Manhattan Associates, Inc. (MANH) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The company's earnings call reflects a positive outlook with raised revenue and EPS guidance, strong cloud and services revenue growth, and a robust pipeline. Management's optimism about achieving 2026 goals, along with positive feedback on AI initiatives and strategic investments in sales and marketing, further supports this sentiment. While there are some uncertainties in AI revenue projections, the overall sentiment is positive, suggesting a likely stock price increase in the short term.
Key Financial Performance
Total Revenue $276 million, up 3% year-over-year excluding license and maintenance revenue. When excluding the compression driven by the cloud transition, total revenue was up 7%. The increase was driven by strong cloud revenue growth.
Cloud Revenue $105 million, increased 21% year-over-year. This growth was slightly better than expected and contributed to top-line outperformance.
Services Revenue $133 million, declined 3% year-over-year. The decline reflects customary budgetary constraints that shifted services work to future periods. However, there was a $2 million shift in service revenue from Q4 to Q3, which improved Q3 performance.
Remaining Performance Obligations (RPO) $2.1 billion, up 23% year-over-year and 3% sequentially. Growth was driven by strong demand and win rates, although impacted by the lumpiness of large deals and Q3 seasonality.
Adjusted Operating Profit $103 million with an adjusted operating margin of 37.5%, up about 40 basis points year-over-year. The increase was driven by strong cloud revenue growth and operating leverage as the cloud business scales.
Adjusted Earnings Per Share (EPS) $1.36, up 1% year-over-year. The increase was supported by strong financial performance, although higher tax rates due to changes in U.S. tax law impacted the results.
Operating Cash Flow $93 million, increased 9% year-over-year. Excluding the benefit from the U.S. tax law change, operating cash flow increased about 18%. The tax law change benefited Q3 operating cash flow by approximately $20 million.
Deferred Revenue $297 million, increased 17% year-over-year. Growth reflects strong bookings and customer demand.
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Operating Highlights
Agentic AI: Investing in Agentic AI across all Manhattan Active solutions, focusing on high-impact use cases for key personas. Early access program launched for warehouse, transportation, store, and contact center applications. General availability expected in early 2026.
Enterprise Promise & Fulfill (EPF): New product designed to integrate with leading ERPs like SAP, enhancing inventory monetization and customer experience. Already live with several customers, including a large global 3PL.
Supply Chain Planning: First customer live on supply chain planning, with cross-sell potential evident. Aggressively hiring planning talent to enhance capabilities and unify planning and execution.
New Customer Acquisitions: New logos represent 35% of the pipeline. Notable deals include a global medical device developer and a leading telecommunications company.
Cross-Selling and Conversions: Strong cross-sell opportunities with existing customers. Conversion program launched to migrate on-premise customers to Manhattan Active, showing early success.
Sales and Marketing Investments: Added key sales talent and launched a dedicated renewal team to maximize cross-sell and expansion opportunities.
Operational Leadership: Appointed Greg Betz as Chief Operating Officer to scale operational frameworks and enhance partner models.
Cloud Transition: Cloud revenue grew 21% in Q3, with a strong pipeline for future conversions. Targeting 20% cloud revenue growth in 2026.
Unified Product Portfolio: Focus on unifying planning and execution to differentiate from competitors and unlock new use cases.
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Risk or Challenges
Global macroeconomic volatility: The turbulent global macro environment could impact performance and cause actual results to differ materially from projections.
Seasonality and deal lumpiness: Q3 seasonality and the lumpiness of large deals pressured net new logos, impacting new cloud bookings.
Customer contract ramp timelines: Some customers are electing longer ramp timelines for contract implementation, reflecting a more conservative approach in the current macro environment.
Maintenance attrition: Maintenance attrition is expected to accelerate in 2026 as customers migrate to cloud solutions, potentially impacting revenue.
Regulatory and tax changes: The U.S. tax law change has increased tax reserves, impacting GAAP earnings per share.
Competitive pressures: The company faces competitive pressures in the supply chain commerce ecosystem, requiring continuous investment in sales, marketing, and product innovation.
Customer budgetary constraints: Customary budgetary constraints have shifted services work to future periods, impacting services revenue.
Operational scaling challenges: The company is investing in operational frameworks and talent to scale conversions and renewals, which could pose execution risks.
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Guidance & Outlook
Cloud Revenue Growth: The company expects 20% cloud revenue growth in 2026, supported by strong year-to-date bookings performance and a robust pipeline of opportunities.
Services Revenue Growth: Services revenue is expected to return to growth in 2026, driven by a strong services backlog and pipeline.
RPO (Remaining Performance Obligations): The company expects to achieve towards the high end of its 2025 RPO outlook, targeting $2.11 billion to $2.15 billion, excluding FX movements.
Adjusted Operating Margin: For 2026, adjusted operating margin is expected to expand by 50 to 75 basis points, reflecting historical trends and increased investment in sales and marketing.
Maintenance Attrition: Maintenance attrition is anticipated to accelerate in 2026 as the company drives migration of maintenance-paying customers to the cloud.
Product Launches and AI Integration: The company plans to roll out Agentic AI across its Manhattan Active solutions, with general availability for the initial set of AI agents expected in early 2026. This includes applications in warehouse, transportation, store, and contact center operations.
Market Trends and Opportunities: The company is optimistic about its long-term opportunities, driven by a diverse end-market footprint and strong pipeline across various industries, including retail, grocery, life sciences, and technology.
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Shareholder Return Plan
Share Repurchase Program: In the quarter, we leveraged our strong cash position and invested $50 million in share repurchases, resulting in $200 million in buybacks year-to-date. Additionally, our Board has approved the replenishment of our $100 million share repurchase authority.
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Key Q&A
Q:Can you share your level of optimism about RPO levels and visibility into that metric as we move into 2026 and beyond?
A:Eric Clark highlighted double-digit growth in RPO for Q3, normalized for FX, with a 23% year-over-year increase. He expressed optimism for 2026 due to a major renewal cycle over the next 18 months, involving large warehouse management customers. Renewals are expected to re-up at a larger scale, providing confidence in RPO growth.
Q:Can you elaborate on your conversion strategies and the mix of cloud for your WMS customer base?
A:Eric Clark discussed a proactive and consultative approach to conversions, targeting 100 similar warehouse customers for fixed fee, fixed timeline conversions. This strategy resulted in 30 new pipeline deals and deal closures in Q3, with more expected in Q4. The approach is driving cloud and services revenue, with plans to expand to additional cohorts in warehouse and transportation management.
Q:How does Q4 look so far compared to last year, and what are your expectations?
A:Eric Clark noted that Q4 started strong, partly due to deals pushed from Q3. He expects a strong Q4 similar to last year, following a lower bookings Q3.
Q:What impact do you expect from the hiring of Greg Betz?
A:Eric Clark expects Greg Betz to strengthen programs around conversions, renewals, and the partner ecosystem, focusing on building pipelines from existing customers and new logos faster.
Q:What are the risks associated with the fixed fee and time conversion strategy?
A:Eric Clark emphasized repeatability and similarity in the customer cohort, which minimizes surprises. He also highlighted the use of automation and AI to ensure on-time, on-budget implementations, allowing the company to monetize these efficiencies while maintaining margins.
Q:Are you tracking to your 2026 growth and margin expansion goals?
A:Eric Clark confirmed that the company is on track for 2026 goals, with current content in the right ballpark. Clear guidance will be provided in the next call.
Q:How would you describe the momentum in services as we head into 2026?
A:Eric Clark expressed optimism, citing a strengthening services pipeline and backlog. He expects to hit the high end of RPO guidance for the year and noted year-to-date growth in RPO.
Q:What lessons can be drawn from the food and beverage customer conversion example?
A:Eric Clark highlighted the success of unification and cross-sell strategies, noting that customers are increasingly recognizing the value of the unified platform, which is reflected in the pipeline and Q3 results.
Q:How are you scaling the SI ecosystem to match demand growth?
A:Eric Clark mentioned ongoing discussions with SI partners to align expectations and support. Greg Betz will oversee training and certification to build a robust ecosystem of certified consultants, ensuring partners meet company expectations.
Q:What is the receptivity to AI and agents, and how does it impact conversions?
A:Eric Clark reported strong customer interest in AI and agents, with some customers requesting early access. The ability to deploy agents quickly and integrate them into existing systems is resonating well, accelerating conversions and adoption.
Q:What investments are being made in sales and marketing for new initiatives?
A:Eric Clark described a mix of leveraging Manhattan veterans and hiring external talent. Investments include a dedicated renewal team and new leaders for TMS and POS, with a focus on building a strong sales team over the next several quarters.
Q:What are the drivers of services upside in Q3?
A:Eric Clark attributed the upside to high execution levels by the services team, which accelerated project timelines. A growing services pipeline and backlog provide optimism for 2026.
Q:How is the hiring of new go-to-market leaders progressing?
A:Eric Clark noted steady progress, with new leaders building their teams and attracting strong talent. The company is pacing hiring to ensure effective onboarding and productivity.
Q:What is the impact of generative AI internally and externally?
A:Internally, generative AI is enhancing productivity across departments, allowing the company to deliver more features and widen the competitive gap. Externally, the platform's cloud-native design enables quick deployment of AI agents, resonating well with customers. Revenue growth and margin expansion are expected, with more details to be shared in the next call.
Q:What feedback have you received from the early access program for Agentic AI?
A:Eric Clark reported positive feedback, with customers appreciating the quick deployment of standard agents and exploring custom agent opportunities. The program is generating excitement and accelerating adoption.
Q:What are the drivers of supply chain planning growth, and where do you see it by 2026?
A:Eric Clark noted strong pipeline growth, with supply chain planning serving as both a unification play and an entry point for new customers. The product is ahead of schedule in terms of adoption and pipeline.
Q:What challenges are faced in the point-of-sale (POS) business?
A:Eric Clark highlighted strong growth in POS transactions, up 80% year-over-year in Q3. The product is expanding with retail customers, driven by store growth and increased transactions.
Q:What is the gross margin impact of Agentic AI solutions?
A:Eric Clark stated that the intention is to preserve margins, with no expected dilution. Pricing details will be shared in the next call, but the focus is on revenue growth and margin expansion.
Q:How long does it take for a customer in the pipeline to convert to a booking?
A:Eric Clark explained that new logo sales typically take multiple quarters, while renewals, conversions, and cross-sell opportunities convert more quickly. Deployment timelines vary by product.
Q:Review of Unclear Management Responses
A:Management avoided providing explicit revenue growth projections for Agentic AI, citing a conservative approach and the need to finalize pricing with customers. Additionally, while confirming alignment with 2026 goals, they deferred detailed guidance to the next call.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Betz
DC
EPF
Microsoft cloud
access program
agent workflow
approach
area
chain planning
change cash
customer warehouse
date FX
date booking
developer manufacturer
factor end
flow cash
freight
inventory
law change
light factor
lumpiness deal
maintenance attrition
manufacturer distributor
network
outperformance
prem warehouse
renewal
set agent
tailwind
task
tax law
timing service
user
warehouse food
warehouse transportation
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The earnings call indicates strong financial performance with significant cash flow growth and improved margins. Product development is optimistic, especially with AI integration. The Q&A highlights confidence in cloud migrations and services growth, with bullish sentiment on AI efforts. While some responses were vague, the overall outlook is positive, with strong bookings and a robust pipeline. The predicted positive stock price movement is based on strong earnings, optimistic guidance, and potential growth in new business verticals.
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