Good afternoon. My name is Liah, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates Third Quarter 2021 Earnings Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, October 27. I would now like to introduce Mr. Michael Bauer, Head of Investor Relations of Manhattan Associates. Mr. Bauer, you may begin your conference.

Thank you, Liah, and good afternoon, everyone. Welcome to Manhattan Associates 2021 Third Quarter Earnings Call. I will review our cautionary language and then turn the call over to Eddie Capel, our CEO. During this call, including the question-and-answer session, we may make forward-looking statements regarding future events or the future financial performance of Manhattan Associates. You are cautioned that these forward-looking statements involve risks and uncertainties, are not guarantees of future performance and that actual results may differ materially from projections contained in our forward-looking statements. I refer you to the reports Manhattan Associates files with the SEC for important factors that could cause actual results to differ materially from those in our projections, particularly 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. Well, good afternoon, everybody, and thank you for joining us as we review our third quarter results, discuss our updated full-year 2021 outlook and provide some very preliminary color on 2022 and beyond. Q3 and year-to-date results were an all-time record for Manhattan Associates. Total revenue increased 13% to $169 million and adjusted earnings per diluted share of $0.71 increased 39%. Both of these metrics exceeded our expectations. Strong cloud and services demand continues to drive revenue outperformance, fueling double-digit top line growth and strong earnings leverage. Above all, our investments in innovation are paying off. Product differentiation between Manhattan and other supply chain software vendors continues to increase. And moreover, our global teams are performing exceptionally well with a laser focus on customer success. We delivered record third quarter bookings with RPO increasing 123% year-over-year and 17% sequentially to $574 million, providing us with excellent future revenue visibility. Additionally, 40% of our Q3 contracted bookings were generated from net new customers. And our pipeline continues to be robust with solid demand across our product suites. Over 90% of the pipeline consists of cloud opportunities with net new potential customers representing about 35% of that demand. And with strong business momentum and our increased visibility, we're providing refreshed guideposts for RPO and cloud revenue through 2024. Dennis will provide more color later in the call, but this includes moving up our milestone of reaching $1 billion in RPO to 2022 from our original target of 2023. On the sales front, competitive win rates remained strong at about 75% as our innovation is recognized as industry-leading. From a vertical perspective, retail, manufacturing and wholesale drove more than 80% of our bookings for the quarter, but drilling into the sub verticals, they're pretty diverse, including apparel, department stores, grocery, food…

Thanks, Eddie. Nothing but accolades for our Manhattan global teams. Top to bottom, we continue to raise the bar in a choppy macro delivering strong growth, profitability, cash flow and balance sheet metrics. I'll start with a quick recap of the quarter with growth rates on a year-over-year basis, unless otherwise stated. Total revenue was a record $169 million, up 13%. Excluding license and maintenance revenue, which removes the compression driven by our cloud transition, our total revenue was up 27%. Notably, 70% of our total revenue is now driven by cloud and services. Our Q3 operating profit was a record totaling $53 million, up 20% with adjusted operating margin of 31.3% and GAAP operating margin of 25.1%. Our performance was driven by strong cloud and services revenue combined with lower expenses driven by the COVID pandemic. Compared to 2019, we estimate COVID lowered our year-to-date 2021 expenses by about 425 basis points and year-to-date 2020 by about 325 basis points, respectively. Adjusting for COVID or put another way, assuming these expenses remain unchanged from 2019 levels, adjusted operating margin would be approximately 24% year-to-date, up over 200 basis points compared to year-to-date 2020. Earnings per share was a record $0.71, up 39%. Our earnings per share did include $0.06 of nonrecurring tax benefit associated with expiring tax statutes. So, normalized EPS was $0.65, up 27%, either way a record. Our Q3 and year-to-date operating cash flow performance was a record with Q3 totaling $60 million and year-to-date $145 million, both up 41% on record global cash collections. How about our free cash flow margin? It continues to be strong at 35% for the quarter and 29% year-to-date. EBITDA margin was 32% in the quarter and 29% year-to-date. Our balance sheet continues to be rock solid with $246 million in…

Good report. Dennis, thank you. We're very pleased with our strong third quarter and year-to-date results. And while we continue to operate in a pretty turbulent global macro environment, business momentum is very positive. And of course, we're very encouraged by our accelerating RPO and associated revenue growth. As we look forward, we're confident in our ability to deliver success for our customers and help them drive their digital transformation. As a result, we anticipate long-term, sustainable and profitable growth for Manhattan Associates. And with that, Liah, we'd be happy to take any questions.

All right. [Operator Instructions] And your first question comes from the line of Terry Tillman from Truist Securities. Please go ahead.

Yeah. Thanks for taking my questions. Congrats. Exceptional results. I guess maybe - and hi, Eddie, Dennis and Mike, I should have said that to begin with. Maybe, Eddie, I'll ask you a question. Congrats on the hiring of the CMO. I'm curious, I know it's probably still early days, but what kind of impact do you see her in terms of having on the branding, marketing and just continuing to evolve go-to-market activities?

Yeah. Yeah. It's early, Terry, but without putting too much pressure on and we're obviously very pleased to have her on board. And at the end of the day, we think, frankly, as well as we've done, we've still got some of the industry's best kept secrets, and we're anxious to be able to get that message out. So, I think we have the opportunity to share our stories with a broader community, drive awareness, particularly for our newer products. And just overall, frankly, get the message out that we're here to do business and help our customers in the industry with digital transformation.

Understood. Well, maybe some healthy pressure is good, though, for Ann. So, maybe there's somewhere in the middle there, but okay, that's great. It was great to see the 40% contracted bookings from new logos. So this kind of like closes the loop because you have been building the pipeline in terms of new lower activity has been picking up. So now you see the conversion going on. What I'm curious about is, is it something with certain of the active cloud products that is getting you into parts of the retail or the e-commerce-oriented markets that you haven't been before, whether it's DTC or just other types of kind of micro segments? I'm just kind of curious because it is a striking number. Any more color you can provide there?

Yeah. I don't think there's any specific micro verticals or sub verticals, Terry, but I do think that there has been some - a little bit of pent-up demand with the industry waiting for the real next generation of cloud native or next generation of solutions to emerge, those, in this case, being cloud-native, very innovative access to new innovation on a regular basis. So we're definitely seeing some uptick out there from customers that we haven't done business with before. We're fortunately seeing some nice takeaways from some of the older competitors that are out there. But it is - but it's quite broad and not focused on any given industry.

Got it. And just my final question, and I appreciate Dennis and Mike, the figures are at the end that helps us a lot in terms of the guidepost. But I had a question actually on cash flow, Dennis. The cash flow was strong in the quarter, a lot stronger than expected. As you think about 2020, I know you don't usually guide on cash flow, but could we see a similar pattern whereby free cash flow margins are higher than operating margins? Just anything else you can call out on any onetime things or CapEx things into 2022 and just thinking about free cash flow.

Yeah. No onetime items, great quality of one quality of earnings and quality of cash flow. So I'd expect we're going to post up another record free cash flow year next year, this upcoming year. And yes, definitely the potential to surpass EBITDA margin and as well as potentially operating margin.

Got it. Thanks. Congrats.

Thank you, Terry.

Operator, we'll take the next question, please.

Anybody there?

Operator? Operator, we'll take the next question. Liah, are you there? Liah, can you hear us, Liah. Everybody on the call, the operator just told us that she's having some technical issues. So, standby.

Once again, we have a question in queue from Joe with Baird. Please go ahead, sir. Your line is open.

Great. Can you hear me, okay?

We can, Joe. Apologies to everybody for the short break there that appeared to be a little technical challenge with the call service. But please fire away, Joe.

Okay. Great. I'm wondering when customers are making a commitment to WMS, are you seeing any changes in interest going along with the WMS and integrating other of your solutions within the same engagement. So are WMS deals carrying over into order management or TMS in a bigger way. And I'm curious if that's the case, are the deal sizes getting bigger. So I'd imagine RPO, there's a good quantity of activity, but is the size of what you're winning also going up?

Yeah. Great question. Just overall, clearly, our strategy is to partner with our customers to develop a digital transformation road map. And frankly, whether it starts with transportation, inventory, warehouse management, omni solutions and so forth, we really don't care where we get started. We certainly are seeing some multiproduct implementations. We launched Manhattan Active transportation management just a few months ago. We've got several customers and half of them is are implementing Manhattan Active WM as well. So it's great to see Manhattan Active TM and Madden Active WM coming together to provide that unified solution for our customers. But I think across the board, when you look at our order management system customers, our WM customers and our transportation customers, they are all great prospects for the other solutions for upsell and cross-sell. As we've said historically, across the approximate 20 products that we have in our portfolio, the average number of products that any one customer owns is about 304. So we've got a lot of cross-sell and upsell potential. As far as your question around larger RPO opportunities for multiproduct, yes, is the answer to that. Do just bear in mind, though, that when you implement either a WM program, a TM program, an order management program and inventory program, they're pretty big. And customers can only bite off so much at once. So they tend to be a bit more serial than in parallel. But we certainly are seeing some joint unified programs.

That's good color. And then, Eddie, I think the win rate disclosure you typically made this quarter, it went up relative to what the win rates have been trending at. I'm just wondering if you can kind of carve out where you're seeing the improvement? And maybe one of the things that was noticeable during the quarter is the geographic breadth of where the announcements are coming from it's not so much Americas or Europe, it's global, and you mentioned your global teams a number of times on the call. So I'm wondering if there's maybe anything new happening in the sales activity that can help explain kind of the improvement and what you're seeing.

I think it's the continued investment in innovation that's really driving the win ratio when it comes right down to it. We will see that bounce around a little bit. But I think when we look at - when we talk to our prospects that have turned into customers about why they chose us and so forth. I mean it tends to be because of the innovation that we brought to the market. And certainly, the great experience we've got across our teams and all the other things, the attributes that we bring play a role, but the innovation in our product delivery, I think, is number one. In terms of seeing an improvement in both EMEA and APAC this quarter. There's no question we've seen in EMEA and APAC lag just a little bit in terms of, I guess, we'll call it, the COVID recovery. And we're seeing a good bit more movement and momentum in Europe, number one, and then follow closely behind in APAC. So feel good about bringing a bit of balance back to the performance.

Yeah. Joe, we are having some nice cross-sell upsell deal closures as well, about $60 million of bookings impact in the quarter.

Okay. Thanks, Dennis. I'll leave it there. Thank you.

Okay. Very good. Thank you, Joe.

And your next question comes from the line of Brian Peterson from Raymond James. Please go ahead, sir.

Hi, gentlemen. Thanks for taking the question, and congrats on a really strong quarter. So two for me. Obviously, we're seeing the guidepost gets raised. I'm curious if we had to think about, I guess, 9 to 12 months ago, obviously, you're outperforming your expectations. If we had to kind of stack order rank what drove that from like a product or market perspective, what would you say are the top one or two key drivers?

I think we have been pleasantly surprised by the uptick of Manhattan Active WM, number one. I think certainly it's early days, but the momentum we're seeing around Manhattan Active Transportation Management. And then thirdly, the bounce back of Manhattan Active omni. We saw some subdued shall we say, activity in Manhattan Active omni, and that's back to picking back up. So that would be the top three, I think, on my roster, Brian.

Okay. And I'll follow up on the WMS side, Eddie. So we're 16 months into Active WM. And obviously, I think we're hearing the win rates are good, the performance, everything sounds really encouraging. But I'm curious that the cloud or referenceability, is that a friction point for some customers? And to the extent that you have customers up and running, does that actually make the next 16 months like a lot brighter than the first 6 months. I'm just curious to get your thoughts there. Thanks, guys.

We hope so. But we've certainly got great implementation activity going on, good referenceability and so forth. I'll tell you that the friction or the resistance to being early or an early adopter or no, whatever you want to call it, hasn't really been there. As you know, we had a beta customer when we launched. We already had a customer live, very successful, already been through a bunch of kind of versionless updates and so forth. So we had a great reference point to get it started and didn't see a lot of friction. But no question, success breed success. And as we continue to drive across verticals, across geographies and get more referenceability across all those dimensions, I think we certainly have the opportunity to continue to see success.

Great. Thanks, Eddie.

Thank you, Brian.

And your next question comes from the line of Mark Schappel from Loop Capital [ph]. Your line is open.

Hi. Thank you for taking my questions, and good job on the quarter. Congrats on that. Eddie, starting with you, I just want to revisit your prepared remarks around the hiring environment for your professional services team. And I just wonder if you could just give us a sense of where you're at with respect to your hiring plan for this year. Are you on plan for the most part, a little bit behind plan? Maybe just give us a little color there.

Yeah, we're a little bit behind, Mark, where we'd like to be, frankly. It's a tough sledding out there from a talent acquisition perspective. But we've obviously got a great success story here. We've got a fantastic culture in the company. No question that people like to be associated with a successful company that is doing meaningful work for Tier 1 companies around the globe. So we're doing pretty good on that front. But if I could wave a magic one, there's no question we'd be a little further ahead with a higher in trajectory than where we are. And obviously, that's driven by demand.

And with that said, given that demand is tight and as you said earlier, you expect it to continue to be tight for talent. Is that changing the way that maybe you're approaching R&D as far as prioritizing certain projects? In other words, maybe putting in some features and capabilities in your products that just make them a little bit easier to install and it doesn't require as much professional services time.

Yeah. We're always focused on that, Mark, frankly, trying to make it. We're trying to drive down always the total cost of ownership for our products. We want to be feature-rich. We want to be able to provide the greatest innovation to our customers. But by the same token, we've got to continue to focus on total cost of ownership, speed of implementation, cost of support and so forth. So we've always been focused on that. I'll be honest, I wouldn't say that we've taken any particularly specific steps to focus on that in the last six months or so, but we remain focused on driving total cost of ownership bank. And obviously, you bring up a corollary point there with such a tight labor market for distribution centers, truck drivers and so forth, certainly, the capabilities that we bring to market, focus on blending, automation, robotics and people in the warehouse and so forth certainly is very helpful for our customers.

Okay. Great. And then just going back to your earlier comments around the bounce back that you're seeing in your active omni business and product. Maybe just talk a little bit about what you think is driving that so-called bounce back.

I mean stores were closed, right, for a couple of quarters, number one, the acceleration of the digital transformation that we're all seeing personally and professionally. So we're seeing a combination of the stores reopening and the need for store systems and very strategic omnichannel initiatives that are driving growth for retail and wholesale customers alike.

Great. Thank you. That's all from me. Thanks.

Thank you, Mark. Appreciate it.

And your next question comes from the line of Matt Pfau from William Blair. Your line is open.

Hey, guys. Thanks for taking my questions. Wanted to first start out on the supply chain challenges that I'm sure many of your customers are having. How is that impacting your business, if at all? Because I imagine it could drive demand as well as perhaps create some distractions with customers or prospects.

Yeah, yeah. Honestly, I would say it's got a slight positive to it, Matt. We're obviously involved largely in the finished goods side. So on the import side of things and all those boats sitting off the port of Long Beach and everywhere else, we're not necessarily managing that sequencing and so forth. But when the finished goods hit sure, there is a great need to accelerate the movement of that inventory, have the inventory in the right place at the right time and then get that inventory in the hands of the consumers in a timely fashion. And of course, again, our solutions creating that speed and that dexterity and that agility for our customers to be able to manage through these or help manage through these very, very tough times and the need to be able to manage inventory at very, very high levels.

Got it. Great. And any update on the point-of-sale solution?

I'll put a few comments in my prepared remarks about point of sale. But yes, we've seen a couple of terrific go-lives in recent weeks and recent months. And in terms of closures, a couple of other nice real important wins for us in the quarter. So continuing to see that forward momentum, frankly. And looking forward to getting more and more and more referenceable customers there. And as Brian from Ray J mentioned, the more referenceable customers that you've got, the less friction than might be in the sales cycle. So these couple of go lights we had in the quarter are important to us and as are the new sales and new bookings that we've seen in the quarter too.

Great. And last one for me, just in terms of the dynamic of RPO growth and cloud revenue growth, maybe you can just remind us again about the timing differences between the two. And now that you've given us this helpful multiyear outlook, we can kind of see how cloud revenue growth accelerates and then RPO growth comes down a little bit off it's high. But how do we sort of think about the timing differences and how long those discrepancies take to resolve?

Well, I mean, I don't know, one of the reasons for providing those supplemental schedules and the guideposts and so forth was so that you can see how that dynamic shapes up. If you were to kind of pin me down on how long it takes for those things to normalize, it'd probably be the 18- to 24-month time frame. And of course, by the same token, we're going to continue to drive new RPO. - it'll have the same dynamic built into it. So - but I think 18 to 24 months before you see that kind of really normalize.

Okay. I guess, maybe another way to look at it is with the Active WM implementations, which I think are the main things driving that discrepancy with the implementation rollout. What would the typical rollout for your Active WM deployments be? Because if I understand correctly, that's the primary driver of sort of the timing differences between those two items?

Yeah. Well, so the thing to really be aware of there is a lot of this ramp, as we call it, is driven by multisite rollouts. So the average duration, typical duration to get an Active WM site up and running, let's call it, the six-month kind of timeframe. But when you're dealing with a global 10, 20, 30 distribution centers or more distribution centers around the globe, that's what takes time to move through that deal moving through the snake.

Got it. Okay. Thanks, guys. Appreciate it.

Certainly, Matt.

And your final question comes from the line of Mark Zgutowicz from Rosenblatt Securities. I'm sorry, but the question was withdrawn. Please go ahead, presenters.

Okay. Very good. If that's all of the questions for today, we'll say thank you very much for everybody's time, your support, and we'll look forward to seeing you - or talking to you on our Q4 call in about 90 days or so. Thanks, again. Bye-bye.

And this concludes today's conference call. Thank you all for your participation. You may now all disconnect. Have a great day, everyone.