MANH: Solid Results, Cautious Outlook

Here's our initial take on Manhattan Associates' (NASDAQ: MANH) fourth-quarter financial report.

Key Metrics

Macro Headwinds Eat Into Expected Growth

Manhattan Associates, which provides software for supply chain, inventory, and retail businesses, beat expectations in the fourth quarter, with revenue up 7% year over year. But the company is cautious about the year ahead, forecasting that sales growth will slow to just 2% to 3% in 2025.

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That forecast, which calls for revenue of $1.06 billion to $1.07 billion, was short of the $1.1 billion Wall Street consensus.

Manhattan's customers, which include retailers, manufacturers, and logistics companies, are uncertain about the health of the economy (possibly influenced by tariffs), and that is weighing on their spending plans.

On a post-earnings call, CEO Eddie Capel said about 10% of customers with in-flight implementations of Manhattan's software have reduced their planned services work in 2025, causing the company to scale back expectations for the year.

Manhattan is in the process of shifting its business to the cloud. Its cloud subscription revenue, which represents just 35% of total revenue, grew by 26% in the quarter, much faster than overall revenue growth.

CEO Transition

Just days after the earnings announcement, Manhattan delivered a second surprise to investors. Capel, who has been with the company since 2000 and has served as CEO since January 2013, will retire on Feb. 12.

Capel will remain on the board and serve as executive vice chairman, assisting with the CEO transition and helping the company with special projects. He will be replaced by Eric Clark, who is currently CEO of tech consulting firm NTT Data North America.

Capel called it "an ideal time for a CEO transition," noting "our company is in an exceptionally strong position strategically, competitively, operationally, and financially." But the outgoing CEO has a well-earned strong reputation among investors, and the change is adding to the post-earnings uncertainty surrounding the company.

Manhattan Associates has scheduled a live investor webinar for Feb. 12, and investors are likely to hear further context about the CEO transition and more color on management's guidance and business strategy for the upcoming year.

Immediate Market Reaction

Wall Street tends to be forward looking, and in Manhattan Associates' case, the market focused more on the subdued guidance than on the fourth-quarter beat. Manhattan Associates fell 24% on Jan. 29, the day after the report.

The CEO change put further pressure on the shares. From the day before the earnings report to Feb. 11, shares are down more than 40%.

For context on the share price movement, investor expectations going into the report were very high. Prior to earnings, Manhattan Associates' valuation multiples (price-to-sales, price-to-earnings) had reached levels near the top of the company's historical range.

A breather in the stock price is healthy; the company's valuation multiples are now back at levels not seen since late 2022 or early 2023.

What to Watch

In the big picture, Manhattan Associates' business trends are moving in the direction investors want to see. However, Manhattan's customer base operates in cyclical industries, and there is very little that even a well-run software business can do to outperform during periods in which its customers are scaling back spending.

Manhattan continues to be solidly profitable and generated nearly $300 million in cash flow from operations in 2024. A lot of that cash is going back to shareholders in the form of buybacks -- the company repurchased 986,555 shares for about $241.6 million last year.

Helpful Resources

• Full earnings report
• Investor relations page

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Manhattan Associates. The Motley Fool has a disclosure policy.