Manhattan Associates Earnings: Strong Cloud Results Shine While Pipeline Builds

Narrow-moat Manhattan Associates MANH reported first-quarter results above guidance and our expectations. The firm again raised its outlook for 2023 as it capitalizes on cross-selling opportunities and demonstrates its product resilience in the face of macroeconomic headwinds. Impressively, 25% of its cloud business in the quarter was generated from net new logos as verticals that are increasingly using a direct-to-consumer model recognize cost-reductions and operating efficiencies from Manhattan’s cloud-native platform. While macroeconomic challenges persist, Manhattan has invested to diversify its business and is less reliant on retail. We believe the decision is paying off, resulting in an outlook raise from management. We are raising our fair value estimate to $162 per share from $155 and view shares as fairly valued.

First-quarter revenue grew 24% year over year to $221 million as reported, compared with our expectations of $201 million. Each segment aside from hardware came in above our estimates, headlined by year-over-year growth in cloud subscriptions at 53% and services’ growth at 29%. Retail, manufacturing, and wholesale drove more than 80% of bookings in the quarter, with balanced demand across all geographies. Remaining performance obligations increased 42% to $1.2 billion, with 98% of obligations represented by cloud-native subscriptions. Active warehouse management remains the key driver with an installed base of more than 100 since its launch nearly three years ago, but transportation management and omnichannel were good as well. Manhattan’s cloud transition continues unimpeded, with win rates of about 75%, and 25% of new cloud bookings from net new customers and 35% from cross-selling.

Manhattan also achieved solid profitability with adjusted operating margin of 28.8%, up from 26.9% a year ago. As cloud customers increase while hardware and software licenses decrease, we model continued margin growth and view its profitability outlook as reasonable.