Good afternoon. My name is Ren, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates Q2 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, July 27. I would now like to introduce Mr. Michael Bauer, Head of Investor Relations of Manhattan Associates. Sir, you may begin.

Thank you, Ren, and good afternoon, everyone. Welcome to Manhattan Associates' 2021 second 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 were cautioned 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. And good afternoon, everybody and thank you for joining us as we review our second quarter results and discuss our updated full year outlook. So Q2 and first half 2021 results were an all-time record for Manhattan Associates. With Q2, total revenue increasing 22% to $166 million and adjusted earnings per diluted share increasing 53% to $0.61, and both of these metrics exceeded our expectations. Our global teams are very busy and continue to execute extremely well as broad revenue and performance translated into strong top line growth and also earnings leverage. Furthermore, demand continues to strengthen for our growing set of cloud solutions, resulting in record second quarter bookings with RPO increasing 117% year-over-year and 16% sequentially to $489 million. So with momentum accelerating and forward revenue visibility improving, once again, we're increasing our 2021 guidance, including RPO. Now, as many of you are aware, our solutions are mission critical and that we're focused on providing modern cloud native solutions that are architected to unify commerce and supply chain experiences. Our technology is differentiating and industry leading, and by providing solutions that are scalable, versionless and extensible. Our customers are able to adapt more quickly to changing market conditions and are better positioned to profitably scale their businesses. On the sales front, competitive win rates remains strong at about 70%. It’s that commitment to innovation keeps Manhattan Associates at top of our industry rankings. From a vertical perspective, retail manufacturing and wholesale drove more than 80% of our bookings in the quarter. And if we drill in a little to the sub verticals, they're pretty diverse, including apparel, department stores, food and beverage, industrial, as well as durable and non-durable goods. Now our Manhattan Active Solution pipeline continues to grow nicely to benefiting from our market leadership…

Thanks, Eddie. And as Eddie mentioned, record Q2 and first half results and nearly every major metric category, we put up record numbers, growth, profitability, cash flow, and balance sheet results were all solid for the quarter. Our quality of earnings performance was outstanding top to bottom. There are no one-time adjustments in these results, just great execution. And here's a summary of Q2 financial highlights, which includes our guidance for total revenue, operating profit and earnings per share. You also can refer to today's earnings release for our adjusted and GAAP guidance. Also unless otherwise stated, growth rates are on a year-over-year basis. So total revenue was up $166 million or was $166 million up 22%. Our outperformance was broadened across all revenue line items. Like Q1, we again experienced notable strength in cloud. Based on our strong first half and second half outlook, we are raising our total revenue guidance from our previous range of $625 million to $640 million to $643 million to $650 million. So our new range is $643 million to $650 million on total revenue, targeting 10% growth at the midpoint of $646 million. Our underlying total revenue growth, excluding license and maintenance, which removes the revenue compression from our cloud transition is targeted to be 18% at the midpoint. And for Q3, we expect total revenue of $162 million to $165 million or 9% growth at the midpoint. For adjusted EPS, EPS was up $0.61 or was $0.61 up 53% and GAAP EPS was $0.48. For adjusted EPS, we are raising full year guidance range to $2 to $2.06 with a midpoint of $2.03, up 23% from our previous midpoint of $1.65. For GAAP earnings per share, our guidance range is $1.50 to $1.56 with a midpoint of $1.53 and that's up 33%…

Very good. Thanks Dennis. Well, we're very pleased with our strong second quarter and year-to-date results. And while the global macro environment remains somewhat turbulent, Manhattan Associates is entering into second half of 2021 with some tailwinds. We've accelerated the pace of our innovation and delivering the right solutions at the right time. And the result is a strong business momentum and a great opportunity for us to deliver success to our customers and help shape their digital transformation. And before opening it up for questions, I do want to take this opportunity to thank all of my Manhattan Associates teammates across the globe. Many of you have started to return to our offices and I continue to be inspired by your flexibility, resilience, and ongoing commitment to ensure our customers are successful. So thanks again. Ren, we're now open to take questions

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

Hey gentlemen, good afternoon, and definitely congratulations on the results and the outlook update. I have two questions. The first Eddie for you, in terms of now delivering on the innovation around Active WM and TM, and combined. Are you actually seeing sales cycles where they actually want to buy both of the products at the same time, or is it more of a differentiator and it's just helping spur the conversations and improve close rates on just either or? That's the first question?

Yes. Good question, Terry. Well, it's early. Of course, we're six weeks past release of Manhattan Active TM, but the answer is yes, we have sold at least one that comes to mind new customer – brand new customer, so new logo, not done business with us before. And they contracted for both Manhattan Active WM and Manhattan Active TM. So feel pretty good about that and off to a good start six week in.

That's great. And then just the follow-up question, Dennis, for you and thanks for all the financial color is. What I'm curious about is, I think I forgot if it was the fourth quarter or the first quarter, but I think it was fourth quarter call. You gave us kind of a long-term roadmap and how like the cloud subscription revenue, how it's going to layer on from this growing RPO. But what I'm curious about is yes, you guys are well ahead of expectations on RPO, but also your cloud subscription revenues been coming along faster than I would've expected. Does that change kind of how the glide path or the acceleration curve is going to be that you talked about in a couple of years on cloud subscription revenue, or could it be maybe more evened out because of what you're seeing? Thank you.

It is the former versus the latter Terry, it will change and we'll address that – we'll address those updates in the Q4 call for sure. Great forward visibility.

Sounds great, thanks.

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

Great. Hi everyone. I wanted to go to the comment just on existing customers, maybe choosing to migrate a little more quickly or I think you said accelerating somewhat. Is that just a function of maybe time and comfort, the fact that we're over a year now with Active WM in market. So there is been a chance to see it, there's maybe some reference examples or there is something else going on there, where given what's happening from a industry backdrop, just the elevated importance of supply chain, maybe comfort with cloud ultimately feeds in as well that more customers are arriving at the conclusion that now is the right time to maybe embrace the new product?

Yes, I think you've answered the question well there, Joe. We're a year in or a year so, and certainly it takes a little time, not so much from a reference-ability perspective, but the budgeting cycles and even though we're existing customers those, if you want to call them sales cycles take awhile. And we're starting to see more of them come to fruition, but also the accelerating need for digital transformation in that core supply chain execution space. We've talked about this before that distribution centers don't look the same today as they did five or certainly 10 years ago, and the need for that modern software engine and technology to be able to power those distribution centers is certainly something that's fueling the growth to.

Okay. That's great. And then just on the development of cloud and other gross margins and the upside you're starting to see. I guess, bigger picture because there is a couple of quarters in a row now of sequential gross margin improvement. Do you think you're at the point within the context of the broader transition and really the investment in cloud infrastructure and personnel that you’ve been making over a number of years now, you're at a point where there just should be greater leverage behind that past investments. And so, understandably, there is seasonal changes in gross margin, but maybe as we look to the out years, there is an opportunity to build on 2021’s levels?

Yes. Well, Dennis will take some of the details here as well. But certainly, there is opportunity to build on scale and leverage and so forth. I do think we had a virtual momentum conference this year, so we had some – we ended some underspend there frankly. We still have the opportunity that we believe to invest more in marketing and awareness. We're doing okay clearly, but we've got to get the message out and make sure we're not one of the world's best kept secrets from a technology and a supply chain perspective. So there is still some underspend there from our perspective and we'll continue to make those investments as well as material investments in research and development.

Yes, Joe. I'll piggyback on Eddie too. So we're in year four or five, so I'd say we're probably – when we look at where we're at, we're probably a year ahead of what we expected, we're pretty excited about that. But bottom line is, we're going to continue to invest in T&T and that's talent and technology, we think we – our overall objective is, as I said in this call and continue to say is, as the objective is really to create long-term sustainable double-digit top line growth, and be a top quartile margin performer against any tech comps out there. And I think we're doing pretty good there.

Okay. That's great. Thank you very much.

Thank you, Joe.

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

Thanks, gentlemen. Congrats in a really strong RPO number. So Dennis, maybe a follow-up on that last question, I've seen – I think we've seen the initial outlook of the last few years imply a decline in operating margins, but now we're seeing the expansion in 2020, we'll see margins up again this year. And there's still a lot of moving parts, but are we at the point where we can kind of call a trough in operating margins or is there any dynamic related to hiring or investments that we need to keep in mind there?

We're not going to call a trough at this stage. So we'll evaluate that and discuss that in the Q4 earnings call, Brian. We are going to continue to invest in the business, but suffice to say, we're pretty confident in our ability to generate operating leverage.

Got it. And maybe just one follow-up for me on the RPO, that was pretty strong again this quarter. I'm curious if you had to look back in the first half of the year and clearly RPO exceeded our expectations. Do you think the upside was more related to volume or just like the sales cycles or maybe related to deal value in any way that you can kind of slice and dice it that way? Just be curious to get your thoughts there. Thanks again.

That's pretty balanced, Brian, actually. So we've seen nice deal volume. We've seen some bigger deals, not much, but a little bit on the longer contract side. So a really nice balance is driving that RPO number, frankly.

Yes. We're seeing a nice balance of not just our install base, but net new customers in our portfolio as well. Pretty exciting.

Good to hear. Thanks guys.

Thank you, Brian.

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

Hi, good afternoon. And thank you for taking my question. Let me start off by saying, congratulations. Nice job on the quarter, another good quarter. Just want to drive down into some of the drivers of growth in the quarter. Were there particular product areas that you saw certain outperformance more so than others? I mean, it appears just based on some of your commentary in your prepared remarks that WMS kind of led the way, is that a good read?

Certainly WMS was the preponderance, a heritage there and so forth, and it tends to be sort of the lead product. But much like Q1, there was very nice balance across the product portfolio. WMS was strong for sure. And it was the lead dog but MAO really stepped up in Q2 and delivered some nice numbers and TMS, point-of-sale and inventory participated as well. So pretty nice balance, frankly.

Yes. And the pipeline is continues to strengthen as well. So we're…

Yes, similar balance in pipeline.

Okay, great. And then just diving down a little bit on the point-of-sale product that you have, on the Q1 call, you were seeing a pickup in some large point-of-sale projects and the sense was that retailers were just kind of restarting some of those strategic initiatives that they had. I just want to get that momentum carried over into the second quarter here. It appears that it did.

Yes. Continues to have nice momentum, the good news is that some of these implementation timelines are getting shorter and shorter. So we've actually had three point-of-sale customers go-live just in the last – the back half of this quarter. And the nice thing about the point-of-sale pipeline for us is about 50% of the pipeline again, brand new customers that we've never done business with before. So as we've said many, many times not going to be an overnight success, but we really do feel like the flywheel given the wins, some go-lives, we're getting under our belt now in the pipeline, that we're starting to see the flywheel pick up some momentum.

Okay. Very good. And then finally here, just stepping back, taking like a 30,000 foot view, based on the overperformance, it appears that you're seeing a sense of heightened urgency from your customers regarding modernizing their supply chains? And just one, if you could just address how customers are maybe thinking differently about supply chain modernization today than they were a year or two ago?

Yes. Well, I think a combination of needing or recognizing that they need resilience in the supply chain, they need contingency in the supply chain. And frankly, it's a very competitive world out there. I said a little bit of a different way than I said, in the script, supply chain these days is a customer service attributes, right. So each one of the customer – supply chain associates and our customers feel like their customer service advocates. And so I think that the need continues to grow. The need continues to heighten to bring supply chain to the forefront and be a competitive differentiator for our customers.

Great. Thank you. Nice job.

Thanks Mark.

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

Thank you. So congrats on another strong quarter, Eddie and Dennis.

Thank you, Yun.

Eddie, maybe that you rolled out at the TM, I believe that's the last of the high-profile products to be activated into the active product family, if I can say that. So can you just give us an update on what your overall thoughts on what's next? Maybe this is a good time to update us on your acquisition strategy. Thanks.

Yes, there was still plenty of work to do, Yun, in the supply chain space. We have frankly, a much longer list of innovations in the hopper than we can get through in the next quarter or two. So we're continuing to bear down on the investment strategy, build out the innovation into the white space that we see. I do think that, there's a couple of areas. In addition to the constant build out, the constant changing markets that drive new needs in the omni suite of solutions into WMS, into TMS, there's two categories, I think that are popping out, as a continuum. One is greater, greater levels of customer engagement. And so all of this work in digital self-service, what we've called consumer grade CRM still I think is a very vibrant market in a white space for us to drive into. And then the second piece is inventory optimization. I'm not suggesting that any of our customers or the market is not focused on inventory optimization but there is a still a real race to drive customer satisfaction and meet all of those SLAs. And we have yet to see a real acute focus on inventory optimization in the omnichannel world. And we believe that's coming and we're investing out ahead of that trend.

Okay. That's great. Thanks. And Dennis, we used to get a metric in a number of deals above $1 million in the good old like license revenue days. So how should we think about what is that similar metric for large subscription deals? Should we look at it from the total RPO perspective? Like should we be asking you how much of your RPO growth is driven by these large deals or something like that? Just wanted to get your sense on how we should assess your overall kind of exposure to big deal activity, because you have mentioned that RPO growth could be lumpy depending on the sizable bookings and whatnot. Thanks.

Yes. So from a RPO point of view, it can be lumpy from quarter-to-quarter, but bottom line is it's compounding from a growth point of view, and that's a very linear line in essence. So that's from what I would judge our performance by is really the RPO, overall RPO growth from quarter-to-quarter and the guidance we're giving.

Got you. And then a question that I always ask, any meaningful change in the overall contract length that may had a meaningful impact on the RPO?

No.

No, not at all.

All right. Sounds good. Thank you very much.

Thank you, Yun.

[Operator Instructions] Your next question comes from the line of Matt Pfau from William Blair. Your line is open.

Hey, guys. Thanks for taking my questions. Eddie, I think in your prepared remarks, you mentioned that you are seeing existing customers accelerate their conversion to the cloud. Maybe just care to expand on those comments a little bit on in terms of what's driving that?

I just think timing Matt for the most part. We're about a year from release, upgrade cycles, budgeting for upgrade cycles and so forth. Take some time. So I think that's one factor. And then the continuing need to modernize the distribution center and get access to – get almost immediate access to the innovation that we're developing.

Hey, Matt.

Got it. And…

Matt, the other – just jumping in here is, is broader suite of solutions. We've been delivering new innovation over the last four years. And what we're seeing is really from a pipeline build and just in the sales process, pretty nice diversity across the solutions.

Got it. And then from a geographic perspective, I think you called out that Americas is being particularly strong in the pipeline, but also seen some improvement in EMEA and APAC. Is that just driven by America reopening quicker, being more open than some of those other geographies? Or what sort of behind the pipeline strength there?

Yes, I think that's it, Matt, because even within APAC and EMEA returning, you can see sort of the micro trends. There are certain countries and so forth that are still lagging from a perspective of opening, and open up the doors and so forth. So, yes, I just think it's a little bit of a lag and a little bit of timing there before we see the same kind of modernization, trends really start to blossom in those, Matt. But we can certainly see it, I think it's on the doorstep, frankly.

Okay. Great, guys. That's all I have. Thanks a lot.

Thank you, Matt. See you.

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

Thank you. Good evening, guys.

Hi, Mark.

Hi, Mark.

Just a quick follow-up to the earlier question on the RPO strength, obviously blew through it from just the first couple of quarters. And I was wondering how much of your original guidance had or how much macro conservatism might have been built in? And sort of how that may or may not still be extended into the second half of the year now relative to the obvious incremental strength that you've been seeing?

Yes. I mean, there's some question coming into the year. We were a little cautious about how things were going to shape up here and around the world, but now obviously we're seeing, we're seeing the demand, we're seeing the bookings, we're seeing the pipeline grow. So feeling stronger about it, hence all the raises, the raises across the board. So we are – we certainly try to be under promise over a deliver organization. So we'd like to keep that trend going, but I think as you can see from the raises that we've provided, that we've delivered and guidance that we've given and so forth, we're not exactly holding back. Now we're feeling more confident.

Got it. And just a last one on Europe. Your comment on strength there, just to fall into the last question. Is there some quantification to that strength or is it too early to tell just how strong Europe will come back? Just maybe some color as you're looking at Europe over the next six to 12 months.

Yes. It's just been a little flatter – little flatter relative to the U.S. over the last two or three quarters. And we see it coming back to normality, if you want to – if you would like to put it that way. Typically, we've seen Europe represent somewhere between 12% and 15% in software, software revenues and it's been a little lower, not materially, but a little bit lower than that for the last couple of three quarters. And we see it coming back to normal ranges here in the near future.

Got it. Awesome. Thanks, guys.

Pleasure, Mark. Thank you.

Ladies and gentlemen, this concludes Manhattan Associates’ Q2 2021 earnings call. Thank you for participating. You may now disconnect.