Good afternoon. My name is May, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Q4 2020 Earnings Call. [Operator Instructions] After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, February 2, 2021. I would now like to introduce Eddie Capel, CEO; Dennis Story, CFO; and Michael Bauer, Senior Director of Investor Relations. Mr. Bauer, you may begin your conference.

Thank you, May, and good afternoon, everyone. Welcome to Manhattan Associates 2020 fourth quarter 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. You are cautioned that these forward-looking statements involve risks and uncertainties are not guarantees of future performance and that actual results may differ materially from 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 on 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 have 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.

Great. Thanks, Mike. And good afternoon, everybody, and thank you for joining us as we review our fourth quarter 2020 results and discuss our outlook and guidance for 2021. Also, given our journey toward being a cloud-first company, the long-term nature of our newer SaaS contracts and the visibility and momentum that we're seeing, we thought it might be helpful to provide you with our initial thinking around a 3-year trajectory of our business in terms of RPO, cloud revenue, and adjusted operating margins through 2023. So, we'll cover that a bit later. But for the quarter, Manhattan reported Q4 revenue of $147 million and adjusted earnings per diluted share of $0.45, both of which exceeded our expectations. Broad revenue outperformance across our business lines, combined with a continued focus on expense management, once again drove earnings leverage for the quarter. Fortunately for Manhattan, our business is entering 2021 with accelerating velocity and growing opportunities. Now 2020 was a very successful year for Manhattan Associates, arguably the best year ever in the midst of an ongoing global pandemic. Beyond the numbers, 2020 was a benchmark year of resolve, performance, and growth for our employees and our customers. We strengthened our company significantly in 2020 and have substantially improved our market leadership position. In May, we launched our cloud-native Manhattan Active Warehouse Management solution, which we believe is the most significant advancement in WMS technology in over a decade. And the market reaction to this new product has been equally impressive with already a double-digit number of deals closed to date, and our pipeline is growing. In fact, we signed the largest Manhattan Active Warehouse Management deal to date and the enthusiasm from both new and existing customers for Manhattan Active WM is certainly surpassing our original expectations. At no time…

Okay. Thanks, Eddie. Everyone strap on your suspenders. I have a lot of information to cover here. So as Eddie mentioned, fourth quarter total revenue was $147 million, down 4% over the prior year, exceeding our guidance. Full year 2020 total revenue of $586 million was down 5% compared to 2019, as you know, solely due to COVID. Q4 adjusted earnings per share was $0.45. GAAP earnings per share was $0.32 with stock-based compensation accounting for the difference between adjusted and GAAP EPS. Cloud revenue for the quarter was $23 million, up 9% sequentially and 46% over prior year. For full year 2020, cloud revenue increased 70% to $80 million. For the first quarter 2021, we estimate cloud revenue to be approximately $24 million, up 39% over 2020. For full year 2021, we estimate cloud revenue to be in the range of $108 million to $110 million, growing at about 36.5% at the midpoint and accounting for approximately 85% of total software revenue, up from less than 50% in 2019. Starting with Q2, we expect cloud revenue to grow roughly at $2 million sequentially per quarter for the balance of 2021. Remaining performance obligation, or RPO, for the quarter totaled $309 million, up 20% sequentially and 80% over prior year. Recall, RPO is the leading proxy for our cloud revenue performance and represents the value of contractual obligations required to be performed, otherwise referred to as unearned revenue or bookings. For Manhattan, this disclosed value represents our cloud bookings value of unearned revenue under non-cancelable contracts greater than 1 year. Contracts with a non-cancelable term of 1 year or less are excluded from the reported amount. As Eddie previously highlighted, demand and pipeline growth for our cloud solutions continue to be strong from both new and existing customers. Reflective of…

Terrific. Thanks, Dennis. Well, look, we're pleased with our 2020 performance, and we're committed to driving operational and financial results as we progress toward our 3-year financial targets. And as we do so, we're continuing to innovate in advance of market demand, leveraging our technical and demand expertise in order to provide our customers solutions that position them for success in a dynamic and rapidly changing world. With the convergence of our cloud strategy and the customer demand tightening, we see no shortage of opportunities to expand our addressable market while further strengthening our competitive position. And to wrap up, I want to thank all of our employees globally. Your relentless dedication and commitment to our customers' ongoing success is inspirational. And it's a key differentiator in driving long-term sustainable growth for our company and for our shareholders. And your resourcefulness and perseverance in the face of a worldwide pandemic has resulted in what I believe to be our best year ever. So thank you, and May, we're now ready to take any questions.

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

Okay. I got a preamble here. So nice to hear you, Eddie and Dennis, and welcome aboard, Mike. We do got the suspenders on, and thanks for the precision guidance there, Dennis. Two questions. The first one is a 2-part question for you, Eddie. The idea of Active Omni and kind of the multiyear cycle of bringing all the innovation together, I'm curious how the conversations are going with these Tier 1 companies. Can you talk about like a platform now? Are the conversations more elevated? Is it C-level discussions? And just kind of how this plays out now being able to kind of tie all this together, your WMS, your TMS, et cetera, are the conversations changing? And then I have a second part to that question.

Yes. I would say the answer to that is definitely yes, Terry. At the end of the day, I do feel like that the -- a lot of the elevated conversations come from the fact that a sizable portion of our suite these days is driving revenue for our customers. The WMS and the TMS, obviously, great facilitators and imperative parts of the supply chain network and the business operations. At the end of the day, they are cost-savers, right? They are cost-savers. And -- but when you cross the bridge and start talking about omnichannel solutions, point-of-sale solutions, store solutions to really drive revenue growth, that's really when the conversations begin to elevate even higher into the CEO office.

Yes. The second part of the question is, we heard some aspirational goals of a pretty dramatic growth in the RPO over time over $1 billion. I mean, how do you feel, though, right now, Eddie, about just the sales capacity and where you are now with your capacity and what you need to get to, to be able to make good on a $1 billion-plus RPO? And then I have a follow-up for Dennis.

Yes. We feel great. Really terrific about the sales capacity. We think we're very well aligned to be able to meet those growth rates. We are continuing to selectively hire the best of the best in the supply chain market and so forth. But that is -- as sales capacity will certainly not be an inhibitor to the growth trajectory that we laid out, I'm very confident about that.

Okay. And Dennis, so if I have this right, you took your guidance for the RPO ending balance at the end of '21 385 million to 390 million up to 450 million to 550 million. If that's right, what I'm curious about is, well, first, that's a large range, and I guess that's -- you want to have some cushion there, kind of upside, downside case and base case. But how do we think about the progression of RPO through the year? I don't want to mismodel this kind of each quarter because it is such an important metric now we're focused on. So how do I think about it progressing through the year?

Yes. The yard marker is going to be the full year target, Terry, at $450 million to the $550 million. Each quarter, we're going to give an RPO update, so you'll be able to see that progression. But suffice to say, we're targeting a pretty strong growth rate at about 60% at the midpoint.

Your next question comes from the line of Joe Vruwink of Baird.

I wanted to start on just the thinking of RPO over the next couple of years and Eddie and Dennis, you both drew out a couple of things. Just having more time in this transition, so a better understanding, some familiarity with ramp structures and how that's going to play out. And then just seeing, I think, Eddie, you said, better-than-expected interest and demand for the new Active Warehouse Management product. Are any of those individual areas driving this RPO number out in 2023 to a higher level than you would have thrown out if we were kind of having this discussion, I don't know, it's 3 or 6 months ago, I'm just trying to gauge how much is maybe new to reflect the new kind of imperative around supply chain as a category versus your new product versus you just have a little more experience under your belt?

I think it's all of those 3 things, and certainly the visibility that we have now, selling the full suite of solutions, the enthusiasm that we've seen for Manhattan Active WM. And no question, I think over the last 3 quarters at least, there has been some reticence on our part to do too much predicting of the future. I think, along with everybody else on the planet, we optimistically see some light on the horizon in terms of the situation that we have with the pandemic and the economic recovery, so feel a little more comfortable talking about our future trajectory.

And then just on employing these ramp structures, obviously, we understand kind of the ramification for 2021 revenue growth, but looking at RPO as the better indicator, I'm just wondering are the ramps, I guess, a mechanism where you're starting to see, whether it's new accounts or existing accounts, engage with Manhattan across a bigger total contract value opportunities. So you mentioned the fact that you have this unified platform now, are ramps a mechanism where you're truly getting the full buy-in across on the inventory warehouse management, and so there's maybe a near-term revenue ramification, but otherwise these are much bigger scopes and engagements that Manhattan traditionally would have secured?

No. No, not really, Joe. There's still a huge amount of opportunity for upsell and cross-sell across the suite of solutions. The ramp, we've seen the -- say, ramp accelerate, I'm not sure if that's the right term, but it seems to ramp phenomenal increase as we've introduced where Manhattan Active WM, right, because it by nature is sort of distributed. We service Tier 1 as you know. Many, many of our customers have 5, 10, even 20 distribution centers across the planet. And it takes time to roll out all of those, again, 10, 20, or 50 distribution centers. And so that's why in this particular WM space, you see a little bit more of an acute, if that's the right word, acute ramp philosophy.

And maybe just as a follow-up, so more a question then on the multi-product bookings activity, are you see leaving the ramp structure aside? Are you starting to see more customer interest and truly unifying their full supply chain execution suite? And then I'll turn it back over.

I think we see interest. But Joe, in all reality, we've been in the market for 6 months with Manhattan Active WM so it would be wrong of me to say that we're starting to see that really be a very popular phenomenon. Obviously, it's our strategy, but we're about 6 months in. There is certainly is interest as customers acquire either Manhattan Active WM Manhattan and Active Omni. Certainly, they've got the future in mind, but we're not yet seeing those larger multiproduct deals that you speak of.

Your next question comes from the line of Yun Kim of Loop Capital Markets.

RPO growth came in very strong again, Eddie, Dennis and Mike. How much of that was driven by Active Omni versus Active WM? And if you can remind us what the RPO mix is between the 2 products? And where do you expect that mix to be in 2023, since we're talking about 2023 this call? And Dennis, you don't have to be precise with the estimate, the ballpark number should be good.

Yun, it's a great question, interesting one. But at this particular juncture, we're not breaking out RPO by product line. So I really can't give you any guidance there.

Can you just give us qualitatively what's really driving the RPO growth this past quarter? I am assuming the sequential growth is coming from the WMS, right? Active WM?

Yes. I would say Active WM is -- it's a mix. So it probably was a subtle comment, but now we have the full suite of solutions in the market. So Omni was a little more challenged, as you can imagine in 2020, but we're seeing nice pickup there in the pipeline. And AWM, strong as well. We're seeing solid pipeline with TMS. So it's -- the pipeline has got good diversity to it.

Okay. Great. And then Eddie, can you just revisit your acquisition strategy? Obviously, you guys have the Active WM adoption gaining momentum. You have a lot of visibility driven by the ramp deals, and your -- you just laid out a 3-year plan. How should we think about your acquisition strategy going forward since, obviously, it's much easier to cross-sell additional modules and products on the cloud?

Yes. Same acquisition strategy that we've had, Yun, that frankly has not born fruit for us. The number 1 use of our capital is to drive intrinsic innovation. And for us, that is represented by research and development. We certainly are very interested in acquisitions, but we've got a reasonably high bar, right? They've got to be gap fillers for us and really be able to give us the ability to be able to expand our reach. And our current strategy really drives us into what is essentially white space, okay? The solutions that we're developing don't really exist out there. So it's very hard for us to invoke an acquisition strategy of that type. Again, we are very interested in the right opportunities. But in the absence of acquisition opportunities, as the Board has authorized here in January, we will reinstitute a share buyback program.

Your next question comes from the line of Mark Zgutowicz of Rosenblatt Securities.

Thank you. Two quick ones for both of you. Curious if you've had or seen any prospect conversations within the omnichannel POS segment perhaps accelerate now that we've sort of exited the holiday season, and we've seen likely the lights of the strains on those channels. And perhaps, if curbside is sort of being viewed as less of a pandemic service and more as a staple going forward? But just curious, maybe post-holiday conversations you've had, some have accelerated. And then just a macro question. As it relates to your guidance, 3-year guidance and the range is sort of what the contemplations are there in terms of macro relative to pipeline conversion those types of things would be helpful?

Yes, sure. Well, in terms of the first question, yes, stores have become open again, foot traffic has begun to pick up a little bit. What we've seen is this, again, this synergistic alignment of our strategy and market demands. Simply put, for the last number of years, frankly, we've been banging the table talking about the benefits of omnichannel strategies, buy anywhere, ship from anywhere, sell from anywhere and all of those capabilities. And clearly, some of our customers have taken up those opportunities and said -- and essentially said, yes, those are interesting capabilities, and we think we'd like to offer them to our consumers. What's happened, and those include buy online, pickup in store, curbside pickup, buy online return from store, all of those capabilities. What we've seen happen in the last 6 months or so, interestingly, is consumers are now essentially demanding those capabilities. It's no longer the retailers saying, we've got this if you want it. Consumers are essentially saying look, if I can't buy online, come and pick up the store or pick up at the curbside, I'm not going to shop with you. So we're seeing a pull versus a push, right, of those capabilities. And we do believe that BOPUS curbside, ROPUS, return at store, all of those capabilities are announced here to stay and going to be very prevalent going forward. So we're excited about that. With regard to the specific question you asked about point of sale, there is certainly a growing interest, right? We really do feel like the point-of-sale -- our point of sale, go-to-market initiatives in 2020 is kind of a gap year, right, for obvious reasons. There are a lot of stores closed. But as they reopen and stores are continuing to become more multifunction, more multifunction, more multifunction that old traditional glorified calculator in the corner of the store doesn't get the job done when you've got all of these different capabilities if you got to handle inside the retail stores. So certainly, we're seeing interest and conversation pick up in that space.

Thanks, Eddie. Maybe on the just the guidance question, the range, sort of what might be contemplated, I'm thinking about the ranges of your 3-year guidance. Is it some of that macro versus conversion or what are some of those contemplations?

You mean why are the ranges so broad?

Right.

Yes. Well, it's 3 years out. We're providing, as Dennis said, pretty precision guidance, we think, for 2021. And but we've obviously started just expanding the ranges for 2022 and 2023. And I think that's pretty commonplace, frankly. We've got a lot of opportunity in front of us. And we'll keep updating that 3-year guidance on an annual basis. Our intra-year guidance, of course, will update on a quarterly basis.

Your next question comes from the line of Brian Peterson of Raymond James.

And welcome, Mike. So two questions for me. So first off, maybe a higher level, Eddie. So there's been a lot of investments over the last few years. I think the product innovation is evident to everyone. As we look forward into kind of that 2- to 5-year road map, do the investments shift at all, right? We heard about innovation today, but does it pivot more towards go-to-market now that you have some of these product investments in the rearview mirror? Or should we still see kind of that cadence on R&D through the next 2 to 3 years?

Yes. You should expect to see R&D continuing and frankly, continuing to grow. We've got a very long list of innovative capabilities that we still have planned for the market. Always, you've got a balance to make sure you're not too far ahead of the market. Otherwise, you'll be the Apple Newton, right? There was a little ahead of its time there. So we've got to pace that out, but we've got a long list of capabilities that we think will bring real value to the market. So no plans for any slowdown in R&D investment, Brian.

Okay. Got it. And maybe just I wanted to maybe look at the ramp deal dynamic from a different perspective. I'm curious, does that cadence change, if you're looking at Active WM versus Active Omni? And just at a higher level, what are the ramifications on gross margins of having these ramp deals kind of step up over a couple of year period?

Yes. Yes, definitely a different profile, Manhattan Active Omni and Manhattan Active WM. Manhattan Active Omni, sort of that singular corporate application where all orders are flowing through. And as we've talked about, distribution centers tend to be, by definition, distributed around the world, and it takes time to get those systems rolled out. So that's why you see that kind of that ramp profile change. Not a big impact on margin. We've got this WM rollout strategy, then to a pretty good science. We ramp infrastructure accordingly. We ramp support accordingly. So really not much of an impact on GM.

Your next question comes from the line of Matt Pfau of William Blair.

I wanted to ask on the existing customers that are upgrading to Active WM, maybe you could just give us some idea about what is driving them to move from the on-premise to cloud deployment model? And are these older deployments? Or are some of these customers that have deployed in the past several years?

Yes, pretty good range there, actually. Actually, Matt, none of which are -- have got too many barnacles growing on them. Maybe nothing really old. But the primary driver is really 2, I would say. One, the clear head and shoulders is more immediate access to innovation, right? So we've -- obviously, we've been serial investors in innovation. But just like every other enterprise application company on the planet, we released annually. And it's just sort of the way of the world, right? Our customers would buy a solution, implement a version and come to our customer conference for the next year and hear about all the new capabilities that we have invested in and released knowing that they just implemented and frankly, probably 2, 3, 4, maybe even 5 years away from getting their hands on those new capabilities. And in the fast-moving space that we're operating in a supply chain, that can be quite detrimental to business process, velocity, customer service and an overall efficiency of the business. So number one, head and shoulders is access to innovation. But secondly, remember, we -- when we take on running in the cloud, we take over the maintenance of the system, of course, and the overall operations. So that frees up their very valuable IT resources to be able to focus on differentiating their company, right, versus maintaining systems and so forth. And so that combination of access to innovation and freeing up their valuable resources is really, I think are the 2 primary drivers for the interest.

Okay. And last one, if I can fit it in here. Just on the increase in the RPO guidance, which seemed quite large. Just sort of wondering, any more details on what's behind that? Is it just you have a better confidence that cloud is the preferred deployment model now that you have 90% of your pipeline or deals in that form? Is there improvement in macro expectations or perhaps something else in there?

Well, so the near-term raise in RPO, I mean, honest -- I mean, I think you and everybody know this, Matt. It's the near-term raise in RPO is essentially analogous with strong but would have been strong license sales, right? Because we've accumulated new deals, which has driven near-term RPO level. In terms of the long-term RPO expectations that a trajectory that we put out there, we see a strong market demand. We're very confident in the innovation that we're delivering to the marketplace. Our win rates are strong and the enthusiasm is very good. And as Dennis always points out, we have got great opportunity for cross-sell and upsell across what then will be our existing customer base, given that solutions are on a common, very modern platform.

Hey, Matt, let me piggyback on that. It's in large part, going into our fourth year, we have great visibility, forward visibility into our pipeline. Number two, your question about whether or not there's demand for cloud, 90% of our pipeline bookings is for cloud. And as you can imagine, licenses, as I commented in the script, is attriting pretty rapidly. We'll exit 2021 and our estimate is this license will be 3% of total revenue in a 4-year transition.

Your next question comes from the line of Mark Schappel of Benchmark.

Nice job on the quarter and for the year for that matter. Eddie, question for you. Could you provide some additional details around the large Active WM deal that were signed in the quarter? Was this a new customer? Was it a competitive deal?

It was an existing customer, but I can't go into too much detail name of the customers and so forth. But it was an existing customer, and there was a competitive nature to it as well. They had, frankly, in an acquisition that they had done some other competitive solutions. So it was a little bit of both, but what we would certainly call an existing Tier 1 customer, but definitely had a competitive nature to it.

Okay. Great. And then just shifting gears to your Transportation solutions. Again, if you could just provide some additional color on the relatively large TMS customer that was signed in Europe. And also too, I read it, if you could just talk about some of your ongoing initiatives to kind of reposition the solution overseas or just call attention to the solution?

Yes. Really, the lack of penetration overseas was right or wrong through our choice. We focused on the U.S. market. We have really not released the product to be sold overseas. I think that we tend to be, some would say, a little conservative. If we're not comfortable that we can very satisfactorily execute on a first-class implementation and provide first-class post-implementation support, we won't sell a solution in a particular market. But we chose to release a TMS solution for sale in Europe because we're ready, trained -- hired and trained a workforce. There is no question that offering it in the cloud added, provided a little bit of simplicity into the program. So we didn't need all of the technical resources in market and so forth. But of course, we had to do some product enhancements to be able to support those international markets as well. So all of those things come together, and we're seeing a nice growing demand. As I said, we've got one nice customer live over there. We signed a couple of more there in-flight of implementation and interest is certainly gaining. We might look back in the rearview mirror and say, maybe we should have released those solutions into Europe a little bit earlier, but we didn't. So now we're -- but now we're pedal to the metal as it were marketing, selling and successfully implemented in Europe.

We don't have any questions on the line, Mr. Eddie Capel, please continue for the final remarks.

Okay. Very good. Thank you, May. Well, thank you, everybody, for joining us. As you can tell, we're quite pleased with our performance in 2020. We're very excited about 2021 and in the next few years. We think it's going to be a very exciting time for Manhattan Associates. So we'll look forward to reporting out on Q1 in about 90 days. And in the meantime, everybody stays safe. And thank you for your time.

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