Manhattan Associates sees supply chain investment continuing through the downturn

truck with container at port

Supply chain solutions technology provider Manhattan Associates (NASDAQ: MANH) expects this downturn to be different than the past two recessions.

On its first quarter earnings conference call, management said that supply chains are more “mission critical” than they have been in the past. Additionally, they said that they see a “shorter runway to recovery” as several projects remain in the works and the pipeline is healthy.

The company reported adjusted earnings per share (EPS) of $0.40, $0.07 better than the consensus estimate, but $0.01 lower than the year ago quarter.

Manhattan Associates’ Key Performance Indicators

Manhattan Associates is in the process of transitioning from a licensed software company to a subscription-based software-as-a service cloud model. In the first quarter, cloud subscription revenue increased 120% year-over-year to $17.3 million as software license revenue declined 22% to $9.7 million. The company’s cloud subscriptions revenue is generated primarily from its omnichannel and transportation management systems offerings.

“Despite near-term uncertainty, we continue to see growing enthusiasm for our unified supply chain and omnichannel commerce solutions as companies around the world are beginning to realize more than ever that the modern supply chain is absolutely mission-critical and strategically important,” said Manhattan Associates CEO Eddie Capel.

Manhattan Associates lowered its full-year 2019 guidance. The company now expects revenue to be down 12% to 9% in the year compared to the prior forecast which called for growth of 4% to 6%. Adjusted EPS is forecast to be in the range $1.50 to $1.58, down slightly from the previous guidance of $1.53 to $1.60.

Management expects the adjusted operating margin to be 300 basis points better than its prior guidance, 23% at the midpoint of the guidance range, given roughly $45 million in expense reduction in response to the slowdown. The company has implemented several expense reductions initiatives including a 25% salary reduction for board members and the CEO as well as smaller cuts made to the salaries of named executive officers.

On the company’s earnings conference call, management said that there have been no “notable” project cancellations. The company’s new business pipeline is 20% higher sequentially from fourth quarter 2019, but opportunities are shifting to later in the year due to the uncertainty around the outbreak.

“We are seeing some shifts in the expected timing of deal closings from the second quarter to the second half of the year and delays of some of our services projects. But in general, we are not seeing cancelations and are seeing a larger pipeline of opportunities for the balance of the year versus a quarter ago,” commented Capel.

Revenue from remaining performance obligations – unearned revenue or future bookings for its cloud services with a non-cancelable contract term of greater than one year – were $265 million to $275 million at the end of the quarter.

Manhattan Associates generated $11.6 million in cash flow from operations during the quarter, down from $35.2 million in the first quarter of 2019. Days sales outstanding increased by six days to 67 days compared to the fourth quarter of 2019. The company closed the quarter with $75.3 million in cash and equivalents with no debt. Operating lease liabilities stood at $30.1 million at the close of the quarter.

Manhattan Associates spent $23.3 million in research and development in the quarter and plans to spend $72 million to $74 million in research and development initiatives during 2020.

The company repurchased 337,007 shares of its stock, $25 million, in the first quarter. Earlier this month, the company’s board of directors authorized the repurchase of $50 million in stock, but suspended the program “because of COVID-19-related considerations and until conditions improve for the resumption of the program.”

Manhattan Associates is a supply chain and omnichannel commerce technology provider. The company’s technology offering enables retailers, wholesalers, manufacturers and logistics providers to manage their supply chains, inventory and omnichannel operations. Manhattan Carrier helps motor carriers optimize loads and manage fuel costs and drivers’ hours of service.