Manhattan Associates Inc. Reports Operating Results (10-Q)
Manhattan Associates Inc. has a market cap of $673.2 million; its shares were traded at around $30.6 with a P/E ratio of 25 and P/S ratio of 2.7. Manhattan Associates Inc. had an annual average earning growth of 6.1% over the past 10 years. GuruFocus rated Manhattan Associates Inc. the business predictability rank of 2-star.MANH is in the portfolios of Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC, Jean-Marie Eveillard of First Eagle Investment Management, LLC.
Highlight of Business Operations: In the three months ended September 30, 2010, we generated $74.0 million in total revenue, with a revenue mix of: license revenues 16%; services 72%; and hardware and other revenue 12%. In the nine months ended September 30, 2010, we generated $225.6 million in total revenue, with a revenue mix of: license revenues 18%; services 72%; and hardware and other revenue 10%.
In October 2010, the International Monetary Fund (IMF) provided a World Economic Outlook (WEO) update reiterating its previous 2010 world economic growth forecast from July 2010. The update noted that, global activity is forecast to expand by 4.8% in 2010 and 4.2% in 2011, broadly in line with earlier expectations, and downside risks continue to predominate. However, the probability of a sharp global slowdown, including stagnation or contraction in advanced economies, still appears low. Advanced economies are projected to expand sluggishly through 2010 and 2011 with annual growth of about 2.7% and 2.2%, respectively.
License revenue. License revenue, a leading indicator of our business, is primarily derived from software license fees that customers pay for supply chain solutions. License revenue totaled $12.1 million, or 16% of total revenue, with gross margins of 87.8% and $41.8 million, or 18% of total revenue, with gross margins of 88.9% in the three and nine months ended September 30, 2010, respectively. Our typical license revenue percentage mix of new to existing customers is approximately 50/50. However, for the three and nine months ended September 30, 2010, the percentage mix was approximately 25/75 and 35/65, respectively, of new to existing customers.
Services revenue. Our services business consists of professional services (consulting and training) and customer support services and software enhancements. Services revenue totaled $53.5 million, or 72% of total revenue, with gross margins of 53.9% and $161.7 million, or 72% of total revenue, with gross margins of 54.5% in the three and nine months ended September 30, 2010, respectively. Professional services accounted for approximately 60% of total services revenue and approximately 45% of total revenue in the third quarter and the first nine months of 2010. When comparing our operating margins to other technology companies, our operating margin profile can be lower due to our large services revenue mix as a percentage of total revenue. While we believe our services margins are very strong, they do lower our overall operating margin as services margins are lower than license revenue margins.
Our CSSE revenues totaled $20.1 million and $60.1 million in the three and nine months ended September 30, 2010. CSSE represented approximately 40% of services revenue and approximately 25% of total revenue in the third quarter and the first nine months of 2010. The growth of CSSE revenues is influenced by: 1) new license revenue growth, 2) annual renewal of support contracts, 3) increase in customers through acquisitions, and 4) fluctuations in currency rates. 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%. CSSE revenue is generally paid in advance and recognized ratably over the term of the agreement, typically 12 months. CSSE renewal revenue is not recognized unless payment is received from the customer.
Hardware and other revenue. Our hardware and other revenues totaled $8.4 million representing 12% of total revenue with gross margins of 15.9% and $22.1 million representing 10% of total revenue with gross margins of 16.9% in the three and nine months ended September 30, 2010, respectively. 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 pursuant to agreements with manufacturers or through distributor-authorized reseller agreements pursuant to which we are entitled to purchase hardware products at discount prices and to receive technical support in connection with product installations and any subsequent product malfunctions. We generally purchase hardware from our vendors only after receiving an order from a customer. As a result, we do not maintain significant hardware inventory.
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