Manhattan Associates, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited results; comparisons are with the corresponding 2022 periods. The company develops and implements supply-chain, inventory, and omnichannel commerce software and services.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $231.0 million | $191.9 million | $452.0 million | $370.9 million |
| Operating income | $50.5 million | $37.3 million | $97.6 million | $71.2 million |
| Operating margin | 21.9% | 19.4% | 21.6% | 19.2% |
| Net income | $39.6 million | $30.8 million | $78.4 million | $61.4 million |
| Diluted EPS | $0.63 | $0.49 | $1.25 | $0.97 |
| Cash from operations | $40.6 million | $52.7 million | $99.3 million | $84.5 million |
Q2 revenue grew 20% year over year; operating income rose 36%. For the first half, revenue grew 22% and operating income rose 37%. Services and cloud subscriptions were the largest revenue sources: Q2 revenue included $124.6 million of services and $60.9 million of cloud subscriptions. Cloud grew 44% in Q2 and 49% in the first half; services grew 23% and 26%, respectively.
For the first half, software license revenue declined 33% to $9.1 million, maintenance was essentially flat at $71.5 million, and hardware revenue fell 21% to $12.5 million. Management attributed lower license revenue to customer preference for cloud-native offerings; services growth was primarily associated with increased cloud subscriptions.
Cash, liquidity, and capital allocation
- Cash and cash equivalents were $153.3 million at June 30, down from $225.5 million at December 31, 2022. The company reported no debt and no credit facilities.
- First-half investing cash outflow was $1.7 million, primarily property and equipment purchases. Financing cash outflow was $169.1 million, primarily stock repurchases, compared with $127.8 million in the prior-year period.
- The company repurchased approximately $140.9 million of shares under its repurchase program during the first half; total financing cash outflow also included shares withheld for taxes. In July, the board replenished repurchase authority to an aggregate $75 million.
- Management said existing cash should meet working-capital and capital-expenditure needs for at least the next 12 months and that it did not anticipate borrowing for general corporate purposes in 2023.
- At June 30, current assets were $360.0 million and current liabilities were $330.6 million. Deferred revenue was $227.1 million.
Outlook, commentary, and risks
- Management said first-half results exceeded expectations, citing solid demand for cloud solutions, but remained cautious about global economic growth. It provided no specific numeric full-year revenue or earnings guidance in the supplied filing text.
- Remaining performance obligations with non-cancelable terms greater than one year were approximately $1.2 billion; about 98% related to cloud-native subscriptions. The company expects to recognize approximately 40% over the next 24 months and the remainder thereafter. RPO includes deferred revenue and amounts expected to be invoiced and recognized later.
- Management plans to invest in cloud products, innovation, and global teams, while weighing share repurchases against business investment and potential acquisitions. It cautioned that cloud adoption shifts revenue recognition over subscription periods and that long sales cycles can make bookings and revenue difficult to forecast.
- Risks highlighted include macroeconomic and geopolitical uncertainty, extended sales cycles, competition, employee retention, software defects or cloud-service interruptions, cybersecurity and data-protection risks, implementation and customer-liability exposure, foreign-exchange risk, and uncertain returns on R&D. The company reported no legal proceeding believed likely to have a material adverse effect.
- Q2 days sales outstanding increased to 70 days from 65 at March 31, 2023. The filing also reported a higher effective tax rate: 23.1% in Q2 2023 versus 22.0% in Q2 2022, and 20.6% for the first half versus 17.2%.
Important facts for investors to verify
- Whether cloud-subscription growth and the $1.2 billion of disclosed RPO convert to revenue on expected timing and economics.
- Whether services growth remains aligned with cloud implementations, and how staffing and delivery costs affect margins.
- Whether customer collections and DSO trends support operating cash flow as the business grows.
- How ongoing repurchases, business investment, and any acquisitions affect cash balances and share count.
- How macroeconomic conditions, extended sales cycles, foreign exchange, and cloud-service or cybersecurity risks evolve.