Summary
Manhattan Associates reported record second-quarter 2021 revenue and earnings. Total revenue was $166.1 million, up 22.5% from the prior-year quarter. Operating income was $39.4 million, up 47.4%. Net income was $30.6 million, up 59.3%. Diluted earnings per share was $0.48, up 60.0%. Operating margin was 23.7%, up 4.0 percentage points. For the first six months of 2021, revenue was $323.0 million, up 11.5%. Operating income was $64.8 million, up 27.3%. Net income was $53.2 million, up 27.6%. Diluted earnings per share was $0.83, up 27.7%. Operating margin was 20.1%, up 2.5 percentage points.
Remaining performance obligations, or RPO, reached $488.7 million at June 30, 2021, up 116.7% from the prior-year quarter. Deferred revenue was $126.0 million, up 6.1%. Operating cash flow was $45.5 million in the second quarter, down 6.7%. For the six months, operating cash flow was $85.4 million, up 41.4%. Capital expenditures were $0.6 million in the quarter, up 18.7%, and $1.2 million for the six months, down 33.2%. Days sales outstanding was 62 days at June 30, 2021, compared to 61 days at March 31, 2021. During the quarter, the company repurchased 243,273 shares for $32.9 million. In the six months, it repurchased 457,695 shares for $59.9 million. In July 2021, the board authorized up to $50 million of additional repurchases.
Management raised full-year 2021 revenue and EPS guidance. The company now expects adjusted diluted earnings per share of $2.00 to $2.06, which represents 14% to 17% growth. Adjusted operating margin guidance is 25.5% to 26.0%. Previous adjusted EPS guidance was $1.60 to $1.70, and previous adjusted operating margin guidance was 21.0% to 22.0%. The company remains cautious about the global recovery from the COVID-19 pandemic, which it expects to be slow and protracted. Demand for cloud solutions is strong. Cloud solutions represented 77% of total software revenue in the first half of 2021, and 90% of the pipeline is cloud solutions. International revenue was approximately 30% of total revenue. The company employed approximately 3,500 people worldwide at June 30, 2021.
The quarter's growth came with several risks. The company faces a long transition from perpetual licenses to cloud subscriptions, which spreads revenue recognition over time. Competition is intense in supply chain and omnichannel software. Pricing pressure, long sales cycles, foreign currency fluctuations, and global economic volatility could affect results. The company has no debt. It has cloud infrastructure obligations of approximately $72 million over the next five years and internal software obligations of approximately $12 million over the next three years. Management continues to invest in research and development and in the cloud transition. The company expects to fund these investments from existing cash and operating cash flow.
Manhattan Associates did not provide specific GAAP revenue guidance figures in the release, but the raised adjusted outlook signals confidence. The RPO increase of 116.7% to $488.7 million is a key forward-looking indicator. Deferred revenue growth of 6.1% to $126.0 million was slower than RPO growth, reflecting the different contract types. Operating cash flow declined in the quarter but rose for the six-month period. The company's cash balance and share repurchase activity show a strong financial position. The main challenge is executing the cloud transition while managing costs and competition.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $166.1M | $156.8M | +5.9% | $135.6M | +22.5% |
| Gross profit | $95.5M | $82.8M | +15.3% | $72.6M | +31.5% |
| Gross margin | 57.5% | 52.8% | +4.7 pp | 53.5% | +3.9 pp |
| Research & development | $23.2M | $24.3M | -4.3% | $19.9M | +16.5% |
| Sales & marketing | $13.8M | $13.4M | +2.6% | $9.7M | +41.6% |
| General & administrative | $17.1M | $17.6M | -2.8% | $14.0M | +21.9% |
| Total operating expenses | $126.8M | $131.4M | -3.6% | $108.9M | +16.4% |
| Operating income (loss) | $39.4M | $25.4M | +54.8% | $26.7M | +47.4% |
| Operating margin | 23.7% | 16.2% | +7.5 pp | 19.7% | +4.0 pp |
| Net income (loss) | $30.6M | $22.6M | +35.1% | $19.2M | +59.3% |
| Net margin | 18.4% | 14.4% | +4.0 pp | 14.2% | +4.3 pp |
| Diluted EPS | $0.48 | $0.35 | +$0.13 | $0.30 | +$0.18 |
Risks
Manhattan is in year 4 of its transition to a cloud-first business, and the shift from perpetual licenses to cloud subscriptions spreads revenue recognition over the subscription term (typically 36 to 60 months) rather than up front. Management states this pace of transition, combined with extended lead times for new business, can cause uncertainty and impact its ability to accurately forecast bookings and revenues from quarter to quarter and over the longer term.
The company sells solutions with total pricing in many cases exceeding $1.0 million, and management warns that sales cycles for large cloud subscriptions and, to a lesser degree, license sales of $1.0 million or greater could be extended given the challenging macro environment. Timing of a few large license transactions can materially affect results: management notes that $0.8 million of pre-tax profit or expense in the second quarter of 2021 equates to roughly one cent of diluted earnings per share.
Management remains cautious about the global recovery from COVID-19, which it expects to be slow and protracted, and says global geopolitical and economic volatility associated with the pandemic likely will continue to shape customers' and prospects' enterprise software buying decisions. Roughly 70% of total revenue in both the three and six months ended June 30, 2021 was generated in the United States, and Gartner estimates nearly 75% of supply chain software spend occurs in North America and Western Europe, concentrating exposure to those economies.
Management expects continued increased competition from Enterprise Resource Planning and Supply Chain Management application vendors and other business application software vendors that may broaden their offerings by internally developing or acquiring or partnering with independent developers. Increased competition could result in price reductions, fewer customer orders, reduced gross margins, and loss of market share.
Services revenue was 51% of total revenue in both the three and six months ended June 30, 2021, and management states that due to this large services mix, the consolidated operating margin profile may be lower than those of competitors. The professional services business also faces competitive exposure to offshore providers and other consulting companies, creating risk of pricing pressure, fewer customer orders, reduced gross margins, and loss of market share.
The company employed approximately 3,500 employees worldwide at June 30, 2021 and is investing in and growing headcount capacity to support customers and grow the business. Attracting and retaining highly skilled employees is listed among the factors that could cause actual results to differ materially, and compensation and performance-based compensation costs rose across cost of revenue, R&D, sales and marketing, and G&A in the six months ended June 30, 2021.
Manhattan allows existing customers to convert maintenance contracts to cloud subscription contracts and expects continued conversion opportunities, which reduces maintenance revenue recognized up front. Maintenance revenue grew only 5% in the second quarter of 2021 and 3% in the six months ended June 30, 2021, and maintenance fell to 23% of total revenue in the six months ended June 30, 2021 from 25% in the prior-year period.
As part of the cloud subscription transition, the company has entered into multiple non-cancellable contracts for cloud infrastructure services, with obligations of approximately $72 million over the next 5 years as of June 30, 2021, plus approximately $12 million of internal software subscription obligations over the next 3 years. These fixed commitments must be funded from working capital even if cloud demand or revenue timing shifts.
SaaS KPIs
All quarters →Cloud Subscription Revenue
Remaining Performance Obligations (RPO)
Summary, forecast, risks and KPIs are extracted from MANHATTAN ASSOCIATES INC's SEC filings for Q2 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.