Manhattan Associates Leads in Warehouse Management Niche and Enjoys Favorable Switching Costs

Senior Equity Analyst

Dan Romanoff

Manhattan Associates is the clear leader in the warehouse management systems (WMS) software niche, in our view. Supply chains are complex and any disruption to warehouse operations could have a significant ripple effect among all nodes in the chain, which is captured in sticky customer relationships. When normalized for COVID-19, we view the company as capable of driving low-double-digit revenue growth annually over the next five years, with earnings growth of approximately 18% during that time. In 2020, Manhattan Associates introduced a cloud version of its flagship warehouse management solution. As a result, we see a years-long mix shift from on-premises to cloud adoption.

Manhattan Associates provides software that helps users manage their supply chains, inventory, and omnichannel operations. Customers are generally retailers, wholesalers, manufacturers, and logistics providers. We think these solutions are critical to customer operations, as they enable users to optimize inventory throughout the entire supply chain, to manage inventory and fulfill orders, and to manage retail storefront inventory, point of sale (POS), ordering, and omnichannel operations. Because Manhattan provides all these discrete but related solutions on a single platform, we believe it is a very attractive solution to customers, as it presents a unified view. Manhattan differentiates itself by doing much of the implementation and update work.

Manhattan Associates serves more than 1,000 blue-chip customers. These customers tend to have more complex supply chain, distribution center, warehouse, and retail footprints. The company enjoys renewal rates on maintenance contracts in excess of 90%, with cloud renewal retention near 100%. We see the Active Omnichannel SaaS solution as a critically important development that should propel the company for the next decade. In our view, Active Omni empowers traditional retailers to more effectively compete with Amazon.

We think the WMS market is approximately $3 billion, but layering in omnichannel creates a faster growing opportunity in the $10 billion area.

Business Strategy & Outlook

We assign a narrow moat rating to Manhattan Associates, driven by high customer switching costs and further supported by intangible assets. We believe switching costs, and to a lesser extent intangible assets, have historically enabled Manhattan to generate returns on invested capital well in excess of its cost of capital. We expect ROICs to trend down for several more years as the company’s transition to a subscription model advances, but still remain far above the cost of capital. Combined with the company’s high customer retention and strategic importance of its solutions, we have confidence that such excess returns will probably continue for the next 10 years. 

Manhattan Associates provides software that helps users manage their supply chains, inventory, and omnichannel operations. Customers are generally retailers, wholesalers, manufacturers, and logistics providers. Importantly, we believe more than 50% of revenue is derived from retail. We think these solutions are critical to customer operations, as they enable users to optimize inventory throughout the entire supply chain, to manage inventory and fulfill orders, and to manage retail storefront inventory, point of sale (POS), ordering, and omnichannel operations. Because Manhattan provides all of these discrete but related solutions on a single platform, we believe it is a very attractive solution to customers, as it presents a unified view. 

Omnichannel operations are absolutely essential for modern retail and manufacturer operations because they enable consumers to make purchases based on whatever means are most amenable to them. For example, a consumer can walk into a store, try on an article of clothing, and bring it to the register to pay. If the item does not fit, they can try on a different color, bring the item to the register and purchase the item at the register they want, and have it shipped directly from the manufacturer to the store, or from any of the stores in the chain directly to the consumer. This approach removes friction from consumers' purchase process. Previously, this process may have resulted in a lost sale. Omnichannel also includes ordering a product from a retailer online, and then going to pick it up later that day from a local storefront. Importantly, this completes the sale but also provides a trove of data about that consumer’s buying habits that are captured by the retailer. It also provides a consistent customer experience regardless of the channel they choose to make a purchase through. In an age where consumers have grown accustomed to shopping on Amazon, this experience is essential and can even offer competitive advantages, such as the ability to return items purchased online to a physical store. Lastly, and importantly, a modern system that can effectively manage inventory and facilities can also help improve working capital efficiency and margins. 

Manhattan Associates enjoys 90%-plus renewal rates on annual maintenance renewals, which has not changed over the last decade. We see a warehouse management or omnichannel installation as being a difficult undertaking that a company would be willing to do just once every eight-10 years. Even then, we believe the impetus to change is minute. For its part, the company enjoys annual maintenance contract renewals of 90%-plus. Since the introduction of cloud versions of its software in 2017, cloud renewal retention rates have neared 100%.

We see intangible assets as a supporting moat source. Specifically, we see value in more than 1,000 customer relationships that span decades, a single architecture from a platform that is nearly entirely organic, narrowly focused and dedicated R&D, and decades of accumulated expertise in special end market requirements. The roster of longtime customers is impressive, especially for a relatively small software company, and includes an enviable list of well-known blue chip names. Manhattan has built a reputation over heavy research and development over a prolonged time period--more than $600 million during the last decade. R&D has averaged approximately 11.5% of revenue during this period, with a notable uptick to 14% in the last two years, which we think is investment related to driving Manhattan to the cloud. We expect R&D spending to average approximately 13% of revenue over the next decade.

Most products are organically developed, as Manhattan associates has completed just four acquisitions in the last 20 years. We think this organic approach shows the industry is generally slow moving, hence the long-term customer relationships, and serves as an advantage as it allows the company to maintain a single cohesive code base. Customers have used three to four solutions on average over the course of the last decade. We do not think this has changed much at all, but we note organic product development has certainly provided a growing upsell opportunity. 

A unified platform and highly specialized product development have allowed Manhattan to position itself as the high-end solution provider over a period of many years now. The company targets companies with more than $250 million in revenue. Further cementing this status is the rather unique approach the company has taken to implementing its systems. While most software companies have a services group to execute implementations and training, Manhattan has made it a point to keep most implementation work in house. It has been able to do so because the absolute number of deals in any given year is manageable--a handful of large deals per quarter, with a variety of smaller deals. This approach has enabled Manhattan to deepen its vertical expertise within its served markets, while removing more expensive system integrators from the chain, thus reducing the total cost of ownership. 

Based on a wide variety of sources we have seen over the years, we think the market is approximately $10 billion, growing in the midsingle digits annually. Manhattan’s chief competitor over the past decade has been JDA, which was acquired by Red Prairie Software in 2012, later changed its name to Blue Yonder in 2018, and remains wholly owned by New Mountain Capital. We think Manhattan benefits from having its chief rival owned by private equity, as Manhattan is not burdened with debt or a dividend in an LBO scenario the way Red Prairie is. Other competition has generally come from HighJump Software, IBM’s Sterling Commerce, and the large ERP vendors, including Oracle, SAP, and Infor. Competitive win rates have bounced between 67% and 75% over the past 15 years but have held steady at approximately 70% since 2018. While the competition hasn't changed much over the years, we think it likely that over time Manhattan will increasingly bump up against the large industrial automation players.

Narrow

Economic Moat

Manhattan Associates

Manhattan Associates, Inc. engages in designing, building and delivering supply chain commerce solutions by converging front-end sales with back-end supply chain. It operates through the following geographical segments: The Americas, Europe, Middle East and Africa and Asia Pacific. The company was founded by Deepak Raghavan in October 1990 and is headquartered in Atlanta, GA.

Earnings data Q1 2024

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Manhattan Associates, Inc. engages in developing, selling, deploying, servicing, and maintaining software solutions. Its solutions focus on supply chains, inventory, and omnichannel for retailers, wholesalers, manufacturers, logistics providers and other organizations. It operates through the following geographical segments: The Americas, Europe, Middle East and Africa, and Asia Pacific. The company was founded by Deepak Raghavan in October 1990 and is headquartered in Atlanta, GA.

Here is how Manhattan Associates (MANH) and Arlo Technologies (ARLO) have performed compared to their sector so far this year.

Are Computer and Technology Stocks Lagging Manhattan Associates (MANH) This Year?

Trimble

Logistics refers to processes that allow products to get from point A to point B. Investors have long realized the value that Logistics firms provide to the economy overall.

Top Picks: 3 Logistics Tech Stocks Streamlining Supply Chains

Broadcom

NVIDIA

Palantir Technologies

QUALCOMM

Synopsys

Technology Select Sector SPDR Fund

The signals are growing stronger and stronger for tech stocks.  If the Federal Reserve continues to see firm economic signals, it will inevitably choose to lower rates shortly.

7 Tech Stocks to Load Up On Ahead of Lower Borrowing Costs

OSLO--(BUSINESS WIRE)--Manhattan Associates Inc. (NASDAQ: MANH) today announced that Norway's largest grocery retailer, NorgesGruppen, has chosen Manhattan Active® Warehouse Management (Manhattan Active WM) to meet the expanding delivery expectations for the customer for its premium supermarket brand, MENY. The NorgesGruppen family includes household Norwegian brands such as Kiwi, Meny, Spar and Joker, covering the full range of grocery retail, including everything from discount and convenience.

NorgesGruppen Picks Manhattan to Support Growth of Its Premium Supermarket Brand MENY

Manhattan Associates (MANH) could produce exceptional returns because of its solid growth attributes.

3 Reasons Why Growth Investors Shouldn't Overlook Manhattan Associates (MANH)

Manhattan Associates (MANH) shares have started gaining and might continue moving higher in the near term, as indicated by solid earnings estimate revisions.

Earnings Estimates Rising for Manhattan Associates (MANH): Will It Gain?

Applied Materials

Intel

Federal Reserve Chair Jerome Powell has hinted at the likelihood of implementing further interest rate hikes to counter inflation with a potential tightening slated for the December meeting. Although market expectations lean towards a pause, Powell underscored the nuanced equilibrium required to tackle inflation without causing undue economic harm.

3 Tech Stocks That Are Disrupting Entire Industries

Ballard Power Systems

Canoo

Marqeta

UiPath

Symbotic Inc

Volatility and a souring macroeconomic outlook have created a lot of downward pressure for tech stocks in recent weeks, investors fearing the high valuations many of them boast are unsustainable as growth prospects dim. Despite the broader pressures, this hasn't tarnished potential of emerging tech stocks.

7 Emerging Tech Stock Disruptors With Significant Upside

Manhattan Associates (MANH) is well positioned to outperform the market, as it exhibits above-average growth in financials.

Is Manhattan Associates (MANH) a Solid Growth Stock? 3 Reasons to Think "Yes"

Manhattan Associates, Inc. (NASDAQ:MANH ) Q3 2023 Earnings Conference Call October 24, 2023 4:30 PM ET Company Participants Michael Bauer - Head, Investor Relations Eddie Capel - President and CEO Dennis Story - EVP and CFO Conference Call Participants Terry Tillman - Truist Securities Brian Peterson - Raymond James Joe Vruwink - Baird Mark Schappel - Loop Capital Markets Operator Good afternoon. My name is Robert and I'll be your conference facilitator today.

Manhattan Associates, Inc. (MANH) Q3 2023 Earnings Call Transcript

While the top- and bottom-line numbers for Manhattan Associates (MANH) give a sense of how the business performed in the quarter ended September 2023, it could be worth looking at how some of its key metrics compare to Wall Street estimates and year-ago values.

Manhattan Associates (MANH) Reports Q3 Earnings: What Key Metrics Have to Say

Manhattan Associates (MANH) came out with quarterly earnings of $1.05 per share, beating the Zacks Consensus Estimate of $0.77 per share. This compares to earnings of $0.66 per share a year ago.

Manhattan Associates (MANH) Beats Q3 Earnings and Revenue Estimates

ATLANTA--(BUSINESS WIRE)--Leading Supply Chain and Omnichannel Commerce Solutions provider Manhattan Associates Inc. (NASDAQ: MANH) today reported revenue of $238.4 million for the third quarter ended September 30, 2023. GAAP diluted earnings per share for Q3 2023 was $0.79 compared to $0.47 in Q3 2022. Non-GAAP adjusted diluted earnings per share for Q3 2023 was $1.05 compared to $0.66 in Q3 2022. “We are pleased with our quarterly and year-to-date results. Solid demand for our industry leadin.

Manhattan Associates Reports Record Revenue and Earnings

Adobe

This is option expiration week in the month of October. The S&P 500 has typically risen in this week.

Stocks This Week: Buy Manhattan Associates And Adobe

Advanced Micro Devices

Frontline

As investors and traders alike have settled into the “higher for longer” mindset for interest rates, U.S. equities have experienced a lot of selling pressure in recent weeks. The S&P500 is down 2% in the last 3 months, while the Nasdaq has fallen 1.44%.

Unlock Prosperity: The Top 3 Stocks Every Ambitious Investor Needs Now

Supply chain management firm Manhattan Associates helps clients address changing shopper behavior as MANH stock breaks out.

Price Pain Alters 89% Of Shoppers. This Firm Sees Opportunity.

ATLANTA--(BUSINESS WIRE)--Today Manhattan Associates Inc. (NASDAQ: MANH) announced the findings of its latest international omnichannel research, highlighting how retailers are increasingly digitizing their in-store offering in efforts to improve customer experiences and maintain market share, at a time where cost-of-living challenges have affected the shopping habits of 89% of consumers. THE CHANGING FACE OF THE STORE Trending in the right direction, 54% of retailers reported that their custom.

Mounting Inventory Visibility Challenges Add Pressure to Strapped Retailers

BYD Co Ltd

The tech sector has been hit hard by the market volatility and the uncertain macroeconomic outlook in September 2023. Many investors have been selling their tech stocks.

3 High-Momentum Tech Stocks Shooting for the Stars

ATLANTA--(BUSINESS WIRE)--Manhattan Associates Inc. (NASDAQ: MANH) today announced it will release its third quarter 2023 financial results on Tuesday, October 24, 2023, after the stock market closes. The press release will be followed by a conference call hosted by Manhattan Associates senior management at 4:30 p.m. Eastern time, also on October 24. Investors are invited to listen to a live webcast of the conference call through the Investor Relations section of the Manhattan Associates websit.

Manhattan Associates Announces Date for Reporting Third Quarter 2023 Financial Results

Manhattan Associates provides supply chain and inventory management software and services globally. The company has performed well in the past year but is facing increasing pressures in an uncertain macro environment. The worldwide market for supply chain management software is expected to grow at a CAGR of 10.7% from 2021 to 2030.

Manhattan Associates Contends With Volatile Macro Environment

Amazon

Paylocity Hlds

Super Micro Computer

We have narrowed our search to five technology giants that have strong potential left for the rest of 2023. These are: SMCI, PCTY, NVDA, MANH, AMZN.

Fed Likely to Pause Rate Hike in September FOMC: 5 Picks

ATLANTA--(BUSINESS WIRE)--Manhattan Associates Inc. (NASDAQ: MANH) today announced that Duluth Trading Company, a renowned casualwear, workwear and accessory retailer for men and women, has successfully implemented Manhattan Active® Warehouse Management at its new distribution and fulfillment facility in Adairsville, Georgia. Officially open today, this highly automated facility will help Duluth Trading better serve its 65 retail stores and growing ecommerce business. Known for its high-quality.

Duluth Trading Company Implements Manhattan Active® Warehouse Management at New State-of-the-Art Georgia Distribution Center

Netflix

Carvana

ServiceNow

S&P 500 giants Amazon, Netflix and ServiceNow boast relative strength lines at new highs while still in bases, earning a coveted "blue dot."

S&P 500 Giants Amazon, Netflix Headline 5 Real Market Leaders Near Buy Points

Manhattan Associates, a maker of supply-chain software, has soared 66% in 2023 as its transition to software as a service gains momentum.

Why Manhattan Associates Is Guarded On Generative AI Amid Shift To Cloud

ATLANTA--(BUSINESS WIRE)--Manhattan Associates Inc. (NASDAQ: MANH) has announced enhanced Returns Management capabilities to streamline and optimize the returns process, and deliver a frictionless experience for both consumers and retailers. The new returns features strengthen customer loyalty by creating a frictionless experience, promoting an increase in store traffic and cross-selling opportunities. Manhattan's 2023 Unified Commerce Benchmark revealed that 41% of shoppers find the returns pr.

News for Manhattan Associates Stock (MANH)