Manhattan Associates Earnings: Good Results With a Solid Preview for 2024

Narrow-moat Manhattan Associates MANH reported third-quarter results that came in ahead of our expectations thanks to its strong cloud performance. Management’s initial guidance for 2024 was also generally in line with our model, even with modest headwinds from the firm’s cloud transition. We think these results and guidance were solid, but since we suspect that recent strength in revenue and profitability was being carried forward in the minds of many investors, shares were down about 6% in the aftermarket. We believe Manhattan’s investment in diversifying its portfolio and advancing its cloud-native platform will continue to bear fruit as evidenced by the firm’s impressive win rates, particularly with respect to obtaining new logos. We are maintaining our fair value estimate of $172 per share and view shares as fairly valued.

Third-quarter revenue increased 20% year over year to $238 million, ahead of our $216 million estimate. Each segment performed well, led by 44% year-over-year growth in cloud subscriptions, followed by services growth of 24% year over year. Retail, manufacturing, and wholesale continued to make up the majority of bookings in the quarter, with continued demand momentum across all geographies. Its remaining performance obligation increased 37% to reach $1.3 billion, with the majority of obligations being cloud-native subscriptions. We are further impressed with the progress of Manhattan’s cloud transition, with the firm maintaining win rates above 75%, with 50% of new cloud bookings coming from net new logos.

On profitability, Manhattan reported an adjusted operating margin of 30.4%, compared with 25.9% in the prior-year period. Margin expansion in the quarter was supported by strong cloud and services revenue growth as well as increased operating leverage as the cloud business scales up.