Good afternoon. My name is Alicia, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Manhattan Associates Q3 2024 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, October 22, 2024. Now, I would like to introduce you to your host, Michael Bauer, Head of Investor Relations of Manhattan Associates. Mr. Bauer, you may proceed.

Great. Thank you, Alicia, and good afternoon, everyone. Welcome to Manhattan Associates' 2024 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 the future events or the future financial performance of Manhattan Associates. You are cautioned that these forward-looking statements involve risk 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 2023 and the risk factor discussion in that report, as well as any risk factor updates we provide on subsequent Form 10-Qs. We note the turbulent global macro environment could impact our performance and cause the actual results to differ materially from our projections. We're 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 submitted to the SEC earlier today and on our website at manh.com. Now, I'll turn the call over to Eddie.

Great. Thanks, Mike. Good afternoon, everyone, and thank you for joining us as we review our third quarter results, discuss our Q4 outlook and provide some very preliminary color at least on 2025. Q3 and year-to-date results set all-time records on both bottom- and top-lines. For the quarter, total revenue increased 12% to $267 million, and adjusted earnings per share increased 29% to $1.35, both of these metrics were above our expectations. Driving the top-line outperformance and earnings leverage was solid cloud and services revenue growth across all geographies, with cloud subscription revenue posting 33% growth in the quarter. Manhattan's business fundamentals are solid and we remain confident and very optimistic about our business opportunity. While the global macro environment remains challenging, demand for our solutions is robust, customer satisfaction is high, and as evidenced by our recent release of the Manhattan Active Supply Chain Planning solution, the investments we're making in R&D and our people are creating a clear differentiation. Delivering consistent market-leading innovation is creating more opportunities across supply chain, omnichannel retail and at the world's best -- as the world's best brands look to unify and digitally transform. RPO, remaining performance obligation, increased 27% to roughly $1.7 billion. And as we've often cautioned, large, complex deals can be lumpy on a quarter-over-quarter basis. And whilst we haven't seen much of that lumpiness over the past three or four years, this quarter and, to a lesser extent, last quarter, we have seen some. And our third quarter RPO growth was impacted by some large digital transformational projects pushing it. That said, our fourth quarter is off to a great start and demand is solid. And attributes that give us confidence that we will actually achieve at the high end of our 2024 RPO bookings guidance of $1.8 billion.…

Okay. Thanks, Eddie. Our Manhattan global teams continue to execute well in a challenging macro environment. For the quarter, we delivered a strong balanced financial performance across top-line growth, operating margin and cash flows. This includes posting record results across RPO, revenue, operating income and adjusted earnings per share. On an as-reported basis, our Q3 results came in slightly below the Rule of 50. And if our revenue growth is normalized for our cloud transition, which excludes license and maintenance revenue, our results exceeded the Rule of 50. Of course, FX has remained volatile. It did not have a meaningful impact to Q3 revenue growth, but was a $9 million tailwind to year-to-date RPO growth and an $18 million tailwind to sequential RPO growth. Now, to our results. All growth rates are on an as-reported year-over-year basis unless otherwise stated. Total revenue was $267 million, up 12%. Excluding license and maintenance revenue, which removes the compression driven by our cloud transition, our total revenue was up 15%. Cloud revenue totaled $86 million, up 33%. We ended the quarter with RPO of roughly $1.7 billion, up 27% compared to the prior year and up 5% sequentially. And as Eddie discussed, several large strategic digital transformational deals pushed. Importantly, Manhattan continues to benefit from a record pipeline that includes solid demand from both new and existing customers, and strong win rates are giving us confidence in achieving the high end of our 2024 RPO bookings outlook and the ability to provide strong 2025 outlook parameters. Our global services teams delivered record revenue, totaling $137 million, up 7%, as cloud sales continue to fuel services revenue growth for Manhattan. Adjusted operating profit was $99 million, with adjusted operating margin of 37.1%. This is 670 basis points year-over-year up. Our performance was driven by…

Yeah, thanks, Dennis. Well, we're pleased with our Q3 and our year-to-date results. While we continue to be appropriately cautious, I think, on the volatile macro conditions, and we did experience a more pronounced impact this quarter, as we said earlier though, we're still very confident in achieving the high end of our RPO goals for 2024. Longer term, our business fundamentals, win rates and innovation strategies are really solid. And accordingly, we're optimistic about expanding our opportunity and we've provided what we consider to be albeit preliminary, but responsible targets for 2025. So, we thank everybody for joining the call, and we thank our global team for all the great work that they do for our customers. So, that concludes our prepared remarks, and Alicia, we'll be happy to take any questions.

Great. Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Terry Tillman with Truist Securities. Please proceed with your question.

Yeah, thanks. Hi, Eddie, Dennis and Mike. Just two questions for me. The first question is, Eddie, I don't recall usually in press releases giving commentary on the current quarter. So, you said off to a good start and you talked about it on in your prepared remarks. Could we just dig into that or double-click into that a little bit more? Have you actually seen some of those deals slip have actually closed? And the second part of that first question is, what kind of signals are you getting particularly on these bigger transformational deals that there's some budget flush in store here in 4Q and are you assuming that? And then, I had a follow-up for Dennis.

Good luck about -- packing there, Terry. Thanks. Yeah, so let's see, in the start to Q4 -- the good start to Q4 has been a combination of some of the deals that slipped from Q3 into Q4 closing, but also some of the deals that we expected to close early in Q4 to indeed close. So, just feel good about where we are in that regard, hence the reiteration of the full year RPO guidance. In terms of budget flush, don't expect to see that frankly. I think for the most part, the days of end-of-year budget flush seem to have disappeared because we're talking about OpEx here and a longer-term revenue stream for us and cost commitment for our customers. So, the days where customers and products mix may well flush a little budget on a one-time license payment seems to largely have gone away.

Okay, got it. Thanks, Eddie. And I guess, Dennis, just a follow-up. Thanks for all the commentary for '25. The one thing on services, what I'm curious about is because you're talking about hitting at least the high end of your RPO guidance for this year and it looks pretty constructive in terms of the initial RPO targets for next year. On the services side, I'm curious is there something to be said about some of these customers just maybe being more frugal when they sign a contract maybe they're just using less resources and you're assuming that, or they're just kind of using maybe a longer duration of rolling it out, so it could impact services, and/or is there just maybe some incremental conservatism you're baking in because of some of these risk factors like the global macro, elections, et cetera?

Terry, I'll take the first half of that. Dennis can talk about any conservatism and so forth contingent that he may have built into the model, but I would tell you that there is kind of two components. One is, frankly, we are getting more efficient. There's no question as we've been -- gone down this journey, the cost of implementing our Manhattan Active Solutions is getting better and better and better. We've seen on a number of fronts, straight efficiency is getting better on the services side. We're seeing far less customization because of the richness of solutions. So, that's on our side of the fence. And secondly, as I think you know, we've advanced and enhanced our system integrator network. And the good news is they're doing a healthy amount of the work as well. So, we're getting a global reach across those systems integrators. So, that's a little bit of what's going on in there, strong software, but not quite as strong on the services side, but we see that as a largely as a positive.

That's helpful. And then, I guess, maybe just like on the idea though, just kind of finishing up here, Dennis in terms of -- there's always an "under promise and over deliver" kind of philosophy here. Is there some incremental conservatism because of some of these things that you can't really control? And then, the thing that I didn't even plan on asking, I'm going to ask, you all benefited from some of these customers committing for long durations. Are you still seeing that kind of multiyear, five-year-plus contracting? Thank you.

Yeah, on the multiyear, five-year contracting, and you hit the nail on the head, we like to under promise and over deliver, Terry. Yeah.

Got it. Thanks.

Thank you, Terry.

Thank you. Our next question comes from the line of Joe Vruwink with Baird. Please proceed with your question.

Great. Thanks. Hi, everyone. I want to begin by following up on the share of bookings coming from net new 14% was the lowest it's been in some time. I guess, is that just emblematic of the type of environment we're in where naturally you'd expect more of the book of business to come from existing customers? And I'm wondering if that's true, within the interest existing customers are expressing, is that leaning more into maybe migrations and that's part of the strong 4Q activity you're seeing, or is the cross-sell vision and truly getting [buy-in] (ph) the Active Supply Chain, is that actually factoring in more prominently?

No. I think, Joe, you bring up a good point that it is, I think, the lowest we've seen certainly for quite some time. So, now our spread is 14% to -- I think 52% or 53%, but as you look across the deals, you look across the pipeline and so forth, there was nothing particularly trend worthy in that number. When you look at the pipeline, about 35% of the pipeline is new logos. I'm not calling this, but I would expect this to get back to historical norms in Q4 and going forward.

Okay, that's great. On the large digital transformation projects that sound like they're converting already in 4Q, is that still largely around WMS? Is there a multi-product scope and that's why it's truly digital transformation? And how -- yeah, I think over recent quarters, there's been some cautious optimism that things like Point of Sale might factor more prominently in 2025. Certainly, it seems like Supply Chain Planning is going to start to be more common in the deal flow. Any way to kind of maybe size or quantify or frame kind of those newer products that's kind of playing into the cloud activity?

Yeah. Let's see. So, in terms of product mix, you asked specifically about the strong start to Q4, nice product mix in this strong start to Q4. We don't have those percentages and all those kinds of things laid out yet of course, but I know off the top of my head, we've got some WMS deals, we've got some nice OMS deals, we've got a Point of Sale deal in the mix already closed for Q4. So, pretty nice mix. In terms of -- I suppose you're sort of asking for closer to the top of the pipeline funnel on Supply Chain Planning and Point of Sale and those kinds of things. Point of Sale, we're enthused about the pipeline specifically for Q4 and on into 2025. As far as Supply Chain Planning is concerned, obviously, we're 17 days post GA. So, it's a little early to be calling that, but I would tell you the interest and the enthusiasm, as I said in my prepared comments, has been maybe a little -- just a little on the positive side of surprising, both here in the U.S. and in Europe and in APAC, so as we've traveled around the world doing this launch. So, these things don't move the needle overnight, but we are certainly encouraged by the early conversations we're having, and I would also say, both with existing customers and net new conversations around Supply Chain Planning.

Great. I'll leave it there. Thank you.

Okay. Thank you, Joe.

Thank you. Our next question comes from the line of Brian Peterson with Raymond James. Please proceed with your question.

Hey, guys. Thanks for taking the question. So, Eddie, I appreciate all the color. We would love to understand if there's any commonality in what's driving the delayed deals for some of these larger customers. Is that a certain end market or getting implementation plans over the finish line? We just love to understand if there's any commonality there.

No, nothing that I would call out, Brian. Nobody -- when we talk to folks, there may be just a little -- something a little bit ahead of all others, maybe a little -- a few folks wanted to wait to see how the election shakes down, I don't know how that really impacts their decision, but sometimes that is cited, but all of the other things that are going around the planet are not discussed. So, I think it's just a -- for us, just a little bit of a confidence matter that we've got to get through with our customers. The great news is that our win rates and our selection being selected continues to be very strong. So, some of the deals that have pushed both into Q4 and even further than that, we've been selected. It's just a question of the customer and the prospect getting comfortable that the time is right. So, hence, the reason for, frankly, some of our confidence and enthusiasm.

Understood. Thanks, Eddie. Dennis, maybe one for you. Just -- you, obviously, gave a lot in a preliminary outlook for '25, but at a high level, how should we think about the underlying demand environment that's going to underpinning your assumptions for '25? Thanks, guys.

No change, Brian.

Yeah, no -- I would agree with that. No real change in the demand environment. Obviously, we continue as we have done for a number of years, our vertical diversification. Our global diversification, frankly, remains about the same. So, we're pleased with that. There's no real change there. It moves a little bit again from quarter to quarter. Our product mix remains about the same. And our new logo to existing customer kind of cross-sell and upsell opportunity remains about the same as well. So, no change there and continue to feel optimistic about the near term, but especially our competitive advantage and differentiation going forward.

Got it. Thanks, guys.

Sure thing, Brian.

Thank you. Our next question comes from the line of [Tim Kurosawa] (ph) with Citi. Please proceed with your question.

Hi, this is George here. Thanks for taking the questions here. Maybe the first one on the pace of cloud migrations that you guys have seen, I think in the past you've given 15% of the base has migrated over to cloud at this point. Maybe an update either on that number or directionally and how that's trended relative to expectations?

Yeah. Up a couple of points as sort of you would expect and continuing to track in about the same direction. So, we're a little less than 20%. It's hard to put an exact number on it, but right in there the midpoint of 15% to 20% or so is sort of where we are. The trajectory seems about the same. I think we're still on about a six year -- my opinion, six-year trajectory to get the bulk of our customers across the bridge.

Okay, great. And then, I did want to follow-up on a line of discussion earlier on the duration of contracts and seeing some longer duration contracts. Was that -- I guess, to put a finer point on it, has duration of contracts on average been increasing and has that had a meaningful impact on RPO?

No. Well, so when we first started the transitional process five, six years ago, we originally thought this goes way back. We originally thought three years was sort of going to be the number, but a long time ago, I want to say 2019 or so, maybe even '18, we started to see these five-year contracts being requested primarily because of the stickiness of our systems. And our customers I think thought it made sense for them to be five years, and it's held pretty solid there from -- so that what is that, five or six years now it's been pretty stable maybe 5.5 years.

No major change.

Yeah.

Okay, great. And then, one last if I may, on the margin upside, I think it was pretty impressive. Last quarter, I think you called out mix being a tailwind here. Is that also a story in this quarter? It sounds like scaling was also a benefit, but just how would you frame kind of the upside that you saw in the quarter and in the guidance?

Absolutely. From a mix standpoint, so fantastic execution by the business, record cloud and services. Yeah, just a great performance there.

Great. Thanks for taking the questions.

Pleasure, George.

Thank you. Our next question comes from the line of Mark Schappel with Loop Capital Markets. Please proceed with your question.

Hi, guys. Thanks for taking my question here. Eddie, with respect to the tone around your Point of Sale business, maybe just talk about whether there are any Point of Sale deals during the quarter? You may have mentioned this in the call, but I didn't catch it.

Yeah. I actually did not. But no Point of Sale deals in Q3, but we have -- I did mention that we have closed one in early Q4. And the near-term pipeline for Point of Sale is encouraging. We're excited about the opportunities even inside the quarter here that we might be able to close.

Okay, great. And then, with respect to your sales motion in the quarter, you mentioned new logos, I think were 14%. What about the remaining sales balance in terms of cross-sells and conversions?

Yeah. So, 14% was the low. Cross-sells were just a little over 20% and conversions pretty high this quarter at about, call it, 60%, maybe even a little tick above 60% in terms of migrations.

Great. Thank you. That's all for me.

My pleasure, Mark. Thank you.

Thank you. Our last question will be from the line of Dylan Becker with William Blair. Please proceed with your question.

Hey, gentlemen. Appreciate the questions here. Maybe, Eddie, starting for you, you called out kind of the Insight offering and Spotlights. Seems like there's a lot more value that you guys can add through these solutions and the data set that you've scaled, but wonder how you're thinking about the opportunity to kind of narrow those benchmarking capabilities over time now that you can reconcile planning and execution, and maybe how this further incentivizes the broader adoption across kind of your platform over time.

Well, Dylan, our strategy, no question, is a land-and-expand strategy. We think that as we continue to innovate and increase our TAM in kind of adjacent products and so forth, that ability to cross-sell into our existing customer base is very, very important. Not always, but most of the time customers and prospects buy one SaaS solution at a time, because obviously it takes some time to implement and so forth, no point in paying SaaS fees for something that is going to be implemented nine or 12 months from now, but it's all part and parcel of our strategy to expand our breadth and be able to address greater total addressable market and across an expanded set of verticals.

Got it. Okay. That makes sense. And then maybe for you, Eddie or Dennis here too, you guys called out kind of the internal efficiencies on the services side. You also talked about kind of the evolution of the partner ecosystem. Would love to just kind of get an update on how you're thinking about offloading maybe more of that kind of services work to partners' kind of receptivity appetite and growing that ecosystem? Thanks.

Yeah, sure. Well, first of all, certainly, our services team have done a fabulous job, always have, but continue to get more and more and more efficient. There's no doubt that over the last -- if you kind of look back over the last couple of years, 24 to 30 months or so, frankly, we did a lot of campus recruiting and those guys are really becoming experienced and efficient at what they do now. Our attrition has been low. So again, we're just sort of in fusing experience into our services organization that's creating a great deal of efficiency. On top of that, we're seeing the need for customers to customize our solution go down, and that is because of the thoughtfulness and the richness of the new solutions that we're introducing into the market. We've always said every time we reengineer one of our solutions from the ground floor up, it's based upon all the product experience that we've gained. WMS, for example, 30 years of experience that we put into Manhattan Active WM, everything you could possibly imagine. And we were able and fortunate enough to be able to start from a clean sheet of paper. So, less customization is required, that drives services down. And we've been able to attract a larger systems integrator community for sure and frankly a number of the bigger global systems integrators that are in the program. They're all important, don't get me wrong, all of our partners, but when you look at the guys with global reach like the Accentures and the Caps and Deloitte's and IBMs and so forth, it's not that we're pushing services to them, but if our customers choose to use them either on a regional or a global basis, that's fine by us and we're just seeing a little bit more of that, that's all.

Okay, great. Thanks, Eddie.

My pleasure, Dylan. Thank you.

Thank you. There are no further questions at this time. I would like to pass the call back over to Eddie for closing remarks.

Very good. Thank you, Alicia. Well, thank you very much everybody for joining us today. Thank you for support as always. We'll look forward to getting back together in 90 days or so and reporting on Q4, and also, of course, tightening up then our 2025 guidance for you. But until then, I guess it's very early, but it would be appropriate for me to say happy holidays to everybody, even though it's a little premature, I guess the next time we speak to you it will be after. Thank you. Bye-bye.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.