Q3 2023 Manhattan Associates Inc Earnings Call
[music].
Good afternoon, My name is Robert and I'll be your conference facilitator today at this time I'd like to welcome everyone to the Manhattan Associates third quarter 2023 earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer period.
If you'd like to ask a question. During this time simply press star one on your telephone keypad, if you'd like to withdraw your question. Please press star two on your telephone keypad.
Minder, ladies and gentlemen, this call's being recorded today October 24th 2023, I would now like to introduce your host Mr. Michael Bauer head of Investor Relations at Manhattan Associates. Mr. Barry You May begin your conference.
Thank you Robert Good afternoon, everyone welcome to Manhattan Associates, 2023 third quarter earnings call I will review, our cautionary language and then turn the call over to Eddie Capel our CEO.
During this call, including the Q&A session. We may make forward looking statements regarding future events or the future financial performance of Manhattan Associates.
You are cautioned that these forward looking statements involve risks and uncertainties are not guarantees of future performance and that actual results may differ materially from the projections contained in our forward looking statements I refer you to the reports Manhattan Associates files with the SEC for important factors that could cause actual results to differ materially from those in outbid you.
<unk>, particularly our annual report on Form 10-K for fiscal year 2022, and the risk factor discussion in that report as well as any risk factor update we provided in our subsequent form 10, Qs. We note a turbulent global macro environment could impact outperformance and cause actual results to differ materially from here.
Projections, we are under no obligation to update these statements. In addition, our comments include certain non-GAAP financial measures to provide additional information to investors. We have reconciled all non-GAAP measures and related GAAP measures in accordance with FCC rules, you'll find reconciliation schedules in our form 8-K, we submitted to the SEC earlier.
Today and on our website at N. A N H dot com now I will turn the call over to Eddie.
Great. Thanks, Mike well good afternoon, everybody and thank you for joining us as we review our third quarter results and discuss our increased full year 2023 outlook.
Little later in the call we will provide some preliminary color anyway on at 2020 for guidance.
Q3 and year to date results set all time records on both top and bottom lines.
For the quarter total revenue increased 20% to $238 million and adjusted earnings per share increased 59% to $1 five both of these metrics were above our expectations.
Q3 was our 10th consecutive all time record revenue quarter.
Driving topline outperformance was 44% growth in cloud revenue and 24% growth in services revenue.
This encompasses double digit topline growth across all our geographies is that global teams continue to execute very well for our customers.
While the global macro environment, certainly remains volatile Manhattan's business fundamentals are solid.
Demand for our solutions is robust customer satisfaction is high and as Denis is going to elaborate later on in the call our strong balance sheet and cash flow provides us with plenty of capacity to steadily steadily invest across that growing supply chain execution, omnichannel and retail point of sale end markets.
Oh P O the leading indicator of our growth increased 37% to just over $1.3 billion.
Demand for our mission critical cloud solutions remains strong and resilient across our entire product portfolio.
From a vertical perspective retail manufacturing and wholesale continues to drive more than 80% of our bookings in the quarter and across our solutions to some verticals are pretty diverse for example in the quarter cloud deals. One include an omni channel multi brand retailer a grocery distributor and national <unk>.
E Commerce company and aerospace parts distributor, a multichannel apparel retailer and a multinational food manufacturer and distributor as well as several others.
Robert: Michael Bauer, Joseph Vruwink, Dennis Story, Brian Peterson Michael Bauer, Matthew Pfau, Joseph Vruwink, Dennis Story, Brian Peterson, Good afternoon, my name is Robert, and I'll be your conference facilitator today.
For the quarter competitive win rates were solid at about 75% and we experienced strength from our new customers with approximately 50% of new cloud bookings being generated from net new logos.
In addition to the healthy new logo activity. We also experienced a good mix of conversions up sells and cross sells.
And certainly while the timing of large deals in the mix of bookings will vary on a quarterly basis, we believe the year to date variety and breadth of deals across sales correct categories and products exemplifies the value that we deliver and have multiple opportunities for sustainable growth.
Robert: At this time, I'd like to welcome everyone to the Manhattan Associates third quarter, 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer period. If you'd like to ask a question during this time, simply press star one on your telephone keypad. If you'd like to withdraw your question, please press star two on your telephone keypad.
Our solution pipeline remains robust with potential new customers, representing about 35% of that demand.
Our ability to deliver industry, leading solutions and service to our customers. Our key drivers fresh steady demand in fact during Q3, Google recognized Manhattan for this core competency as a Google cloud partner of the year.
Robert: As a reminder, ladies and gentlemen, this call has been recorded today, October 24th, 2023.
Our best of breed cloud native platform and solutions provide unmatched access to innovation and it.
Michael Bauer: I would now like to introduce your host, Mr. Michael Bauer, head of investor relations of Manhattan Associates, Mr. Bauer, you may begin your conference. Thank you, Robert, and good afternoon, everyone. Welcome to Manhattan Associates, 2023 third quarter, earnings call. I will review our cautionary language and then turn the call over to Eddie Capel, CEO. During this call, including the Q&A session, we may make following-looking statements regarding future events or the future financial performance of Manhattan Associates.
Uniquely capable of unifying mission critical commerce and supply chain functions and this is differentiating and helps our clients improve customer service and loyalty drive more revenue and improve efficiency.
Michael Bauer: You'll caution that these following-looking statements involve risk and uncertainties are not guarantees of future performance, and that actual results may differ materially from the projections contained in our following-looking statements. I refer you to the reports from Manhattan Associates files with the SEC for important factors that could cause actual results to differ materially from those in our projections, particularly our annual report on form 10K, officially year 2022, and the risk factor discussion in that report, as well as any risk factor updates, we provide not subsequent form 10Qs.
As I mentioned earlier, our business fundamentals are solid and we continue to invest for growth. This includes strategic investments in industry, leading innovation further enablement of that customer success and expanding our addressable market from.
From a hiring standpoint, we've added over 400, new team members year to date. This represents about a 10% increase and its terrific progress towards our goal of achieving of adding 450, new hires in 2023.
With our R&D investment at record levels and growing.
Let's move to a quick update or two on our industry leading solutions.
I'm happy to tell you that while small at point of sale business continues to slowly build momentum we're seeing success on both new sales and implementation fronts with stores being activated at a record pace.
Michael Bauer: We note the turbulent global macro-environment could impact our performance and cause actual results to differ materially from our projections. We are on the no obligation to update these statements. In addition, our comments include certain non-gap financial measures to provide additional information to investors. We have reconciled all non-gap measures to related gap measures in accordance with SEC rules. You'll find reconciliation schedules in the form 8K we submitted to the SEC earlier today, and on our website at manh.com.
It is now I think beyond dispute.
Store the store network will remain an eccentric a central part of the overall consumer retail experience and the vast majority of retailers who are in need of a store technology refresh in order to maximize their store fleets potential.
Eddie Capel: Now, I'll turn the call over to you. Great. Thanks, Mike. We'll get after doing everybody and thank you for joining us as we review at third quarter results and discuss our increased full year 2023 outlook. And a little later in the call, we'll provide some preliminary color anyway on at 2024 guidance. Q3 and year-to-date results set all time records on both top and bottom lines. For the quarter total revenue increased 20% to 238 million and adjusted earnings per share increased 59% to $1.5.
Only with an Omnichannel native point of sale system can retailers maximize revenue and margin while simultaneously delivering that seamless shopping experience that today's consumer demands.
This quarter saw the fastest pace of point of sale Activations in our history with customers working quickly and efficiently to get a new technology in place before the holidays and we look forward to seeing a record number of stores. This holiday period, driving incremental sales the era endless aisle capabilities are providing.
Seamless in store fulfillment execution for pickup shipping curbside same day delivery and beyond.
Eddie Capel: Both of these metrics were above our expectations. Q3 was at 10th consecutive all-time record revenue quarter. Driving top line out performance was 44% growth in cloud revenue and 24% growth in services revenue. Fishing company's double digit top line growth across all our geographies is that global teams continue to execute very well for our customers. While the global macro environment certainly remains volatile and happens business fundamentals are solid. Demand for our solutions is robust customer satisfaction is high.
And speaking of a best in class customer service and Manhattan active customer engagement solution is also having an encouraging 2023.
With a number of customers now live and several more activating before the end of the year, we're having success expanding our operational footprint to the contact center as well.
As a reminder, our customer engagement solution enables agents in the contact center to go far beyond just the basic order management, we enabled call center agents to manage cases, managing indirect <unk> across a half a dozen inbound communication channels and provide differentiated service case.
Eddie Capel: And as Dennis is going to elaborate later on in the call, a strong balance sheet in cash or provides us with plenty of capacity to steadily invest across that growing supply chain execution on the channel and retail point of sale and markets. RPO, the leading indicator of our growth increased 37% to just over $1.3 billion. Demand for our mission critical cloud solutions remains strong and resilient across our entire product portfolio. From a vertical perspective, retail, manufacturing and wholesale continue to drive more than 80% of our bookings in the quarter.
Abilities like triggering refunds upon carrier scans and dynamic order fulfillment strategies.
With some exciting go lives Amazon imminent in several recent wins for customer engagement. We're looking forward to the continued growth of this offering within the broader Manhattan active omni suite.
And finally on the Omni channel front this quarter, we launched an exciting new capability called fulfillment insights.
Eddie Capel: And across our solutions, the sub verticals are pretty diverse. For example, in the quarter, cloud deals one include an on the channel multi brand retailer, a grocery distributor, a national e-commerce company, an aerospace parts distributor, a multi channel apparel retailer, and a multinational food manufacturing distributor as well as several others. For the quarter, competitive wind rates for solid are about 75% and we experience strength for my new customers with approximately 50% of new cloud bookings being generated from net new logos.
Our first of a kind in the industry fulfillment insights provides our customers with live omnichannel fulfillment performance benchmark data.
Allowing them to compare their performance against the Anonymised data from their peers and their competitors.
Now our customers contract life performance versus the industry on important kpis, such as click to ship times click to deliver times store order rejection rates both of us pick up rates and a host of others.
She is service and experience continue to play a critical role defining the brand's image fulfillment insights provides and Manhattan active customers with a quantitative way to ensure that they are meeting or exceeding customer expectations.
Eddie Capel: In addition to the healthy new logo activity, we also experienced a good mix of conversions upsells and cross cells. And certainly while the timing of large deals and the mix of bookings will vary on a quarterly basis, we believe the year to date variety and breadth of deals across sales, correct categories and products exemplifies the value that we deliver and have multiple opportunities for sustainable growth. A solution pipeline remains robust with potential new customers representing about 35% of that demand.
At the platform level, we continue to work closely with Google to bring generative AI solutions to life within our Manhattan active solutions and we're hard at work and bettering the embedding of variety of Google's vertex AI models within the Manhattan active platform to achieve a number of key benefits, including <unk>.
<unk> management and automation extension co development guided intelligence for operations and consumer facing chat bots, and we'll have a lot more to say about generative AI at the interest show in New York in January.
Eddie Capel: Our ability to deliver industry leading solutions and service to our customers are key drivers for a steady demand. In fact, during 2-3, Google recognized Manhattan for this core competency as a Google Clive partner of the year. Bauer. Our best-of-breed, cloud-native platform solutions provide unmatched access to innovation and a uniquely capable of unifying mission-critical commerce and supply chain functions. And this is differentiating and helps that clients improve customer service and loyalty to drive more revenue and improve efficiency.
Closing out my commentary on our products will make a brief mention of our Manhattan active supply chain.
Solutions, we continue to see strong demand and win rates for our Manhattan active warehouse management solution. This quarter, we will set a record for the number of Manhattan active Wm go lives. Unlike our point of sale one of the real advantages of our cloud Native technology is its rapid pace of rollout once global <unk>.
Zions is being completed many of our customers have been very successful using our platform technology tools to get new sites ready for fast activation.
Eddie Capel: As I mentioned earlier, our business fundamentals are solid and we continue to invest for growth. This includes strategic investments in industry leading innovation, further enablement of our customer success and expanding our addressable market. From a hiring standpoint, we've added over 400 new team members here to date. This represents about a 10% increase and its terrific progress towards our goal of adding 450 new hires in 2023.
So looking to next year and beyond Manhattan is going to continue our aggressive investments in organic innovation that not only benefit our growing customer base, but also help us continue to expand our addressable market.
So that concludes my business update Dennis will provide you with an update on our financial performance and outlook and then I'll close our prepared remarks with a brief summary, before we move to Q&A. So Dennis.
Eddie Capel: With our R&D investment at record levels and growing, let's move to a quick update or two on our industry leading solutions. I'm happy to tell you that while small, our point of sale business continues to slowly build momentum. We're seeing success on both new sales and implementation fronts with stores being activated at a record pace. It's now, I think, beyond dispute. The store network will remain an essential part of the overall consumer retail experience.
Thanks, Eddie So our Manhattan global teams continue to execute well in a challenging macro environment for the quarter, we delivered a strong balanced financial performance across top and bottom lines. This.
This includes posting record results across RPM.
Revenue operating income and earnings per share.
This resulted in our Q3 and year to date results slightly exceeding the rule of 50.
And if our revenue growth is normalized for our cloud transition, which excludes license and maintenance revenue both results approach the rule of 60.
Eddie Capel: And the vast majority of retailers are in need of a store technology refresh in order to maximize their store fleets potential. Only with an omnichannel native point of sale system can retailers maximize revenue and margin while simultaneously delivering that seamless shopping experience that today's consumer demands. This quarter saw the fastest pace of point of sale activations in our history with customers working quickly and efficiently to get our new technology in place before the holidays.
FX had a minor impact in the quarter and was an approximate one point tailwind to revenue growth a two point tailwind to year over year, RP O growth and a one point headwind to sequential RP O growth.
Now turning to our Q3 results our growth rates are reported on a year over year basis, unless otherwise stated.
Total revenue was $238 million up 20%, excluding license and maintenance revenue, which removes the compression and driven by our cloud transition. Our total revenue was up 28%.
Eddie Capel: And we look forward to seeing a record number of stores this holiday period driving incremental sales at the R&D-endless aisle capabilities and providing seamless in-store fulfillment execution for pickup, shipping, curbside, same-day delivery and beyond. Speaking of the best in class customer service, I'm in hadn't active customer engagement solution is also happening and encouraging 2023. With a number of customers now live and several more activating before the end of the year, we're having success expanding our operational footprint to the contact center as well.
Cloud revenue totaled $65 million up 44% and as Eddie highlighted we ended the quarter with <unk> of $1 $3 billion up 37% compared to the prior year and up 7% sequentially.
Our <unk> performance was driven by a healthy mix of sales across our sales categories with notable strength from new logos also in the quarter, we had solid results from across our Manhattan active suite of products.
Eddie Capel: As a reminder, our customer engagement solution enables agents in the contact center to go far beyond just that basic order management. We enable core center agents to manage cases, manage interactions across a half a dozen in-band communication channels and provide differentiated service capabilities like triggering refunds upon carrier scans and dynamic order fulfillment strategies. With some exciting go-lives imminent and several recent wins for customer engagement, we're looking forward to the continued growth of this offering within the broader Manhattan Active Army suite.
Our global services teams are knocking it out of the park delivering record revenue totaling $128 million up 24% as cloud sales continue to fuel services revenue growth globally.
Adjusted operating profit was $72 million with adjusted operating margin of 30.4%.
This is up 450 basis points year over year, our performance was driven by strong cloud and services revenue growth combined with operating leverage as our cloud business scales importantly, as Eddie discussed we continue to invest for sustainable long term growth.
Eddie Capel: And finally, on the omnichannel front this quarter, we launched an exciting new capability called fulfillment insights. It's a first of a kind in the industry. The fulfillment insights provides our customers with live omnichannel fulfillment performance benchmark data, allowing them to compare their performance against anonymized data from their peers and their competitors. Now, our customers contract live performance versus the industry on important KPIs such as click-to-ship times, click-to-deliver times, store order rejection rates, both us pick-up rates and a host of others.
This resulted in Q3 adjusted earnings per share of $1, five up 59% and GAAP EPS of <unk> 79.
Up 68% how about that included in our earnings per share is a <unk> 12 benefit predominantly from the U S. Treasury temporary delay of foreign tax credit regulations, removing this tax benefit adjusted earnings per share was up 41%.
And GAAP earnings per share up 43%.
Eddie Capel: To your service and experience continue to play a critical role defining the brand's image, fulfillment insights provides our Manhattan Active customers with a quantitative way to ensure that they're meeting or exceeding customer expectations. At the platform level, we continue to work closely with Google to bring generative AI solutions to life within a Manhattan Active solutions. We're hard at work in bedding a variety of Google's vertex AI models within the Manhattan Active platform to achieve a number of key benefits, including configuration management and automation, extension code development, guided intelligence for operations, and consumer-facing chatbots. And we'll have a lot more to say about generative AI at the NRF show in New York in January.
Turning to cash Q3, operating cash flow increased 47% to a solid $59 million.
Year to date operating cash flow increased 27% to $158 million, which includes the payment of about $50 million in cash taxes.
Resulting in free cash flow margin of 24% for the quarter and 22% year to date.
Turning to the balance sheet deferred revenue increased 26% to $215 million, we ended the quarter with $182 million in cash and zero debt, which includes $25 million in share repurchases in the quarter and $166 million year to.
Date also our board has approved the replenishing of our $75 million share repurchase authority.
Eddie Capel: Closing at my commentary on our products, I'll make a brief mention of the Manhattan Active Supply Chain solutions. We continue to see strong demand and win rates for our Manhattan Active Warehouse Management solution. This quarter will set a record for the number of Manhattan Active WM go-lives. And like Point of Sale, one of the real advantages of our cloud-native technology is its rapid pace of roll-eye. Once global design has been completed, many of our customers have been very successful using our platform technology tools to get new sites ready for fast activation. So looking to next year and beyond, Manhattan is going to continue our aggressive investments in organic innovation that not only benefit, I grow in customer base, but also help us continue to expand our addressable market.
Okay.
Onto our updated 2023 guidance as consistently mentioned our financial objective is to deliver sustainable double digit topline growth and top quartile operating margins Benchmarked against enterprise SaaS comps. This includes a balanced investment approach to growth.
And profitability.
With our strong year to date performance and increasing visibility we are raising our 2023 RPI revenue operating margin and earnings per share guidance.
All guidance references made on today's call will be at the midpoint of their respective ranges as noted on prior earnings calls our objective is to update our outlook on an annual basis and lastly on <unk> as previously noted our bookings performance is impacted by the <unk>.
Eddie Capel: So that concludes my business update.
Dennis Story: Dennis will provide you with an update on our financial performance and an outlook.
Dennis Story: And then I'll close our prepared remarks with a brief summary before we move to Q&A.
Number and relative value of large deals, we close in any quarter, which can potentially cause lumpiness or non linear bookings throughout the year.
Dennis Story: So Dennis, thanks Eddie. So our Manhattan global teams continue to execute well in a challenging macro environment. For the quarter, we delivered a strong balance financial performance across top and bottom lines. This includes posting record results across RPO, revenue, operating income, and earnings per share. This resulted in our Q3 and year-to-date results slightly exceeding the rule of 50. And if our revenue growth is normalized for our cloud transition, which excludes license and maintenance revenue, both results approach the rule of 60.
Okay.
So for the full year 2023, we expect <unk> to exceed the high end of our one three to $1 $4 billion range by approximately $5 million to $10 million.
We expect full year total revenue increased 19% to $914 million. This is up $24 million or about 3% higher versus our prior midpoint of $890 million.
Excluding license and maintenance attrition this represents 27% overall growth.
Dennis Story: F-X had a minor impact in the quarter and was an approximate one-point tailwind to revenue growth, a two-point tailwind to year-over-year RPO growth, and a one-point headwind to sequential RPO growth. Now, turning to our Q3 results, our growth rates are reported on a year-over-year basis and less otherwise stated. Total revenue was $238 million up 20%. Excluding license and maintenance revenue, which removes the compression driven by our cloud transition, our total revenue was up 28%.
For operating margin, we are increasing our midpoint to 29%, which is up 150 basis points from our prior midpoint of 27, 5%.
As Andy highlighted given the combination of our demand and size of our opportunity we continue to invest in our business for growth.
Our full year adjusted earnings per share outlook is increasing by 43 to $3 52 sets up 14%.
<unk> from our prior midpoint of $3 nine and up 28% from 2022.
Dennis Story: Cloud revenue totaled $65 million up 44%. And as Eddie highlighted, we ended the quarter with RPO of $1.3 billion up 37% compared to the prior year and up 7% sequentially. Our RPO performance was driven by a healthy mix of cells across our cells categories with notable strength from new logos. Also in the quarter, we had solid results from across our Manhattan Act of sweetest products. Our global services teams are knocking it out of the park, delivering record revenue totaling $128 million up 24% as cloud cells continue to fuel services revenue growth globally.
For GAAP earnings per share our midpoint increase increases by 40.
To $2 60.
Up 18% from our prior midpoint of $2 20, and up 28% from 2022.
So in a nutshell, our 2023 guidance implies Q4 total revenue of $223 million targeting cloud revenue of $67 $5 million.
Services revenue of $115 million and maintenance revenue of $33 million.
Operating margin is targeted to be 27%, resulting in adjusted earnings per share of 80 cents. As previously mentioned on prior calls our Q4 services revenue and operating margin accounts for retail peak seasonality, which traditionally is down sequentially.
Dennis Story: Adjusted operating profit was $72 million with adjusted operating margin of 30.4%. This is up 450 basis points year-over-year. Our performance was driven by strong cloud and services revenue growth combined with operating leverage as our cloud business skills. Importantly, as Eddie discussed, we continue to invest for sustainable long-term growth. This resulted in Q3 adjusted earnings per share of $1.05, up 59% and gap EPS of 79 cents, up 68%. How about that? Included in our earnings per share is a 12 cent benefit predominantly from the U.S. Treasury, temporary delay of foreign tax credit regulations, removing this tax benefit adjusted earnings per share was up 41% and gap earnings per share up 43%.
As customers idle implementations to focus on their busy season.
So that covers our Q4 guidance now I'll turn to.
Addressing our 2024 preliminary parameters. We are currently in our early stages of our 2020 for budget cycle and we'll firm up this outlook on our Q4 call.
With that said our preliminary total revenue is expected to increase 10% to $1 billion to 1.01 billion.
Representing 16% growth, excluding license and maintenance attrition.
This includes our cloud revenue target of $328 million, representing 31% year over year growth.
To help you with comparisons our target would be at our prior guide post high end of $345 million. If FX rates remained unchanged from October 2021 levels, which is when we provided our initial 2024 guideposts and normalize for the bankruptcies that we highlighted.
Dennis Story: Turning to cash, Q3 operating cash flow increased 47% to a solid $59 million. Year-to-date operating cash flow increased 27% to $158 million, which includes the payment of about $50 million in cash taxes. Resulting in free cash flow margin of 24% for the quarter and 22% year-to-date. Turning to the balance sheet, deferred revenue increased 26% to $215 million. We ended the quarter with $182 million in cash and zero debt, which includes $25 million in share repurchases in the quarter and $166 million year-to-date.
On our prior Q2 call.
For RPM.
We're targeting a range of one 7% to $1 $8 billion. The $1 75 billion midpoint compares favorably to our prior guide post midpoint of $1 7 billion and represents approximately 25% growth.
For services, our demand continues to be driven by cloud, resulting in solid visibility in 2024, we are targeting services revenue of $530 million, which represents 10% year over year growth.
Dennis Story: Also, our board has approved the replenishing of our $75 million share repurchase authority, on to our updated 2023 guidance. As consistently mentioned, our financial objective is to deliver sustainable double digit top line growth and top quartile operating margins, benchmarked against enterprise SaaS comps. This includes a balanced investment approach to growth and profitability. With our strong year-to-date performance and increasing visibility, we are raising our 2023 RPO revenue, operating margin, and earnings per share guidance.
On license and maintenance attrition to cloud, we are targeting maintenance revenue to be about $119 million, which represents a 15% decline in for license revenue to be about $4 million, which is below 1% of total revenue.
We anticipate operating margin to be about 28, 5% in 2024, we expect our license and maintenance revenue attrition to cloud will result in an approximate 175 basis point headwind to operating margin.
Dennis Story: All guidance references made on today's call will be at the midpoint of their respective ranges as noted on prior earnings calls. Our objective is to update our RPO outlook on an annual basis and lastly on RPO as previously noted, our bookings performance is impacted by the number and relative value of large deals we close in any quarter, which can potentially cause lumpiness or nonlinear bookings throughout the year. So for the full year 2023, we expect RPO to exceed the high end of our $1.3 to $1.4 billion range by approximately $5 to $10 million.
Normalized for this transition our 2024 operating margin would expand 100 basis points year over year.
Like prior years in 2024, we will continue to opportunistically invest in our business and higher leading supply chain talent.
We expect our 2024 tax rate to be 21.
5% and diluted share count to be approximately 63 million shares which assumes no buyback activity.
In summary, our preliminary 2024 parameters on an as reported basis, our total revenue ex license and maintenance attrition to increase 16%.
Dennis Story: We expect full year total revenue to increase 19% to $914 million. This is up $24 million or about 3% higher versus our prior midpoint of $890 million. Excluding license and maintenance attrition, this represents 27% overall growth. For operating margin, we are increasing our midpoint to 29%, which is up 150 basis points from our prior midpoint of 27.5%. As Eddie highlighted, given the combination of our demand and size of our opportunity, we continue to invest in our business for growth.
Cloud revenue increased 31% services revenue to increase 10% RP O to increased 25% and for operating margin to exceed 28% and.
In summary, fantastic execution by the Manhattan team and let's finish the year strong thank you and back to Eddie.
Terrific. Thank you Dennis.
Well clearly, we're very pleased with our outstanding Q3 and year to date results and while we remain appropriately cautious on the volatile macro conditions and that's reflected in what we consider to be responsible growth targets for 2024, our business momentum and fundamentals remain very solid.
Dennis Story: Our full year adjusted earnings per share outlook is increasing by 43 cents to $3.52 up 14% from our prior midpoint of $3.09 and up 28% from 2022. For gap earnings per share, our midpoint increases by 40 cents to $2.60 up 18% from our prior midpoint of $2.20 and up 28% from 2022. So in a nutshell, our 2023 guidance implies Q4 total revenue of $223 million, targeting cloud revenue of $67.5 million, services revenue of $115 million, and maintenance revenue of $33 million.
Thank you for everybody for joining the call and thank you to our global team for all the exceptional work that they're doing for our customers.
Robert that concludes our prepared remarks, and we'd be happy to take any questions at this point.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Terry Tillman with Truth Securities. Please proceed with your question.
Hey, good afternoon at a dentist and Mike first and foremost.
Dennis Story: Operating margin is targeted to be 27%, resulting in adjusted earnings per share of 80 cents. As previously mentioned on prior calls, our Q4 services revenue and operating margin accounts for retail peaks seasonality, which traditionally is down sequentially as customers idle implementations to focus on their busy So that covers our Q4 guidance.
Congrats on the quarter and a strong quarter.
Also Dennis Thanks for all the color on 24 that was helpful.
My two questions I guess, the first question I'm going to start with unless I got this wrong and I get plenty of things wrong. The new logo activity in terms of bookings composition was 50% does that is that right did I get that right because I was asking about that.
Yes, 50% for the quarter Terry.
Yes, I know, you're a 30 year old company and you have that kind of new logo activity. It's pretty impressive what do you think is driving it is it more of this kind of like because you have the cloud products you can kind of get more into that mid market with these fast growing DTC brands or is it.
Dennis Story: Now, I'll turn to addressing our 2024 preliminary parameters. We are currently in our early stages of our 2024 budget cycle and we'll firm up this outlook on our Q4 call. With that said, our preliminary total revenue is expected to increase 10% to $1 billion to $1.01 billion, representing 16% growth, excluding license and maintenance attrition. This includes our cloud revenue target of $328 million, representing 31% year-over-year growth. To help you with comparisons, our target would be at our prior guidepost high end of $345 million, if FX rates remained unchanged from October 2021 levels, which is when we provided our initial 2024 guidepost and normalized for the bankruptcies that we highlighted on our prior Q2 call.
Youre seeing more shots on goal with like less traditional kind of end markets I'm, just trying to understand that because that's pretty striking and then the second part of that question is yes.
Going forward.
Im not saying it needs to be in that ZIP code, but do you expect still ongoing vibrancy in terms of the new logo stuff and that was going to ask the question.
Yes, that's a lot packed in there.
Good question. So we still continue to be focused on what we.
<unk> categorized as tier one and tier two so certainly making some progress moving down market, but that is not where the new logos is really coming from is not a dip down into SMB or anything it's really a function I think of our innovative solutions that we're bringing to market number one.
Number two the breadth of the portfolio that we're that we're bringing to the market I do expect I don't know that we're going to maintain 50% new logo.
Dennis Story: For RPO, we are targeting a range of $1.7 to $1.8 billion. The $1.75 billion midpoint compares favorably to our prior guidepost midpoint of $1.7 billion and represents approximately 25% growth. For services, our demand continues to be driven by cloud resulting in solid visibility. In 2024, we are targeting services revenue of $530 million, which represents 10% year-over-year growth. On license and maintenance attrition to cloud, we are targeting maintenance revenue to be about $119 million, which represents a 15% decline, and for license revenue to be about $4 million, which is below 1% of total revenue.
Territory.
Every quarter, we certainly like to we've seen it be 50, 50% before.
As you know we've seen it be as low as I think 27% or or something like that we generally again as you know.
Goodbye.
Overall, one third roughly of net new software.
Bookings coming from new logos at generally is how it normalize it it's been a bit higher than that for the last couple of years, but I think thats the way to that's kind of the way to think about it.
Got it and I will have less impact in this next question I promise.
I'll try it out this for Dennis but maybe you don't want to chime in but it is good to see because people want to know kind of the <unk> and how it looks a year out it looks like the mid points moving higher to $1 75 billion. So that's positive.
But what I'm curious about is 90 days since the last update call.
Dennis Story: We anticipate operating margin to be about 28.25%. In 2024, we expect our license and maintenance revenue attrition to cloud will result in an approximate 175 basis point headwind to operating margin. Normalize for this transition, our 2024 operating margin would expand 100 basis points year-over-year. Like prior years, in 2024, we will continue to opportunistically invest in our business and hire leading supply chain talent. We expect our 2024 tax rate to be 21.5% and diluted share count to be approximately 63 million shares, which assumes no buyback activity. In summary, our preliminary 2024 parameters on an as reported basis are total revenue, ex license and maintenance attrition to increase 16%.
And that $1 75 billion midpoint for our Apio do you all assume a similar kind of consumer and it spending environment or is it a little bit choppy here or does it improve what's baked into that increased the mid point. Thank you.
Yes.
The phrase I used Terry was we think we've set responsible targets.
Given the various.
Turbulent conditions around the around the world.
What we think what we think we've done is built a responsible set of growth targets of course, including included in our PEO. So we're very optimistic about.
Market leadership position, we're very optimistic about the breadth of products and technology, the geographic reach and so forth, but I think it would be.
Dangerous to assume that wasn't going to be a little bit of a drop in the water and that's what we've assumed.
Dennis Story: Cloud revenue to increase 31%, services revenue to increase 10%, RPO to increase 25% and for operating margin to exceed 28%, and Summary, fantastic execution by the Manhattan team and let's finish the year strong.
Alright, great. Thanks.
Thank you Terry.
Our next question comes from Brian Peterson with Raymond James. Please proceed with your question.
Hi, gentlemen, thanks for taking my question. So maybe just a follow up to Terry's a loved one.
Understand Eddie what <unk> seen from a linearity perspective, so far this year I know, it's been kind of a choppy macro but how is that net new business kind of come in over the course of the year relative to your expectations.
Eddie Capel: Thank you and back to Eddie. Terrific, thank you Dennis. Well clearly we're very pleased with our outstanding Q3 and year-to-date results.
Eddie Capel: And while we remain appropriately cautious on the volatile macro conditions and that's reflected in what we consider to be responsible growth targets for 2024, our business momentum and fundamentals remain very solid. Now thank you everybody for joining the call and thank you to our global team for all the exceptional work that they're doing for our customers.
Honestly I think it's been a bad spot on Brian.
Back to we generally think about.
Net you being about a third of that business again.
We bounced around a little bit between the high Twenty's up to 15 <unk>.
Pipeline continues to be continues to be strong.
Robert: Robert that concludes that prepared remarks and we'd be happy to take any questions at this point. Thank you.
You think of that and look at net new opportunities in the pipeline again, it's about a third or a little over a little higher. So I think honestly I think we're going to see a profile or the same profile going forward will we will see a little bit of bounce around quarter by quarter I think of a normalized on yet.
Robert: At this time we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation till I'll indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For a participant's use and speaker equipment, it may be an ask there to pick up your handset before pressing the star keys. One moment please while we pull for questions.
Annualized basis somewhere around about a third net new logos.
Yeah.
Got it and maybe a follow up and I. Appreciate that you guys have given 24 way before some other folks, but I'd love to understand what sort of service hiring assumptions you guys have into 2024 targets that you guys get thank you.
Carrie Tillman: My first question comes from Carrie Tillman with true with security. Please proceed with your question. Hey good afternoon Eddie, Dennis and Mike. First and foremost congrats on the quarter strong quarter. Also, Dennis, thanks for all the color on 24. That was helpful. My two questions I guess the first question I'm going to start with. Unless I got this wrong and I get plenty of things wrong, the new logo activity in terms of bookings composition with 50% is that is that right?
We haven't got all the way there yet Brian and we will certainly provide some of that specific commentary in the Q4 call in January.
But.
I think we probably see a little less aggressive hiring them this year, but it's still certainly quite quite solid.
Carrie Tillman: Did I get the right because I was asked about that. Yep 50% for the quarter Terry. Yeah, I mean you're a 30 year old company and you have that kind of new logo activity is pretty impressive. What do you think is driving it? Is it more of this kind of like because you have the cloud products, you can kind of dip more into that mid market with these fast growing D to see brands or is it.
In the in the hundreds let's put it that way.
Thanks Eddie.
Carrie Tillman: You know, you're seeing more shots on go with like less traditional kind of end markets. I'm just trying to understand that because that's pretty striking and then the second part of that question is going forward. I mean, I'm not saying it needs to be in that zip code, but do you expect still ongoing vibrancy in terms of the new logo stuff and then I was going to ask Dennis a question. Yeah, that's a lot packed in there.
Our next question comes from Joe <unk> with Baird. Please proceed with your question.
Okay.
Hi, Greg Hi, everyone.
Maybe wanted to start with that.
Fulfillment inside product.
And just just wondering does that typically the full suite of active products in order to generate most value I'm. Just wondering if that's maybe one incremental reason customers would pursue cross sells across the platform and then that kind of relates to my ultimate question of whether you are seeing.
Carrie Tillman: Good question. So we still continue to be focused on what we. We categorize as tier one and tier two so certainly making some progress moving that market, but that is not where you know the new logo is really coming from is not a dip that into SMB or anything. It's really a function. I think of our innovative solutions that we're bringing to market number one and number two the breadth of the portfolio that we're bringing to the market.
Mark Cross selling and trust given the nature of just all the applications being on the same platform, but also maybe some of the go to market changes you've made.
Yes, so, let's say, maybe taking a little bit in reverse order.
We saw some very nice cross sell in the quarter and we have done for the year frankly.
Carrie Tillman: I do expect I don't know that, you know, we're going to maintain 50% new logo territory, you know, every quarter we certainly like to we've seen it be 50 50% before. And as you know, we've seen it be as low as I think, you know, 27% or or something like that. We generally again, as you know, think about overall one third roughly of our net new software. Bookings coming from new logos, generally it's how it normalizes been a bit higher than that for the last couple years, but I think that's the way to that's kind of the way to think about it.
Cross sell has been running I think of the and the 25% 27% range. So we sort of like we sort of like to see it there in terms of the.
Insight capability is not a product. It's frankly, just a feature today of Manhattan active omni and its very focused on.
Commerce performance.
For our customers, so benchmarking again things like click to ship click to deliver both of us pickup rate.
<unk> store store order rejection all of those kinds of things.
Carrie Tillman: Got it and I'll have left packed in the next question I promise and I'll try to have this for Dennis but maybe Eddie you'll want to chime in but it is good to see because people want to know kind of the RPO and how it looks a year out. It looks like the midpoints moving higher to 1.75 billion so that's that's positive but what I'm curious about is you know 90 days since the last update call you know in that 1.75 billion midpoint for RPO do you all assume a similar kind of consumer and IT spending environment or is it a little bit shopier or does it improve what's baked into that increased midpoint thank you.
That are right on the front end.
At the end of the day, it's the ability to be able to aggregate all that data inside of their native client solutions that gives us the ability to offer this.
Really very valuable real time, almost real time benchmark data to to our customers. We have begun the journey of providing insights just within <unk>.
Manhattan active omni for the for the moment, Joe and we'll be looking to expand that across the portfolio as it makes sense.
Carrie Tillman: Yeah you know look the phrase I used Terry was we think we've set responsible targets you know given the various turbulent conditions around the you know around the world. You know what we think we what we think we've done is built you know a responsible set of growth targets of course including including RPO so we're very optimistic about you know our market leadership position. We're very optimistic about the breadth of products of technology the geographic reach and so forth but I think it would be. You know dangerous to assume that there wasn't going to be a little bit of chop in the water and that's what we've assumed.
Okay, that's great.
And then adding a few comments in your prepared remarks.
New stores activating at a record pace.
Management record go lives.
Carrie Tillman: All right great thanks. Thank you Terry.
Yes.
Cloud is certainly more efficient I am just wondering like for instance, this quarter it was a really.
Strong RTL filling this quarter.
It does kind of relationship between what's going into cloud <unk> in the current period and the timeline for one.
You see it in services and ultimately see it and cloud is that all coming in sooner so that within a 12.
Typically talk about our next 24 months Rps contribution, but are you seeing more go live in kind of that 12 month timeframe that has a virtue of just more being on cloud.
Brian Peterson: Our next question comes from Brian Peterson with Raymond James please proceed with your question. I don't think so taking the question so maybe just a follow up to Terry you know I love to understand Eddie you know what you've seen from a linearity perspective so far this year I know it's been kind of a choppy macro but how is that net new business kind of come in over the course of the year up relative to your expectations.
I think the.
The initial implementation of whether it would be warehouse management point of sale order management really hasnt changed very much from an on Prem world to a cloud world because frankly, the the design work that you do the configuration work the testing work.
You don't see a lot of positive impact by by moving to the cloud a little because you don't have to deploy infrastructure and so forth, but not a ton, but where it really kicks in is when you start rolling out across multiple distribution centers or multiple stores because of course, you've got a single version of the software that's it.
Brian Peterson: You know honestly I think it's been a bad spot on Brian again kind of back to we we generally think about net new being a bad a third of our business again we for the you know we've bounced around a little bit between the high 20s up to 15 now. So you know pipeline continues to be you know continues to be strong you know if you think about and look at net new opportunities in the pipeline again it's about a third or a little or a little higher.
In the class and you can roll AD you can roll out much faster.
I don't really see a faster move from <unk> to revenue.
That's remain remained pretty consistent.
But then as I say the activation once you get into the flywheel gets moving tends to move it tends to move a little faster.
Brian Peterson: So I think you know honestly I think we're going to see a profile or the same profile going forward we'll we'll see you know a little bit of bouncing around quarter by quarter. I think it'll normalize on the on an annual basis that somewhat around about a third net new logos. Got it and maybe a follow up and I appreciate that you guys are given 24 way before some other folks but you know I'd love to understand you know what sort of service hiring assumptions you guys have in the 2024 targets that you guys guess.
Okay. Thank you very much.
Thanks.
Our next question comes from Mark Chapell with loop capital markets. Please proceed with your question.
Alright. Thank you for taking my question and guys nice job on the quarter, especially around the new logo business.
Brian Peterson: Thank you. Yeah we haven't got all the way there yet Brian and we'll certainly provide you know some of that specific commentary in the Q4 call in you know in January. But you know I think we probably see a little less aggressive hiring than this year but still but still certainly quite quite solid, in the hundreds. Let's put it that way.
On the new logo front, just kind of building on an earlier question there.
Could you just talk whether youre seeing youre, new logo business concentrated around certain solutions more than others like whether it's <unk> or <unk>.
Or like what's.
What's the active omni solution.
No.
I can comment on that market and it's really there is no concentration, particularly.
Pretty well balanced we know that roughly.
<unk> by quarter, but 50% of our revenue comes from from <unk>.
Joseph Vruwink: Our next question comes from Joe or Wink with Bear. Please proceed with your question. Great.
25% to 30% from <unk>, 50% of transformation and so forth and it's and it's pretty balanced across those those parameters as we always say benches quarter by quarter, a little bit, but generally generally its across the portfolio.
Joseph Vruwink: Hi, everyone.
Joseph Vruwink: I maybe want to start with the fulfillment inside product. Yeah. And just just wondering, does that typically need the full suite of active products in order to generate its most value?
And and across geographies as well.
So it's.
There's no real point of concentration for the new logos and of course, we love it that way.
Eddie Capel: I'm just wondering if that's maybe one incremental reason customers would pursue cross cells across the platform and then that kind of relates to my ultimate question of whether you are seeing more cross selling interest given the nature of just all the applications being on the same platform, but also maybe some of the go to market changes you've made. Yes, so let's say I'll maybe take a little bit in reverse order. We saw some very nice cross cell in the quarter and we have done for the year, frankly.
Great. Thanks, and then.
I appreciate your comments around the new customer engagement solution.
Expanding your operational footprint into the contact center was wondering if you could just talk a little bit more about or maybe give an example of how <unk> solutions are actually interacting with with context on regions.
Well.
You tend to think about traditional call center agents.
Just taking a query right taking a call where is my order.
Eddie Capel: You know, cross cell has been running, I think, in the 25 to 27% range. So, you know, we sort of like to, we sort of like to see it there. In terms of the inside capability, it's not a product. It's frankly just a feature today of Manhattan active on me. And it's very focused on, you know, commerce performance for our customers. So benchmarking, again, things like click to ship, click to deliver, both us pick up rate percentage store order rejection, all of those kinds of things that are right on the front end.
Maybe maybe a change of shipment destination, maybe change the color of our product goodness to bid maybe even canceling an order.
And of course, we take care of all of those capabilities, but now you can think about a broader set of engagement from that call center agent all within the active omni solution. So any type of case management exception case management.
You call in.
And need to have something find and.
Discovered and find and are shipping hub you need it moved from one location to another you need to add some kind of service capability. All of that case management can now be handled inside of our call center application as well as.
Eddie Capel: And, you know, look, at the end of the day, it's the ability to be able to aggregate all that data inside of our native cloud solutions that gives us the ability to offer this really very valuable real time almost real time benchmark data to to our customers. We have begun the journey of providing insights just within Manhattan active on me for the, you know, for the moment, Joe, and we'll be looking to expand that across the portfolio as it makes sense.
And all of the other engagement.
Actions.
Sophisticated returns sophisticated exchanges.
<unk>.
And anything that you might.
Take.
Yes.
It might take a real lot of manual effort and possibly as I think we've most of us have experienced having the banks from department to Department right nothing more frustrating and let me put you on hold and transfer you to that department of that Department of that Department, we can handle all of that customer engagement and one.
Eddie Capel: Okay, that that's great. And then any a few comments on your prepared remarks, you know, new stores activating at a record pace, where management record record go lives. Yeah, that, you know, cloud is certainly more efficient. I'm just wondering, like, for instance, this quarter, it was a really strong RPO feelings quarter. Does kind of the relationship between what's going in the cloud, RPO in the current period and the timeline for when, you know, you see it in services and ultimately see it in cloud.
One single solution and Thats really as you know, we're although the power of that capability comes from.
Great that's helpful. Thanks.
Thank you.
Oh.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, one moment, while we poll for questions.
Eddie Capel: Is that all coming in sooner so that within a 12, you know, you typically talk about a next 24 month, RPO contribution, but are you seeing more go live and kind of that 12 month timeframe has a virtue of just more being on cloud. No, I think the, you know, the initial implementation of whether it be warehouse management, point of sale or management, really hasn't changed very much from an on-prem world to a cloud world because frankly, the, you know, the design work that you do, the configuration work, the testing work, it isn't, you don't see a lot of, you know, positive impact by moving to the cloud a little because you don't have to deploy infrastructure and so forth, but not a ton, but where it really kicks in is when you start rolling at across either multiple distribution centers or multiple stores because of course you've got a single version of the software that's in the cloud and you can roll out, you can roll out much faster.
There are no further questions at this time I would like to turn the call back over to Eddie Capel for closing comments, okay very good.
Robert Thank you very much and thank you. Thank you all for your for your time today for your support of Manhattan Associates.
It's a little early to say this of course, but since I won't speak to you before everybody have a happy holiday season, and we'll look forward to speaking to you again in January bye bye.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Eddie Capel: So you don't really see a faster move from RPO to revenue, you know, that's remain remain pretty consistent, but but then as I say that the activation once you get into the flywheel gets moving tends to move a tends to move a little faster.
Joseph Vruwink: Okay, thank you very much.
Mark Chappelle: Our next question comes from Mark Chappelle with Loop Capital Mark, it's please proceed with your question. Hi, thank you for taking my question and guys nice job on the corner, especially around the new logo business and on the new logo front, just kind of building on earlier question there. And you could just talk whether you're seeing your new logo business concentrated around certain solutions more than others like like whether it's WNM or WMS or like the active on the solution.
Mark Chappelle: Yeah, no, I can comment on that Mark and it's really there is no concentration, particularly. It's pretty well balanced, you know, we know that roughly and it dispenses by quarter, about 50% of our revenue comes from, you know, from WMS and, you know, 25 by 30% from only 50% translation and so forth. And it's and it's pretty balanced across those those parameters as we always say, which is quarter by quarter a little bit, but but generally, you know, generally it's across the portfolio. You know, and and across geographies as well. So it's there's no real point of concentration for the new logos and of course we love it that way.
Eddie Capel: Great, thanks. And then I appreciate your comments around the new customer engagement solution and particularly expanding your operational footprint into the contact centers. Let me if you could just talk a little bit more about or maybe give an example to of how your solutions are actually interacting with with contact center agents. Well, you know, you tend to think about traditional call center agents, just, you know, taking a query, right, taking a call, where is my order?
Eddie Capel: You know, can I maybe maybe a change of shipment destination, maybe change of color of a product, goodness forbid, maybe even canceling an order. And of course, we take care of all of those capabilities. But but now you can think about a broader set of engagement from that call center agent all within the active army solution. So any type of, you know, case management, exception case management, you, you know, you call in need to have something found in a discovered and found in a shipping hub.
Eddie Capel: You need it moved from a certain one location to another, you need to add some kind of service capability. All of that case management can now be handled inside of our call center application, as well as, you know, all of the other engagement actions, sophisticated returns, sophisticated exchanges. And all anything that you might, may take a real lot of manual effort, and possibly, as I think we've most of us experienced, having the banks from department to department, right?
Eddie Capel: Nothing more frustrating, and let me put you on hold and transfer to you to that department or that department or that department. We can handle all of that customer engagement in one single solution, and that's really, as you know, where a lot of the power of that capability comes from.
Mark Chappelle: Great, that's helpful.
Mark Chappelle: Thanks. Thank you, Mark.
Robert: As a reminder, if you'd like to ask a question, please press star one on your telephone keypad, one moment while we pull for questions.
Unknown Executive: There are no further questions.
Eddie Capel: At this time, I'd like to turn the call back over to Eddie Capel for closing comments. Okay, very good, Robert. Thank you very much, and thank you all for your time today, for your support of Manhattan Associates.
Eddie Capel: It's a little early to say this, of course, but since I won't speak to you before everybody have a happy holiday season and we'll look forward to speaking to you again in January. Bye-bye.
Unknown Executive: This concludes today's conference.
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