Supply chain optimization software maker Manhattan Associates (NASDAQ:MANH) reported Q4 CY2024 results topping the market’s revenue expectations, with sales up 7.4% year on year to $255.8 million. On the other hand, the company’s full-year revenue guidance of $1.07 billion at the midpoint came in 6.3% below analysts’ estimates. Its non-GAAP profit of $1.17 per share was 10.4% above analysts’ consensus estimates.

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Company Overview

Boasting major consumer staples and pharmaceutical companies as clients, Manhattan Associates (NASDAQ:MANH) offers a software-as-service platform that helps customers manage their supply chains.

Vertical Software

Software is eating the world, and while a large number of solutions such as project management or video conferencing software can be useful to a wide array of industries, some have very specific needs. As a result, vertical software, which addresses industry-specific workflows, is growing and fueled by the pressures to improve productivity, whether it be for a life sciences, education, or banking company.

Sales Growth

A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, Manhattan Associates grew its sales at a 16.2% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our benchmark for the software sector, which enjoys a number of secular tailwinds.

This quarter, Manhattan Associates reported year-on-year revenue growth of 7.4%, and its $255.8 million of revenue exceeded Wall Street’s estimates by 0.9%.

Looking ahead, sell-side analysts expect revenue to grow 9% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.

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Billings

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Manhattan Associates’s billings punched in at $285 million in Q4, and over the last four quarters, its growth was solid as it averaged 16.5% year-on-year increases. This alternate topline metric grew faster than total sales, meaning the company collects cash upfront and then recognizes the revenue over the length of its contracts - a boost for its liquidity and future revenue prospects.

Customer Acquisition Efficiency

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Manhattan Associates is extremely efficient at acquiring new customers, and its CAC payback period checked in at 21.2 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Manhattan Associates more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

Key Takeaways from Manhattan Associates’s Q4 Results

It was good to see Manhattan Associates beat EPS expectations on revenue that came in slightly ahead of Wall Street's estimates. On the other hand, its revenue guidance for next year suggests a significant slowdown in demand and its full-year revenue guidance fell short of Wall Street’s estimates. Moving down the income statement, full-year EPS guidance also came in below expectations. Overall, this was a weaker quarter with the outlook weighing on shares. The stock traded down 15.3% to $250 immediately following the results.

Manhattan Associates didn’t show it’s best hand this quarter, but does that create an opportunity to buy the stock right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.