Good afternoon. My name is Jason, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates Q2 2020 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 23, 2020. I would now like to introduce Eddie Capel, CEO; Dennis Story, CFO; and Matt Humphries, Senior Director of Investor Relations. Mr. Humphries, you may begin your call.

Thanks, Jason and good afternoon, everyone. Welcome to Manhattan Associates' second quarter 2020 earnings call. I will review our cautionary language and then turn the call over to Eddie Capel, our CEO. During this call, including the question-and-answer session, we may make forward-looking statements regarding future events or the future financial performance of Manhattan Associates. 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 the projections contained in our forward-looking statements. I refer you to the reports Manhattan Associates files with the SEC for important factors that could cause actual results to differ materially from those in our projections, particularly our annual report on Form 10-K for fiscal year 2019 and the risk factor discussion in that report, as well as any risk factor updates we provide in our subsequent Form 10-Qs. We note in particular that uncertainty regarding the impact of COVID-19 pandemic on our performance could cause actual results to differ materially from our projections. We are under no obligation to update these statements. In addition, our comments include certain non-GAAP financial measures in an effort to provide additional information to investors. All non-GAAP measures have been reconciled 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 will turn the call now over to Eddie.

Thanks, Matt. Well, good afternoon, everyone, and thank you for joining us as we review our second quarter 2020 results and we discuss our outlook for the balance of the year. And before we go into detail about how the business performed in the quarter, I wanted to take a step back for a moment and just make a couple of high-level comments. Now at Manhattan Associates, we're committed each and every day to serving our customers. Frankly, our customers depend on us to execute every single day and deliver on our promises so that they can deliver on their promises. Their customers, consumers depend on them to deliver the goods and services that they need to live, and never has this been more critical than during this global pandemic. And it's more apparent than ever that there's a growing market need for modern, adaptable supply chain inventory and omnichannel solutions. And the criticality of that need is not lost on us. And we believe that we're very well positioned at the intersection of this changing world. So now back to the discussion of our results. Manhattan reported a solid quarter despite the visible effects that COVID-19 is having across the global economy. Specifically, we reported total revenue of $136 million and adjusted earnings per diluted share of $0.40, both of which exceeded our expectations. Cloud, license and services revenue, combined with disciplined expense management, drove solid earnings leverage, delivering an adjusted operating margin of 25.3%. That's about 200 basis points higher than the same period last year. And while we've seen better-than-expected demand for our supply chain and omnichannel products and services, the near-term timing and continued pace of economic recovery is somewhat unclear. But in our world, there are signs that seem to be encouraging. And as such,…

Thanks, Eddie. So for second quarter, total revenue was up $135.6 million, down 12% over the prior year, solely related to COVID-19 impacts. Our total revenue estimate for the third quarter is a range of $136 million to $140 million. Adjusted earnings per share was $0.40. GAAP earnings per share was $0.30 with stock-based compensation accounting for the difference between adjusted and GAAP EPS. Our adjusted earnings per share target for third quarter is $0.39 within a range of $0.38 to $0.40. License revenue was $5.7 million in the quarter above our expectations but down year-over-year as demand for our solutions continues to shift the cloud. We signed two, $1 million plus deals in the quarter with roughly 20% of all licensed deals coming from new customers. For the third quarter, we expect between $5 million to $7 million in license revenue. For the full year, we now estimate license revenue will be approximately $28 million to $31 million. Of course, as we pointed out in our release in earlier in the call, uncertainty about the COVID-19 pandemic could affect our performance against our estimates. Cloud revenue was a record $18.5 million, up a 105% year-over-year and 7% sequentially, driven by continued customer demand for our cloud solutions across all of the verticals we serve. Of note, we signed two new Manhattan Active Warehouse Management deals in the quarter, both global Tier one customers. No question WMS in the cloud momentum continues to build. Over 70% of our deals in the quarter came from WMS and approximately 45% of our bookings were from either net new customers or net new product sales to existing customers within our install base with a diverse set of opportunities to continue to sell into our existing customer base. For Q3, we estimate our cloud…

Okay. Thank you, Dennis. Well, as we close out today's call, we recognize that the world is evolving fast from changing cultural norms to diverging consumer tastes and behaviors. There's never been a more crucial time to have a modern, adaptive and flexible supply chain and omni channel commerce set of solutions. To win today means investing in the future and we recognize this. And we continue to see customers adapt to this paradigm. And as a leader in the digital commerce space, our goal is to enable our customers to succeed and to be resilient through continued innovation and by investing in a talented global workforce. We believe that we're well positioned to capitalize on these trends and see no shortage of opportunities as we progress on that path of long-term sustainable growth for our stakeholders. At Manhattan, we never settle. Even in these difficult times, we remain focused on delivering on our commitments, advancing our product portfolio through market leading innovation and ensuring our customers are equipped to succeed in this challenging macro dynamic. We've experienced challenges like this before. Although this one is a bit different, admittedly, and we've consistently emerge stronger and better position, and we see no reason as to why this time is any different at people, at innovation and at culture are the heart and soul of our organization. And that's why I'm just so excited about what the future holds for all of us here at Manhattan Associates. So Jason, I'm ready now to take any questions.

Excellent. [Operator Instructions] Your first question comes from the line of Terry Tillman from SunTrust Robinson. Your line is open.

Yes. Hey gentlemen. Good afternoon, Eddie. It's nice to see the early traction with the cloud WMS product and calling out Tier one wins. What I'm curious about the two part question, then I'll have a follow-up or two. But on the Tier one wins, are they going enterprise wide with the rollout of the cloud native WMS or is it more kind of isolated site and how do you see this kind of rate of adoption of the cloud WMS versus other cloud products in the past? And then I had a couple of follow-ups?

Yes. So both of the deals are definitely with Tier one global customers. They are very nice substantial deals, but there is still a lot of upside behind them for the global rollout, for sure. With regard to kind of adoption, well, it's enthusiasm, adoption and momentum. I would say it's early, of course, given that we just announced in mid May. But it feels very strong, great enthusiasm from really across the board customers, prospects, industry analysts, and so forth pretty excited about the solution. And as we've mentioned, pipeline seems pretty strong, engagement with both prospects and customers is high. So the prospects are pretty good.

That’s good to hear. Two follow-ups. The first one on the non-retail strength. What we see a lot is new business models from wholesalers and manufacturers really starting to do direct-to-consumers at their end customers. So they're building websites, they sell. I'm assuming that has big implications on the fulfillment side and supply chain side. But what are you seeing in non-retail segments going forward. Do you see a growing kind of TAM around that that heretofore you weren't really serving?

Well, so there's two pieces. You've made the point about the branded guys who are going kind of direct-to-consumer. There are also industries that are starting to go direct-to-consumer that we maybe would have not sort of expected to before and haven't maybe seen as retailers. Just one example. Automotive spare parts, for example, typically, captive to the dealer network and so forth. You're starting to see those secondary markets look like direct-to-consumer, which is a great opportunity for us, number one. As we release our new solutions, particularly WM, cloud native, innovation that we're delivering on a quarterly basis, we certainly do see the opportunity for penetrating in verticals that we may not have been the strongest in the past. CPE is one that sort of brings to mind where we're seeing some good early interest. So opening up some additional TAM, certainly.

Yes. Just my last question. Thanks Eddie so far for the answers. Is on the services side. I thought I had in my notes that you all were looking for about 100 or maybe a little under 100 go-lives. I think Dennis said 130. So it seems like you beat expectations. You did raise services for the year. I guess what's driving that to be ahead of expectations, just given the pandemic? Are people – are you more efficient in the services, doing it virtually than you thought? Or are there just more projects moving forward than you thought? That's it for me. Thank you.

Yes. Look, a few more projects than we thought, Terry. I mean, look, honestly, we were unsure coming into the quarter as to exactly how things would pan out. And frankly, they firmed up. They firmed up a little bit as the quarter went on. And I think all of us, personally and professionally, we're a little unsure. And there's still a great deal of uncertainty going – moving forward. There's no question about that, but things firmed up for us. Yes. So we're pleased about that. And very pleased with the ability of the team here to be able to execute at pretty unusual circumstances. But thanks for your questions.

Thank you.

Your next question comes from the line of Matt Charles from William Blair. Your line is open.

Hey guys. Thanks for taking my questions. I wanted to first start off with follow-up on the Active M product – Active WM product. And maybe you can just talk about the interest you're seeing there in the pipeline, is that more weighted towards new customers? Or is it existing WM customers that are looking to move their on-premise deployment to a cloud one?

Yes, that's an interesting question, Matt. It is just about smack down the middle, 50-50, existing customers and in new logos. I mean to give you some other sort of commentary around that. Just it is surprising maybe. It's smack down the middle, about 50-50. So we're very encouraged by that.

Got it. And when you talked about the higher volumes in Active Omni from some of your retailer customers, can you just remind us, are you able to monetize those from a revenue perspective? Or how do those contracts work when you see customers that are doing sort of 10x the either store fulfillment or other activities that they were previously doing?

Yes. There's definitely upside for us there. Most of our contracts are annual volumes. So when you see a short-term pickup in volume, there is no immediate impact for us. It really gets reconciled kind of at the end of the year. But certainly, a positive for sure.

Got it. And last one for me, and I'll pass it on.

Yes.

So you talked about some of the changes that we're seeing by COVID-19. And obviously, there's a few tough to tell everything will play out, but there's a few sort of long-term trends that seem obvious. So one is the much faster shift to e-commerce than we were previously seeing and others probably a smaller physical footprint or some of these stores that are multipurpose. When you think about your positioning and your product road map, how do you think that, that aligns with some of these long-term changes? So I guess, long term, are these changes driven by COVID-19 headwinds or tailwinds to Manhattan?

Well, so I think the simple headline answer is it's very positive for us. Now obviously, the impact of COVID on the global macro and so forth, if we put that aside, and to your point, talk about the shift in the dynamics of retail and so forth. We've been on the front end, of course, of servicing direct-to-consumer omnichannel customers, really for more than a decade. It's a strength of ours. We've always predicted continued shift from bricks-and-mortar to digital. And this acceleration is really just very, very helpful for us. I mean I think there's going to be some kind of pullback of today's numbers when we get back into a situation where bricks-and-mortar are fully open. But I do think there's – clearly, some of these initiatives, curbside particularly, buy online, pickup-in-store that they're going to remain just simply because of the convenience that people have now really realized is there. So right in the sweet spot of where we've been operating and where we are going.

Yes. Great. Thanks for taking my questions guys.

Pleasure Matt. Thank you.

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

Hi, great. Good afternoon, everyone. I wanted to go back, Eddie, to the interest Active WM has been seeing from new logos. And just thinking out loud, some of your peers in the WMS space that have had a cloud offering, the way they have talked about it is that the interest originally came from smaller customers, maybe more SMB, and more recently, they've started to see the interest from the enterprise segment. You're kind of the gold standard in the enterprise segment. And so are the new logos still similar to your traditional customers? Or is this actually broadening your audience and you're starting to get in front of maybe the type of organization that hasn't been a target of Manhattan in the past, but just given the virtues of cloud and some of the difference in economics, maybe it suddenly makes sense?

Yes. Good question, Joe. So I would say that the early interest has certainly been with what we would consider Tier one customers. I think that there's been sort of a shift, but a little bit of change. Some of the cloud solutions that have been out there for a while are really candidly on-premise solutions that are hosted in the cloud, which is great, if you're trying to not be in the data center business and so forth. You can kind of move yourself off to the cloud. And that's been attractive to kind of the lower-tier customers. But when you build a true native cloud application, have the ability to be able to deliver real first-class of world-class innovation every 90 days, that sure becomes appealing to Tier 1 customers around the world. So I think that's really the difference and why we've seen Tier 1 customers now truly embracing cloud WM versus it just being sort of a simple lift and shift, hey, I don't have a big IT organization so I'll pop it up in the cloud. So that would be sort of answer number one. In terms of our ability to be able to now have a broader geographic reach, a broader reach into all tiers, that is certainly something that is an objective of ours. It's well aligned with a true cloud strategy, but the early interest is largely being with Tier one.

Okay, great. And then the other half of where the interest is coming from thinking about your existing installed base, do you have a way of thinking about – I think there is north of 1,200 Manhattan customers at this point, not all WMS probably, but there's a lot out there, of what's kind of the migration timeline might looks like? Typically, five years has been a normal upgrade cycle. Is maybe 20% of the installed base thinking about an upgrade every year? Just how would you kind of conceptualize within your existing base?

Yes. I mean, I think, it's a fair to look at it. There are those natural upgrade cycles that we're going to be able to kind of latch onto, to use that expression. I think that there is the opportunity for some folks that will accelerate those upgrade discussions because they can get their hands on brand-new innovation that delivers real ROI faster, and we're going to certainly help them with those business cases. We're going to see – clearly, we're going to see some customers, as we always do with technology transitions, have a pretty long tail on the migration. And – but the great news is they can do it at their own pace. They can migrate at their own pace. There's no particular acceleration required, they get to do it at their own pace and frankly, we'll be there for them when they're ready.

And then just one more quick one for me. It looks like you brought, I think, $7 million worth of R&D back into the 2020 forecast. Is that dedicated to any particular area? Or is it kind of broadly indicative of the different product sets you've been talking about so far on the call?

Yes, really, across the across the board, Joe. There's always – based upon product life cycle and so forth, the R&D investment moves a little bit from product to product, but there's no specific focus of bringing that back in. It's across the portfolio.

Okay. Very good. Thank you.

Terrific. Thank you, Joe.

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

Thanks everyone. So Eddie, I'll also start with the Active WM, but just trying to gauge the results there versus your expectations, frankly I think two tier 1 wins are pretty impressive in the first quarter. That's faster than I would have expected. But I'm also seeing the license number be and kind of move higher for the year. So I'm just trying to understand maybe where you saw the upside this quarter versus your expectations on the on the WMS side?

Yes. What are we – we were six weeks in, essentially from release date. We had one early adopter that went live pre-release and so forth and two tier 1 wins in the six week period, the balance of the quarter. So we're pretty darn excited about that I got to say. And the activity continues to be pretty solid for sure. The license activity was a little stronger than we anticipated, not by orders of magnitude, but a little stronger. We're pleased about that. Frankly, it wasn't one big deal or anything just an aggregation of smaller deals that brought us a nice license quarter.

Understood, and maybe pivoting to Active Omni or omnichannel. We've been talking about this for a while, and I think a lot of us think that omnichannel and a lot of the things that you offer are table stakes. But we – obviously with COVID we're seeing that a lot of these retailers or various providers don't have these systems in place. So I'm curious – versus where we stand now, if we use the baseball analogy, what inning are we in, in terms of this omnichannel adoption? Are we still early innings or late innings? Like how would you help us think about that?

Yes, I think there's still plenty of runway. We're past batting practice, that's for sure. I think – I would say we're probably in the second or third inning. I really do think there's a lot of runway to go here. We are going to – I think we've been seeing store dislocation and transformation going on for a couple of years now. So I think we are going to see that accelerate through this pandemic, which is going to drive yet more omnichannel strategies, the need for omnichannel strategy, the need for selling ubiquitously across those channels. And so we're excited about the opportunity given the investments we've made over the last decade plus.

Understood. Thanks, Eddie.

Yes. Thank you, Brian. See you.

Your next question comes from the line of Yun Kim from Rosenblatt Securities. Your line is open.

All right. Thank you. Hey, Eddie, in regard to that migration of on-prem WMS to Active WM within your installed base, do you expect a faster adoption of Active WM among your active omni instilled base? Or is that really not a factor?

I don't think it's much of a factor Yun frankly. I mean, I think, we will see active omni customers adopt Active WM. It sort of makes sense for them. Frankly, they're already running the platform. It is the exact same technology underpinnings and so forth. So there's a combination of confidence, familiarity and common sense to consolidate on a common platform. So I think we'll see some of that. What is great about where we are in terms of our Manhattan Active WM release is we have a three year plus highly proven technology platform that we released on. So, whilst it is a newer solution, we've been running Manhattan Active Omni on this technology platform for three plus years now, tier 1 super high, super high volumes and so forth. So I think we're in a good spot there. And as we've talked about the enthusiasm for Manhattan Active WM across our customer base and the prospect base too, but particularly in our customer base has been very encouraging in the six or seven weeks since the announcement.

Okay, great. Obviously a lot of focus on Active WMS, but sometimes we forget about your main cloud business that's driving your IPO, that’s Active Omni. I believe Active Omni business maybe a little bit more driven by the retail vertical than the WMS, but your RPO growth remains pretty solid. Any particular trend that you were seeing such as between new and existing or any kind of changes that you made in terms of go to market around Active Omni since the emergence of COVID? Any particular vertical that's adopting the Active Omni product who are planning to adopt the Active Omin product because of the COVID?

Yes. So I would say, no major shifts. If I were to – if I had to think about a little bit of a – sort of a phenomenon we are seeing whether it would be existing customers or new customers, frankly, look for those quick wins, right. That – those customers that – and prospects, excuse me, that simply did not have a buy online, pickup-from-store strategy or a curbside pickup strategy or picking up the red phone, right. And we need something quickly. So we are seeing – and we'll take them all day long, sort of a little bit smaller, a little bit faster, quick hit high value initiatives that the market is asking for, and that is inside of retail, inside of retail, since the onset of COVID.

Okay. And then just stepping back obviously a lot has happened to your target markets, since the COVID. Can you update us on your latest thoughts on – maybe on the strategic acquisitions especially given, like I said, how fundamental – fundamentals of your target market have really evolved rather quickly here due to COVID. Do you feel that you may need to like beef up on certain capabilities like I don’t know more traditional forecasting kind of side of the business to better target to manufacturers maybe more grocery oriented solutions out there or even more traditional supply chain stuff? Thank you.

Yes. So, always interested in M&A and acquisitions that fit strategically within the footprint, number one. Number two, as you pointed out, could it increase our total addressable market, but as we've always said and you know this, we're not going to buy more of what we've already got. We're not going to buy aging technology. It’s got to be a solid hurdle rate and those kinds of things, but maybe the most important, I think, is that, I mean, we are right in the middle of what's going on from a supply chain transformation perspective. Supply chain never been more important than it is today. I think we would all agree with that kind of personally and professionally, the need for contingencies being built into the supply chain strategically strategic resilience being built into the supply chain. And the shift, the continued shift from traditional bricks and mortar to digital commerce. And we've been right in the middle of that. We've got a lot of work still to be done. We've got a long roadmap in front of us. And I think our opportunity going forward is significant that. Now – so, what that leads us to is we have – our vision is to deliver brand new innovation to the market because the market is changing and it needs new capabilities, not old capabilities repackaged, brand new capabilities. So the opportunity for us is to continue to invest in brand new innovation and deliver it to the marketplace. And it's the great thing about this Active platform that we've got, we can develop brand new innovation and we can deliver it every 90 days, every 90 days. And so, in summary, always looking for great acquisition targets, but principally focused on investing in brand new white space innovation.

Okay, great. Thanks so much for that Eddie.

Yes. My pleasure, Yun. Thank you.

[Operator Instructions] Your next question comes from the line of Mark Schappel from Benchmark. Your line is open.

Hi, good afternoon, and nice job on the quarter. Most of my questions have been answered, just a couple. Eddie with respect to Active WMS, with respect to the pipeline for that solution, are you seeing any customer interest from a particular industry? I know it's early, but at this point in this – in the game, are you seeing any particular industry that's latching onto that or some…

No. Actually, the great thing Mark is really it is across industry, from retail to wholesale, 3PL, life sciences, pharma, it's really widespread. So, on one hand, concentration of interest would be great, but even better, of course, is broad interest. And by the way, the interest is also global as well as across vertical. So that's created again that extra little bit of enthusiasm for us.

Great. That's good to hear and then just a follow-up here. Last quarter, you noted that some of your customers such as like grocers or distributors were delaying some projects just because they were just too swamped and they're focusing on managing their own business.

Yes.

I assume that this has subsided somewhat. Could you just comment on that a little bit?

Yes, well, it subsided a little. They're still pretty busy, but it's a comb – you're right. There is a combination of some of that – frankly panic buying and so forth has eased a little number one. And then number two, of course, the grocers, pet supply retailers and so forth have adapted to these higher volumes and managing and they're not being sort of surprised on a day by day basis anymore. So now, we're certainly starting to see those guys refocus, look at some of the strategic initiatives and think about opening up those programs again.

Great. That's good to hear. Thank you. That's all for me.

Okay, good. Thank you, Mark. I appreciate it.

There are no further questions at this time. I turn the call back to the presenters.

Okay. Very good, Jason, thank you. Well, thank you everybody for joining us on our Q2 call. As always, we appreciate your support and interest in Manhattan Associates. We’ll look forward to updating you again in about 90 days or so. And in the meantime, please, everybody make sure that you stay healthy, stay safe and we'll – again, we'll look forward to speaking to you again in about 90 days. Thank you.

That concludes today's conference call. You may now disconnect.