Manhattan Associates, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Financial statements are unaudited. Manhattan develops and implements supply-chain commerce, inventory, and omnichannel software solutions. Amounts below are in U.S. dollars; financial figures are in millions unless noted.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / prior balance |
|---|---|---|
| Revenue | $221.0 | $179.0; up 24% |
| Operating income / margin | $47.1 / 21.3% | $34.0 / 19.0% |
| Net income | $38.8 | $30.6; up 27% |
| Diluted EPS | $0.62 | $0.48 |
| Operating cash flow | $58.7 | $31.8 |
| Cash and cash equivalents at period end | $181.6 | $225.5 at December 31, 2022 |
Revenue mix: cloud subscriptions $57.2 million (+53%); software licenses $5.4 million (-36%); maintenance $35.7 million (+1%); services $116.2 million (+29%); and hardware $6.6 million (-18%). Services were 53% of revenue. Cloud subscriptions represented 91% of combined cloud and software-license revenue.
At March 31, 2023, current assets were $371.5 million and current liabilities were $322.8 million. The company reported no debt and no credit facilities. Deferred revenue was $216.3 million, versus $208.8 million at year-end. Days sales outstanding were 65, down from 77 at December 31, 2022. Operating lease liabilities totaled $19.0 million.
Changes versus the prior-year quarter
- Cloud subscriptions and services drove most of the revenue increase; management attributed higher services revenue primarily to increased cloud subscriptions.
- Operating income and margin improved as cloud and services revenue grew. Cost of cloud subscriptions, maintenance, and services rose 24%, including higher personnel, travel, performance-based compensation, and infrastructure costs.
- Research and development expense increased 12%, sales and marketing 26%, and general and administrative expense 11%.
- The effective tax rate rose to 17.9% from 11.9%, which management attributed to a net decrease in excess tax benefits on restricted-stock vesting.
Cash use, outlook, and risks
Operating cash flow increased year over year, while cash declined during the quarter primarily amid substantial share repurchases. The cash-flow statement reports $101.7 million of total repurchases, including shares withheld for taxes; management separately reports approximately $74.2 million repurchased under the board-authorized program. The board replenished repurchase authority to an aggregate $75.0 million in April 2023. The company expects to prioritize investment in product development and growth, while also considering repurchases and acquisitions; it does not anticipate borrowing for general corporate purposes in 2023.
Remaining performance obligations with non-cancelable terms longer than one year were approximately $1.2 billion, about 98% cloud-native subscriptions. Management expects to recognize approximately 40% over the next 24 months and the balance thereafter. RPO increased 42% year over year.
Management said Q1 results exceeded expectations, citing solid demand for cloud solutions, but remained cautious about the global economy. It noted that long sales cycles, extended customer decision timelines, and the shift to subscription revenue recognized over contract periods can make bookings and revenue difficult to forecast. The filing provides no numerical full-year revenue or earnings guidance.
Risks discussed include macroeconomic and geopolitical volatility, inflation, competition, employee retention, cloud-service interruptions or security incidents, software defects, complex implementations, foreign-currency exposure, long sales cycles, and potential customer claims if products fail. The company reported no legal proceedings it believed likely to have a material adverse effect and no material changes to previously disclosed market risks.
Important facts for investors to verify
- Whether cloud demand, RPO growth, and customer conversions continue at the reported pace, and how much RPO is recognized over time.
- Whether services growth can be delivered while managing personnel costs, implementation capacity, and margins.
- How macroeconomic conditions and long sales cycles affect bookings, customer spending decisions, and future results.
- The pace and total cost of repurchases, distinguishing program purchases from shares withheld for taxes, and the effect on cash and share count.
- Whether the company’s cash, operating cash generation, and stated investment priorities remain sufficient for its needs; the filing says it expects existing cash to cover working capital and capital expenditures for at least 12 months.
- The $117.7 million of cloud-infrastructure commitments and $19.9 million of internal-software subscription obligations disclosed for the next five years.