Manhattan Associates Post Solid Top Line Numbers

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Manhattan Associates reported better than expected 3Q total revenue and EPS. License revenue was $1.7 million lighter than we expected, though the company made up the deficit on services. Investor sentiment was somewhat cautious heading into the print, resulting in the stock up marginally (1%- 3%) in after-hours trading. While MANH executed reasonably well, sluggish license revenue growth and valuation remain a stumbling block to an upgrade at this time. At the risk of sounding repetitive, we continue to believe MANH is a well-run company with solid management, an enviable customer base and well-positioned competitively. However, we prefer to wait until something spooks investors and the shares come in before building new positions, though we think existing holders should consider remaining in the stock, as operational trends are positive.

Management noted the macro spending environment for SCE software remains strained, marked by prolonged sales cycles, particularly for large deals. The company intends to hire an additional seven quota carriers in 4Q, meeting its internal target of 65 by year-end and continues to outperform its competitors, though YTD license growth appears below tone of the sector.

Additionally, MANH’s business continues to be driven by the retail and consumer verticals that are attempting to 1) connect the upstream supply chain (i.e., the warehouse) with the retail shelf and 2) implement an omni-channel retail environment that aligns the supply chain (inventory availability), fulfillment (direct ship), customer service (mobile in-store price matching), e-commerce and operations (buy online/pick-up in store) around the specific needs of the customer.

Management trimmed the midpoint of its 2013 revenue guidance $1.5 million to $409.5 million but raised EPS $0.23 to $3.64 (midpoint), a little more than the upside in 3Q. We lowered our 4Q13 revenue estimate $3 million to $103.5 million and fine-tuned our EPS number to $0.89 from $0.87. For 2014, we shaved our revenue estimate $1 million to $448 million and raised EPS $0.26 to $3.99.

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