decreased $18.2 million in the third quarter
of 2020 compared to the same quarter in the prior year. Services revenue for the
Americas, EMEA and APAC segments decreased $14.5 million, $2.9 million, and $0.8
million, respectively, compared to the same quarter in the prior year. The
decline in services revenue was primarily due to some customers delaying project
implementation and upgrades as a result of the COVID-19 pandemic.

Hardware Revenue. Hardware sales increased $1.5 million in the third quarter of 2020 compared to the same quarter in the prior year. The majority of our hardware revenue is derived from our Americas segment. Sales of hardware is largely dependent upon customer-specific desires, which fluctuate.

Cost of Revenue



                                                        Three Months Ended September 30,
                                                                                    % Change vs.
                                                    2020               2019          Prior Year
Cost of software license                        $        527$        748               -30 %
Cost of cloud subscriptions, maintenance and
services                                              64,672             73,618               -12 %
Total cost of revenue                           $     65,199$     74,366               -12 %




Cost of Software License. Cost of software license consists of the costs
associated with software reproduction; media, packaging and delivery;
documentation, and other related costs; and royalties on third-party software
sold with or as part of our products. Cost of software license decreased $0.2
million in the third quarter of 2020 compared with the same quarter in the prior
year due primarily to decreased third-party software expenses due to decreased
sales of third-party software.

Cost of Cloud Subscriptions, Maintenance and Services. Costs of cloud
subscriptions, maintenance and services consist 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. The $8.9 million decrease in the quarter ended September 30, 2020 compared
to the same quarter in the prior year was principally due to a $6.8 million
decrease in travel expense, and a $2.6 million decrease in performance-based
compensation expense, offset by a $1.3 million increase in computer
infrastructure costs related to cloud business transition.

Operating Expenses



                                        Three Months Ended September 30,
                                                                    % Change vs.
                                    2020               2019          Prior Year
                                        (in thousands)

Research and development        $     20,454$     22,614               -10 %
Sales and marketing                   11,399             12,125                -6 %
General and administrative            15,536             16,236                -4 %
Depreciation and amortization          2,193              1,937                13 %
Operating expenses              $     49,582$     52,912                -6 %




Research and Development. Our principal R&D activities have focused on the
expansion and integration of new products and releases, while expanding the
product footprint of our software solution suites in Supply Chain, Inventory
Optimization and Omnichannel, including cloud-based solutions, point-of-sale and
tablet retailing.

For each of the quarters ended September 30, 2020 and 2019, we did not
capitalize any R&D costs because the costs incurred following the attainment of
technological feasibility for the related software product through the date of
general release were insignificant.

R&D expenses primarily consist of salaries and other personnel-related costs for
personnel involved in our R&D activities. R&D expenses for the quarter ended
September 30, 2020 decreased by $2.2 million, compared to the same quarter of
2019 principally due to a $1.3 million decrease in compensation and other
personnel-related expenses, and a $0.8 million decrease in performance-based
compensation expense.

Sales and Marketing. Sales and marketing expenses include salaries, commissions,
travel and other personnel-related costs and the costs of our marketing and
alliance programs and related activities. Sales and marketing expenses decreased
$0.7 million in the quarter ended September 30, 2020 compared to the same
quarter in the prior year primarily due to a $0.7 million decrease in travel
expense.

General and Administrative (G&A). G&A expenses consist primarily of salaries and
other personnel-related costs of executive, financial, human resources,
information technology, and administrative personnel, as well as facilities,
legal, insurance, accounting, and other administrative expenses. G&A expenses
decreased $0.7 million, in the current year quarter compared to the same quarter
in the prior year, primarily due to decreased performance-based compensation
expense.



                                       22
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Depreciation and Amortization. Depreciation and amortization of intangibles and
software expense for the third quarter of 2020 and 2019 was $2.2 million and
$1.9 million, respectively. Amortization of acquisitions expense for the third
quarter of 2020 and 2019 was immaterial.

Operating Income


Operating income in both the third quarter of 2020 and 2019 was $35.0 million.
Operating margin was 23.4% for the third quarter of 2020 versus 21.6% for the
same quarter in the prior year. Operating income remained flat, while operating
margin increased primarily due to lower performance-based compensation expense
and lower travel expense. Due to the impact of COVID-19, we have largely
suspended hiring until the global demand environment improves.

Other Income and Income Taxes



                                   Three Months Ended September 30,
                                                               % Change vs.
                              2020              2019            Prior Year

Other (loss) income, net   $      (891 )$       810                -210 %
Income tax provision             9,119             8,700                   5 %






Other (loss) income, net. Other (loss) income, net primarily includes interest
income, foreign currency gains and losses, and other non-operating expenses.
Other (loss) income, net decreased $1.7 million in the third quarter of 2020
compared to the same quarter in the prior year primarily due to gains or losses
on intercompany transactions denominated in foreign currencies with subsidiaries
due to the fluctuation of the U.S. dollar relative to other foreign currencies,
primarily the Indian Rupee. We recorded net foreign currency losses of $0.9
million in the third quarter of 2020, and net foreign currency gains of $0.3
million in the third quarter of 2019.

Income tax provision. Our effective income tax rates were 26.8% and 24.3% for
the quarters ended September 30, 2020 and 2019, respectively. The increase in
the effective tax rate for the three months ended September 30, 2020 is due to
an increase in non-deductible equity-based compensation, and a reduction in
expected business credits and deductions.



Condensed Consolidated Financial Summary - First Nine Months of 2020

• Consolidated revenue: $439.3 million for the nine months ended

       September 30, 2020 compared to $465.0 million for the nine months ended
       September 30, 2019.


    •  Cloud subscription revenue: $56.8 million for the nine months ended
       September 30, 2020 compared to $31.1 million for the nine months ended
       September 30, 2019.


    •  Software license revenue: $28.6 million for the nine months ended
       September 30, 2020, compared to $39.6 million for the nine months ended
       September 30, 2019.

• Operating income: $85.9 million for the nine months ended September 30,

       2020, compared to $90.9 million for the nine months ended September 30,
       2019.

• Operating margins: 19.5% for both the nine months ended September 30, 2020

and 2019.

• Diluted earnings per share: $1.04 for the nine months ended September 30,

2020 compared to $1.06 for the nine months ended September 30, 2019.



    •  Cash flow from operations: $102.9 million for the nine months ended
       September 30, 2020, compared to $112.3 million for the nine months ended
       September 30, 2019.

• Cash and investments: $166.3 million at September 30, 2020, compared to

       $110.7 million at December 31, 2019.












                                       23
--------------------------------------------------------------------------------

Below we discuss our consolidated results of operations for the nine months ended September 30, 2020 and 2019.



                                          Nine Months Ended September 30,
                                                  % Change vs.         % of Total Revenue
                        2020          2019         Prior Year         2020            2019
                          (in thousands)

Cloud subscriptions   $  56,827$  31,110                83 %          13 %             7 %
Software license         28,649        39,621               -28 %           6 %             8 %
Maintenance             108,947       111,185                -2 %          25 %            24 %
Services                232,654       274,208               -15 %          53 %            59 %
Hardware                 12,213         8,896                37 %           3 %             2 %
Total revenue         $ 439,290$ 465,020                -6 %         100 %           100 %






Cloud Subscription Revenue. Due to the release of Manhattan Active™ Solutions,
cloud subscriptions revenue increased $25.7 million in the nine months ended
September 30, 2020 compared to the same period in the prior year, as customers
began to purchase our SaaS offerings rather than a traditional perpetual
license. Our customers increasingly prefer cloud-based solutions, including
existing customers that are migrating from on-premise to cloud-based offerings.
Cloud subscriptions revenue for the Americas, EMEA and APAC segments increased
$22.6 million, $2.4 million and $0.7 million, respectively, in the nine months
ended September 30, 2020.

Software License Revenue. Software license revenue decreased $11.0 million in
the nine months ended September 30, 2020 compared to the same period in the
prior year as customers began to purchase our SaaS offerings rather than a
traditional perpetual license. Our license revenue performance depends on the
number and relative value of large deals we close in the period. License revenue
for the Americas and EMEA segments decreased $4.3 million and $7.3 million,
respectively, and license revenue for the APAC segment increased $0.6 million,
in the nine months ended September 30, 2020.

The license sales percentage mix across our product suite in the nine months ended September 30, 2020 was approximately 80% warehouse management solutions.


Maintenance Revenue. Maintenance revenue decreased $2.2 million in the nine
months ended September 30, 2020 compared to the same period in the prior year.
Maintenance revenue for the Americas segment decreased $2.9 million, and
maintenance revenue for the EMEA and APAC segments increased $0.6 million and
$0.1 million, in the nine months ended September 30, 2020 compared to the same
period in the prior year.

Services Revenue. Services revenue decreased $41.6 million in the nine months
ended September 30, 2020 compared to the same period in the prior year. The
decline was primarily due to some customers delaying project implementation and
upgrades as a result of the COVID-19 pandemic. Services revenue for the
Americas, APAC, and EMEA segments decreased $35.7 million, $3.4 million, and
$2.5 million, respectively, in the nine months ended September 30, 2020 compared
with the same period in the prior year.

Hardware Revenue. Hardware sales increased $3.3 million in the nine months ended
September 30, 2020 compared to the same period in the prior year. The majority
of our hardware revenue is derived from our Americas segment. Sales of hardware
is largely dependent upon customer-specific desires, which fluctuate.



Cost of Revenue

                                                         Nine Months Ended September 30,
                                                                                    % Change vs.
                                                    2020               2019          Prior Year
Cost of software license                        $       1,673$     1,963               -15 %
Cost of cloud subscriptions, maintenance and
services                                              201,382           211,151                -5 %
Total cost of revenue                           $     203,055$   213,114                -5 %


Cost of Software License. Cost of software license decreased $0.3 million in the
nine months ended September 30, 2020 compared with the same period in the prior
year due primarily to decreased third-party software expenses due to decreased
sales of third-party software.

Cost of Cloud Subscriptions, Maintenance and Services. Costs of cloud subscriptions, maintenance and services consist primarily of salaries and other personnel-related expenses of employees dedicated to cloud operations; maintenance services; and




                                       24

--------------------------------------------------------------------------------


professional and technical services as well as hosting fees. The $9.8 million
decrease in the nine months ended September 30, 2020 compared to the same period
in the prior year was principally due to a $9.3 million decrease in
performance-based compensation expense and a $13.2 million decrease in travel
expense, offset by a $7.6 million increase in compensation and other
personnel-related expense, and a $6.4 million increase in computer
infrastructure costs related to cloud business transition.



Operating Expenses



                                        Nine Months Ended September 30,
                                                                   % Change vs.
                                    2020               2019         Prior Year
                                        (in thousands)

Research and development        $      63,713$   65,824                -3 %
Sales and marketing                    34,196           41,426               -17 %
General and administrative             45,666           48,091                -5 %
Depreciation and amortization           6,796            5,710                19 %
Operating expenses              $     150,371$  161,051                -7 %




Research and Development. R&D expenses for the nine months ended September 30,
2020 decreased $2.1 million compared to the same period in the prior year
principally due to a $2.8 million decrease in performance-based compensation
expense, and a $0.7 million decrease in travel related expense, offset by a $1.1
million increase in compensation and other personnel-related expenses. For the
same reasons included in the quarterly R&D discussion above, no R&D costs were
capitalized during the nine months ended September 30, 2020 and 2019.

Sales and Marketing. Sales and marketing expenses decreased $7.2 million in the
nine months ended September 30, 2020 compared to the same period in the prior
year primarily due to a $2.9 million decrease in performance-based compensation
expense, a $2.1 million decrease in marketing and campaign programs, and a $1.8
million decrease in travel expense.

General and Administrative. General and administrative expenses decreased $2.4
million in the nine months ended September 30, 2020 compared to the same period
in the prior year, primarily due to a $1.8 million increase in performance-based
compensation expense.

Depreciation and Amortization. Depreciation and amortization of intangibles and
software expense for the nine months ended September 30, 2020 and 2019 was $6.8
million and $5.7 million, respectively. Amortization of acquisitions expense for
the nine months ended September 30, 2020 and 2019 was immaterial.



Operating Income


Operating income for the nine months ended September 30, 2020 was $85.9 million
compared to $90.9 million for the same period in the prior year. Operating
margin was 19.5% for both the first nine months of 2020 and 2019. Operating
income has decreased due to lower services revenue as we noticed some delays as
a result of the COVID-19 pandemic. Due to the impact of COVID-19, we have
largely suspended hiring until the global demand environment improves. Operating
income increased $1.4 million in the Americas segment, and decreased $5.0
million and $1.4 million in the EMEA and APAC segments, respectively.



Other Income and Income Taxes



                                Nine Months Ended September 30,
                                                           % Change vs.
                           2020               2019          Prior Year

Other income, net      $        371$        368                 1 %
Income tax provision         19,535             22,219               -12 %



Other income, net. Other income, net remained flat in the nine months ended September 30, 2020 compared to the same period in the prior year.


Income tax provision. Our effective income tax rates were 22.7% and 24.4% for
the nine months ended September 30, 2020 and 2019, respectively. The decrease is
the result of an increase of $3.7 million in excess tax benefits on restricted
stock vestings, partially offset by an increase in non-deductible equity-based
compensation, and a reduction in expected business credits and deductions.



                                       25

--------------------------------------------------------------------------------

Liquidity and Capital Resources


During the first nine months of 2020, while our UK and Australia foreign
subsidiaries paid a distribution to the U.S., we funded our business exclusively
through cash generated from operations. Our cash and cash equivalents as of
September 30, 2020 included $140.0 million held in the U.S. and $26.3 million
held by our foreign subsidiaries. We believe that our cash balances in the U.S.
are sufficient to fund our U.S. operations, and we do not intend to further
repatriate foreign funds to the U.S. In the future, if we elect to repatriate
the unremitted earnings of our foreign subsidiaries, we would no longer be
subject to additional U.S. income taxes on such earnings due to the enactment of
the Tax Cuts and Jobs Act in December 2017, but we could be subject to
additional local withholding taxes.

Cash flow from operating activities totaled $102.9 million and $112.3 million in
the nine months ended September 30, 2020 and 2019, respectively. Typical factors
affecting our cash provided by operating activities include our level of revenue
and earnings for the period, the timing and amount of employee bonus and income
tax payments, and the timing of cash collections from our customers which is our
primary source of operating cash flow. Cash flow from operating activities for
the nine months ended September 30, 2020 decreased $9.4 million compared to the
same period in the prior year, which is mainly due to an increase in employee
bonus payments and the timing of cash collections, partially offset by a
decrease in income tax payments.

Cash flow used in investing activities totaled $1.9 million and $9.9 million in
the nine months ended September 30, 2020 and 2019, respectively. Our investing
activities for both the nine months ended September 30, 2020 and 2019 consisted
of capital spending to support company growth and short-term investing. For the
nine months ended September 30, 2020 capital spending was $1.9 million. For the
nine months ended September 30, 2019, net maturities of investments totaled $1.4
million, while capital spending was $11.4 million.

Financing activities used cash of $43.5 million and $86.5 million for the nine
months ended September 30, 2020 and 2019, respectively. The principal use of
cash for financing activities in both periods was to purchase our common stock,
including shares withheld for taxes due upon vesting of restricted stock.
Repurchases of our common stock for the nine months ended September 30, 2020 and
2019 totaled $43.5 million and $86.5 million, respectively, including shares
withheld for taxes of $18.5 million and $5.6 million, respectively. We suspended
the share repurchase program, effective April 1, 2020, to position our Company
for uncertainty in the near-term as a result of the COVID-19 pandemic.

As disclosed in our Annual Report on Form 10-K, our principal commitments
consist of obligations under operating leases. As we continue our business
transition to a cloud subscription model, we have entered into multiple
non-cancellable contracts for cloud infrastructure services. As of September 30,
2020, our cloud infrastructure obligations are approximately $49 million over
the next 5 years. We also enter into non-cancellable subscriptions in the
ordinary course of business for internal software to support our operations. Our
obligations, as of September 30, 2020, are approximately $9 million over the
next 3 years. We expect to fulfill all of these commitments from our working
capital.

Periodically, opportunities may arise to grow our business through the
acquisition of complementary products, and technologies. Any material
acquisition could result in a decrease to our working capital depending on the
amount, timing, and nature of the consideration to be paid. We believe that our
existing cash and investments will be sufficient to meet our working capital and
capital expenditure needs at least for the next twelve months, although there
can be no assurance that this will be the case. With the COVID-19 impact, we are
focused on preserving liquidity and protecting our headcount capacity to support
our customers and grow our business when global economic activity begins to
recover. For the remainder of 2020, we anticipate that our priorities for use of
cash will be similar to prior years, with our first priority being continued
investment in product development and profitably and growing our business to
extend our market leadership. We will continue to evaluate acquisition
opportunities that are complementary to our product footprint and technology
direction. We will also continue to weigh our share repurchase options against
cash for acquisitions and investing in the business. At this time, we do not
anticipate any borrowing requirements for the remainder of 2020 for general
corporate purposes.



Critical Accounting Policies and Estimates


In the first nine months of 2020, there were no significant changes to our
critical accounting policies and estimates from those disclosed in the section
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our annual report on Form 10-K for the year ended December 31,
2019 other than the adoption of the ASC 326 Financial Instruments - Credit
Losses.

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 expectations about global
macroeconomic trends and industry developments, plans for future business
development activities, anticipated costs of revenues, product mix and service
revenues, research and development, selling, general and administrative
activities, and liquidity and capital needs and resources. When used in this
quarterly report, the words "may," "expect," "forecast," "anticipate," "intend,"
"plan," "believe," "could," "seek,"



                                       26

--------------------------------------------------------------------------------


"project," "estimate," and similar expressions are generally intended to
identify forward-looking statements. Undue reliance should not be placed on
these forward-looking statements, which reflect opinions only as of the date of
this quarterly report. 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. Investors are cautioned that 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.

Some of the factors that could cause actual results to differ materially from the results discussed in forward-looking statements include:

• the duration and severity of the coronavirus disease (COVID-19) pandemic

and of measures taken to combat its spread, and the effects of both on our

employees, customers, partners and the global economy;

• ongoing disruption and transformation in our vertical markets, including

the aggravating effects of the COVID-19 pandemic on the sector;

• the operational and financial effects of our business transition to cloud

       subscription-based solutions;


  • economic, political and market conditions;


  • our ability to attract and retain highly skilled employees;


  • competition;


  • our dependence on a single line of business;

• our dependence on generating revenue from software licenses and cloud

       subscriptions to drive business;


  • undetected errors or "bugs" in our software;

• the risk of defects, delays or interruptions in our cloud subscription

       services;


  • possible compromises of our data protection and IT security measures;


  • risks associated with large system implementations;


  • possible liability to customers if our products fail;

• the requirement to maintain high quality professional service capabilities;

• the risks of international operations, including foreign currency exchange

risk;

• the possibility that research and development investments may not yield

       sufficient returns;


  • the long sales cycle associated with our products;


  • the difficulty of predicting operating results;


  • the need to continually improve our technology;


  • risks associated with managing growth;


  • reliance on third party and open source software;


  • the need for our products to interoperate with other systems;


    •  the need to protect our intellectual property, and our exposure to
       intellectual property claims of others;

• economic conditions and regulatory changes caused by the United Kingdom's

pending exit from the European Union;

• the possible effects on international commerce of new or increased tariffs,

or a "trade war"; and

• other risks described under the heading "Risk Factors" in this Form 10-Q

and in our Annual Report on Form 10-K for the year ended December 31, 2019,

as these may be updated from time to time in subsequent quarterly reports.



We undertake no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes
in future operating results.

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