Manhattan Associates, Inc.

Good afternoon. My name is Mike and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Q3 2020 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer period. 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 conference is being recorded today, October 22nd, 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, Mike, and good afternoon, everyone. Welcome to Manhattan Associates' third 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. We caution you 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 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 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 will find reconciliation schedules 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.

Terrific. Thanks, Matt. Well, good afternoon, everybody, and thank you for joining us as we review our third quarter 2020 results, discuss our outlook for the remainder of the year, and provide at least some initial thinking around 2021. So for the quarter, Manhattan reported total revenue of $150 million and adjusted earnings per diluted share of 51 cents. Both of these exceeded our expectations. Broad revenue outperformance across really all of our business lines combined with a continued focus on expense management also drove strong earnings leverage in the quarter. Now using our markets and our customer base as reference points, We're starting to see some modest improvement in the global macroeconomic situation. Whilst clearly there's still a very long way to go in terms of reaching back to a normal operating environment, we are encouraged by the level of activity we're seeing in our pipeline, specifically with our new Manhattan Active Warehouse Management solution. In fact, we closed a record multi-million dollar Manhattan Active WM deal in Q3 with a large National Beverage Distributor, and while early, we're off to a solid start in Q4 as well. 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. Additionally, despite the turmoil globally, we remain committed to organic growth. We're on track to invest nearly $80 million into research and development this year, furthering our competitive positioning through new innovation whilst growing our addressable market. Now, through our ongoing engagement with customers and prospects, we continue to see business fundamentally rethinking the future state of their supply chains, distribution footprints, and omnichannel commerce strategies. Some of this rethinking is being driven by consumer demand, with 9 out of 10 consumers wanting a Omnichannel experience with seamless service levels between sales channels. Other reasons are more growth-oriented, as average omnichannel customers spend 4% more in-store and 10% more online than single-channel consumers. These changes will now require a thoughtful approach to implementing modern, agile, and scalable software solutions. the growing demands placed on legacy systems and software are no longer going to be suited to a multi-channel digital world. And we feel the long-term opportunity set in front of us based on these favorable demand trends is robust and will continue to provide meaningful opportunity for us to grow and scale our business. And as a result of these asymmetrical tail and headwinds coupled with our market leading solutions and applications, we see our global pipeline opportunities trending favorably. Our recently released Manhattan active warehouse management solution is driving very positive market interest, validation for the countless man days and the many millions of dollars in R&D that we've invested in developing the product over the past several years. And at the end of the third quarter, Over 80% of our global bookings pipeline is comprised of cloud opportunities. And about 45% of our deal opportunities continue to be represented by net new logos globally. And this certainly should provide ample opportunity to land new business for us, while we also focus on expanding our relationships with existing customers. You may recall a few weeks ago we announced that part of a very rigorous selection process, L'Oreal, the world's leading beauty company, chose to implement a Manhattan active WM solution across its distribution footprint globally. L'Oreal was looking for an agile, cloud-native solution that could provide the necessary adaptability and scalability that their business demands. as it continues to grow with a positive trajectory. We're obviously honored and humbled by their choice, and our professional services team certainly is looking forward to implementing this solution into their distribution network over the next several years. Now regarding services, despite the challenges that have been caused by the global pandemic, we're delivering on our promises to our customers around the world. In the third quarter, we conducted 161 go-lives globally, once again showcasing our flexibility and expertise at delivering technical implementation work through really any delivery channel. Now, it is worth maybe reminding you that billed travel, which is margin neutral but contributes to the overall services revenue, was about 5% of a headwind year over year to our services revenue growth. and turning to sales and marketing, our teams remain very active and engaged, pursuing opportunities across our install base while simultaneously moving brand new business opportunities forward across all of our product portfolio. Of note, we recently hosted our AMIA Exchange Connect event, our virtual customer conference for that particular region. And feedback from the conference participants was overwhelmingly positive and Participation from our partners and customers was very well received. Our competitive win rates remained very strong at 70 plus percent against head-to-head competition with about 25 percent of our license and cloud deals representing net new customers in the quarter. Verticals that collectively drove more than 50 percent of our cloud and license revenues in the quarter were retail, consumer goods, government, Food and Beverage, and Grocery. Now, if I can, I'll just turn the discussion a little towards our product pipeline. Last quarter, I updated you on the launch of arguably the most important product in Manhattan's history, Manhattan Active Warehouse Management, the next generation of warehouse management software. We announced this new cloud native version of WMS at our virtual user conference in May of this year. and today I'd like to provide an update on Manhattan Active WM along really three key dimensions. Customer success, new customer acquisition and ongoing product development. So let's start with firstly with customer success. So you'll recall that at the time of launch, Pet Supplies Plus was already live on Manhattan Active WM and since then they've reported some really exciting accomplishments. They're shipping record volumes using our application. The onboarding times for new associates have been cut in half using our all-new mobile app for the distribution center associates, and they've actually already taken their second site live and in the process of planning to turn on a third site as well. And I'm happy to report that Q3 was a strong quarter for customer acquisition. We now have several additional projects in flight across a variety of industries and regions. and we're seeing strong activity in the grocery, food and beverage, health and beauty sectors with Manhattan Active Warehouse Management. Our message of a next generation versionless cloud native WMS certainly seems to be resonating well with the market. And finally, I am happy to report that per our plan, we shipped our first quarterly follow-on release of Manhattan Active WM on time. Our 2020.3 release hit our customers' environments in August, delivering additional innovation and functional capability. And we're on track to deliver our 20.4 release next month in November as well. So in short, we're off to a great start executing on our vision of providing the industry's only cloud-native, fully extensible, versionless warehouse management system. And we continue to compete pretty effectively in the TMS space as well. Evidence by us signing, among other deals, a large TMS contract in the quarter with a global distributor. The combination of our best-in-class optimization technology, international capabilities, and strong sales and delivery teams were really the keys to this win. We continue to make progress outside of supply chain execution as well. This quarter, Q3, we introduced Manhattan Active Allocation as part of our suite of inventory optimization solutions. Built on our Manhattan Active Application architecture, this new allocation solution is purpose designed and built for the fashion and apparel businesses. Historically speaking, our inventory solutions have been very strong for hardline replenishment-based businesses where sophisticated demand forecasts and Mathematically Optimized Replenishment Plans are key. But the world of fast fashion is quite different. It requires a different set of technology for calculating how much inventory to forward position in each store in any given season. And Manhattan Active Allocation solves this inventory positioning problem. And crucially, it solves it with omnichannel in mind, ensuring both digital and standard footfall demand are particularly well-served. And finally, I'd like to close out my product-related marks with a quick update on Manhattan Active Omni, a collection of cloud-native order management, customer engagement, and store technologies. This quarter, we announced Interactive Inventoria, really significant advancement for our order management customers. Interactive Inventoria provides ultra-high-speed delivery date projections for digital customers regardless of where they are in the buying journey. And unlike other solutions which rely really on historical averages for projected delivery time, Interactive Inventory factors the customer's delivery location, other items in their cart, the current position of every unit of inventory into the network, and the merchant's optimized fulfillment plan for that eventual order. The Interactive Inventory combines Really everything that set us apart historically. A curated view of enterprise inventory, the industry's best fulfillment optimization algorithm, cutting-edge cloud-based technology, and access to real-time operational data, all while making that delivery promise to the consumer. And speaking of delivery, I am proud to report that in the quarter we also took a leading footwear brand live in six weeks. So that concludes my presentation. Business Update. Dennis is going to provide you with an update on our financial performance, discuss our updated 2020 full-year guidance, and provide you with our initial view of 2021. And then I'll close that prepared remark today with a brief summary before we move into Q&A. So, Dennis?