Companies that sell things face the constant challenge of managing how their products get from their original manufacturer to their final customer. Supply-chain management has seen even bigger hurdles come from the rise of omnichannel commerce as fulfillment of internet orders adds a new angle to traditional retail or commercial sales operations. Manhattan Associates (MANH -10.54%) has used the power of cloud computing to simplify supply-chain management in an omnichannel world, but it's taken consistent work to optimize its operations.
Coming into Tuesday's first-quarter financial report, Manhattan investors expected to see some headwinds as the company continued its transition toward its cloud-based business model. The company's results were solid, and Manhattan believes that it should see better times ahead as it prepares for an important product launch next month.
Image source: Manhattan Associates.
How Manhattan Associates fared to start 2018
Manhattan Associates' first-quarter results showed the continuing impact of its cloud transition. Revenue fell 9%, to $130.6 million, accelerating from its pace of decline in recent quarters but faring slightly better than most investors were expecting. Adjusted net income fell more sharply, dropping 15%, to $24.9 million, but the resulting adjusted earnings of $0.37 per share were better than the consensus forecast for $0.31 per share among those following the stock.
The clearest sign of the transition to the cloud came from looking closely at two areas. Software licensing revenue plunged by nearly two-thirds as Manhattan moved away from selling licenses in favor of cloud subscriptions. However, although revenue coming in from those subscriptions nearly tripled from year-ago levels, the roughly $3 million pick-up on that end didn't come close to making up for a nearly $14 million drop in licensing revenue.
The two larger contributors to sales were mixed. Maintenance-related revenue jumped 9%, but the larger services area suffered a roughly 1% drop in segment sales. Manhattan also reported a big drop of more than half in hardware sales, which contribute a small, but still important, portion of the company's overall revenue.
Manhattan Associates' results were consistent across its geography. In the Americas, where the company gets most of its revenue, sales fell almost 8%, leading to a nearly 30% drop in operating income. The Europe, Middle East, and Africa segment saw even more precipitous declines, including revenue falling 18% as operating income got slashed almost in half. Only the Asia-Pacific segment held up better, with drops of just 3% in revenue and 10% in operating income.
CEO Eddie Capel tried to keep his eyes on the bigger picture. "Our transition to cloud continues as planned," Capel said, "and while license revenue was soft due to some sales cycles extending, we performed well across all other revenue categories." The CEO also said that sales pipelines for both the cloud and perpetual license arenas stayed strong during the period.
What's next for Manhattan Associates?
Manhattan expressed a positive view about how the rest of the year should go. As Capel put it, "Despite the global geopolitical and economic volatility, we continue to be very bullish on the market opportunity ahead."
Manhattan is basing many of its hopes on its upcoming customer conference in May. The Momentum conference will reveal new advances to the company's existing product line, giving its clients greater capacity to manage their commerce supply chains effectively. As more companies look at the impact that e-commerce has had on their supply-chain management, Manhattan hopes that it will be able to woo new customers by showcasing its platform capabilities.
Even so, turnaround efforts will take time to flesh out. Manhattan still believes that total revenue for the year will fall 6% to 8%, to a range of between $546 million and $558 million. Adjusted earnings of $1.48 to $1.52 per share will represent about a one-fifth decline on the bottom line.
Shareholders in Manhattan Associates understand that they need to remain patient, but with the stock making little headway after a big drop following February's earnings announcement, it's clear that investors are struggling to stay focused on the long run. With cloud competition ramping up, it's essential for Manhattan to build positive momentum and avoid unnecessary delays in moving forward as quickly as possible.
