Manhattan Associates Earnings: Impressive Effort Sparks Cloud Excitement; Lifting Fair Value 6%

Narrow-moat Manhattan Associates MANH reported second-quarter results that came in ahead of our expectations. Guidance was similarly good, with both revenue and EPS better than we were modeling for the third quarter based on stellar cloud momentum thus far and a robust services pipeline. We believe Manhattan’s investment in diversifying its offerings and advancing its cloud-native platform will continue to bear fruit, as evidenced by the firm’s impressive win rates. Despite persistent near-term macroeconomic headwinds, we view the firm’s solid bookings and expansion of its workforce to meet increasing demand as signs of strength. Thus, we raise our fair value estimate to $172 from $162. Still, we struggle with valuation for an otherwise high-quality name and would look for better value elsewhere within our coverage.

Second-quarter revenue increased 20% year over year to $231 million, nicely ahead of our $216 million estimate. Each segment delivered results above our expectations, led by 44% growth in cloud subscriptions, followed by services growth of 23%, both year over year. Retail, manufacturing, and wholesale continued to make up the majority of bookings in the quarter, with strong demand momentum across all geographies. Remaining performance obligation increased 38% to reach $1.2 billion, with 98% of obligations being cloud-native subscriptions. We are pleased with the success of Manhattan’s ongoing cloud transition, with the firm maintaining win rates above 75%, and 25% of new cloud bookings coming from net new logos.

Manhattan performed well on the profitability front, with adjusted operating margin of 29.6%, up 210 basis points from the prior-year period. We expect margins to continue to strengthen as the cloud business scales up while software and hardware licenses diminish.