Paced by strong domestic demand for its supply chain execution software and services, Manhattan Associates reported total revenue of $72.3 million in its recently closed third quarter, a 16% year-over-year improvement.
License revenue for the company was a record $15.2 million in the quarter closed September 30, a 21% spike from the comparable period last year. Services revenue -- the company's bread and butter -- also posted record performance, surging 17% to $51 million. Of that total, $41.3 million derived from the Americas region, a 21% increase over the like period last year. International services revenues totaled $9.7 million, up 3% year over year.
Net income in the third quarter came in at $5.2 million, slightly better than the $4.9 million reported in the comparable period last year. Diluted earnings per share rose from 17 cents a year ago to 19 cents in the most recent quarter. The company's balance sheet has benefited from its recent solid performances. As of the end of the third quarter, said CFO Dennis Story on a conference call to announce the results, Manhattan Associates' cash and investments totaled $117.6 million, a sizable upgrade from the $93.7 million logged at the end of 2005.
Based on the performance of the first three quarters, CEO Pete Sinisgalli said the company has revised upward its forecast for adjusted, or non-GAAP, earnings per share. Earlier guidance had been a full-year adjusted EPS of $1.01-$1.05. The new expectation is for adjusted EPS of between $1.02 and $1.10. Sinisgalli said analysts could expect fourth-quarter adjusted EPS of 24 cents to 32 cents.
The story of Manhattan Associates' quarter and year has been its strong growth in the Americas region that offset relatively weak performance in the EMEA and Asia-Pacific markets. The company's sales in the Americas dwarf those in its two international regions. Third-quarter license revenue growth of 46% in the Americas translated to a total of $14 million -- 92% of all license revenue.
CFO Story attributed the quarter's 58% year-over-year decline in international license revenue to a traditional seasonal lull and a depressed spending climate in the EMEA region. Sinisgalli called the numbers "somewhat disappointing," and added, "We believe the tough economic environment in EMEA is restricting capital investments for most companies."
The numbers were also notable in light of the company's drive to recognize nearly 33% of its total revenue from international sales within several years. In the third quarter, international revenues comprised just 15.9% of the total. Sinisgalli pointed to the company's investments in Asia-Pacific as future growth drivers. "In Asia-Pacific, we're in two markets relatively new to Manhattan Associates in China and Japan. We believe those markets will be attractive long-term supply chain management markets for us, but will continue to take some time for Manhattan to establish itself for the long run."
Story and Sinisgalli noted that the company's sales growth for warehouse management systems seems to be outpacing analysts' predictions for general market growth. In answer to an analyst's question, Sinisgalli said, "We get the same reports that I think you and others see of somewhere around 5% [market] growth." Manhattan Associates' growth, he said, is two and a half to three and a half times that rate.
The executives also noted that the average size of deals was higher in the third quarter, and noted three contracts that each yielded more than $1 million in recognized revenue in the quarter. Two of those deals were new clients, Sinisgalli said, while the third was signed with an existing Manhattan Associates customer. Likewise, two involved software for warehouse management, the other software for transportation management.
In the third quarter, the sales ratio for the company's product lines was 60% warehouse management (WMS) products and 40% non-WMS products. Consumer goods and retail companies accounted for more than half of Manhattan Associates' license revenue in the quarter.
Sinisgalli cited the company's investment in research and development as the cornerstone of its competitive advantage. More than 700 workers -- over a third of the company's 1,900-person payroll -- are employed in R&D. The majority of those workers are based in India.
In an interview last week, Mike Matacunas, Manhattan Associates' vice president of product development, shed some light on the directions the supply chain vendor might take in the future. One area for improvement, Matacunas said, involves a manufacturer's ability to quickly adjust product-flow based on demand shifts. This, he said, requires a level of visibility that was "very difficult, between process and technology, to have enabled in the past." Matacunas said Manhattan Associates' portfolio of products -- trading partner management, event management, transportation management, replenishment list, distributed order management, and others -- puts that functionality within reach.
A related avenue for future product development involves the use of simulation analytics to enable the decision making behind such planning. The technology would allow a supply chain executive to see the financial and planning implications of what Matacunas referred to as dynamic reallocation of products -- a version of shift-on-the-fly supply chain planning.