Good afternoon. My name is Jeff, and I will be your conference facilitator for today. At this time, I would like to welcome everyone to the Manhattan Associates First Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] Also as a reminder, ladies and gentlemen, this call is being recorded today, April 27. I would now like to introduce Mr. Eddie Capel, the CEO; Mr. Dennis Story, the CFO; and Mr. Michael Bauer, Head of Investor Relations of Manhattan Associates. Mr. Bauer, you may begin your conference.

Thank you, Jeff, and good afternoon, everyone. Welcome to Manhattan Associates 2021 first 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 will caution that these forward-looking statements involve risks and uncertainties 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 2020 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 the 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.

Thanks Mike. Good afternoon, everybody, and thank you for joining us as we review our first quarter results and discuss our updated full year 2021 outlook. Manhattan Associates is off to a strong start for the year, reporting record Q1 total revenue of $157 million and adjusted earnings per diluted share of $0.43 both exceeding expectations. Our business pace continues to be solid with broad revenue outperformance across our solutions, driving top line revenue growth and earnings leverage in the quarter, while simultaneously driving our increasing investment in the business. Our team continues to execute well and that business momentum is accelerating, underscoring this strength and the growing demand for cloud solutions. We achieved record bookings in Q1 with our RPO increasing 108% over the prior year and 36% sequentially to $421 million. With our forward revenue visibility improving and the inherent leverage in our model, we’ll be increasing our 2021 guidance across the board. Equally important, our pipeline continues to grow nicely with about 90% of the pipe consisting of cloud opportunities and net new potential customers representing about 40% of that demand. And much of our success is bolstered by delivering the most innovative technological advancements in our industry. As solutions are mission critical to our customers and our end markets. And now with the need for modern, adaptable, scalable and resilient supply chain, inventory and omni-channel solution is never more apparent, we're in the early stages of extending our mind and wallet share. Additionally, the secular tailwinds in numerous, digital transformation of businesses, brick-and-mortar stores shifting to an innovative multi-function facility concept, the insatiable desire to get as close as possible to the end customer, creative inventory management strategies and shorter fulfillment timelines, just some of the significant drivers that are aligning customer demand with our product…

Thanks Eddie. I would characterize our first quarter execution as an all-rounder. We delivered strong financial performance from top line to bottom line with across the board, solid growth, profitability, cash flow, and balance sheet results. Here's the key summary of financial highlights with growth rates on a year-over-year basis, unless otherwise noted. As Eddie mentioned Q1 total revenue was $157 million, up 2%; adjusted earnings per share was $0.43, up 8%; GAAP EPS was $0.35 and overall performance was driven by cloud revenue in the quarter. Q1 operating income totaled $36 million, up 12% year-over-year; adjusted operating margin was 22.7%, up 200 basis points and our GAAP operating margin was 16.2%. Q1 cloud revenue was $27 million, up 54%. License revenue was $7.8 million, down 19% as our end markets are predominantly choosing our cloud solutions. And Q1 RPO was a record performance at $421 million, up 108% in case you forgot from Eddie's comments year-over-year and up 36% sequentially. At our current full year outlook $450 million to $550 million we are on track to exceed our $500 million midpoint. Further cloud momentum is fueling our services pipeline and revenue growth opportunity. Q1 services revenue exceeded expectations totaling $80 million against an $87 million comp in Q1 2020. More importantly, services revenue was up 13% sequentially over Q4 2020 with our growth outlook accelerating for the balance of 2021. Our Q2 services revenue forecast is $83 million to $85 million, up 17% year-over-year. And for Q3 and Q4, our forecast calls for 20% year-over-year growth. Maintenance was up 1% on cash collections. Important point here, like license revenue, we do expect second half attrition on customer conversions to cloud, which will positively impact our RPO performance. And also our hardware team delivered a solid $6 million in sales…

Terrific. Thanks Dennis. So we're very pleased with a strong start to 2021 and record results. While we continue to operate in a pretty turbulent global macroenvironment, we're confident in our ability to help deliver success for our customers and drive long-term sustainable growth from Manhattan Associates. Many of our customers and prospects are in the early stages of their digital transformation and even their move to the cloud. With our industry leading innovation, technical and domain expertise and the world's most talented and seasoned supply chain commerce employees, we believe that we are best positioned to help the industry modernize, which in turn creates a really exciting opportunity for Manhattan Associates. So with that, Jeff, we'd be happy to take any questions.

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

Hey, good afternoon, everyone and congrats on the all-rounder here in 1Q. Eddie, maybe my first question is for you, and then Dennis I had a question for you. But – when hearing about point of sale that seems like forever ago when we were hearing about the early kind of success and the pipeline building, what I'm curious about is, it's good to hear about some new deals starting to flow again and then projects moving forward. But could you maybe educate us on kind of what the point of sale kind of opportunities look like when you land one of those from a size and scale perspective, how does that compare to the OMS and WMS business? And is the pipeline activity continuing to build as we move into the second half of the year?

Yes, it does. It certainly seems that interest is picking up in the market Terry, we're seeing that interest pick up and as I mentioned in my prepared comments, industry analysts and the third-party integrators and so forth seem to be indicating that after the gap year of 2020, where we sort of spent a large part of the time closed as they reopened. And an emerge really is multi-function facilities by online curbside boutiques, galleries, return centers for product support online and so forth. Now, the systems that they have in place today don't support those capabilities very well, as well as all of the cross-selling and upselling that certainly retailers want to do and manage – maximize the inventory they have across the network. So there certainly seems to be some forward momentum there. The position that we're in with point of sale being sort of an extension of our Omni or order management suite of solutions seems to be being pretty well received in the market, you again heard from my comments that most of our customers are seeing one or the other go first on that roadmap, because there is a real strategic advantage for them. With regard to the size of the opportunity, the market is large as we know, we know the game as it were has moved from being a hardware game to a software game and that's where the critical mass is beginning to build. I don't know that I'm going to be able to give you a – and I don't want to give you a specific ASP of point of sale as it relates to order management and warehouse management. But suffice to say is a huge opportunity out there particularly, when the customers and retailers have a large store network. And I mean, I guess I would just say that it certainly would not be unusual for a point of sale opportunity to be in the same ballpark as material WMS program or a material OMS program.

Okay. That's great to hear. I guess, maybe Dennis, for you in terms of we were looking for $50 million of additional RPO in the quarter, you did over $100 million additional RPO. So like, what I'm curious about is it's a two-part question; one, what are you seeing in terms of commitments, are these still these kind of long-term kind of multi-year commitments, did anything changed in duration? And then secondly, there was a big deal, I'm curious, is it – was it a volume and velocity of deal activity, or was it – did it benefit from some especially large deals? Looking for a little bit more color on the beat there? Thank you.

In terms of duration, no change, we’re still hitting right at the five year mark, given the mission critical and strategic nature of these solutions, Terry, and what I would tell you is, pretty diverse spread of bookings across the customer, there wasn't any material concentration of one customer in the pool of deals that we closed in the quarter, good volume and good velocity and good diversity as well.

That's great. Congrats.

Thanks, Terry.

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

Great. Hi everyone. Yes, just stick with the RPO bookings. Obviously it doesn't happen without a good product, but Eddie and Dennis, I'm wondering a lot of thematic topics around the WMS category right now, be it new WMS pairing with robotics and automation, new WMS to manage pretty tight labor constraints in the industry, skew complexity with e-commerce. Are any of these factors you think driving maybe increased awareness or ultimately it would be kind of pipeline growth for you more than the others? Or is it really just a combination of new product embracing the cloud, these thematic things all kind of happening at once?

Well, it's I think the – there’s been great review of some of the drivers there, Joe. But the top of the list is a more immediate access to innovation. Just we've talked about it before, but honestly, I feel like it's head and shoulders above the other drivers with so many things changing in, supply chain, obviously digital transformation continuing to accelerate. The oldest other things that you talked about are factors, but the need to be flexible, agile and meet ever changing business needs, drives the need to get your hands on new innovation quickly. And that I think is the number one reason. There's no question that the challenge finding IT talent and so forth puts pressure on our customer's organization so that having us manage the solutions and so forth is helpful to them. As a corollary to it, but access to innovation would be number one.

Okay. That’s helpful. And then Eddie, a lot of your prepared remarks were discussing just expansions that existing accounts across the full suite of omni-channel capabilities, and I would imagine eventually that will lead across – in the supply chain across the entire kind of unified platform. Is it possible to give any maybe quantification, I don’t know if it's not revenue retention, maybe some sort of cohort analysis, just a general sense, what you're seeing with existing customers maybe a few years ago and kind of how their spend with Manhattan is evolving.

Yes. I wouldn't say there is any major change in terms of the – our ability to cross-sell and up-sell across the suite of solutions to be honest with you, Joe, we've had great customer retention over the world – over the years, we generally refer to it as maintenance retention, still it's true that a large percentage of our new software sales and every given quarter comes from existing customers. But the good news is with all of that said still a healthy number of new logos coming into the family. So I think a great balance there as we continue to drive innovation into the marketplace, we certainly expect to be able to continue that cross-sell and up-sell. And especially as we do introduce new products to the marketplace and we throw a little bit of that in the last quarter with point of sale in one of my more recent product introductions.

Yes, Joe, I would say also 25% of our software was net new customers in the quarter, and if you look at our pipeline 40% of the pipeline is made up of net new customers as well. I think that goes to Eddie’s story about the importance of innovation and from a retention point of view, it's early days from our renewal point of view, but we're basically at 99% to 100% on cloud renewal retention.

Okay, interesting. I'll leave it there. Thank you.

Thank you, Joe.

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

Great, thank you. So another super congrats on another strong quarter Eddie; Dennis and Mike. So Eddie, it's good to hear that point of sales is coming back which I take it that some parts of the retail vertical is coming back. So can you update us on where we are in terms of the retail vertical coming back from the depth of COVID early last year, and then also can you update us on the competitive landscape in that retail vertical? Because I believe certain vendors did take a step back when the retail vertical did slow down last year.

Yes, well certainly in terms of the journey of retail coming back for us over the last shall we call it 15 months, during 2020 in the real depths of the pandemic, there was still a fair amount of activity, we saw that first Q2 was pretty turbulent. But is there a fair amount of activity on the WMS side, direct-to-consumer shipments were increasing obviously the need for speed was there and so forth so we felt fairly healthy amount of activity in WMS. The larger strategic Manhattan Active Omni projects, went low quiet last year maybe for obvious reasons, there were smaller point projects with curbside and BOPUS projects and ship-from-store projects and so forth. But the big omnichannel project seem to wane a little bit with seeing that pick back up. And then again for obvious reasons with many stores closed store systems projects where, it was a bit of a gap year in 2020, and again, we're starting to see point of sale and store systems projects begin to pick back up, kind of across the board. So I'd say that's sort of been the journey across the solution suite over the last 15, 12 – 12 or 15 months. In terms of the competitive landscape, it hasn't changed a great deal frankly. Really competitors remained the same, they remain as active, there is some terrific competitors out there and keeps us sharp and on that toes and keeping innovating.

Okay. Thanks for that. And then Europe showed another strong sequential growth. Can you just talk about what kind of trends you were seeing there and whether or not we can continue to expect this positive trend out of Europe for the remaining of the year?

The services business was particularly strong in European in Q1, we're starting to see just like here in the U.S. frankly things begin to open up direct consumer growing has been growing over the last 12 months. So I don't think there is anything really very different in Europe that's happening here, it's pretty positive across the board. There are a couple of spots in APAC that are a little slower than we might like. Australia is pretty strong, but Japan is a little flat frankly China is a little flat, but there are smaller parts of the business and we certainly expect those to cycle back up in the next couple three quarters.

Okay, great. I have one for Dennis, very strong cash flow for Q1 especially, so it kind of looks like a cash collection was especially strong in the quarter. Was there like a onetime thing that drove cash collection or is there some sort of a trend that is emerging as you start to have higher mix of description billings and moving away from license deals?

No onetime trend, what we have is a company that's super focused on – as part of our DNA on cash, it was a record cash collections quarter for us, and really underpinning that is really the growing subscription business.

Okay, great. Thank you.

Yes, 25% free cash flow margin.

Yes.

Thank you, Yun.

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

All right. Thank you for taking my question and congratulations on the quarter guys.

Thank you, Mark.

Hey, Eddie a question for you on active WM, I know it's still early, but could you address whether you're seeing a different set of competitors with that solution than you did with your traditional on-premise products? And also to – if you could just address your active WM win rates and whether they're above the 70% average for all your products.

Yes. So pretty short answer is, Mark, no, competitors are pretty much the same today as they have been over the last – well, even longer than this, but let’s call it, a couple of three or four or five years. So same competitive landscape in terms of the win rates, I don't have that right off the top of my head, but certainly that strong, that probably might be a tick above the 70%. And we feel pretty good about where we are. We've talked about this before generally, when we don't come in first, often it's a pricing challenge and so forth, but still feel pretty good about the win rates.

Okay, great. And then in your prepared remarks, you mentioned that the company was benefiting from a couple of secular tailwinds, many of what you've mentioned in the past, but this time you brought up something called creative inventory strategies. I was wondering if you could just clarify that a little bit more for us.

Yes, sure. I mean, really with an acceleration of buy online, pickup in-store, curbside pickup and ship from store, it throws off traditional inventory strategies. So because you don't know, it's much harder to predict and forecast what those – the impact of those strategies are going to be on a stores’ inventory strategy, not relying on walk-ins anymore. So it requires frankly creative and sophisticated, a forecasting strategies and over the long-term, integration with an auto management system. So that you get a much better handle on what those – more creative fulfillment strategies are going to look like across the store network and how they feed back in to inventory optimization.

Thank you. Helpful, nice job in the quarter. Thanks guys.

Thank you, Mark.

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

Good evening, gentlemen, and thanks for taking the question. So congrats on a really, really strong RPO this quarter so maybe a follow-up to Terry's question, but just – you talked about the duration, Dennis. I know you hit on that, but is there any commonality into what you're displacing or how you're thinking about sales cycles? It was just such a big step up. I'm just curious, maybe what changed and kind of, how did that trend versus your expectations?

I don't think there's any trend, if we look back my answer to that, Brian, would be if you think about particularly Manhattan Active WM, which drove a healthy amount of the bookings, and of course, the result in RPO. It's about three quarters since we released, or it certainly was at the end of the quarter. The first quarter, most folks were figuring out what it was, what it looked like and so forth. And then we began to enter into sales cycles and we really started picking up some sales cycle momentum from Manhattan Active, Manhattan Active WM in kind of Q4, and again, in Q1. So now no big change, there have been a couple of questions where competitive landscape and secular trends and so forth, no big changes there. But I do think it has taken just a little while to build momentum for an awareness and everything else in the solution.

Yes. Brian, we're almost equally split on conversions and net new customers on MAWM. And as Eddie mentioned, we're already over two dozen, we've closed over two dozen deals there, so.

All right. So off to a pretty good start with that three-quarters in but and maybe a higher level one, Eddie, just I don't want to take away your thunder from momentum next month, but just thinking about the innovation over the last several years, point-of-sale is obviously a new product, but we've seen a lot of innovation on the WM side. I'm just curious, as we sit here today, how much of your product efforts are really focused on enhancing your existing product offerings versus potentially building out things that are adjacent to the portfolio?

Yes. So there's really sort of three prongs of – we have plenty of ideas for new innovation inside of our existing solutions. We really do. So we'll continue to innovate into our existing solutions, no question. We are certainly continuing to build out our product footprint with new products, and the ability to be able to cross-sell, upsell and obviously help our customers. And then the third bucket is the real creative and innovative unification of the solutions. Okay. Because there's a level of unification and flat out capability that we can deliver to the marketplace through a component base, set of microservices based solutions that could not done before. So unification new innovation into our existing solutions and footprint growth.

Thanks Eddie.

Thank you, Brian.

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

Thank you. Good evening, gentlemen. Two quick ones in terms of outside North America pipeline, curious where your sales capacity is relative to perhaps levels you'd like it to be, perhaps in Europe. And then speaking to APACs or what sort of the status there and what are the limitations in terms of moving the needle in APAC? And then Eddie, perhaps maybe looking through your POS telescope, just curious if you have any incremental sense of yet on a pace of retail store reopenings, sort of relative to the last quarter or so are we still seeing sort of a slow and steady pickup or is it perhaps speeding up a bit, just anything incremental in the margin there? Thanks.

Yes. Well, so first of all, just in terms of kind of overall dynamics and so forth, Europe's about 20% to 25% of our pipeline, number one. In terms of sales capacity, we are not capacity constrained. We do have a couple of open spots in Europe. Frankly, we say this a lot, but we've always got a few open spots for domain experts in our field, both Europe, APAC and in – but with U.S., but we're not capacity constrained. In terms of APAC, of course, APAC represents about 6% or 7% of our revenue. And it's very important to us. It's certainly very important to our global customers and so forth. But it also represents a pretty diverse set of countries, right. Japan, China, Singapore, and Southeast Asia, Australia spread across that 6% or 7%. And honestly, we like many others talk about APAC as a region, but boy, it is pretty diverse in and of itself. So there's no – again, no particular sales capacity issue there and country-by-country almost there are kind of different dynamics going on. I think we all know that Australia and New Zealand are in a pretty good shape. Things are pretty open. And businesses flourishing reasonably well there, whereas some of the other countries are struggling a little bit more. And then with regard to your second question around looking through the point-of-sale telescope, I think you called it. And what we're seeing in terms of store openings, obviously Europe is opening up, a good bit more from a trajectory perspective now, particularly in the UK. Here, obviously we're pretty much fully open across the board in the spots that are not, I think retailers are definitely feeling like it's pretty close by and beginning to feel the need for adaption and modernization in those stores.

Super. Thank you. Appreciate it.

Certainly, Mark. Thank you.

Your next question comes from the line of David Robinson from William Blair. Your line is open.

Hi, thanks for taking my question. I guess just a quick one around kind of the secular tailwinds that you've been experiencing. I guess, given the increasing demand across the product portfolio and the amount of pilots that you guys have been able to put into play and potential customers further understanding the importance of omni-channel and cloud-based supply chain solutions due to COVID. Have you experienced any shortening of the sales cycle or any acceleration there or has it stayed about the same?

Yes, that's a good question. So broadly speaking, no, the sales cycles have remained about the same. However in the last 12 months, we have seen some what I would call smaller point projects go faster, right. So when we were in a situation where stores were closed and retailers wanted to use those stores as ship from locations, we source them, ship from store projects accelerate. We saw some buy online, pickup in-store, some curbside pickup projects where our customers came to us and said, listen, we got to be live in days. And that we've referred to it in a couple of previous earnings calls. I think some examples where frankly, we turned on a dime and had buy online, pickup in-store solutions up and running with an existing customer, of course, in literally six or seven days. And even in situations where it was a new customer needed curbside pickup program, zero to live in six weeks. So we did see some of those small programs have very short sales cycles. But overall David, nothing honestly has really changed at a higher level and more strategic level.

Got it. And I guess, just to kind of build upon that, has there been any kind of discussion or change in sales strategy as you've seen kind of the success is being able to sell those small products that obviously can lead to larger ones in the future, or is that kind of similar as well?

Not really David, we've got a reasonably broad portfolio in the supply chain space. And there are certainly some of our solutions that are considered tip of arrow. If you think about the distribution management side, sometimes slotting optimization projects or labor management projects on the transportation side. Look at transportation procurement or transportation modeling engagements, which would be considered tip of arrow for TMS and same is true of omni-channel and some of the ones that we've talked about. But that really isn't a big change for us. I have to say that, since we are focused largely on Tier 1 and Tier 2, usually those companies who have put a lot of thought into these transformational programs and tend to take the time with a sales cycle, but engage in larger initiatives with us.

Okay, great. Thanks for taking my questions.

My pleasure, David, thank you.

That concludes our Q&A and now back to Mr. Eddie Capel for final remarks.

All right. Very good, Jeff, thank you very much. Appreciate it. And thank you everybody for taking the time to join the call today and get an update on our Q1 2021. As I said, we're excited about the quarter but even more excited about our go-forward opportunity. And we'll look forward to speaking to you about three months from now with our Q2 update. Thanks again. Appreciate it.

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