Yahoo Finance Manhattan Associates, Inc. (NASDAQ:MANH) Q1 2024 Earnings Call Transcript
Manhattan Associates, Inc. (NASDAQ:MANH) Q1 2024 Earnings Call Transcript April 23, 2024
Manhattan Associates, Inc. misses on earnings expectations. Reported EPS is $0.861 EPS, expectations were $0.87. MANH isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Michael Bauer - Head of Investor Relations:
Eddie Capel - President and Chief Executive Officer:
Dennis Story - Executive Vice President and Chief Financial Officer:
Operator: Good afternoon. My name is Rob and I'll be your conference facilitator today. At this time, I'd like to welcome everyone to the Manhattan Associates First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, Tuesday, April 23, 2024. I will now introduce your host, Mr. Michael Bauer, Head of Investor Relations of Manhattan Associates. Mr. Bauer, you may begin your conference.
Michael Bauer: Thank you, Rob, and good afternoon, everyone. Welcome to Manhattan Associates' 2024 first quarter earnings call. I will review our cautionary language and then turn the call over to Eddie Capel, our CEO. During this call, including the question-and-answer session, we may make forward-looking statements regarding the future events or the future financial performance of Manhattan Associates. You will caution that these forward-looking statements involve risk and uncertainties are not guarantees of future performance and that actual results may differ materially from the projections contained in our forward-looking statements. I refer you to the report's Manhattan Associates files with the SEC for important factors that could cause actual results to differ materially from those in our projections, particularly our annual report on Form 10-K for fiscal year 2023 and the risk factor discussion in that report as well as any risk factor updates we provide in our subsequent Form 10-Qs. We note the turbulent global macro environment could impact our performance and cause actual results to differ materially from our projections.
We are under no obligation to update these statements. In addition, our comments include certain non-GAAP financial measures to provide additional information to investors. We have reconciled all non-GAAP measures to the related GAAP measures in accordance with SEC rules. You'll find reconciliation schedules in the form 8-K we submitted to the SEC earlier today and on our website at manh.com. Now I'll turn the call over to Eddie.
Eddie Capel: Terrific. Thanks, Mike. Well, good afternoon, everybody, and thank you for joining us as we review our first quarter results and discuss our increased full-year 2024 outlook. Manhattan is off to a solid start in 2024, once again reporting record results. Q1 total revenue increased 15% to $255 million, and adjusted earnings per share increased 29% to $1.03, both exceeding expectations. Driving top-line out performance and earnings leverage was 36% growth in cloud revenue and 14% growth in services revenue. Well global macro uncertainty and volatility certainly persists. Manhattan's business fundamentals are solid. Our teams continue to execute well for our customers, and our steady investment in research and development has firmly established Manhattan as the leading innovator in supply chain execution, omni-channel solutions, and retail point of sale.
RPO, the leading indicator of our growth, increased 31% to just over $1.5 billion. As demand for our mission critical cloud solutions remain strong and resilient across our product portfolio. From a vertical perspective, retail, manufacturing, and wholesale drove more than 80% of our bookings in the quarter. Across our solutions, the sub-verticals are pretty diverse. For example, in the quarter, cloud deals won include an omnichannel multi-brand retailer, a manufacturer and distributor of golf equipment, one of the world's largest airlines, a paint manufacturer, an apparel and accessories retailer, a tire distributor, as well as a number of others. For the quarter, competitive win rates were solid at about 75%. And we experienced strength from new customers with approximately one-third of our new bookings being generated from net new logos.
That's in addition to healthy new logo activity, we continue to experience a good mix of conversions, upsells, and cross-sells. And while the timing of large deals and the mix of bookings is certainly going to vary on a quarterly basis, we believe our bookings breadth from both new and existing customers and also across our product portfolio exemplifies our multiple opportunities for sustainable growth. Now to this point, our solutions pipeline remains robust with new potential customers representing approximately 35% of the demand. An important driver to our growth is our ability to deliver industry-leading solutions to service our customers. At best of breed, cloud-native platform solutions provide unmatched access to innovation and are uniquely capable of unifying mission critical commerce and supply chain functions.
This is differentiating for us and helps our clients improve customer service and loyalty, drive more revenue and improve efficiency. Now product sales activity also drives our services growth and pipeline. In Q1, our professional services team completed over 100 go lives and continues to execute very well for our customers. And while we remain appropriately cautious on the global economy, we continue to invest to drive growth. This includes strategic investments in industry leading innovation, further enablement of our customer success, and the expansion of our addressable market. From a hiring perspective, in Q1 we've welcomed over 100 highly talented individuals into the Manhattan family, and are on track to meet our 2024 hiring goal of a few 100s of associates.
Now let's turn to some quick updates on our products. Last quarter, I focused on some key updates to our omni-channel commerce solutions. So for this quarter, I'll focus most of my time on updates to our supply chain execution products. One of Manhattan's guiding principles is a relentless focus on innovation. We've found the move to evergreen software to be a real game changer for both our teams and our customers. Our quarterly release process allows our customers to benefit from new features in record time. Each quarter we deliver a combination of smaller, more tactical features focused on customer enablement, as well as larger, more strategic features, which create an operational step change for our customers. Within Manhattan Active WM, we released several of these larger, more strategic features in region quarters.
Now, you may recall that we announced yard management at last year's Momentum Conference, and we're seeing great reaction and adoption for this best-in-class YMS. Manhattan Active Yard Management helps out where it has operators enjoy the same level of process discipline and optimization in the yard as they've had within the four walls of the distribution center. Yard Management also serves to further reinforce process unification between warehouse management and transportation management, allowing for the seamless transition of a trailer moving from transportation management control to warehouse management control. A unified yard offering is an important step in helping our customers evolve toward managing an end-to-end flow of inventory, in band from their suppliers to the distribution center and out band from their distribution centers to their customers.
But as I mentioned earlier, we released yard management just a little less than a year ago. So the question is, what have we done for our Manhattan Active WM customers lately? Well, in January, we released Dynamic Load Building for Manhattan Active WM, a feature that not only optimizes the way the cartons are palletized and optimized, but also the way that they're laid out in the trailer, considering temperature, axle load, vehicle stop sequence, and so on. Dynamic Load Building is a pretty critical process in industries like grocery, food service, industrial distribution, and a number of others. And many of our customers in those industries have historically used third-party tools or even manual processes, but now they're able to take advantage of load building right within Manhattan Active Supply Chain execution as part of a unified planning process.
The release of new strategic capabilities like yard management, dynamic load building, along with in-app analytics and embedded generative AI is one of our most important market differentiators. Given that strong track record of delivery, prospective customers understand that a subscription to Manhattan Active WM, for example, delivers more than what they saw in the initial product demonstration in RFP response. They're also subscribing to a continuous innovation pipeline built on design thinking principles and conducted in collaboration with some of the most forward thinking supply chain practitioners. Customers rest assured that their investment in innovation will continue to deliver industry leading features, all seamlessly woven into the Manhattan Active WM environments and ready for them to activate.
Now, further on the supply chain front, we continue to see great results from the activation of our Manhattan Active Transportation Management application, which recently was named a leader in the Gartner Magic Quadrant for TMS, six consecutive year, by the way. And as a reminder, this solution is now live on four continents, serving industry-spanning grocery, food service, convenience stores, consumer products, apparel retail, and a number of others. And frankly, our supply chain unification message continues to resonate very well in the market. And to that end, one of our key deals from last year was with Schneider Electric, a multinational, multibillion dollar corporation that specializes in digital automation and energy management. And we're currently working with Schneider to deploy a unified supply chain execution offering all the way across the globe.
We're starting with a distribution center in the Netherlands, and Schneider shares their vision for unified inbound and outbound supply chain processes. In fact, they'll be sharing their vision in more detail at our customer conference Momentum next month. And finally, speaking of Momentum, we're planning a couple of major product announcements for an event in San Antonio, Texas. And we're looking forward to unveiling those major steps forward to both our Manhattan Associates and our Manhattan customers. And I'll look forward to telling you more about them in next quarter's update. So that concludes my business update. Dennis is going to provide an update on that financial performance and outlook, and then I'll close that prepared remarks with a brief summary before we move to Q&A.
So Dennis?
Dennis Story: Thanks, Eddie. Our Manhattan Global teams continue to execute well in a challenging macro environment. For the quarter, we delivered a strong, balanced financial performance across top and bottom lines. This includes posting record results across RPO, revenue, and adjusted operating income. On an as-reported basis, our Q1 results compare favorably to the rule of 40. And if our revenue growth is normalized for our cloud transition, which excludes license and maintenance revenue, our results exceed the rule of 50. FX had a minor impact in the quarter with a 1% headwind, while it was neutral to year-over-year revenue and RPO growth. Now turning to our Q1 results, our growth rates are reported on a year-over-year basis unless otherwise stated.
For the quarter, total revenue was $255 million, up 15% excluding license and maintenance revenue, which removes the compression driven by our cloud transition, our total revenue is up 20%. Cloud revenue totaled $78 million, up 36%. And as Eddie highlighted, we ended the quarter with RPO of $1.5 billion, up 31%, compared to the prior year, and up 6% sequentially. Removing the impacts of FX, the Q1 sequential increase of $97 million in RPO exceeded the sequential increase we achieved in Q4. The strong Q1 performance was driven by a healthy mix of sales from both new and existing customers with solid results from across our Manhattan Active suite of products. And our global services teams delivered record revenue totaling $132 million, up 14% as cloud sales continue to fuel services revenue growth globally.
Adjusted operating profit was $80 million with adjusted operating margin of 31.3%. This is 250 basis points year-over-year -- up year-over-year. Our performance was driven by strong cloud and services revenue growth combined with operating leverage as our cloud business continues to scale. Importantly, as Eddie discussed, we continue to invest in innovation to drive sustainable long-term growth. Turning to EPS, we delivered Q1 adjusted earnings per share of $1.03, up 29%, and GAAP EPS of $0.86, up 39%. And moving to cash, operating cash flow was a solid $55 million. This is down slightly from the prior year period due to a record 2023 cash bonus payout and timing of cash collections. This resulted in 21% free cash flow margin and 32% adjusted EBITDA margin.
Regarding the balance sheet, deferred revenue increased 21% to $265 million. We ended the quarter with $208 million in cash and zero debt. In the quarter, we leveraged our strong cash position and invested $73 million in share repurchases. Additionally, our Board has approved the replenishment of our $75 million share repurchase authority. That covers the summary results. Now on to our updated 2024 guidance. As consistently mentioned, our financial objective is to deliver sustainable double-digit top line growth and top quartile operating margins benchmarked against enterprise SAS comps. These are important drivers to our best-in-class return on invested capital as we maintain a balanced investment approach to growth and profitability. With our solid start to the year and increasing visibility, we are raising our 2024 revenue operating margin and earnings per share guidance, which can be found in today's earnings release.
We are also reiterating our 2024 RPO target range and midpoint of $1.78 billion. As noted on prior earnings calls, our objective is to update our RPO outlook on an annual basis. And lastly on RPO, as previously noted, our bookings performance is impacted by the number and relative value of large deals we close in any quarter, which can potentially cause lumpiness or non-linear bookings throughout the year. With that, for the full-year 2024, we expect total revenue of $1.026 billion to $1.034 billion, with a $1.03 billion midpoint comparing favorably to our prior outlook and representing 17% growth, excluding license and maintenance and 11% all in. For Q2, we are targeting total revenue of $254 million to $258 million, which at the midpoint represents 17% growth, excluding license and maintenance attrition and 11% growth all in.
For the rest of the year, at the midpoint, we are targeting total revenue of about $263 million in Q3 and accounting for retail peak seasonality, $256 million in Q4. For adjusted operating margin, we are increasing the midpoint to 29.75% from our prior midpoint of 29%, which includes a 170 basis point headwind from our license and maintenance revenue attrition to cloud. And as Eddie highlighted, given the combination of our demand and size of our opportunity, we continue to invest in our business. At the midpoint, adjusted operating margin on a quarterly basis is expected to be about 29.5% for both Q2 and Q3, and accounting for retail peak seasonality 28.5% in Q4. This results in our full-year adjusted earnings per share range to increase to $3.86 to $3.94.
On a quarterly basis, we are targeting Q2 earnings per share of $0.96, Q3 $0.99, and accounting for retail peak seasonality, $0.93 and Q4. For GAP, earnings per share are midpoint ticks down $0.04 to $2.82 on higher investment and equity-based compensation. For Q2, we are targeting GAAP earnings per share of $0.66. Here's some additional details on our 2024 outlook. We are increasing our cloud revenue midpoint to $332.5 million, representing 31% growth. On a quarterly basis, we are targeting $80.5 million in Q2, $85 million in Q3, and $89 million in Q4. For services, we are increasing our forecast to $538 million to $544 million, with $541 million midpoint representing 11% growth. On a quarterly basis, we are targeting Q2 services revenue of $137 million, Q3 $140 million, and accounting for Q4 retail peak seasonality $132 million.
For maintenance, we are targeting a midpoint of $124.5 million, which represents a 14% decline. On a quarterly basis, we are targeting Q2 at $31 million, Q3 $30 million, and Q4 $28.5 million. For consolidated subscription, maintenance, and services margin, we continue to target about 100 basis points of margin improvement for the year. And finally, we expect our tax rate to be 21.5% for the balance of the year. Our diluted share count to be 62.5 million shares, which assumes no buyback activity. So in summary, a solid Q1 performance by the Manhattan Global Team. Thank you and back to Eddie for some closing remarks.
Eddie Capel: Yes, terrific. Thanks, Dennis. Well, look, we're very pleased with that solid start to the year and that record Q1 results. We continue to be appropriately cautious, I think, on the volatile conditions that are out there. But that business momentum remains very favorable, and we remain certainly optimistic about the business opportunities that is in front of us. So thanks, thanks everyone for joining the call, and thank you to our Global Team for all the exceptional work that you do for our customers. So that concludes our prepared remarks, and Rob, we'd be happy to take any questions.
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