Good afternoon. My name is Julian, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates Q2 2025 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, July 22, 2025. I would now like to introduce you to our host, Mr. Michael Bauer, Head of Investor Relations of Manhattan Associates. Mr. Bauer, you may begin your conference.

Thank you, Julian, and good afternoon, everyone. Welcome to the Manhattan Associates 2025 Second Quarter Earnings Call. I will review our cautionary language and then turn the call over to our Executive Chairman, Eddie Capel, for some brief opening commentary before he hands it off to our President and Chief Executive Officer, Eric Clark. During this call, including the Q&A session, we may make forward-looking statements regarding future events or Manhattan Associates' future financial performance. We caution you that these forward-looking statements involve risks and uncertainties are not guarantees of future performance, and actual results may differ materially from the projections contained in our forward-looking statements. I refer you to Manhattan Associates' SEC reports 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 2024 and the risk factor discussion in that report and any risk factor updates we provide in our subsequent Form 10-Qs. Please note that the turbulent global macro environment could impact our performance and 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 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 filed with 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, everyone. It's my pleasure one more time to kick things off, and welcome, everyone, today's call. Now before we get to the real substance of the update, though, I'd like to commend Eric on his first 160 days as CEO. The transition really couldn't have been smoother. We've had a very successful Momentum Conference a couple of months ago. You're going to hear about excellent Q2 performance and execution in just a moment, and Eric is making a meaningful and positive impact to our company across the board. Manhattan's fundamentals continue to be strong. And as always, we're innovating at pace, driving success for our customers, employees and shareholders. And with this in mind, the Board and I plan to meet a transition away from all of my remaining executive management responsibilities during the balance of 2025. So that beginning on January 1, 2026, my title and role at Manhattan will be Chairman of the Board. I continue, as you would expect, to be as excited as ever about Manhattan's future and the opportunity in front of us. And I look forward to supporting Eric and our global teams in any possible way that I can. So with that, over to Eric.

Great. Thank you, Eddie. Good afternoon, everyone, and thank you for joining us as we review our record second quarter results and discuss our increased full year 2025 outlook and briefly recap some of the market-leading innovation that we announced at our customer conference just a couple of months ago. Our Q2 results were better than expected as 22% cloud revenue growth drove top-line outperformance and earnings leverage. And while the global macro environment remains volatile, for consecutive quarters, our services revenue has slightly outperformed expectations. This execution is encouraging. However, given the inherent flexibility of time and material contracts, coupled with the ongoing tariff and general market uncertainty, we remain cautious on our services revenue growth. Importantly, our business fundamentals are solid, and we remain optimistic on our long-term opportunity. Manhattan's platform is superior and our product portfolio offers best-in-class functionality across the supply chain commerce ecosystem. This is driving a solid pipeline and providing our sales team with numerous opportunities to drive growth. Those opportunities include adding new customers, cross-selling our growing unified product portfolio and converting our on-premise customers to the cloud. All of these sales channels contributed to RPO increasing 26% year-over-year and surpassing the $2 billion milestone at the end of the quarter. Win rates against our top 5 competitors in the quarter were consistent at over 70%. And like Q1, we once again experienced strength from new customers as more than 70% of our new cloud bookings were generated from net new logos. With new logos representing approximately 35% of our current pipeline, we anticipate bookings from net new logos to revert back to the standard 1/3 of our bookings over time. From a vertical perspective, our end markets are diverse, and we have healthy established footprints across numerous subsectors, which include retail, grocery,…

Okay. Thanks, Eric. Our Manhattan global teams continue to execute well in a challenging macro environment. For the quarter, we delivered a better-than-expected financial performance on the top and bottom lines. This includes solid results across RPO bookings, cloud revenue growth, gross and operating margin expansion as well as free cash flow generation. FX volatility persists. In Q2, it was a 1-point tailwind to year-over-year total revenue growth, but did not have a material impact on first-half revenue growth. FX was also a $29 million tailwind to sequential RPO growth and a $28 million tailwind to year-over-year RPO growth. Now turning to our Q2 results, which were better than expected regardless of FX movements. Our growth rates are reported on a year- over-year basis unless otherwise stated. For the quarter, total revenue was $272 million, up 3%. Cloud revenue increased 22% to $100 million, and services revenue declined 6% to $129 million. Both were a bit better than expected. As previously discussed, the year-over-year decline in services revenue reflects customer budgetary constraints that shifted services work to future periods. As Eric highlighted, given the uncertain macro environment and inherent flexibility of time and material contracts, we remain cautious on our services revenue growth. We ended Q2 with RPO of $2.01 billion, up 26% compared to the prior year and 6% sequentially. The solid Q2 performance was driven by strength in new customers and a healthy contribution from existing customers. Our average contract duration remains at 5.5 to 6 years. Like Q1, some customers are electing longer ramp timelines. While the full contract is noncancelable, we believe the current macro environment has resulted in some customers taking a more conservative approach to the implementation timeline of their contracts. Accordingly, we expect 38% of RPO to be recognized as revenue over the…

Great. Thank you, Dennis. We're really pleased with our better-than-expected second quarter and first half results. As we have stated, the global macro environment remains challenging. However, we're optimistic about our business fundamentals and our growth opportunity. We believe our industry-leading unified cloud platform positions Manhattan as the clear choice for modern supply chain commerce solutions. So thank you, everyone, for joining the call, and thank you to the Manhattan team for their dedication and execution. And that concludes our prepared remarks, and we'd be happy to take questions.

[Operator Instructions] And our first question comes from the line of Terrell Tillman with Truist Securities.

Nice to see these results. So good job on that. Two questions. First question is on the supply chain unification. It resonated at the Momentum event that I attended. I think you all showed a bunch of logos in terms of combined TM and WM transactions. I mean, maybe easier said than done, but is there anything you can programmatically kind of now do to even put more kind of gas on the fire here in terms of whether it's tuning the products better together? Is it go-to-market investments, maybe AI fuses them better together? Just what can you do on your own in your controllables to even drive more of these unification deals? And then I had a follow-up.

Yes. Great. Thank you, Terry. Love the question. As I mentioned in my prepared remarks, we're truly doubling down on our investment in unification, and we're doing that in several ways. So we have created an engineering team that's focused solely on building these unified functional advantages. So we want to make that even bigger and more clear of why it makes sense to leverage our unified platform. We've also engaged with our customers by creating this product council that's dedicated to serving these unified customers to really find out directly from them what they're looking for, what they need and co-innovate and co-create. And then sales and awareness is a big part of that as well. But I think one of the common themes that I heard at Momentum this year because you're right, we talked a lot about unification, but our customers also talked a lot about unification. And one of the themes was that customers would tell me a year ago at Momentum that unification was a compelling strategy. Customers believed in it. People were starting to lean in. But this year at Momentum, it came to life. And there were customers on stage telling their stories of how it increased efficiency, how it increased ROI, how it created strategic advantages for them. So we're really seeing our customers buying in. And also, to your point, yes, I think Manhattan Active Warehouse Management and Transportation Management are probably leading the way, and we've more than doubled our unification logos in that area from year-over-year. But we're also seeing lots of unification logos, and I mentioned some of them in my opening remarks that are unified leveraging MAO and supply chain planning and POS. So great optimism, and we're continuing to lean in and invest here around unification.

That's great. My follow-up question is on cloud subscription revenue. It picked up a bit in terms of the growth rate compared to first quarter. So that was nice to see. It does look like you have this large balance of RPO. So I guess that supports going forward visibility. But I would just love an update on confidence level in sustaining 20% growth beyond just the next quarter or 2. Just anything you could share on that subscription revenue visibility.

Yes. So when we originally provided the multiyear metric of the sustained multiyear 20% growth, we said we weren't going to update that metric every quarter. But I can tell you, we do remain confident. And the reasons why we remain confident, we've got a large booked business in RPO, like you mentioned, and that gives us good visibility, particularly good visibility in the second half and next year. Our bookings and pipeline continue to be solid. Our TAM is expanding. As I mentioned, we're making changes to accelerate sales velocity. That includes specialization, and that specialization around products, around renewals, around conversions, strengthening partnerships, adding sales talent. And then another big factor that we talk about when it comes to maintaining that 20-plus percent growth is the renewal cycle. And that really starts to pick up pace next year, particularly with our Manhattan Active Warehouse Management. And if you walk through the mechanics of that, you think about as the contract progresses, the dollars move from RPO to subscription revenue. And by the end of the contract, there's no RPO left. And then when we renew, it renews that RPO and refreshes that RPO, but it also does that at a higher level for a number of reasons. Number one, we've ramped that customer through the first x number of years of the contract. So we've ramped up DCs and users. So we're now going to be renewing at a run rate that's much higher. We've also got the opportunity to cross-sell when we renew. So when those customers that are going to be renewing in '26, when they bought Warehouse Management, we didn't have Transportation Management or Supply Chain Management or AI agents. So all of those things are opportunities for cross-sell. Of course, there's also the opportunity for price increases in some cases, and all of this will drive higher RPO and higher subscription revenue. So -- and then add to that the fact that as we've mentioned in previous calls, we do have customers that are maybe taking a conservative view of their deployment cycles and are rolling out a little bit slower. We are actively working with those customers to find opportunities for them to move faster. And as they move faster, that grows our subscription revenue faster as well. So we think we've got lots of levers to pull to be proactive and work with our customers to drive this and continue the success.

And our next question comes from the line of Joe Vruwink with Baird.

Eric, just 4 different go-to-market investment areas you walked through. I appreciate some of these take time to become productive and revenue-enhancing. But maybe you could go into a bit more just qualitative detail on what you think is possible through like the enhanced specialists and new hires. And quantitatively, if you had to put a number on it, I understand, given Terry's question, 20% growth in cloud subs that was intended to be a multiyear target. But do you really think if some of these go-to-market investments pay off, we're thinking about a number beyond the 20% level?

Yes. Thank you for the question. Yes, as I mentioned, we're not making changes to that long-term projection. But we are making a lot of changes to what we're doing in sales and go-to-market. And I think these are low-risk changes that can have a relatively quick impact, some quicker than others. So you talk about Bob Howell, who I mentioned is taking over as Chief Sales Officer. He's been here 20 years. He's worked closely on a lot of the big deals that we've done in Europe and APAC already. He's worked closely with those teams. So this gives him the opportunity to take some of the things that Bob and his sales team in the Americas have really perfected in terms of specialization, sales diligence, et cetera, and leverage that more globally. So some of the things that we're doing really well in the Americas, we can tap into in other parts of the world. And I think that's very low risk and can have a quick return. I think some of the things that we're doing with partnerships with Google, with Shopify, as I mentioned, we're already seeing returns. The product specialization, I mentioned we've got new leaders for POS and TMS since the last time we had this call. Those guys are coming up to speed quickly. Obviously, they've been in this market. They know the business. They know Manhattan more as a competitor. Now they're learning us as a company that they're working for. But the relationships that they have in the market will be valuable, and they will help us to increase our pipelines very quickly. And I'm confident that the specialized teams that they're building around them will give us the ability to enter new markets. I think one of the things that we've been pretty clear about is we know that we've got market-leading products in POS and TMS, but we probably don't have the market awareness that we want in those spaces. And I think those guys that we brought in can help us address that very, very quickly. So yes, I think there are several things that we're doing that can have a material impact certainly next year. Some of these things, when you look from a revenue perspective, it's difficult to impact significantly revenue in the second half from a product standpoint. But all of these things should be able to give us a good impact for next year.

Okay. That's great color. I wanted to ask about the RPO bookings much better this quarter than last quarter. I'm curious if you can maybe parcel out how much is customers just acclimating to the macro versus Manhattan works of pipeline sometimes for a while and opportunities come together in a period. Do you think it was just the pipeline opportunities you had going into this period that was conducive to better RPO activity?

Well, I think a big part of it was just very solid execution by our sales team. But from a macro point of view, I think some of the uncertainty has abated, but I think also customers are adapting to moving forward with some uncertainty. And just like we are doing, we're managing through the uncertainty and controlling what we can. I think our customers are doing that as well. And the pipeline that we went into Q2 was solid, and we continue to see a solid pipeline in the second half. One of the interesting things, we talk about the tough macro that we've been in for a while now. Our last 3 bookings quarters have been our best 3 bookings quarters ever. So -- and you can argue that all 3 of those quarters were during at least a changing, if not a challenging macro. So I think our team continues to execute well, and we've got a product that the market wants and demand is strong.

And our next question comes from the line of Brian Peterson with Raymond James.

On the strong quarter. So I wanted to hit on maintenance. That was a little bit higher than I had expected this quarter. Are you seeing some of your existing on-premise customers kind of renew for longer? And can we get an update on where we stand on the status of that on-premise to cloud migration for WMS?

Yes. So bottom line, we've always taken the approach that our customers are going to convert to cloud when they're ready. And this is the second quarter in a row where we've had really strong bookings from new logo. And ultimately, in the long run, that's going to drive more growth opportunity because that creates more opportunity for cross-sell. That being said, we are continuing to look at our conversion opportunities and conversion pipelines. And I do see that as an area that we can get more aggressive and not only create more cloud subscription revenue, but also create more services revenue. So conversions is an area that we will continue to focus on. Now from a percentage standpoint, not a significant change from what we talked about a quarter ago. Roughly 20% of our on-prem customers have started that conversion to the cloud. When I walk through kind of some samples of our new logos and conversions that we closed in Q2, we do continue to close conversions, but we still have a lot of conversions in the pipeline to close over the next several years.

And maybe just a follow-up. I know ERP migrations have gotten a lot of talk kind of industry-wide. As you see that strength in net new, is that a big factor in what's driving new customers to Manhattan or maybe some commonality on what you're seeing on the net new side?

Yes. So the ERP continues to be a tailwind for us, right? As people are making decisions on ERP and looking at what some of the ERP players have to offer and comparing that to what we have to offer, that the change is creating -- the change that they have to do in ERP is creating an opportunity for them to do a change in supply chain as well. So that's absolutely creating a pipeline for us. And I think the amount of pipeline and what that's driving has been consistent over the past several quarters, and we continue to see pipeline created that way.

Our next question comes from the line of Dylan Becker with William Blair.

Congrats. Appreciate it. Maybe, Eric, sticking on one of those prior topics. Around the idea of conversion momentum, but also on the new logo side. I wonder if you could contextualize some of the efficiency gains you're seeing around kind of delivery and implementation, what you can do to make that process easier and faster? And maybe if that is a TAM unlock in and of itself as it's kind of historically been viewed as a heavy implementation, if that allows you to go maybe more down market into Tier 2 and what that TAM unlock could potentially look like?

Yes, great question. And in fact, this is something that we talked about at Momentum as well. Our team is having success of leveraging automation and AI to reduce implementation timelines, to reduce the number of extensions required to reduce the number of hours to create an extension. So there's example after example of where we're reducing timelines and reducing cost and deployment. So that absolutely makes our TAM bigger. And that's one of the things that we're -- one of the message that we're taking to market right now as well as we can reduce the speed or increase the speed and reduce the complexity, it increases our TAM, and it also can be another way to encourage customers to do those migrations and convert from on-prem to the cloud. So those are messages that we're taking to market right now, and I think they're being received very well. And by the way, at Momentum, our customers were also happy to hear that with that speed and reducing complexity, it gets them to their ROI faster, which is a very important message for them.

Yes. Perfect. Okay. And then we've talked about kind of the pace and productivity, kind of the expectations on sales hiring and where you think about kind of segmenting that out. But if we were to kind of step back and contemplate the renewal cycle in fiscal '26, kind of having come on board now 150, 160 days, could you maybe draw any parallels in your prior experiences of how you're kind of positioning and viewing navigating that renewal opportunity and what that can kind of contextualize from a potential upsell, obviously, unification cross-selling dynamic as well?

Yes. Yes, definitely. So it's not too dissimilar from the cycle that we were on when I joined ServiceNow, when ServiceNow was just over $1 billion, and we were going through significant renewal cycles. And at the same time, we were introducing new products and doing cross-sell and upsell when we did those renewals. So that will be a big focus for us in the second half of this year, and that's a big part of what Bob Howell and his team are going to be putting together is that global structure that we will use to make sure that we are maximizing the opportunity at renewal and not just renewing but driving growth within those customers as well.

And our next question comes from the line of George Kurosawa with Citi.

Maybe as it relates to the macro backdrop, if you could talk about kind of linearity in the quarter? Did things improve as the quarter progressed? And any comments on how things are trending so far into July?

I wouldn't say there was anything material to note in terms of things improving throughout the quarter or even in July. Typically, in our business, Q3 has been seasonally a weaker quarter and Q4 is seasonally a stronger quarter. We'll see if that plays out. But in terms of the macro, nothing meaningful.

Okay. That's helpful. And then on this 2026, 2027 renewal cycle that you're gearing up for, anything you can help us with in terms of when you're looking at the timelines for when we should expect those to really start to kick in, when you have kind of the big book of business coming back to the table? And how you're thinking about success relative to renewal cycles you've seen in the past?

Yes. So it's not going to hit in one big wave all of a sudden. It hits and gets a little bit bigger every quarter. So it can sneak up on you if you're not prepared for it. And that's why we are making a very clear effort to be prepared for it and build the team, build the comp plan, build the structure all around it so that we can measure it very well. And in fact, we're already measuring it 18 months out. We're looking at the next 18 months, what the renewals are coming in, making sure that we're preparing and making sure that we can have the right cross-sell conversations in advance so that they can have their budgets ready and we can maximize this opportunity.

Our next question comes from the line of Mark Schappel with Loop Capital Markets.

Nice job on the RPO print. Eric, a question for you. Given that things kind of seem to be settling down a little bit since Liberation Day, what's your observation around or sentiment around CIOs moving forward with, say, large WMS or TMS upgrades or expansions? And then also since Liberation Day, are you seeing any of these initiatives kind of being crowded out by other priorities?

Well, I think one thing is very clear that Liberation Day was just one more reason for CIOs and boards to recognize that this is mission-critical software. And what we are seeing is while some of the uncertainty is maybe getting more clear and some of the uncertainty is getting more common, people are figuring out how to work around the uncertainty. We're seeing that the most forward- leaning companies are not holding back on investing in supply chain. They recognize this as a differentiator, and they recognize it as something that they need to look for strategic advantages. So we're not seeing large customers use this as a place to save money. That being said, I'll continue to use the same caution that when it comes to rollout cycles, that's where they have a little bit more flexibility in how quickly they want to spend and how quickly they want to deploy.

Great. And then I appreciate your earlier comments on the go-to-market investments you're making. On the marketing front or market awareness front, what can we expect on that front for the balance of the year?

Yes. We're in a period of change right now. So I think maybe a quarter from now, we can give you a bigger update on what that's going to look like, but we have an open search for a Chief Marketing Officer. And we've made it clear that we want to invest. We want to change our awareness and presence in the market, and we're taking the steps to make sure that we do that.

And our next question comes from the line of Chris Quintero with Morgan Stanley.

Great to be on the call with you all. May on the go-to-market changes here, just curious kind of how far along are we on those? How much more is left? And when you think about the new sales reps that you're hiring, what's the kind of background and profile? And is that different from the historical sales rep that you all have hired?

Yes. So in terms of how far along, we're just getting started. I mentioned a lot of these hires were in the past quarter since the last time we did this earnings call. Backgrounds, they're coming from our competitors in many cases. And they're coming from the competitors that we're often routinely beating and they want to come be a part of Manhattan. So this group of people that we hired has experience across Blue Yonder and Oracle, Mad Mobile, Walmart. And just about every competitor, we're bringing in people that understand those businesses and can help us build a better product and create more market awareness around our product.

Got it. That's helpful, Eric. And then I want to follow up on services. Really nice to see that outperformance in the quarter. The full year guide stays unchanged. So just curious like any change on how you're thinking about the full year or just staying conservative?

Yes. We're staying conservative. Again, that's the part of our business that customers have a lot of flexibility. It's time and material contracts. And if they want to put their foot on the throttle and really go fast, we can help them do that. But if they want to slow down, we do that with them as well. So we're just taking a conservative approach and -- but we're pleased with where we are at this point in the year.

And with that, there are no further questions at this time. I'd like to turn the call back to Eric Clark for closing remarks.

Yes. Thanks very much. Appreciate you joining and appreciate all the questions. Bottom line, we're pleased. We had a very solid quarter, and we did better than expected and had great new logo performance and great margin expansion. I'm personally very excited about the go-to-market changes. I'm excited about what Bob can bring to the global team and also excited to see the impact that Agentic AI will have on our business in the second half and beyond.

Great. Thank you. And everyone, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.