Manhattan Associates' Stock Jumps On Strong Earnings Report

Supply chain solutions technology provider Manhattan Associates, Inc. (NASDAQ:MANH) reported adjusted second quarter earnings per share of $0.42 compared to analysts' expectations of $0.34 and the prior year period of $0.47. The earnings beat in the quarter led the company to modestly raise its earnings outlook for full-year 2019.

The adjusted results exclude a $0.10 per share equity-based compensation expense, which the company explained typically does not require cash settlement and is more in-line with financial reporting from its peers.

The company saw a 9 percent year-over-year increase in total revenue to $154.3 million and said that all divisions came in ahead of internal revenue goals. Cloud subscriptions revenue increased $3.6 million year-over-year, while licensing revenue declined $1.3 million. MANH continues to transition its business from a traditional license software company to a "subscription-based software-as-a service/cloud-based model." As such, hardware sales declined $1.9 million year-over-year, but this was more than offset by an $11.7 million increase in services revenue.

MANH Key Performance Indicators

Manhattan Associates President and Chief Executive Officer Eddie Capel said, "Q2 was another solid growth quarter for Manhattan Associates posting record total revenue and exceeding our earnings expectations on strong demand. In a turbulent global macro, our suite of Manhattan Active omnichannel, inventory and supply chain solutions continued to drive solid revenue momentum, positioning us well for the balance of 2019."

MANH's adjusted operating income declined 11 percent year-over-year to $36.2 million in the quarter as the company continues to invest heavily in research and development. Year-to-date product innovation investments totaled $40 million through the first half of 2019, with the goal of a total of $80 million in 2019 research and development spend. The adjusted operating margin declined 530 basis points year-over-year to 23.4 percent in the quarter.

MANH increased its full-year 2019 guidance, which now calls for revenue growth of 7 to 8 percent (previously 4 to 6 percent), maintained its adjusted operating margin guidance of 21 percent to 21.2 percent and raised its adjusted earnings per share forecast to a range of $1.46 to $1.50 (previously $1.42 to $1.46), which is higher than the current consensus estimate of $1.44. The new adjusted earnings per share range would still result in a 16 percent to 18 percent decline in earnings compared to 2018.

Management said that guidance was raised given new customer signings as well as a very strong new customer pipeline. Additionally, management believes cloud-based subscription service revenue will surpass licensing revenue in the second half of 2019 given the robust growth of its cloud pipeline as customer adoption to the platform continues. Also, the company continues to add new consultants, which should drive incremental services revenue in the quarters to come.

Another contributing factor to the guidance raise was the increase in its remaining performance obligation (unearned revenue or future bookings for its cloud services), which totaled $120 million, up 106 percent year-over-year and 20 percent higher compared to the first quarter of 2019. This metric includes non-cancellable contracts a year or longer in duration.

While tariffs, Brexit and other potential geo-political concerns were discussed as potential risks to guidance on the call, along with normal global macroeconomic fluctuations, management asserted its confidence in the direction of the company (to a subscription-based cloud model) and its ability to achieve its new targets.

MANH generated $37.2 million in cash flow from operations in the period, more than double the level reported in the second quarter of 2018 as it shortened its days sales outstanding, the time it takes to collect payment, from 65 days to 59 days. MANH ended the second quarter with $119.4 million in cash, no debt, $98 million in deferred revenue and plans of spending only $12 million to $15 million in capital expenditures for 2019. As such, the company announced that its Board approved a new share repurchase authorization of up to an aggregate of $50 million of its common stock. MANH repurchased 301,984 shares of common stock for a total of $20 million in the second quarter of 2019.

Manhattan Associates is a supply chain and omnichannel commerce technology provider. It is known for uniting information across the enterprise, converging front-end sales with back-end supply chain execution.

Shares of MANH were up 9.6 percent in after-hours trading according to Seeking Alpha.

MANH Stock Chart – Seeking Alpha

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MANHManhattan Associates Inc

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