Services Prop Up Manhattan Associates In Q2, Capel Tapped As Next CEO

August 6, 2012 Timothy Prickett Morgan

Supply chain software maker Mahattan Associates, like many other software sellers out there in recent months, has seen license sales dip while at the same time seeing an uptick in services revenues, therefore saving its financial cookies.

In the second quarter ended in June, software license sales at Manhattan Associates fell by 6.1 percent, to $15.3 million, a pretty fast deceleration from the first quarter of the year, when license sales more than doubled to $15.6 million. This may be the new normal for the company, which is still a pretty good clip for new software licenses. Services revenues in the June quarter were $69.3 million, up 8.7 percent and down a smidgen sequentially. Hardware sales–including the peddling of IBM Power Systems iron–rose 7.5 percent to $8.9 million. Overall revenues were $93.6 million, up 5.8 percent.

Net income in the second quarter rose more than twice as fast as revenues, up 14.9 percent to $14.2 million. The company exited the quarter with $100.9 million in cash and investments in the bank, and $52.7 million in deferred revenues.

In a conference call with Wall Street analysts going over the numbers, Pete Sinisgalli, chief executive officer at Manhattan Associates, said the revenues and earnings set records for a second quarter at the company, with about 60 percent of software licenses revenues being driven by the WMS stack and 40 percent from other software the company sells. Distributed order management and order lifecycle management software sold well, as did transportation management modules. About 55 percent of software license sales in the quarter came from new customers. The services organization did 80 deals to deploy application software at customer sites in the quarter as well. Sinisgalli added that the company closed two deals worth in excess of $1 million for its Warehouse Management System, and that it had a 67 percent win rate on deals it was involved in during the quarter–this is pretty good considering how many aggressive and larger competitors Manhattan Associates has out there in the midrange.

Sinisgalli raised the guidance for the rest of the year despite the slowdown in license sales, thanks to a strong order pipeline over the next couple of quarters. Manhattan Associates now thinks it can grow revenues by between 11 and 14 percent, to $365 million to $375 million, for the full year, and bring earnings per share (under GAAP rules) to $2.37 to $2.47 a pop, an increase of 13 to 18 percent over last year’s haul.

With everything rocking and rolling, the board of directors decided now was a good time to pick a CEO in advance of Sinisgalli’s retirement. Sinisgalli came on board as president and COO back in February 2004 and took the CEO reins that following July, and it is not surprising that the Manhattan Associates board has tapped Eddie Capel, who has been at the company for 12 years and who was named chief operating officer of the company back in January 2011, to be the next CEO. Sinisgalli will be sticking around on the board when he steps down as CEO on January 1, 2013 and Capel steps up; John Huntz will remain chairman of the board.