Despite an earnings report that would be considered positive by most standards, recently high-flying supply chain software provider Manhattan Associates’ stock fell hard Wednesday, a day after its earnings release and management’s call with analysts.
What appeared to drive the sell-off were statements from company officials on the call that deal-making for Manhattan’s software offerings, which focus on warehouse management, transportation management and inventory, has slowed, with some activities pushed into the background in the third quarter . the current three-month period.
The problem is not unique to Manhattan Associates. Management of supply chain software provider e2open (NASDAQ: ETWO) said much the same thing during its recent earnings call.
At approximately 2:15 PM EDT, shares of Manhattan Associates (NASDAQ: MANH ) were down 7.13% to $271.46, down from $20.86. It was one of the biggest declines in the stock markets on Wednesday.
The stock has been performing excellently lately. Even with Wednesday’s decline, the stock is up about 20.8% over the past three months and about 48.1% for the year. The 52-week high came just over a week ago at $307.50.
CEO Eddie Capel first emphasized the positive news during the call. He said Manhattan has set several sales and profit records.
Non-GAAP earnings per share were $1.35, compared to $1.05 a year earlier. Cloud subscription revenues of $86.5 million were up 33.5% from a year earlier. Services revenue was $137 million, up 7% from Q3 2023.
According to SeekingAlpha, the $1.35 number exceeded 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 exceeded the consensus forecast by 29 cents per share.
But other data appeared to drive the selloff Wednesday.
Remaining performance obligations rose 27% to about $1.7 billion, Capel said. RPO is defined as representing “future revenues from contracts that have not yet been recognized in the 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 have often warned, large, complex deals can be lumpy quarter-on-quarter,” Capel said. “And while we haven’t seen much of that lumpiness over the last three or four years, we have seen some this quarter and to a lesser extent last quarter.”
Third quarter RPO was “impacted by a number of large digital transformation projects,” Capel said, but the current quarter “is off to a good start and demand is solid.”
He said Manhattan Associates’ forecast that it will have an RPO totaling $1.8 billion by the end of the year should be met.
Capel said of that strong start to the fourth quarter that it was a “combination of some of the deals that slid from the third quarter to the close of the fourth quarter, but also some of the deals that we expected to close early in the fourth quarter would be closed.”
Capel said Manhattan Associates’ “global pipeline” is at a record high and “win rates” remain strong. “And these factors, despite the uncertain macro environment, give us confidence that we will achieve the high standards of our 2024 RPO booking targets,” he said.
In his report, Peterson mentioned some other figures that could indicate a slowdown at Manhattan Associates.
For example, data shows that 14% of net new logo bookings for Manhattan Associates was down from the approximately 20% seen in recent quarters.
But he also noted that the company had a non-GAAP operating margin of 37.1%, which thwarted Raymond James’ estimate that it would be 31.5%.
In his report released Tuesday evening that may have foreshadowed Wednesday’s sell-off, Peterson wrote that the strong margin figure “may be overshadowed by deal failures resulting in weaker-than-expected RPO growth.”
Peterson noted that the third quarter marked the second consecutive three-month period of “deal slippage and below consensus RPO trends.”
“While we have no structural concerns and believe in the company’s sustainable growth rate, trends indicate … additional cyclical pressures in the coming quarters,” Peterson wrote.
The company’s guidance also says it expects fourth-quarter revenue of $253.5 million, down $3.5 million from previous guidance.
CFO Dennis Story said the lower forecast was made because “the choppy macro environment has resulted in several transformational deal pushes, some customers pushing service projects to 2025 and a more pronounced pausing impact from this year’s peak retail season.”
Manhattan Associates’ guidance on key metrics for 2025, the first time it has provided such guidance, was positive. For example, the company sees total revenue growing 12% next year, and an operating margin in the mid-34% range, little changed from 2024 expectations.
But Peterson noted that the Wall Street consensus is for an operating margin of 32.2% next year.
More articles from John Kingston
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‘Convergence’ is key to efficient supply chain systems, says Gartner executive
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Manhattan Associates’ Growing Supply Chain Problem: Slow-Closing Software Deals first appeared on FreightWaves.
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