ATLANTA, April 24, 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 first quarter ended March 31, 2018 of $0.33 compared to $0.40 in Q1 2017 on license revenue of $7.6 million, cloud subscriptions revenue of $4.5 million and total revenue of $130.6 million. Non-GAAP adjusted diluted earnings per share for Q1 2018 was $0.37 compared to $0.42 in Q1 2017.
“Overall, we are off to a good start to the year, with Q1 total revenue and earnings per share performance slightly ahead of our expectations. Our transition to cloud continues as planned and while license revenue was soft due to some sales cycles extending, we performed well across all other revenue categories and our sales pipelines for both cloud and perpetual license are solid. Based on our outlook for the remainder of the year, we are maintaining our 2018 full-year guidance,” said Manhattan Associates president and CEO Eddie Capel. “Despite the global geopolitical and economic volatility, we continue to be very bullish on the market opportunity ahead and are investing significant capital into transformative industry leading innovation. We look forward to our upcoming Momentum customer conference in May, where we will unveil exciting product advancements enabling our clients to Push Possible™ with their commerce supply chains,” concluded Mr. Capel.
FIRST QUARTER 2018 FINANCIAL SUMMARY:
Certain line items in prior period financial statements have been reclassified to conform to the current period presentation in the consolidated statements of income due to the business transition to cloud subscriptions.
GAAP diluted earnings per share was $0.33 in Q1 2018 compared to $0.40 in Q1 2017.
Adjusted diluted earnings per share, a non-GAAP measure, was $0.37 in Q1 2018, compared to $0.42 in Q1 2017.
Consolidated total revenue was $130.6 million in Q1 2018, compared to $143.5 million in Q1 2017. License revenue was $7.6 million in Q1 2018, compared to $21.3 million in Q1 2017. Cloud subscriptions revenue was $4.5 million in Q1 2018 compared to $1.5 million in Q1 2017.
GAAP operating income was $27.8 million in Q1 2018, compared to $41.7 million in Q1 2017.
Adjusted operating income, a non-GAAP measure, was $32.3 million in Q1 2018, compared to $46.3 million in Q1 2017.
Cash flow from operations was $51.3 million in Q1 2018, compared to $61.3 million in Q1 2017. Days Sales Outstanding was 59 days at both March 31, 2018, and December 31, 2017.
Cash and investments totaled $119.0 million at March 31, 2018, compared to $125.5 million at December 31, 2017.
During the three months ended March 31, 2018, the Company repurchased 1,157,696 shares of Manhattan Associates common stock under the share repurchase program authorized by the Board of Directors for a total investment of $50.0 million. In April 2018, the Board of Directors authorized the Company to repurchase up to an aggregate of $50 million of the Company’s common stock.
NEW PRESENTATION OF CONSOLIDATED STATEMENTS OF INCOME
We have reclassified certain line items in prior period financial statements to conform to the current period presentation in the consolidated statements of income due to the business transition to cloud subscriptions. These reclassifications include: all revenue line items; cost of license; cost of cloud subscriptions, maintenance and services; and cost of hardware. These reclassifications did not affect total revenue, operating income or net income. For further detail, please see note 7 in the supplemental financial information accompanying this press release.
2018 GUIDANCE
Manhattan Associates reaffirms the following revenue, operating margin and diluted earnings per share guidance for the full year 2018:
Guidance Range - 2018 Full Year
($'s in millions, except operating margin and EPS)
$ Range
% Growth Range
Total revenue - current guidance
$
546
$
558
-8
%
-6
%
Operating Margin:
GAAP operating margin – current guidance
20.0
%
20.4
%
-11.2
%
-10.8
%
Equity-based compensation, net of tax
4.0
%
3.9
%
Adjusted Operating margin(1) - current guidance
24.0
%
24.3
%
-10.5
%
-10.2
%
Diluted earnings per share (EPS):
GAAP EPS - current guidance
$
1.23
$
1.27
-27
%
-24
%
Equity-based compensation, net of tax
0.25
0.25
Adjusted EPS(1) - current guidance
$
1.48
$
1.52
-21
%
-19
%
(1) Adjusted operating margin and adjusted EPS are non-GAAP measures which exclude the impact of equity-based
compensation and acquisition-related costs, and the related income tax effects of these items.
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 first quarter financial results will be held today, April 24, 2018, at 4:30 p.m. Eastern Time. We invite investors to listen 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 1295756, 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’ second quarter 2018 earnings release.
GAAP VERSUS NON-GAAP PRESENTATION
The Company provides adjusted operating income, 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 non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share 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 months ended March 31, 2018.
Non-GAAP adjusted operating income, 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-service/cloud-based model, 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. 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 March 31,
2018
2017
(unaudited)
(unaudited)
Revenue:
Software license
$
7,555
$
21,277
Cloud subscriptions
4,469
1,496
Maintenance
36,397
33,376
Services
78,757
79,781
Hardware (1)
3,391
7,559
Total revenue
130,569
143,489
Costs and expenses:
Cost of license
1,308
1,352
Cost of cloud subscriptions, maintenance and services
56,486
54,899
Cost of hardware (1)
-
5,370
Research and development
17,059
14,225
Sales and marketing
12,884
11,789
General and administrative
12,800
11,872
Depreciation and amortization
2,202
2,262
Total costs and expenses
102,739
101,769
Operating income
27,830
41,720
Other income (loss), net
721
(371
)
Income before income taxes
28,551
41,349
Income tax provision
5,899
13,125
Net income
$
22,652
$
28,224
Basic earnings per share
$
0.34
$
0.40
Diluted earnings per share
$
0.33
$
0.40
Weighted average number of shares:
Basic
67,553
69,973
Diluted
67,736
70,247
(1) Adoption of the new revenue recognition standard, FASB ASC Topic 606, Revenue from Contracts with Customers, in the first quarter of 2018 resulted in changes in the presentation of hardware revenue and cost of hardware. For further detail, please see note 8 in the supplemental financial information accompanying this press release.
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES Reconciliation of Selected GAAP to Non-GAAP Measures (in thousands, except per share amounts)
Three Months Ended March 31,
2018
2017
Operating income
$
27,830
$
41,720
Equity-based compensation (a)
4,343
4,472
Purchase amortization (c)
107
107
Adjusted operating income (Non-GAAP)
$
32,280
$
46,299
Income tax provision
$
5,899
$
13,125
Equity-based compensation (a)
1,064
1,632
Tax benefit of stock awards vested (b)
749
1,968
Purchase amortization (c)
26
39
U.S. Tax Cuts and Jobs Act impact (d)
348
-
Adjusted income tax provision (Non-GAAP)
$
8,086
$
16,764
Net income
$
22,652
$
28,224
Equity-based compensation (a)
3,280
2,840
Tax benefit of stock awards vested (b)
(749
)
(1,968
)
Purchase amortization (c)
81
68
U.S. Tax Cuts and Jobs Act impact (d)
(348
)
-
Adjusted net income (Non-GAAP)
$
24,916
$
29,164
Diluted EPS
$
0.33
$
0.40
Equity-based compensation (a)
0.05
0.04
Tax benefit of stock awards vested (b)
(0.01
)
(0.03
)
Purchase amortization (c)
-
-
U.S. Tax Cuts and Jobs Act impact (d)
(0.01
)
-
Adjusted diluted EPS (Non-GAAP)
$
0.37
$
0.42
Fully diluted shares
67,736
70,247
(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 with the SEC on the date hereof. Equity-based compensation is included in the following GAAP operating expense lines for the three months ended March 31, 2018 and 2017:
Three Months Ended March 31,
2018
2017
Cost of services
$
1,117
$
1,141
Research and development
921
720
Sales and marketing
558
667
General and administrative
1,747
1,944
Total equity-based compensation
$
4,343
$
4,472
(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 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 comparison 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 the fourth quarter of 2017, we recorded a provisional net one-time tax of $2.8 million due to the enactment of the Tax Cuts and Jobs Act (the 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 first quarter of 2018.
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands, except share and per share data)
March 31, 2018
December 31, 2017
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents
$
106,668
$
125,522
Short-term investments
12,341
-
Accounts receivable, net of allowance of $2,265 and $2,692, respectively
85,285
92,231
Prepaid expenses and other current assets
14,557
10,320
Total current assets
218,851
228,073
Property and equipment, net
15,758
15,493
Goodwill, net
62,252
62,248
Deferred income taxes
634
1,877
Other assets
9,687
7,304
Total assets
$
307,182
$
314,995
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
14,869
$
14,028
Accrued compensation and benefits
20,894
15,826
Accrued and other liabilities
12,010
12,105
Deferred revenue
85,505
75,068
Income taxes payable
9,527
7,228
Total current liabilities
142,805
124,255
Other non-current liabilities
16,429
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; 66,819,431 and 67,776,138 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively
668
678
Retained earnings
159,288
186,117
Accumulated other comprehensive loss
(12,008
)
(11,839
)
Total shareholders' equity
147,948
174,956
Total liabilities and shareholders' equity
$
307,182
$
314,995
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (in thousands)
Three Months Ended March 31,
2018
2017
(unaudited)
(unaudited)
Operating activities:
Net income
$
22,652
$
28,224
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
2,202
2,262
Equity-based compensation
4,343
4,472
(Gain) loss on disposal of equipment
(3
)
20
Deferred income taxes
1,587
2,531
Unrealized foreign currency (gain) loss
(333
)
104
Changes in operating assets and liabilities:
Accounts receivable, net
7,502
16,553
Other assets
(4,223
)
(3,939
)
Accounts payable, accrued and other liabilities
5,435
(4,063
)
Income taxes
2,286
8,172
Deferred revenue
9,853
6,940
Net cash provided by operating activities
51,301
61,276
Investing activities:
Purchase of property and equipment
(2,174
)
(789
)
Net purchases of investments
(12,598
)
(11,630
)
Net cash used in investing activities
(14,772
)
(12,419
)
Financing activities:
Purchase of common stock
(55,815
)
(56,619
)
Net cash used in financing activities
(55,815
)
(56,619
)
Foreign currency impact on cash
432
1,355
Net change in cash and cash equivalents
(18,854
)
(6,407
)
Cash and cash equivalents at beginning of period
125,522
95,615
Cash and cash equivalents at end of period
$
106,668
$
89,208
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
GAAP Diluted EPS
$
0.40
$
0.45
$
0.47
$
0.36
$
1.68
$
0.33
Adjustments to GAAP:
Equity-based compensation
0.04
0.03
0.03
0.05
0.15
0.05
Tax benefit of stock awards vested
(0.03
)
-
-
-
(0.03
)
(0.01
)
Purchase amortization
-
-
-
-
-
-
Restructuring charge
-
0.03
-
-
0.03
-
U.S. Tax Cuts and Jobs Act impact
-
-
-
0.04
0.04
(0.01
)
Adjusted Diluted EPS
$
0.42
$
0.50
$
0.51
$
0.45
$
1.87
$
0.37
Fully Diluted Shares
70,247
69,421
69,135
68,791
69,424
67,736
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
Revenue:
Americas
$
113,115
$
123,658
$
124,833
$
115,543
$
477,149
$
104,615
EMEA
23,360
22,028
18,453
21,508
85,349
19,164
APAC
7,014
8,455
9,597
7,035
32,101
6,790
$
143,489
$
154,141
$
152,883
$
144,086
$
594,599
$
130,569
GAAP Operating Income:
Americas
$
28,713
$
35,717
$
39,295
$
32,968
$
136,693
$
20,318
EMEA
10,754
9,995
7,128
7,952
35,829
5,475
APAC
2,253
3,547
4,673
2,650
13,123
2,037
$
41,720
$
49,259
$
51,096
$
43,570
$
185,645
$
27,830
Adjustments (pre-tax):
Americas:
Equity-based compensation
$
4,472
$
2,796
$
3,773
$
5,188
$
16,229
$
4,343
Purchase amortization
107
108
108
107
430
107
Restructuring charge
-
2,908
(77
)
(18
)
2,813
-
$
4,579
$
5,812
$
3,804
$
5,277
$
19,472
$
4,450
EMEA:
Restructuring charge
-
114
-
(6
)
108
-
Adjusted non-GAAP Operating Income:
Americas
$
33,292
$
41,529
$
43,099
$
38,245
$
156,165
$
24,768
EMEA
10,754
10,109
7,128
7,946
35,937
5,475
APAC
2,253
3,547
4,673
2,650
13,123
2,037
$
46,299
$
55,185
$
54,900
$
48,841
$
205,225
$
32,280
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
Revenue
$
(1,547
)
$
(1,219
)
$
536
$
1,820
$
(410
)
$
2,781
Costs and expenses
(789
)
(396
)
723
1,485
1,023
2,328
Operating income
(758
)
(823
)
(187
)
335
(1,433
)
453
Foreign currency (losses) gains in other income
(646
)
(348
)
(81
)
(771
)
(1,846
)
366
$
(1,404
)
$
(1,171
)
$
(268
)
$
(436
)
$
(3,279
)
$
819
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
Operating income
$
(70
)
$
(326
)
$
(338
)
$
(345
)
$
(1,079
)
$
(360
)
Foreign currency (losses) gains in other income
(320
)
(190
)
71
(43
)
(482
)
210
Total impact of changes in the Indian Rupee
$
(390
)
$
(516
)
$
(267
)
$
(388
)
$
(1,561
)
$
(150
)
4. Other income includes the following components (in thousands):
2017
2018
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Full Year
1st Qtr
Interest income
$
293
$
264
$
314
$
303
$
1,174
$
347
Foreign currency (losses) gains
(646
)
(348
)
(81
)
(771
)
(1,846
)
366
Other non-operating (expense) income
(18
)
16
(26
)
(112
)
(140
)
8
Total other (loss) income
$
(371
)
$
(68
)
$
207
$
(580
)
$
(812
)
$
721
5. Capital expenditures are as follows (in thousands):
2017
2018
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Full Year
1st Qtr
Capital expenditures
$
789
$
1,914
$
1,194
$
2,302
$
6,199
$
2,174
6. Stock Repurchase Activity (in thousands):
2017
2018
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Full Year
1st Qtr
Shares purchased under publicly-announced buy-back program
1,004
535
-
1,156
2,695
1,158
Shares withheld for taxes due upon vesting of restricted stock
131
1
2
1
135
111
Total shares purchased
1,135
536
2
1,157
2,830
1,269
Total cash paid for shares purchased under publicly-announced buy-back program
$
49,978
$
24,974
$
-
$
49,953
$
124,905
$
49,972
Total cash paid for shares withheld for taxes due upon vesting of restricted stock
6,641
27
80
54
6,802
5,843
Total cash paid for shares repurchased
$
56,619
$
25,001
$
80
$
50,007
$
131,707
$
55,815
7. Due to the 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. Such reclassifications did not affect total revenues, operating income or net income. The following table reflects the comparison between the former and new presentation (in thousands):
2016
2017
2018
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Full Year
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Full Year
1st Qtr
Former Presentation:
Software license
$
20,607
$
20,631
$
21,633
$
22,125
$
84,996
$
22,773
$
22,442
$
18,794
$
17,900
$
81,909
$
12,024
Services
116,263
119,833
119,267
111,923
467,286
108,833
116,828
115,555
110,394
451,610
111,701
Hardware and other
12,990
14,428
11,313
13,544
52,275
11,883
14,871
18,534
15,792
61,080
6,844
$
149,860
$
154,892
$
152,213
$
147,592
$
604,557
$
143,489
$
154,141
$
152,883
$
144,086
$
594,599
$
130,569
Cost of license
$
3,152
$
2,283
$
2,966
$
2,419
$
10,820
$
2,240
$
2,355
$
2,830
$
3,169
$
10,594
$
3,982
Cost of services
51,904
48,393
49,436
47,742
197,475
49,743
47,751
44,750
43,053
185,297
50,348
Cost of hardware and other
9,757
11,841
9,276
10,710
41,584
9,638
12,207
15,492
12,505
49,842
3,464
$
64,813
$
62,517
$
61,678
$
60,871
$
249,879
$
61,621
$
62,313
$
63,072
$
58,727
$
245,733
$
57,794
New Presentation:
Software license
$
19,617
$
18,882
$
20,012
$
20,702
$
79,213
$
21,277
$
20,064
$
16,260
$
14,712
$
72,313
$
7,555
Cloud subscriptions (a)
990
1,749
1,621
1,423
5,783
1,496
2,378
2,534
3,188
9,596
4,469
Maintenance
31,757
32,841
34,424
34,826
133,848
33,376
35,959
36,338
37,325
142,998
36,397
Services
88,735
91,866
89,613
81,571
351,785
79,781
85,327
84,211
77,183
326,502
78,757
Hardware
8,761
9,554
6,543
9,070
33,928
7,559
10,413
13,540
11,678
43,190
3,391
$
149,860
$
154,892
$
152,213
$
147,592
$
604,557
$
143,489
$
154,141
$
152,883
$
144,086
$
594,599
$
130,569
Cost of license
$
2,322
$
1,361
$
1,706
$
1,429
$
6,818
$
1,352
$
1,438
$
1,316
$
1,377
$
5,483
$
1,308
Cost of cloud subscriptions, maintenance and services (b)
56,862
54,053
55,346
53,374
219,635
54,899
53,109
51,103
48,934
208,045
56,486
Cost of hardware
5,629
7,103
4,626
6,068
23,426
5,370
7,766
10,653
8,416
32,205
-
$
64,813
$
62,517
$
61,678
$
60,871
$
249,879
$
61,621
$
62,313
$
63,072
$
58,727
$
245,733
$
57,794
Reconciliation of GAAP to Non-GAAP Measures:
2016
2017
2018
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Full Year
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Full Year
1st Qtr
Former Presentation:
Cost of services
$
51,904
$
48,393
$
49,436
$
47,742
$
197,475
$
49,743
$
47,751
$
44,750
$
43,053
$
185,297
$
50,348
Equity-based compensation (c)
(1,279
)
(868
)
(828
)
(819
)
(3,794
)
(1,141
)
(580
)
(875
)
(1,398
)
(3,994
)
(1,117
)
Adjusted Cost of services
$
50,625
$
47,525
$
48,608
$
46,923
$
193,681
$
48,602
$
47,171
$
43,875
$
41,655
$
181,303
$
49,231
New Presentation:
Cost of cloud subscriptions, maintenance and services (b)
$
56,862
$
54,053
$
55,346
$
53,374
$
219,635
$
54,899
$
53,109
$
51,103
$
48,934
$
208,045
$
56,486
Equity-based compensation (c)
(1,279
)
(868
)
(828
)
(819
)
(3,794
)
(1,141
)
(580
)
(875
)
(1,398
)
(3,994
)
(1,117
)
Adjusted Cost of cloud subscriptions, maintenance and services
$
55,583
$
53,185
$
54,518
$
52,555
$
215,841
$
53,758
$
52,529
$
50,228
$
47,536
$
204,051
$
55,369
(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 with the SEC on the date of this release.
8. 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:
2016
2017
2018
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Full Year
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Full Year
1st Qtr
Presentation of Hardware Revenue - Pre ASC 606 adoption:
Revenue
Hardware Revenue
$
8,761
$
9,554
$
6,543
$
9,070
$
33,928
$
7,559
$
10,413
$
13,540
$
11,678
$
43,190
$
11,224
Cost of Revenue
Cost of Hardware
(5,629
)
(7,103
)
(4,626
)
(6,068
)
(23,426
)
(5,370
)
(7,766
)
(10,653
)
(8,416
)
(32,205
)
(7,833
)
Hardware Revenue, net
$
3,132
$
2,451
$
1,917
$
3,002
$
10,502
$
2,189
$
2,647
$
2,887
$
3,262
$
10,985
$
3,391
Proforma Presentation of Hardware Revenue - Post ASC 606 Using Full Retrospective Method: