Manhattan Associates, Inc.

Good afternoon. My name is May, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Q4 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 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 call is being recorded today, February 2, 2021. I would now like to introduce Eddie Capel, CEO, Dennis Story, CFO, and Michael Bauer, Senior Director of Investor Relations. Mr. Bauer, give me beginner conference.

Thank you, May, and good afternoon, everyone. Welcome to Manhattan Associates 2020 fourth 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 will caution that these forward-looking statements involve risk 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 on 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. 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 8K 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. And good afternoon, everybody. And thank you for joining us as we review our fourth quarter 2020 results and discuss our outlook and guidance for 2021. Also, given our journey toward being a cloud-first company, the long-term nature of our newer SAS contracts, and the visibility and momentum that we're seeing, We thought it might be helpful to provide you with our initial thinking around the three-year trajectory of our business in terms of RPO, cloud revenue, and adjusted operating margins through 2023. So we'll cover that a bit later. But for the quarter, Manhattan reported Q4 revenue of $147 million and adjusted earnings per diluted share of 45 cents, both of which exceeded our expectations. Broad revenue outperformance across our business lines, combined with a continued focus on expense management, once again drove earnings leverage for the quarter. Fortunately for Manhattan, our business is entering 2021 with accelerating velocity and growing opportunities. Now 2020 was a very successful year for Manhattan Associates. arguably the best year ever in the midst of an ongoing global pandemic. Beyond the numbers, 2020 was a benchmark year of resolve, performance, and growth for our employees and our customers. We strengthened our company significantly in 2020 and have substantially improved our market leadership position. In May, we launched our cloud-native Manhattan Active Warehouse Management solution, which we believe is the most significant advancement in WMS technology in over a decade. And the market reaction to this new product has been equally impressive, with already a double-digit number of deals closed to date, and a pipeline is growing. In fact, we signed the largest Manhattan Active Warehouse Management deal to date, and the enthusiasm from both new and existing customers for Manhattan Active WM is certainly surpassing our original expectations. At no time in our company's history has our product strategy been in complete synergistic alignment with customer and market demand. Across our full suite of cloud solutions, we're seeing solid and growing demand. Pipeline bookings, are at record levels with about 90% of the pipe consisting of cloud opportunities and net new potential customers representing almost 40% of the demand. We enter 2021 with increasing momentum and greater visibility because there's a growing market need for modern, adaptable supply chain, inventory, and omnichannel products. And that selection of cloud native solutions positions as well. Our unified platform is industry-leading and provides our customers with the ability to efficiently adapt to changes in consumer behavior while simultaneously helping elevate the entire consumer experience. Simply put, our commitment to investing in market-leading innovation and focus on customer success strategically positions us for long-term sustainable growth. Demand for our supply chain and omni-channel products and services has been pretty solid. And while the near-term timing and continued pace of economic recovery remains somewhat unclear, recent signs have been encouraging. And as such, we're raising the 2021 full-year total revenue and adjusted EPS guidance that we provided on our Q3 call. And furthermore, our dedication to innovation remains. We expect to invest nearly $90 million in research and development this year, even with a potentially choppy macro backdrop drop. And as I mentioned earlier, with our business visibility strengthening, later in the call, Dennis will provide details of how we see our three-year trajectory. He'll provide you with guidance for 2021 and guideposts with much broader ranges for 2022 and 2023. Dennis will provide insights into how we see RPO, cloud revenue, and adjusted operating margins shaping up for the next three years. And with RPO as the leading indicator of cloud revenue performance, our objective is to exit 2023 with roughly $1 billion in remaining performance obligations. representing a three-year CAGR of about 45%. Now, on the sales front, competitive win rates remain strong at about 70% as our innovation is being recognized as the best in the industry. In Q4, about 20% of our licensing-clad deals closed were from new customers. From a vertical perspective, retail, consumer goods, food and beverage, and grocery drove more than 50% of our cloud and license revenue in the quarter. Now, regarding services, we conducted over 100 go-lives in the quarter and anticipate a return to services revenue growth in 2021. While the rate of this services growth will be influenced by the broader economic recovery, demand for our expertise remains high, and we're aggressively hiring talent to meet the forecasted demand. And more broadly, we expect to hire two to 300 new associates company-wide in 2021, including R&D, cloud ops, sales, and marketing. If I can, let me provide you just a few specifics on some of our product innovation. First, I'd like to start by providing a quick update on one of the biggest product launches in Manhattan's history, Manhattan Active Warehouse Management. As you recall, we announced Manhattan Active WM in Q2 at our virtual annual user conference. And since then, we've seen strong market interest and adoption, frankly, surpassing even our own ambitious goals. While the customer mix has undoubtedly been affected by the global pandemic, I'm happy to report that we're seeing broad demand across many industries and all parts of the globe. In fact, we now have customers spanning 10 different industries in eight different countries. They're all currently implementing Manhattan Active WM. And with a very busy and aggressive go-life schedule lined up for 2021, our selling and implementation teams are at full strength across the geographies that drive the majority of our revenue. And we're seeing a nice pipeline for Manhattan Active WM, too, as we head into 2021. And in addition to a healthy balance we're seeing across geographies and industries, our Manhattan Active WM implementations strike a nice balance between existing customers and entirely new, net new. Of our Manhattan Active WM projects in flight right now, we're seeing about a 50-50 split between those two categories. And as you recall, one of the key benefits of Manhattan Active WM is that it's completely versionless. It's updated in the background for our customers with zero downtime. And we provide them with new feature functions every single quarter. In fact, since we announced this new solution in May, we've already added a host of new innovative capabilities in the past couple of quarterly releases. Now turning to transportation management. We closed out 2020 with some great wins. and further progress on our goal of evolving TMS at Manhattan Associates from being a great domestic business for us being a truly global business. And to that end, we now have a live customer in Europe successfully using TMS and have additional projects in flight in that region. when we continue to see the pipeline build in a number of countries across EMEA, and we're building capacity to support those projects in expectations of their closing in 2021. And our cloud TMS solution continues to compete very effectively, both home and abroad. Now, I'll close my product updates this afternoon with a Manhattan Active Omni solution suite, We've just completed taking our customers through their third retail peak season on Manhattan Active Omni, and as you would guess, we processed an all-time record high number of orders, shipments, and payments. The ongoing channel shift from bricks and mortar to digital commerce continues to benefit our omnichannel business, and as we help more customers successfully capture and deliver on their direct consumer orders. Now, a particular note this year was the surge in store-related digital activity. Almost all of our Manhattan Active Omni customers use that technology to power a pretty vibrant ship-from-store program. But now we're seeing an increasing number of those customers actually prefer to ship from their stores, actually up 300% over 2009 retail peak. And this is in order to speed up customer delivery and manage the parcel network constraints much more effectively. As you might imagine, in-store pickup programs continue to accelerate at a rapid rate with activity both in curbside and traditional store pickup. Both the in-store pickup and curbside delivery programs clearly are here to stay, and we continue to leverage our advanced versionless technology to provide these kinds of innovative solutions to our customers at a very rapid rate. On a related note, by the way, one of the byproducts of a booming digital business is unfortunately, very often booming volumes of returns. And all of our customers grapple with this so-called reverse logistics problem. But fortunately, Manhattan offers technology to optimize that full life cycle with investing class capabilities in the contact center, digital self-service for the end consumer, and purpose-designed capabilities for the distribution center for processing the physical goods. And while the volume of returns in many ways is inevitable, a greater customer experience isn't always the same. So delivering that great experience for returns and exchanges at high volume really does take a fully integrated order management system and WMS to effectively process those returns. So that concludes my business update. Dennis is going to provide you with an update on our financial performance and discuss our outlook. And then I'll close our prepared remarks with a brief summary before moving into Q&A.