Manhattan Associates (MANH)

Supply chain software provider Manhattan Associates (NASDAQ:MANH) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 3.4% year on year to $275.8 million. The company expects the full year’s revenue to be around $1.08 billion, close to analysts’ estimates. Its non-GAAP profit of $1.36 per share was 14.6% above analysts’ consensus estimates.

Company Overview

Built on a "versionless" cloud architecture that delivers quarterly updates to all customers, Manhattan Associates (NASDAQ:MANH) develops cloud-based software that helps retailers, wholesalers, and manufacturers manage their supply chains, inventory, and omnichannel operations.

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.

Manhattan Associates' competitors include ERP vendors like Oracle, SAP, and Infor; supply chain software providers such as Blue Yonder (owned by Panasonic), Korber, and IBM Sterling Commerce; and point-of-sale vendors including Aptos and Oracle Retail.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Manhattan Associates grew its sales at a 12.5% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds.

Long-term growth is the most important, but within software, a half-decade historical view may miss new innovations or demand cycles. Manhattan Associates’s recent performance shows its demand has slowed as its annualized revenue growth of 9.6% over the last two years was below its five-year trend.

This quarter, Manhattan Associates reported modest year-on-year revenue growth of 3.4% but beat Wall Street’s estimates by 1.6%.

Looking ahead, sell-side analysts expect revenue to grow 5.2% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Manhattan Associates’s billings came in at $273.2 million in Q3, and over the last four quarters, its growth was underwhelming as it averaged 5% year-on-year increases. This performance mirrored its total sales and suggests that increasing competition is causing challenges in acquiring/retaining customers.

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Manhattan Associates is extremely efficient at acquiring new customers, and its CAC payback period checked in at 12.5 months this quarter. The company’s rapid recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments.

For software companies like Manhattan Associates, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Manhattan Associates’s gross margin is substantially worse than most software businesses, signaling it has relatively high infrastructure costs compared to asset-lite businesses like ServiceNow. As you can see below, it averaged a 56.5% gross margin over the last year. That means Manhattan Associates paid its providers a lot of money ($43.46 for every $100 in revenue) to run its business.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Manhattan Associates has seen gross margins improve by 3.1 percentage points over the last 2 year, which is very good in the software space.

In Q3, Manhattan Associates produced a 56.6% gross profit margin, marking a 1.1 percentage point increase from 55.5% in the same quarter last year. Manhattan Associates’s full-year margin has also been trending up over the past 12 months, increasing by 1.9 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

Manhattan Associates has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 25.6%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Manhattan Associates’s operating margin might fluctuated slightly but has generally stayed the same over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Manhattan Associates generated an operating margin profit margin of 27.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Manhattan Associates has shown terrific cash profitability, driven by its cost-effective customer acquisition strategy that enables it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 31.2% over the last year.

Manhattan Associates’s free cash flow clocked in at $87.18 million in Q3, equivalent to a 31.6% margin. This result was good as its margin was 8.6 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

Over the next year, analysts’ consensus estimates show they’re expecting Manhattan Associates’s free cash flow margin of 31.2% for the last 12 months to remain the same.

Companies with more cash than debt have lower bankruptcy risk.

Manhattan Associates is a profitable, well-capitalized company with $263.6 million of cash and $47.71 million of debt on its balance sheet. This $215.8 million net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We liked that Manhattan Associates beat revenue, operating income, and EPS expectations. RPO bookings growth was 23% year-on-year, which was a slowdown from last quarter's 26% growth. Investors were hoping for even more, and shares traded down 11.2% to $182.36 immediately following the results.

Updated: December 4, 2025 at 9:36 PM EST

Before investing in or passing on Manhattan Associates, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Manhattan Associates isn’t a terrible business, but it doesn’t pass our bar. To kick things off, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its efficient sales strategy allows it to target and onboard new users at scale, the downside is its gross margins show its business model is much less lucrative than other companies. On top of that, its operating margin hasn't moved over the last year.

Manhattan Associates’s price-to-sales ratio based on the next 12 months is 9.7x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $224.82 on the company (compared to the current share price of $178.50).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.