Good afternoon, my name is Mike and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Q3 2020 Earnings Call. [Operator Instructions] After the speakers' remarks, there'll be a question-and-answer period. [Operator Instructions] I would now like to introduce Eddie Capel, CEO; Dennis Story, CFO; and Matt Humphries, Senior Director of Investor Relations. Mr. Humphries, you may begin your conference.

Thank you, Mike, and good afternoon everyone. Welcome to Manhattan Associates Third Quarter 2020 Earnings Call. I will review our cautionary language and then turn the call over to Eddie Capel, our CEO. During this call, including the question-and-answer session, we may make forward-looking statements, regarding future events or the future financial performance of Manhattan Associates. We caution that these forward-looking statements involve risks and uncertainties and are not guarantees of future performance, and that actual results may differ materially from the projections contained in our forward-looking statements. I refer you to the reports Manhattan Associates files with the SEC for important factors that could cause actual results to differ materially from those in our projections, particularly our annual report on Form 10-K for fiscal year 2019 and the risk factor discussion in that report, as well as any risk factor updates we provide in our subsequent Form 10-Qs. We note in particular that uncertainty regarding the impact of COVID-19 pandemic on our performance could cause actual results to differ materially from our projections. We are under no obligation to update these statements. In addition, our comments include certain non-GAAP financial measures in an effort to provide additional information to investors. We've reconciled all non-GAAP measures to the related GAAP measures in accordance with SEC rules, you'll find reconciliation schedules in the Form 8-K we submitted to the SEC earlier today and on our website at manh.com. Now, I'll turn the call over to Eddie.

Terrific. Thanks, Matt. Well, good afternoon everybody and thank you for joining us as we review our third quarter 2020 results, discuss our outlook for the remainder of the year and provide at least some initial thinking around 2021. So for the quarter, Manhattan reported total revenue of $150 million and adjusted earnings per diluted share of $0.51. Both of these exceeded our expectations. Broad revenue outperformance across -- really all of our business lines, combined with a continued focus on expense management, also drove strong earnings leverage in the quarter. Now, using our markets and our customer base as reference points. We're starting to see some modest improvement in the global macro economic situation. Whilst, clearly there is still a very long way to go in terms of reaching back to a normal operating environment, we are encouraged by the level of activity we're seeing in our pipeline. Specifically with our new Manhattan Active Warehouse Management solution. In fact we closed a record multi-million dollar Manhattan Active WM deal in Q3 with a large national beverage distributor. And while early, we're off to a solid start in Q4 as well. And as such, we're raising our full-year total revenue and adjusted EPS guidance to reflect our views for the balance of the year. Additionally, despite the turmoil globally, we remain committed to organic growth. We're on track to invest nearly $80 million into research and development this year, furthering our competitive positioning through new innovation, while growing our addressable market. And through our ongoing engagement with customers and prospects, we continue to see business fundamentally rethinking the future state of their supply chains, distribution footprints and omni-channel commerce strategies. Some of this rethinking is being driven by consumer demand with nine out of 10 consumers wanting our omni-channel experience…

Thanks, Eddie. As mentioned, third quarter total revenue was $150 million, down 8% over prior year, due pretty much solely to COVID-19. Our total revenue estimate for the fourth quarter is a range of $135 million to $140 million. Adjusted earnings per share was $0.51 in the quarter. GAAP earnings per share was $0.39 with stock-based compensation accounting for the difference between adjusted and GAAP EPS. Our adjusted earnings per share target for the fourth quarter is $0.32 within a range of $0.30 to $0.34. Starting with cloud, revenue for the quarter was $21.1 million, up 14% sequentially and up 48% year-over-year, despite a tough comp due to our Q3 2019 FEMA cloud deal. We signed two new Manhattan Active Warehouse Management deals in the third quarter, both global Tier 1 customers and continue to see strong pipeline demand for our cloud solutions with notable strength in Manhattan Active WM, Manhattan Active Omni and TMS solutions. About 50% of our deals in the quarter came from Active DM products and over 20% of our bookings were from new customers. For Q4, we estimate our cloud revenue will be about $22 million, which represents about 40% growth year-over-year. For the full-year, we estimate our cloud revenue will be $78 million to $79 million, up 68% year-over-year from the midpoint. License revenue was solid in the quarter at $13.2 million, well above our expectations, as several Q4 pipeline opportunities accelerated into Q3. Overall license is down 28% year-to-date and continues to attrite as strong demand for our solutions continues to shift to cloud. We signed three $1 million plus deals in the quarter with roughly 30% of our license deals coming from new customers. For the fourth quarter, we expect between $4 million and $5 million in license revenue. And for the…

Alright. Thanks, Dennis. Well, look, we're overall -- we're very pleased with our performance this quarter and well -- clearly we're operating in challenging times, we continue to focus on driving operational and financial results as we progress further on our cloud journey. With a strong business foundation, we expect to further extend our market leading position with the supply chain and omni-channel commerce solutions. And we do so, we'll be continuing to innovate to advance -- in advance of market demand, leveraging our technical and domain expertise in order to provide our customer solutions, which position them for success in a dynamically and a rapidly changing world. We certainly see no shortage of opportunities to expand our addressable market, while further strengthening our competitive position. So, in closing today's call, I did want to take a brief moment to thank all of our customers, thank our employees and our shareholders around the world for all of your patients, focus and engagement over the past seven months or so. It's been nothing short of remarkable and for one I'm grateful for it. So again I expect Manhattan will continue to push possible expanding our industry leading product portfolio, while driving revenue growth and profitable execution for years to come as we benefit from the growing tailwinds within supply chain and omni-channel commerce. So Mike, over to you. And we are now ready to take questions.

[Operator Instructions] Your first question comes from Terry Tillman from Truist Securities.

Yes. Hi, good afternoon and thanks for taking my questions. Congrats on the quarter and the strength of the cloud WMS. Eddie, maybe, the first question just for you is, as we go back and look at historical, kind of, cycles around WMS upgrades, and we look at currently this e-commerce megatrend. Maybe could you talk about are we starting to see a WMS upgrade cycle? And if so, how is that compared to prior upgrade cycle, just would love a little -- learn a little bit more about that potential and in relationship to e-commerce?

Yes. Well, I mean, there's a couple of dynamics, Terry, .you pointed the e-commerce dynamic, no question that we've all seen that accelerate -- it's been accelerating for the last several years. But over the last seven months or so a real acceleration there. I think we would all agree. We don't see it turning back, you look at there at a distribution center construction, it's still very, very vibrant for sure, the need for modern facilities to the highly automated, driven with a balance of robotics and human capital, certainly drive the need for a modern flexible agile Warehouse Management System and that's where we've positioned our self. So, we've got, kind of, two dynamics going here, the growth of e-commerce, but also as you pointed out that replacement cycle in -- frankly some of the industries that have not seen strong replacement cycles, historically, particularly grocery, food and beverage that have been, pretty static from a technology -- distribution technology perspective over a number of years, now starting to see the need and driven by consumer demand to drive, through modern Warehouse Management Systems. And we feel like we're on the forefront of that. The fact that we're now delivering our Warehouse Management System versionless and in the cloud is really an added advantage, right? It's access to open near immediate, that innovation and speed of deployment in a world that certainly requires that. And as we pointed out, certainly the market enthusiasm certainly seems to be strong.

Understood. And I guess, Dennis just a follow-up question as it relates to the guidance. When we're looking at '21, I guess, I'd like to hear a little bit more perspective, one of the prepared remarks you made was with some of these transactions in the cloud side, you're five of the relationship to be much larger than year one. So what I'm curious about, your launch cloud WMS, the native WMS cloud product in May. If you're signing large deals, whether it was in 2Q or 3Q or even 4Q. Is it safe to say there is actually just not a lot of subscription revenue impact into '21 and it's really starts to ramp more into '22. Just trying to understand, kind of, how that would phase-in. Thank you.

Yes, that's correct, Terry. It will phase-in, it will actually phase-in into the first, second and third year of the contract as a general rule, but short-term, short-term drag on cloud revenue, but long-term values created for Manhattan on the go forward.

And you see that in the RPO.

Yes.

Yes. One, and then just last question is on the RPO. Has there been any duration change just how if the consumption coming along from a contracting standpoint. What is the duration like compared to prior quarters, so we can, kind of, look at that in the RPO? Thank you.

Yes, thanks for saying. In the very early days, we're seeing little bit shorter contract, contract values, but it seems to be stabilizing, kind of, a roundabout five year mark on the average, Terry.

Your next question comes from Matt Pfau from William Blair.

Hey guys, thanks for taking my questions. First, I wanted to ask on -- I think a lot of retailers are getting geared up for the holiday season earlier than normal this year. Just wondering, if that dynamic had any impact on either your third quarter results or how you're sort of thinking about the fourth quarter?

No, not really Matt, frankly I agree with you. And we're certainly seeing, folks get geared up little earlier, I think we as consumers, we can expect to see some promotions and so forth earlier in the season indications are that Black Friday will be not quite and Cyber Monday will not be quite the peaks that we've seen in prior years, yet the season will start 10 days to 14 days earlier. So agree with all of that, but frankly we've really not seen much impact from that, retailer start preparing really in March and April for peak season. So that couple week variability hasn't really had much effect on us.

Got it. And then with the accelerated shift to e-commerce. I think, we're most likely going to see a lot of fulfillment in last mile challenges here in the upcoming holiday season. And one way to relieve that right is through BOPUS and curbside pickup, but I didn't really hear you talk too much about those in your prepared remarks, but just sort of wondering if that dynamics having any impact on your business either?

Yes. No it is, there's no question. Those capabilities are kind of associated with our omni-channel suite of solutions, their extensions thereof. I did point out there was one particular customer that saw exactly the dynamic, we're talking about and say, hey, we have got to have particularly curbside in this case, up and running well before the holiday season and we were able to implement order management in that capability in six weeks, which we were pleased about is not the only circumstance, but six weeks from start to finish is pretty impressive, we were pleased with that. But certainly BOPUS and curbside are big parts of what all retailers are looking for, given the capacity constraints that everybody expect to see in parcel and home delivery.

Got it. Last one for me, you guys are guiding for license to be down significantly next year. But I guess the question would be, why would anybody buy a license for WMS now down that you have the cloud version. Just sort of wondering what the rationale on the customer side would be there?

Yes. Well, let's see, so first of all you've got existing customers that certainly have an on-premise solution, they're frankly want to roll that out to additional facilities, they need to buy more users, because of capacity. Those types of scenarios, look, and they're all are not many, but there are a few customers that are still have our propensity for on-premise solutions, they are again few and far between there, but there are few. There are some of our other solutions, while we offer, I mean, in the cloud, our demand forecasting and inventory optimization solutions that still have a balance of cloud and on-premise demand to them. So, there is a number of reasons and the kind of the final one I would say that geographically around the world, there are still some spots where on-premise currently makes sense.

Great, thanks a lot guys. I appreciate it.

Thank you, Matt.

Your next question comes from Joe Vruwink from Baird.

Great. Hi, everyone. I wanted to go back to the go-live activity, because I think, I heard a 160 in the quarter there. So that's the second straight quarter where it's -- in above normal level and I'd imagine that you're seeing a lot of activity to "get" the easy extension, adding BOPUS and curbside onto order management, things like that. The question is are you seeing follow-on activity come from these engagements? And now that everything is on the cloud. If, let's say, these engagement are starting out more short-term in nature, can you use this as an opportunity to circle back? And maybe get customers thinking about an upgrade cycle going back to things like Warehouse Management?

It's great question, Joe. It does depend, certainly to kind of the first part of your question. There is and there is opportunity for ongoing deployments. So, just to use the examples that you talked about there with BOPUS and curbside, there is certainly some enthusiasm around those two strategies for the reasons that we've already discussed and particularly prior to peak and so forth. There are follow-on activities and capabilities around BOPUS and curbside with digital self service that is a -- typically is kind of a fast follower to those capabilities. Customer engagement strategies around those delivery mechanisms tend to be fast followers. So there is quite a bit of ongoing activity and ongoing cross-sell, upsell capability associated with those. Now as it relates to sort of -- if you want to call this going back -- backwards down the supply chain to whether it'd be Transportation Management solutions and Warehouse Management solutions. They're not -- it's not so much, I wouldn't characterize it as a natural, kind of, extension of BOPUS and curbside at all. But, as noted in some of the previous conversations, the modernization of distribution centers is frankly becoming imperative a combination of the need to be able to execute on smaller orders, e-commerce orders and the level of automation in robotics is being driven into Warehouses to drive both throughput and accommodate for the challenging labor market in that particular segment.

Okay, great. And just on the last point Eddie, in terms of some of the early adopters, where you've seen interest on Active Warehouse Management. It strikes me as segments that have probably been comparatively resilient this year, thinking about food and beverage grocery, CPG. And so you're launching new technology into a pretty healthy demand environment. These are also applications where there is a lot of variety on SKUs, very high volume. And so I suppose the question is when you launch the Active Warehouse Management, did you feel like there were certain customer segments where if you got traction early, it would drive maybe better referenceability later on and are you seeing that so far with the early awards?

Not particularly in terms of focused on early referenceability and those kinds of things. We're seeing solid traction and deals, frankly, both from our customer base, who want to get onto a cloud strategy and a cloud platform and new customer logos. But as -- and we'll start obviously to publish this as and when we are able, but you see a nice blend of customers across both verticals and geographies.

Hey, Joe. This is Dennis just to piggyback on what Eddie was saying, I would tell you, based on the demand and the pace of growth for Manhattan Active WM and our pipeline, I would say we're in the early stages of a pretty significant replacement cycle. And keep in mind that a large part of that is our installed base, but also about 45%, not all MAWM, but 45% of our cloud pipeline is net new opportunities, net new customers as well.

Okay, great. Thanks, Dennis. Thanks, Eddie, I'll leave it there.

Okay. Thank you, Joe, see you.

Your next question comes from Mark Schappel from Benchmark.

Hi, thank you for taking my question and nice work on the quarter. Eddie starting with you, one of the benefits of your Active WMS solution and so it gives you an opportunity to really move into verticals where maybe you just weren't all that penetrated before industrial, manufacturing to the [coal mined]. I was wondering, if you could just address or just give an example or so of maybe some of the early customer interest you're seeing in Active WM from some of these non-traditional Manhattan verticals?

Yes. I mean, we're certainly beginning to see some interest there, Mark, I'm not going to obviously drop names and so forth at this particular juncture. But as you see customers of ours and industries that have typically been, kind of, heavy wholesale, heavy manufacturing and not had any, kind of, consumer contact or direct-to-consumer strategy, but frankly now are, right? So it's starting to sell direct-to-consumer and require a good bit more sophistication in the distribution strategy. There's a lot of early interest from those opportunities. The other dynamic though, is that what we've now introduced here is a cloud-based solution that always has immediate access to innovation and is extensible. And that's a new phenomenon regardless of vertical. So some of those old verticals that are running old solutions that have been highly customized over the years have been difficult to get access to whether it'd be modern innovation or modern underlying technology, they now have easy access to that with Manhattan Active Warehouse Management system, and again, starting to see a good bit of enthusiasm there.

Great, thank you. And then you mentioned you're Manhattan Active Allocation solution, which I guess is new this quarter, it sounds intriguing sounds interesting. I wonder, if you just provide a few more details on the solution itself and some of the opportunities you see there?

Yes, sure. So I'll keep it brief and because of that, a bit of an overly simplified description Mark given the time we have. But in the -- particularly in the fast fashion in apparel world, you see companies buy for a season and then push product out to the stores. And you don't see a lot of replenishment and inventory optimization activities. When you're pushing that product out to the store, there is still a healthy amount of sophistication. Where do I push that product to? Whether it'd be climate based, consumer demand based, size of store, all those kinds of things, and that's been the sort of the traditional way that one would push and allocate product type. But in the new world where we've got buy online, pickup in store, curbside pickup, buy online return from store, it requires another level of sophistication and calculating how you push that product out of the store. So Manhattan Active Allocation is a brand new rethink of how to go about soft lines in fast fashion, distribution and allocation of inventory and of course we've built it on our cloud platform, which offers speed of implementation and access to immediate innovation.

Great, thank you.

My pleasure, Mark. Thank you.

Your next question comes from Brian Peterson from Raymond James.

Good evening, gentlemen. Hey thanks for taking the question. So Eddie, it's come up a couple of times, just the idea of a WMS refresh. I'm curious to what extent does the multi-tenant cloud portfolio you can change that, and I'm a little bit more interested, not on the existing installed base versus the opportunity for some of these legacy competitors. I'm curious how would you think about the pace of this refresh opportunity relative to what we've seen in past years?

Well, the WMS systems don't flip in a matter of days or a matter of weeks, Brian, as you know. But look, we've all seen this acceleration of customer demand, e-commerce demand, delivery, expectations and so forth. Even over the last seven, eight months or so and it's real. And it's real. We do think the companies with -- certainly with customer facing requirements, so forth are under an awful lot of pressure to be able to deliver the consumer expectations, consumer demand. And it requires modern technology, old tired Warehouse Management systems that haven't being modernized for years are not going to really be able to get the job done. So we are -- no question, we're seeing a refresh cycle happening. I don't know that it's going to be much, much, much faster than cycles that we've seen before. But it's there and the good news is as we've moved to cloud-based technology, there is a speed component in terms of being able to get these solutions rolled out to customers and prospects.

Got it, thanks Eddie. And maybe one for Dennis, and I appreciate all the components of the guidance. But just in terms of the investments, I know they're picking up a little bit next year. Is there anything that you call out in terms of products or go-to-market that we should be paying attention to on margins next year. Thanks, guys.

No, not really. Not really. As we expect to be able to benefit from scale, of course. But no major product-by-product margin impacts. We see a lot of opportunity clearly in front of us and our appetite to be able to invest in innovation is not been quenched at all. That's for sure, so we expect to continue to invest in innovation that has near-term impact on margins.

Yes, Brian, just to piggyback on that. There is also, as the cloud business continues to scale, we're investing in just tooling with our business to drive the margins up, future margins ups, so requiring investment as the business scales over the next year to two.

Understood. Thanks guys.

Thank you, Brian.

Your next question comes from Yun Kim from Loop Capital Markets.

Thanks. Hey, Eddie and Dennis, congrats on a strong quarter, especially in a tough environment for you guys. Just following up on Terry's question early on. Dennis, I just want to make sure I understand it. So how does the ramp cloud deal effect RPO. Does the whole value of the contract swap in the RPO upfront? Or does it get added when the next ramp starts just like the revenue?

No, it shows up when we close the deal. The bookings show up in RPO or reported in RPO.

Got it. Okay. So that could potentially be choppy as you close on larger deals, right, down the road?

I don't know, if it would be choppy, Yun I think just the reason we put that out there is on the year one ramp the revenue can be much smaller and the exiting annual subscription value can be significantly larger. So, that impact in terms of cloud revenue can squeeze your sequential decline. So it could be a little bit more lumpy on the revenue side, not as much on the booking side.

Okay. Great, thanks for that. And then Dennis, it's a very basic question. Can you just give us update on your business around the brick and mortar or the big box retailers. I am assuming that particular part of the business for you guys is still being pressured, any update there on when we can start to see that business coming back? And then also how much of your professional services business is still kind of tied to that retail vertical slow down, I am assuming some of the weakness in professional services or at least a year-over-year decline is driven by the some of the projects that are more or less postponed that was ongoing prior to COVID?

Yes, certainly, Yun, the -- some of the services -- most of the services decline is associated with some of the kind of retail slowdown and kind of retail hunkering down, frankly we've got a combination of some sub-verticals in retail being very, very busy and focused on meeting customer expectations. Others being impacted by the stores being closed and so forth and putting projects on hold, pausing them and so forth. We're beginning to see those light back up and so forth. So that's encouraging. In terms of the first part of your question, which was are we seeing activity around big box retail and how our big box retail customer is doing? The answer is, well, but generally in the e-commerce channel, right? You see big box e-commerce retail channels growing 200% year-over-year, putting all kinds of stress on the distribution network. So for us, we are still quite busy in that big box space.

Yes. And we haven't had from a retail perspective, it's a strategic vertical for us and a great growth opportunity. A lot of demand, when you go across sub-verticals within retail itself, Yun. In addition to that, we've had very minimal bankruptcy events, no liquidations, chapter 11 and customers are taking that opportunity to restructure their business. And really the challenge for retailers has been the mandated government shutdowns of their retail businesses. So we've seen a lot of positive activity, not just in closing deals with retail, but we are also seeing a lot of positive activity from the retail sector in the pipeline as well.

Okay, great. Just I'm assuming on the last one, just a high-level question for you guys. The omni-channel commerce has been a hot secular trend for the past several years and obviously it has evolved very quickly to be more strategic since COVID. Now that you guys have a cloud-based WMS solution in the market, which should reduce the overall complexity of the implementation and should be less of customization in the deployment. Are you at all kind of maybe open to adopting a larger partner ecosystem that includes large global system integrators and perhaps even giving them access to some of your professional services work to help them ramp?

Well, look, it's probably a reasonably long answer. At the end of the day, we have a large partner ecosystem around the world that ranges from big global companies like Deloitte, all the way down to the smaller supply chain focused boutique companies. And of course, you've been in that customer conference and there is no shortage of implementation partners at our customer conference. In terms of customization and so forth, there is still going to be customization required regardless of whether it's on-prem or in the cloud. One of the unique features or capabilities of our cloud solution. It is extensible, right? It is extensible. So, we'll still allow that customization to happen we'll honor all of the contracts of the customization APIs and so forth, so that as we do these updates every quarter, there is no kind of regression issues or implications have to reimplement customization and so forth. So it's a, certainly a valuable capability to be able to customize the solution and have access to immediate innovation.

Okay, great. Thank you so much, guys. A - Eddie Capel Our pleasure, Yun. Thank you.

Your next question comes from Mark Zgutowicz from Rosenblatt.

Good evening. I was just hoping to get a perspective on the -- I'm calling them downstream benefits of your accelerated POS and curbside, pickup adoption. I'm not sure how you characterize it, but I'm just trying to get a sense of where you see that sort of falling into pipeline and whether that might be, if we think about just beyond orders maybe retain business, maybe additional adoption of Active Omni solutions. And then maybe this is a stretch here, but if it's perhaps giving a slight push to accelerate adoption of your Active Warehouse Management solutions? Thanks.

Yes. Thank you, Mark. And I wouldn't say it will be a push or a nudge to go in reverse order, a nudge to the adoption of Active Warehouse Management. Those two things are reasonably different. But I think it is safe to say frankly as a consumer, we're all beginning to expect BOPUS and curbside is table stakes and price of admission frankly in the retail space. Now advanced BOPUS and curbside is starting to really come to the surface, where retailers are looking to offer cross-sell and up-sell opportunities even in BOPUS and curbside environment that requires real sophisticated customer engagement and sophisticated technology systems to be able to make that happen. So, while we have seen an acceleration of e-commerce, I think customer expectations continue to grow and that's why it's so important that we continue to innovate in that space and maintain our market leading position.

Got it. Thank you, Eddie. Appreciate it.

Our pleasure, Mark. Thank you.

That was our last question. At this time, I will turn the call back over to Eddie Capel for closing comments.

Okay, very good Mark. Well, thank you everybody for taking the time to participate in this earnings call. I would look forward to crystallizing our 2021 view, in about 90-days or so. And of course it's very premature, but they will have a very happy and safe holiday season, and we'll speak to you again in about 90-days. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.