Manhattan Associates (NASDAQ:MANH) Q4: Beats On Revenue, Provides Optimistic Full-Year Guidance

Full Report / January 30, 2024

Supply chain optimization software maker Manhattan Associates (NASDAQ:MANH) announced better-than-expected results in Q4 FY2023, with revenue up 20.3% year on year to $238.3 million. The company's full-year revenue guidance of $1.02 billion at the midpoint also came in 1.3% above analysts' estimates. It made a non-GAAP profit of $1.03 per share, improving from its profit of $0.81 per share in the same quarter last year.

Manhattan Associates (MANH) Q4 FY2023 Highlights:

  • Market Capitalization: $13.91 billion
  • Revenue: $238.3 million vs analyst estimates of $223.9 million (6.4% beat)
  • EPS (non-GAAP): $1.03 vs analyst estimates of $0.80 (29.2% beat)
  • Management's revenue guidance for the upcoming financial year 2024 is $1.02 billion at the midpoint, beating analyst estimates by 1.3% and implying 9.8% growth (vs 21.1% in FY2023)
  • Free Cash Flow of $86.39 million, up 50.3% from the previous quarter
  • Gross Margin (GAAP): 55.2%, up from 54.6% in the same quarter last year

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.

Due to the rise in dynamics such as globalization of production, just-in-time inventory management, and omnichannel commerce, supply chains for businesses large and small are increasingly complex. Manhattan Associates’ flagship product is Manhattan Active Supply Chain. It is designed to provide visibility into a customer’s inventory, transportation network, and warehouse operations, showing where everything was, is, and going. The result is that businesses using the product can see real-time data and employ advanced analytics that allow for more nimble decision making, such as where to build the next warehouse to get certain customers their products faster, for example. Better decisions can mean better time to market, cost savings, and/or higher customer satisfaction. Additionally, automation capabilities can allow supply chain employees to eliminate repetitive manual tasks.

Key Manhattan Associates customers include retailers, wholesalers, manufacturers, and logistics providers in a variety of sectors. In general, most companies that need to manage the physical flow of product components or finished goods can benefit from supply chain management. Manhattan Associates generates revenue primarily through software licensing. The company offers flexible deployment options such as on-premise, cloud-based, or hybrid. Additionally, revenue also is derived from professional services and customer support.

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.

Competitors in supply chain, logistics, or inventory management software include private companies Blue Yonder and SAS Institute as well as SAP (NYSE:SAP).

Sales Growth

As you can see below, Manhattan Associates's revenue growth has been solid over the last two years, growing from $171.5 million in Q4 FY2021 to $238.3 million this quarter.

Manhattan Associates Total Revenue

This quarter, Manhattan Associates's quarterly revenue was up a very solid 20.3% year on year, above the company's historical trend. However, the company's revenue actually decreased by $186,000 in Q4 compared to the $7.43 million increase in Q3 2023.

For the upcoming financial year, management expects revenue to be $1.02 billion at the midpoint, growing 9.8% year on year compared to the 21.1% increase in FY2023.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Manhattan Associates's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 55.2% in Q4.

Manhattan Associates Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.55 left to spend on developing new products, sales and marketing, and general administrative overhead. While its gross margin has improved significantly since the previous quarter, Manhattan Associates's gross margin is still poor for a SaaS business. It's vital that the company continues to improve this key metric.

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 $86.39 million in Q4, up 63.6% year on year.

Manhattan Associates Free Cash Flow

Manhattan Associates has generated $241.5 million in free cash flow over the last 12 months, an impressive 25.9% 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 Q4 Results

We enjoyed seeing Manhattan Associates exceed analysts' revenue expectations this quarter. We were also glad its gross margin improved. However, its revenue guidance for next year suggests a significant slowdown in demand, but we can't be too negative because it exceeded Wall Street analysts' expectations. Overall, we think this was a really good quarter that should please shareholders. The stock is up 4.1% after reporting and currently trades at $233 per share.

Is Now The Time?

Manhattan Associates may have had a favorable quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for everyone who's making the lives of others easier through technology, but in case of Manhattan Associates, we'll be cheering from the sidelines. Its revenue growth has been mediocre over the last two years, and analysts expect growth to deteriorate from here. And while its bountiful generation of free cash flow empowers it to invest in growth initiatives, the downside is its customer acquisition is less efficient than many comparable companies. On top of that, its gross margins show its business model is much less lucrative than the best software businesses.

Given its price-to-sales ratio based on the next 12 months is 13.9x, Manhattan Associates is priced with expectations of a long-term growth, and there's no doubt it's a bit of a market darling, at least for some. While we have no doubt one can find things to like about the company, we think there might be better opportunities in the market and at the moment don't see many reasons to get involved.

Wall Street analysts covering the company had a one-year price target of $219.6 per share right before these results (compared to the current share price of $233), implying they didn't see much short-term potential in the Manhattan Associates.

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