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Manhattan Associates (NASDAQ:MANH) Beats Expectations in Strong Q3 But Stock Drops

StockStory - Tue Oct 24, 2023

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Supply chain optimization software maker Manhattan Associates (NASDAQ:MANH) reported Q3 FY2023 results exceeding Wall Street analysts' expectations, with revenue up 20.4% year on year to $238.4 million. Turning to EPS, Manhattan Associates made a GAAP profit of $0.79 per share, improving from its profit of $0.47 per share in the same quarter last year.

Is now the time to buy Manhattan Associates? Find out by accessing our full research report, it's free.

Manhattan Associates (MANH) Q3 FY2023 Highlights:

  • Revenue: $238.4 million vs analyst estimates of $226.3 million (5.38% beat)
  • EPS (non-GAAP): $1.05 vs analyst estimates of $0.76 (37.4% beat)
  • The company lifted its revenue guidance for the full year from $890 million to $914 million at the midpoint, a 2.7% increase
  • Free Cash Flow of $57.5 million, up 45.3% from the previous quarter
  • Gross Margin (GAAP): 53.3%, up from 51.5% in the same quarter last year

“Manhattan’s business fundamentals are strong, and our commitment to delivering innovation to our customers across mission-critical commerce and supply chain systems remains resolute. While we remain appropriately cautious and anticipate continued volatility, we are very optimistic about our expanding market opportunities. We are raising our 2023 outlook across all metrics" -Manhattan Associates president and CEO Eddie Capel

Boasting major consumer staples and pharmaceutical companies as clients, Manhattan Associates (NASDAQ:MANH) offers a software-as-service platform that helps customers manage their supply chains.

Vertical Software

Software is eating the world, and while a large number of solutions such as project management or video conferencing software can be useful to a wide array of industries, some have very specific needs. As a result, vertical software, which addresses industry-specific workflows, is growing and fueled by the pressures to improve productivity, whether it be for a life sciences, education, or banking company.

Sales Growth

As you can see below, Manhattan Associates's revenue growth has been mediocre over the last two years, growing from $169.2 million in Q3 FY2021 to $238.4 million this quarter.

Manhattan Associates Total Revenue

This quarter, Manhattan Associates's quarterly revenue was up a very solid 20.4% year on year, above the company's historical trend. However, its growth did slow down compared to last quarter as the company's revenue increased by just $7.43 million in Q3 compared to $10 million in Q2 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Looking ahead, analysts covering the company were expecting sales to grow 7.79% over the next 12 months before the earnings results announcement.

Our recent pick has been a big winner, and the stock is up more than 2,000% since the IPO a decade ago. If you didn’t buy then, you have another chance today. The business is much less risky now than it was in the years after going public. The company is a clear market leader in a huge, growing $200 billion market. Its $7 billion of revenue only scratches the surface. Its products are mission critical. Virtually no customers ever left the company. You can find it on our platform for free.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Manhattan Associates's free cash flow came in at $57.5 million in Q3, up 51.2% year on year.

Manhattan Associates Free Cash Flow

Manhattan Associates has generated $207.9 million in free cash flow over the last 12 months, an impressive 23.5% of revenue. This high FCF margin stems from its asset-lite business model and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a cash cushion.

Key Takeaways from Manhattan Associates's Q3 Results

With a market capitalization of $11.4 billion, a $182.3 million cash balance, and positive free cash flow over the last 12 months, we're confident that Manhattan Associates has the resources needed to pursue a high-growth business strategy.

We enjoyed seeing Manhattan Associates exceed analysts' revenue expectations this quarter. We were also glad its full-year revenue and adjusted EPS guidance were both raised and came in higher than Wall Street's estimates. It wasn't a perfect quarter given that gross margin and free cash flow missed, but overall, we think this was a strong quarter that should satisfy most shareholders. The market was potentially expecting more, however, and the stock is down 4.14% after reporting, trading at $181.84 per share.

Manhattan Associates may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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The author has no position in any of the stocks mentioned in this report.