Manhattan Associates, Inc.

Good afternoon. My name is Jesse, and I'll be your conference facilitator. Question and answer period. If you'd like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. As a reminder, ladies and gentlemen, This call is being recorded today, April 21st, 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 conference.

Thank you, Jesse, and good afternoon, everyone. Welcome to Manhattan Associates' first 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 risk and uncertainties and 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 at 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 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. All non-GAP measures have been reconciled to the related GAP measures in accordance with SEC rules. You'll find reconciliation schedules in the form 8K we submitted to the SEC earlier today and on our website at manh.com. I'd like to turn the call now over to Eddie.

All right. Thank you, Matt. Well, good afternoon, everyone. And before I begin my comments related to Manhattan Associates, I want to take this opportunity to recognize and thank some of the heroes of our COVID-19 world. The health care workers, first responders are appropriately receiving great commendations, respect, and thanks from every corner of the world. And we at Manhattan Associates join in thanking them for their amazing dedication and the personal sacrifices that they're making to keep us healthy and also care for those that are unwell. So thank you. But I can tell you from firsthand experience, both personally and professionally, there are hundreds of thousands, maybe millions, of supply chain heroes working every day all around the globe to maintain the flow of life-sustaining products, food, beverages, pharmaceuticals, and yes, toilet paper, into the communities that they serve and we live in. These heroes are putting themselves at risk every single day to keep critical supply chains moving. So thank you. Thank you to the truck drivers, the warehouse operators, the retail associates, and all the supply chain professionals around the world. We're humbled and proud to be working alongside you. So thanks again for everything that you do. So back to Manhattan Associates. And thank you again for joining us as we review our first quarter 2020 results and cover in some detail the actions that we've taken and the innovative approaches that we've employed to adapt to today's circumstances. Additionally, we're going to be providing updates to our financial guidance, bearing in mind the impact that COVID-19 is having on our business globally. Manhattan reported another record revenue quarter despite business activities slowing in the last few weeks of March. Specifically, we reported total revenue of $154 million, that's up 4% year over year, and adjusted earnings per diluted share of $0.40. Our cloud and licensed businesses, combined with expense management, drove our ad performance in the period. Now, we've typically cautioned investors about the impacts of global macro volatility and the impacts that They may have on our business. And that is certainly a fitting disclaimer in the light of events occurring as a result of COVID-19. And as such, we've reflected our expectations in this most uncertain time into our full year guidance. And Dennis will go into that in much more detail in a moment. But we're taking what we feel is an appropriate level of conservatism into our forecast for the remainder of the year. reflecting what we know today, as well as the visibility we have into our business for the remainder of the year. Although it has to be said, recovery timing certainly remains the wild card. As we outlined a few weeks ago, we've taken proactive steps to position our business in the face of today's uncertainty. These steps are proportionary in nature, enabling us to shoulder any near-term disruptions while further investing in our business as we continue to pivot to becoming a cloud-first company. We view the actions we've taken as prudent, and we're approaching each and every day with a long-term perspective in mind. Furthermore, we've also taken swift steps to ensure the health and safety of our employees globally while considering the needs and demands for our customers. Especially those on the front lines of delivering such needed supplies to local communities. Our daily execution has evolved into a largely virtual model, and we continue to find innovative ways to engage with customers and prospects, ensuring that they are fully supported as they navigate their way through this period. While we're still ensuring to continue our focus on cash flow generation and profitable execution. I would like to review some of these specific actions that will allow us to manage through this volatile period while we're ensuring we're positioned to capitalize on market opportunities when we return to a more normal operating environment. Specifically, we reduced our board of directors' fees and the chief executive officer's salaries by 25%, our chief financial officer's salary by 15%, and the salaries of our other named executive officers, certain global leaders, and all U.S. employees by 10%. We suspended our 401 match program here in the U.S., and for the time being, we suspended our share repurchase program. We have instituted a hiring freeze, but only for non-critical roles across the organization. We've reduced planned outlays for discretionary spend across the organization. And as a natural extension, we've reduced travel and marketing spend as appropriate. And these actions should allow us the flexibility in the near term to remain focused on the long-term opportunities ahead. The steps we're taking enable us to preserve our global workforce in order to remain agile while meeting customer demands as it returns. Importantly, our market-leading product innovation also remains a priority. And despite global economic headwinds, we're still expecting to invest $72 to $74 million in research and development this year. Now, our global pipeline for customer opportunities remains healthy across both cloud and license, with notable trends in our cloud pipeline specifically. And this is due to Organic Demand, and a continued shift from our legacy licensed business and the appetite for WMS in the cloud continuing to build. Given current market volatility, though, we are seeing some shifts in pipeline opportunities from Q2 into Q3 and Q4. This, I have to say, though, is different from past challenging environments where demand for software simply disappeared. The challenge now is one of timing. In fact, the rest of our year pipeline is over 20% higher than it was when we spoke last quarter, which, of course, is notably positive, specifically for our cloud business. And in terms of opportunities, we continue to see over 50% of ideal opportunities represented by net new logos. Now, turning to our services business, we're active with our customers, and we conducted about 100 customer go-lives in Q1. That's about typical of our run rate. But we've taken proactive steps to ensure a large amount of services work continues virtually, from project kickoffs and design, including initial build and implementation preparation. And the go-live aspects of that services work has been shifted to a remote strategy for the most part, although we are performing limited on-site work in certain controlled situations. And we've seen project delays due to customers who are either so consumed by the high levels of business activities, such as grocers and distributors, or those who are focused on managing their own business through this difficult time period. Now, with regard specifically to our retail end markets, approximately 20% of our near-term to medium-term services revenue has been impacted. And we've updated our financial guidance to reflect this. and we haven't seen any notable project cancellations. However, we would expect to see demand pushed out for some of these impacted projects. And the proactive steps we've taken thus far will allow us to continue moving forward with the majority of our services engagement and we'll continue to improvise and adapt to our changing environment in order to meet customer needs and market demand. And finally, on the sales and marketing front, Our competitive win rates remain strong at 70-plus percent against head-to-head competition, with nearly 30 percent of our licensing cloud deals from either net new customers or net new products into the existing customer base. Verticals driving more than 50 percent of our cloud and license revenue for the quarter were pretty diverse across retail, consumer goods, government, food, beverage, grocery, and life sciences. Now, turning to some of our long-term opportunities, I mentioned earlier what these recent events have brought to light, not in an environment that we would have wished to have seen, but nonetheless, is something that we've felt and worked toward for years. And that is that supply chain is a more strategic part of our customer's business than ever before. And the software that we offer is absolutely mission-critical to their success, whether in the normal course of business or in a highly volatile period such as we see today. We've got countless examples of our customers who were able to quickly adapt their sales, service, and fulfillment approaches in response to the changing landscape that we're all living in. These solutions go beyond streamlining and optimizing the supply chain, but are actively generating revenue and saving order volume, through modern adaptive concepts. So let's walk through a few of those. Firstly, let's start with demand forecasting and inventory optimization. Our application in this area deployed across a wide variety of industries from pharmaceutical distribution to grocery to specialty retail. And our customers can model the types of demand shocks that they're seeing from COVID-19 quickly and easily. That way their inventory planning process responds immediately to these New forecast models and does so without damaging their underlying base forecasts. And it's been exceptionally important for many of our pharmaceutical and grocery distributors as they're seeing surging demand for certain product categories. And this type of AI and ML-driven forecasting and ordering solutions will certainly pay dividends as we move through this uncertain period and trend back towards normal forecast and ordering patterns. and as we turn to our supply chain solution, when it comes to WMS, for example, the two areas we're hearing our customers take particular advantage of are adaptability and scalability. As you already know, at WMS is the best in the industry at scaling up to support the exceptionally high fulfillment volumes that typically come along with e-commerce flash sales and peak holiday seasons. And what we've seen in the last month or so is that scalability being employed by businesses that typically never experience these type of demand spikes. Whether it be pharmaceutical companies, grocers, medical equipment companies, the Manhattan WMS has been helping these customers ship two, three, and four times their daily average volumes. And as you can imagine, channel shift has been very prevalent. We actually saw one customer, a well-known retailer, transform their entire DC operation from retail replenishment Thank you for joining us. about transportation management solution as well. Many of our customers are rapidly reconfiguring their supply network and store hours. And that transportation optimization engine is helping many of our customers increase their shipment volumes to their stores by between 50% and 250% while also incorporating changes to the operating environment like hours of service and axle weight limitation changes that have been relaxed by the Department of Transportation. Now, timing is a long way from perfect, but Gartner recently published its magic quadrant for transportation management system providers, and we were thrilled both again to be a leader and to notably improve our position within the leader's quadrant. And we believe our ongoing investment in the solution has success in expanding its adoption globally, and most of all, the terrific customer satisfaction scores we received have helped us improve our position this year. Thank you. Closing my product remarks will be some anecdotes about how we're seeing our omnichannel solutions leveraged in innovative ways to put forth entirely new fulfillment methods and processes all in a matter of days. Of particular note is the expanded use of our store fulfillment solutions. Whilst most brick-and-mortar stores remain closed at the moment, many of those same stores are fulfilling 10 times their normal volume of e-commerce orders. The desire to monetize the inventory that's in those stores, the need to bleed workload off the distribution center, and the ambition to improve speed of delivery to customers that drive an expanded use of that store fulfillment solution. We even saw one customer activate and roll out the entire solution to all of their stores in less than a week. Now with that, I did want to remind you that next month we'll be hosting our annual user conference, Momentum. Now this year it's going to be in a digital format, and certainly while we'll miss seeing all of our customers, our partners, and our analysts in person, we still plan some significant product announcements that will continue advancing our vision of unified commerce. So that covers the broader business update. Dennis is going to provide you with an update of our financial performance and discuss our 2020 four-year guidance in further detail. And then I'll close that preparing a remark for the brief summary.