Manhattan Associates, Inc.

Good afternoon. My name is Jason, and I will 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 speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. 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 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 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 a reconciliation schedule in the form 8K we submitted to the SEC earlier today and on our website at manh.com. Now I'll turn the call over to Eddie.

Okay, 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. 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. They're 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 is a growing market need for modern, adaptable supply chain inventory and omni-channel 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, you know, in our world, there are signs that seem to be encouraging. And as such, we're raising our full-year total revenue and adjusted EPS guidance to reflect our views for the balance of the year. We continue to invest in the business to drive long-term sustainable growth while focusing on profitable execution and diligent capital allocation in order to capitalize on the evolving market trends. Furthermore, our dedication to innovation remains. We expect to invest nearly $80 million in R&D this year, even with this macro backdrop. Looking at our current pipeline, we see a pretty healthy set of global opportunities. with our cloud pipeline trending favorably, giving us confidence in reinforcing our belief that the mission-critical products that we offer are needed now more than ever. Specifically, over 60% of our pipeline at the end of the quarter is comprised of cloud opportunities, and that's compared with 40% a year ago. And while we've seen some delays in Closing Pipeline Opportunities, we haven't experienced any notable cancellations. And our second half pipeline is trending somewhat favorably relative to our first half. And additionally, we're seeing a broader and more diverse set of opportunities in our pipeline as interest grows from non-retail verticals such as automotive, third-party logistics, life sciences, automotive, and then all the way to manufacturing and wholesales. And finally, about 50% of ideal opportunities continue to be represented by net new logos globally. Now, turning to our services business, despite having the restriction of limited face-to-face engagements with our customers, we remain active. providing real-time support and delivering a variety of project work while executing system go-lives remotely. In the second quarter, we conducted nearly 130 system go-lives, reflecting solid execution in the current environment. By the way, billed travel, which is margin neutral but does contribute to the overall services revenue, is down significantly versus last year for obvious reasons. and this represents about a 4% headwind to year-over-year services revenue growth. And while the lack of travel and face-to-face engagement is challenging, the ability of our professional services team to continue to deliver high-quality, complex work remotely really underscores our ability to adapt and to deliver in this dynamic and difficult time. Now on the sales and marketing front, at competitive win rates, remain strong at about 70% plus against our head-to-head competition, with about 30% of our license and cloud deals representing net new customers. And here we are at the halfway point, really, of our five-year cloud transition, and we're experiencing a significant shift in market demand for our cloud solutions across all of our verticals. and verticals that collectively drove more than 50% of our cloud and license revenue in the quarter were retail and consumer goods, government, and food, beverage, and grocery. And within these verticals, we saw robust demand for specific capabilities within our active Omni suite, such as buy online, pick up in store, curbside pickup, and store inventory fulfillment. with so many physical stores closed during Q2. The ability of retail and consumer-facing brands to fulfill orders in creative ways was really in great demand. And we were able to stand up these solutions really in a very short amount of time. And the ability for these brands to have flexible distribution and selling channels is really more critical than ever. And the solutions that we offer have become a key enabler to these activities. I'd like to just for a minute pivot a bit and give you some updates on recent advancements across our product portfolio. So let's start with maybe one of the most significant enhancements in our company's history. During our online user conference in May, Momentum Connect, we unveiled Manhattan Active Warehouse Management, the next generation of warehouse management, re-architected from the grand floor up as cloud-native, and a versionless application. Manhattan Active WM is a step change in agility and speed of innovation within the supply chain execution landscape. With Manhattan Active WM, we were able to deliver new feature functionality every single quarter while still offering full extensibility of the core application. And while our customers continue to be extremely satisfied using Our base capability inside of warehouse management. We see that customer-driven extensibility as a solution imperative with the ability for our customers to add their secret source and innovation on top of our platform. All while taking advantage of new capabilities that we deliver every single quarter. And we believe this is a really winning combination. as well as a first of its kind in the supply chain execution industry. And the underlying technology which makes this all possible is our Manhattan Active Application Architecture that made its debut in 2017 when we launched Manhattan Active Omni. Now, relative to live customers, We had an early adopter customer live on Manhattan Active WM prior to our release announcement of Manhattan Connect. Pet Supply Plus, they went live in April, and actually due to unforeseen events associated with the pandemic, they've been shipping record volumes with Manhattan Active WM ever since, and they're now planning to roll out the remaining DCs in their network. And additionally, We've also signed several other customer implementations of Manhattan Active WM. They're underway. They're with large tier one global brands, and we closed them inside the quarter. Now, in addition to its groundbreaking technology, Manhattan Active WM delivers a number of next generation feature function enhancements, including consumer grade configurable mobile applications for the associates inside the distribution center, a suite of inline analytical user interfaces built right into Manhattan Active WM, which we call our unified control screens, and a next generation of algorithm focused on taking operational optimization simply to the next level. And finally, we've got a brand new set of capabilities that we call employee engagement, a whole new way for Distribution Center managers and associates to interact with one another throughout the day. So in brief, that's Manhattan Active WM. And as you'd imagine, we're very excited about the release of, about this particular release, and it's really been the largest product investment in the history of Manhattan Associates. And whilst the timeframe and expense of the undertaking were certainly significant, We felt that it was undoubtedly the right path to position both Manhattan and our customers to deliver best-in-class performance for the next decade. And while Manhattan Active WM was admittedly a focal point of our attention in recent times, I am excited that we've been able to make significant strides in parallel across other applications within our portfolio. So I'll touch on just a couple of those. First, staying with our supply chain suite, we recently shipped an exciting new version of our transportation management solution that included an all-new major update to our dispatch capability and a significant update of our transportation modeling solution. For our customers who operate their own delivery fleets, dispatch management is really an integral part of their transportation management operation. and a number of our fleet operating customers have already signed up to move to this completely redesigned and rebuilt solution. And we're excited to help them power the ever-growing last-mile delivery network of today and tomorrow. And next, a quick update on Manhattan Active Omni. As I mentioned in Q1, Manhattan Active Omni customers are increasing. really innovating at record pace to adapt their order fulfillment delivery and pickup methods in light of the changing regulations associated with the pandemic. The volumes we're seeing so far for BOPUS orders and buy online, pick up in store are really off the charts, frankly, with some of our customers experiencing tenfold increases in volume. And additionally, in Q2, We accelerated the release for curbside pickup into both our digital self-service and store fulfillment modules. Consumer research indicates that curbside pickup is one of those fulfillment methods likely to persist even after the pandemic. And having an industrial strength process and technology in place is really a must-have for omni-channel retailers. Because of the Manhattan active architecture, we were able to make curbside pickup support available to all of our Manhattan Active Omni customers in really record time. And last but not least, on the product side, we launched a completely new application within our inventory suite at Momentum Connect this quarter. It's called Manhattan Active Allocation, and it's purpose-built for our fashion and apparel retail customers. Because while we've had Best-in-class forecasting and replenishment applications for our customers who manage a relatively static product assortment. Manhattan Active Allocation is the first time we'll have a sophisticated inventory optimization offering for our fast fashion customers who manage their inventory using a completely different process. And Manhattan Active Allocation launches with really two major differentiating features. Omnichannel is built right into the core of its design. And it also resides on the Manhattan active application architecture, which we talked about before. And we think this is really a game changer for the soft lines allocation space. And we plan to make it generally available a little bit later in the year. So hopefully you'll agree it was a pretty big quarter for the evolution of our product portfolio, and we're excited to work with our customers to light up all of these new capabilities. So that covers my broader business update, and Dennis is going to provide you with an update on our financial performance, discuss our 2020 four-year guidance, and I'll close with a few prepared remarks and a brief summary. So Dennis?