Despite an earnings report that by most measures would be viewed as positive, the stock of recently high-flying supply chain software provider Manhattan Associates fell hard Wednesday, a day after the earnings release and management’s call with analysts.
What appeared to be driving the sell-off were statements by company officials on the call that closing deals for Manhattan’s software offerings, which are focused on warehouse management, transportation management and inventory, has been slowing, with some third-quarter business pushed off into the current three-month period.
The problem is not unique to Manhattan Associates. Management for supply chain software provider e2open (NASDAQ: ETWO) said much the same thing on its recent earnings call.
At about 2:15 p.m. EDT, Manhattan Associates’ (NASDAQ: MANH) stock was down 7.13% to $271.46, a drop of $20.86. It was one of the largest declines in equity markets Wednesday.
Stock has been strong
The stock has been a high performer of late. Even with the decline Wednesday, it’s up about 20.8% in the past three months and about 48.1% for the year. Its 52-week high came a little more than a week ago at $307.50.
CEO Eddie Capel first highlighted the positive news on the call. He said Manhattan set several revenue and earnings records.
Non-GAAP earnings per share were $1.35 compared to $1.05 a year earlier. Cloud subscription revenue at $86.5 million was up 33.5% from a year earlier. Services revenue of $137 million was up 7% from the third quarter of 2023.
According to SeekingAlpha, the $1.35 number beat the consensus forecast by 29 cents per share. Total revenue for the company of $266.7 million was up 11.9% from a year earlier and beat the consensus forecast by 29 cents per share.
But other data appeared to be driving the sell-off Wednesday.
RPOs rose but not enough for investors
Remaining Performance Obligation rose 27% to about $1.7 billion, Capel said. RPO has been defined as representing “future revenues from contracts not yet recognized in financial statements.”
According to a report issued by Raymond James analyst Brian Peterson after the earnings call, which he participated in, the 27% increase in RPO “is below recent trends.”
“As we’ve often cautioned, large, complex deals can be lumpy on a quarter-over-quarter basis,” Capel said. “And while we haven’t seen much of that lumpiness over the past three or four years, this quarter and to a lesser extent last quarter, we have seen some.”
Third-quarter RPO was “impacted by some large digital transformational projects pushing it,” Capel said, but the current quarter “is off to a great start and demand is solid.”
He said Manhattan Associates’ forecast that it will have an end-year RPO total of $1.8 billion should be met.
Capel said of that strong start to the fourth quarter that it was a “combination of some of the deals that slipped from Q3 into Q4 closing, but also some of the deals that we expected to close early in Q4 [did] indeed close.”
Capel said Manhattan Associates’ “global pipeline” was at a record, and its “win” rates “remain strong.” “And these factors, despite the uncertain macro environment, give us confidence that we’ll achieve the high end of our 2024 RPO bookings goals,” he said.
In his report, Peterson noted some other numbers that could be signaling a slowdown at Manhattan Associates.
For example, data said 14% of bookings from “net new logos” for Manhattan Associates was a reduction from about a 20% figure recorded in recent quarters.
But he also noted that the company had a non-GAAP operating margin of 37.1%, which blew away a Raymond James estimate that it would be 31.5%.
In his report released Tuesday night that might have foreshadowed the Wednesday sell-off, Peterson wrote that the strong margin number “may be overshadowed by slipped deals driving softer than expected RPO growth.”
Peterson noted that the third quarter was the second consecutive three-month period of “slipped deals and below consensus RPO trends.”
“While we have no structural concerns and believe in the company’s durable growth rate, trends suggest…additional cyclical pressure in coming quarters,” Peterson wrote.
Guidance issued for 2025
Guidance issued by the company also said it expects fourth-quarter revenue of $253.5 million, a drop of $3.5 million from prior guidance.
CFO Dennis Story said the lower projection was made because “the choppy macro environment has resulted in several transformational deal pushes, some customers shifting services projects to 2025 and a more pronounced pausing impact from this year’s retail peak season.”
The guidance issued by Manhattan Associates on key metrics for 2025, the first time it had provided such guidance, was positive. For example, it sees total revenue growing by 12% next year, and a midpoint operating margin of 34%, little changed from its 2024 guidance.
But Peterson noted that the Wall Street consensus is for an operating margin next year of 32.2%.
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