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. After the speakers' remarks, there'll be a question-and-answer period. 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 that these forward-looking statements involve risks 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 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've 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.

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 $0.51. 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. While, clearly there is 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, while growing our addressable market. Through our ongoing engagement with customers and prospects, we continue to see businesses fundamentally rethinking the future state of their supply chains, distribution footprints, and omni-channel commerce strategies. Some of this rethinking is being driven by consumer demand, with nine out of ten consumers wanting our omni-channel experience with seamless service levels between sales channels. Other reasons are more growth-oriented, as average omni-channel 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. 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 opportunities for us to grow and scale our business. As a result of these asymmetrical tailwinds, 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 mandates and the many millions of dollars in R&D that we've invested in developing the product over the past several years. 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. This certainly should provide ample opportunity to land new business for us while we also focus on expanding our relationships with existing customers. Speaking of customers, you may recall a few weeks ago, we announced that as part of a very rigorous selection process, L'Oreal, the world's leading beauty company, chose to implement a Manhattan Active WMS solution across its distribution footprint globally. L'Oreal was looking for an agile, cloud-native solution that could provide the necessary adaptability and scalability to 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 teams certainly look 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 are 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 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. Now, turning to sales and marketing, our teams remain very active and engaged, pursuing opportunities across our installed base while simultaneously moving brand new business opportunities forward across all of our product portfolio. Of note, we've recently hosted EMEA Exchange Connect, our virtual customer conference for that particular region. Feedback from the conference participants was overwhelmingly positive, and participation from our partners and customers was very well received. Our competitive win rates remain very strong at 70% against head-to-head competition, with about 25% of our license and cloud deals representing net new customers in the quarter. Verticals that collectively drove more than 50% 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 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. 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 customer success. You'll recall, now that at the time of launch, Pet Supplies Plus was already live on Manhattan Active WM. 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 have already taken the second site live and are in the process of planning to turn on a third site as well. 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. 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. Finally, I'm 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. 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. We continue to compete effectively in the TMS space as well, evidenced by our 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 are really the keys to this win. We're also making progress outside of supply chain execution. 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 forecasting and mathematically optimized replenishment plans are key. However, in the world of fast fashion, a different set of technologies is required for calculating how much inventory to forward position in each store in any given season. Manhattan Active Allocation solves this inventory positioning problem, and crucially, it solves it with omni-channel in mind, ensuring both digital and standard footfall demand are particularly well served. Finally, I'd like to close out my product-related remarks with a quick update on Manhattan Active Omni, our collection of cloud-native order management, customer engagement, and store technologies. This quarter, we announced interactive inventory, a significant advancement for our order management customers. Interactive inventory provides ultra-high-speed delivery date projections for digital customers, regardless of where they are in the buying journey. Unlike other solutions that rely on historical averages for projected delivery times, interactive inventory factors in 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. Interactive inventory combines everything that sets 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. Speaking of delivery, I am proud to report that in the quarter, we also took a leading footwear brand live in six weeks on our order management and store fulfillment applications. This particular customer, who was looking to enable both standard pickup in-store and curbside pickup with time to spare before the holiday season, had our professional services organization deliver for them. They went live with pickup and curbside across the U.S. and Canada and are beginning to roll these capabilities out internationally as well. So that concludes my 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 our prepared remarks today with a brief summary. Before we move into Q&A, Dennis?

Thanks, Eddie. As mentioned, third quarter total revenue was $150 million, down 8% over the prior year, due largely to COVID-19. Our total revenue estimate for the fourth quarter is expected to be in the range of $135 million to $140 million. Adjusted earnings per share was $0.51 in the quarter. GAAP earnings per share was $0.39, with stock-based compensation accounting for the difference between adjusted and GAAP EPS. Our adjusted earnings per share target for the fourth quarter is $0.32, within a range of $0.30 to $0.34. Starting with cloud, revenue for the quarter was $21.1 million, up 14% sequentially and up 48% year-over-year, despite a tough comparison due to our Q3 2019 FEMA cloud deal. We signed two new Manhattan Active Warehouse Management deals in the third quarter, both with global Tier 1 customers, and continue to see strong pipeline demand for our cloud solutions with notable strength in Manhattan Active WM, Manhattan Active Omni, and TMS solutions. Approximately 50% of our deals in the quarter came from Active DM products, and over 20% of our bookings were from new customers. For Q4, we estimate our cloud revenue will be about $22 million, representing about 40% growth year-over-year. For the full year, we estimate our cloud revenue will be $78 million to $79 million, up 68% year-over-year from the midpoint. License revenue was solid in the quarter at $13.2 million, well above our expectations, as several Q4 pipeline opportunities accelerated into Q3. Overall, license revenue is down 28% year-to-date and continues to decline as strong demand for our solutions shifts to cloud. We signed three $1 million plus deals in the quarter, with roughly 30% of our license deals coming from new customers. For the fourth quarter, we expect between $4 million and $5 million in license revenue, and for the full year, we now estimate license revenue to be approximately $33 million to $34 million. As we've pointed out in our release and earlier in the call, uncertainty about the COVID-19 pandemic could affect our performance against our estimates. Cloud and license software mix will be approximately 70% cloud to 30% license for the full year, with total software revenue of $111 million to $113 million, up 17% year-over-year at the midpoint—a record number—despite a 31% or $15 million decline in license revenue versus 2019. Turning to bookings, our remaining performance obligation, or RPO, is the leading proxy for our cloud bookings performance and represents the value of contractual obligations required to be performed, otherwise referred to as unearned revenue or bookings. Our RPO for the quarter totaled $257 million, up 69% over the prior year and up 14% sequentially. We now expect that our year-end RPO will fall within a range of $275 million to $290 million, driven by booking strength in cloud, particularly with Manhattan Active WM. For Manhattan, this disclosed value represents our cloud bookings value of unearned revenue under non-cancelable contracts greater than one year. Contracts with a non-cancelable term of one year or less are excluded from the reported amount. One last point on license and cloud: Our performance continues to depend on the number and relative value of large deals we close in any quarter. Some customers have longer implementation cycles associated with larger projects requiring a multi-year annual subscription ramp built into the contract term. For example, for a five-year contract, the ramp results in year five of contracted revenue being significantly larger than year one. In the near term, as Manhattan scales large ramp deals, it will impact sequential and year-over-year revenue growth percentages. Now shifting to maintenance, revenue for the quarter totaled $37.3 million, down 1% versus the prior year. Our customer retention rates remain strong at greater than 95%. For the fourth quarter, we estimate our maintenance revenue will be between $36 million and $37 million, and for full-year 2020, our estimate is $145.5 million. Turning to services, our professional services revenue for the quarter totaled $73.5 million, down 20% year-over-year as expected. Excluding billed travel, we were down about 15% year-over-year. We expect near-term services revenue trends will be tied to the pace and degree of global economic improvement, and we estimate our services revenue for Q4 will be approximately $71 million. Our full-year 2020 services revenue will be in the range of $303 million to $305 million. At the midpoint, this means services will be down about 16% versus 2019. Excluding billed travel, services revenue was down 12%. These estimates include our expected seasonal fourth quarter sequential decline over Q3, due to the retail peak season. Regarding consolidated subscription, maintenance, and services margin, for the quarter, we generated 53% margins, driven by continued operating leverage in cloud. Our fourth-quarter estimate is approximately 51.9%, about 100 basis points higher than 2019. Our full-year estimate is approximately 51.4%. Turning to operating income and margin, Q3 adjusted operating income totaled $44.1 million with an adjusted operating margin of 29.4%, driven by higher license revenue performance, combined with very strong expense management. For the fourth quarter, we estimate our adjusted operating margin to be within a range of 19.2% to 20.2%. Our Q3 adjusted effective income tax rate was 23.5%; we estimate our fourth quarter rate to be 24%, with a full-year tax rate of approximately 23.6%. Regarding our capital structure, our share repurchase program remains suspended and our repurchase authority limit remains at $50 million. We continue to assess the appropriate timing for the resumption of buyback activities, dictated primarily by broader macroeconomic improvement. For the fourth quarter and full-year, we estimate our diluted shares outstanding will be approximately 64.4 million shares. Turning to cash, we closed the quarter with cash and investments of $166 million and zero debt— that's right, $166 million and zero debt. Our current deferred revenue balance totaled $113 million, down 5% sequentially on just the timing of revenue recognition. Q3 cash flow from operations totaled $42 million, up 6% over the prior year. Year-to-date, operating cash flow totaled $103 million, down just 8%. Finally, capital expenditures totaled $200,000 in Q3; we estimate full-year capital expenditures to be between $3 million and $5 million. Now turning to our updated annual guidance, we continue to model and review multiple scenarios in order to provide investors with our best estimate of financial performance for the remainder of the year. Notably, certain external factors are out of our control and may produce results that differ from expectations. Specifically, for 2020 annual guidance, our full-year total revenue range is now expected to be between $574 million to $579 million. Our target objective is $576.5 million in total revenue versus the prior guidance of $562 million. Our full-year adjusted earnings per diluted share range is expected to be between $1.62 to $1.66, with our target objective midpoint being $1.64, compared to our previous guidance midpoint of $1.56. Our full-year GAAP earnings per diluted share range is expected to be $1.23 to $1.27 with a midpoint of $1.25. We expect our full-year adjusted operating margin to be in the range of 23.5% to 24%. That covers the 2020 guidance. Before discussing our preliminary 2021 targets, we want to remind you that the views we have today are subject to a variety of factors that may manifest themselves over the upcoming months and are thus subject to change, so we're being appropriately conservative for the environment in which we are operating. We expect to provide formal 2021 guidance on our Q4, 2020 call next year. One final note before going further, our preliminary 2021 targets reflect year-over-year growth rates based on the midpoint of our updated 2020 guidance for the respective metrics. At a high level, we view 2021 currently as a tale of two halves. Specifically, we expect H2 will be stronger than H1 if an economic recovery picks up steam in the back half of the year. Our continued business transition is masking our underlying growth and value creation, due to both license shifting to cloud and global Tier 1 customers ramping up their global footprints over multiple periods. We continue to believe RPO is the best forward metric for tracking our transition. Our 2021 full-year total revenue range is now expected to be between $585 million to $625 million, representing a 1% to 8% year-over-year growth range. Our target objective is to achieve $605 million, representing 5% growth; excluding our declining license impact year-over-year, total revenue growth is 8%. As you know, Q1 2020 was an all-time record Q1 revenue performance pre-COVID, creating a tough comparison for Q1 2021. We expect Q1 2021 total revenue to be down 7% to 9% over Q1 2020. We expect our H1 total revenue split to be about $292 million with 1% year-over-year growth, given the Q1 COVID comparison, and H2 split to be about $313 million, representing revenue split with a 9% growth rate. For software revenue, we are estimating $123 million to $130 million, with a midpoint growth of 13%. We are targeting $108 million to $110 million in cloud revenue growth, with midpoint growth of about 40%. Importantly, we expect license revenue to decline almost 50% in 2021, as customers and prospects choose our cloud solutions. License revenue will be in the $15 million to $20 million range with a midpoint of $17.5 million. Regarding 2021, our preliminary estimate for RPO is between $385 million to $390 million, up about 40% over 2020. As Eddie mentioned, we are off to a very good start in Q4 on strong cloud demand. With the backdrop of COVID, government elections, retail peak season in play, and a second full selling quarter of Manhattan Active WM under our belt, this will certainly help us calibrate the ramps on our RPO entering 2021. For consulting services, we are targeting $306 million to $334 million with a $320 million midpoint, representing about 5% year-over-year growth. We expect H1 revenue to be down about 3% to 5% year-over-year with Q1 being down 15% against 2020's record services comparison. The rate of year-over-year growth in services will be dictated by the pace and cadence of economic recovery for the balance of 2021. For maintenance, we are estimating $140 million to $145 million or a 4% decline to flat growth year-over-year, as we expect more existing customers to convert to cloud subscriptions. That covers the critical revenue targets. Our full-year 2021 adjusted earnings per share range is $1.37 to $1.54 with a midpoint of $1.46. H1 to H2 percentage splits will be 45% H1 and 55% H2 for the annual EPS splits. Q1 will be our lowest EPS quarter totaling about 21% of full-year EPS or $0.31. The primary drivers of lower year-over-year earnings per share are related to three major components: the continued decline of license revenue, the reversal of prior cost actions we took in April of this year, and continued strategic investments in innovation and tooling for cloud operations to execute on the cloud growth we see in front of us. Adjusted operating margin is expected to decline year-over-year to 20% to 21%, reflecting the operating imperatives covered in our outlook for EPS. You may recall in our Q4 2019 call, we guided to an adjusted operating margin range of 20% to 20.5% with a trough of 20%. Unfortunately, during our Q1 2020 call, the pandemic required us to downshift a few gears to protect liquidity, customers, and our employees without sacrificing investments in R&D. With business conditions improving, we are refocused on the same objective, with 2021 now representing our margin trough. Overall, our objective is to achieve long-term sustainable double-digit top-line growth with top quartile operating margins. Manhattan's effective tax rate is expected to run at approximately 24.5%, subject to any changes to federal, state, or foreign tax legislation. Finally, we expect that our share count will be approximately 65 million, assuming no buyback activity in either Q4 2020 or fiscal year 2021. That covers the financial update. Back to Eddie for some closing comments.

Alright. Thanks, Dennis. Well, look, overall we're very pleased with our performance this quarter. Clearly, we're operating in challenging times, but we continue to focus on driving operational and financial results as we progress further on our cloud journey. With a strong business foundation, we expect to further extend our market-leading position with the supply chain and omni-channel commerce solutions. In doing so, we'll continue to innovate to advance market demand, leveraging our technical and domain expertise to provide our customer solutions, which position them for success in a dynamically and rapidly changing world. We certainly see no shortage of opportunities to expand our addressable market while further strengthening our competitive position. In closing today's call, I did want to take a brief moment to thank all of our customers, our employees, and our shareholders around the world for all of your patience, focus, and engagement over the past seven months or so. It's been nothing short of remarkable and I am grateful for it. I expect Manhattan will continue to push forward, expanding our industry-leading product portfolio while driving revenue growth and profitable execution for years to come as we benefit from the growing tailwinds within supply chain and omni-channel commerce. So Mike, over to you. We are now ready to take questions.

Your first question comes from Terry Tillman from Truist Securities.

Yes. Hi, good afternoon and thanks for taking my questions. Congratulations on the quarter and the strength of the cloud WMS. Eddie, maybe the first question just for you is, as we go back and look at historical cycles around WMS upgrades, and we look at the current e-commerce megatrend. Could you talk about whether we are starting to see a WMS upgrade cycle? If so, how does that compare to prior upgrade cycles? I would love to learn a little bit more about that potential in relation to e-commerce.

Yes. Well, there are a couple of dynamics, Terry. You pointed out the e-commerce dynamic; no question that we've seen that accelerate—it's been accelerating for the last several years. Over the last seven months or so, there has been real acceleration there, and I think we would all agree we don't see it turning back. If you look at distribution center construction, it's still very vibrant for sure; the need for modern facilities to be highly automated, driven with a balance of robotics and human capital certainly drives the need for a modern flexible agile Warehouse Management System, and that's where we've positioned ourselves. We have two dynamics here: the growth of e-commerce, but also, as you pointed out, the replacement cycle in frankly some industries that have not seen strong replacement cycles historically—particularly grocery and food and beverage—that have been pretty static from a distribution technology perspective for many years are now starting to see the need, driven by consumer demand, to adopt modern Warehouse Management Systems. We feel like we are on the forefront of that. The fact that we are now delivering our Warehouse Management System versionless and in the cloud is really an added advantage, right? It offers access to immediate innovation and speed of deployment in a world that certainly requires it. As we noted, the market enthusiasm seems to be strong.

Understood. And I guess, Dennis, just a follow-up question regarding the guidance. When we're looking at '21, I would like to get a little bit of perspective. One of the prepared remarks you made was in relation to the transactions in the cloud side where the year five relationship would be much larger than year one. So, if you're signing large deals, whether in 2Q, 3Q, or even 4Q, is it safe to say there is actually just not a lot of subscription revenue impact for '21 and it will really start to ramp up more into '22? Just trying to understand how that would phase in.

Yes, that's correct, Terry. It will phase in into the first, second, and third year of the contract, as a general rule. Short-term, it results in a drag on cloud revenue, but long-term, it creates value for Manhattan going forward.

One last question is on the RPO. Has there been any change in duration? How is the consumption coming along from a contracting standpoint? What is the duration like compared to prior quarters?

Yes, thanks for asking. In the very early days, we were seeing a little bit shorter contracts, but it seems to be stabilizing around about the five-year mark on average, Terry.

Your next question comes from Matt Pfau from William Blair.

Hey guys, thanks for taking my questions. First, I wanted to ask on— I think a lot of retailers are getting geared up for the holiday season earlier than normal this year. Just wondering if that dynamic had any impact on either your third-quarter results or how you're thinking about the fourth quarter?

No, not really, Matt. Frankly, I agree with you. We're certainly seeing folks get geared up a little earlier, and as consumers, we can expect to see some promotions and so forth earlier in the season. Indications are that Black Friday and Cyber Monday will not be quite the peaks we've seen in prior years, yet the season will start 10 days to 14 days earlier. So, I agree with all of that, but frankly, we haven't seen much impact from that. Retailers start preparing really in March and April for peak season, so that couple of week variability hasn't really influenced us.

Got it. And with the accelerated shift to e-commerce, I think we're most likely going to see a lot of fulfillment and last-mile challenges here in the upcoming holiday season. One way to relieve that is through BOPUS and curbside pickup, but I didn't really hear you talk too much about those in your prepared remarks. Just wondering if that dynamic is having any impact on your business?

Yes, it is. There's no question those capabilities are associated with our omni-channel suite of solutions, and I did point out there was one particular customer that faced exactly the dynamic we're discussing and said, 'Hey, we have got to have particularly curbside up and running well before the holiday season,' and we were able to implement order management and that capability in six weeks. We're pleased with that; it's not the only circumstance. Six weeks from start to finish is pretty impressive, and we were pleased about that. BOPUS and curbside are big parts of what retailers are looking for, given the capacity constraints everyone expects to see in parcel and home delivery.

Got it. Last one for me, you guys are guiding for license revenue to be down significantly next year. Why would anyone buy a license for WMS now, given that you have the cloud version? Just wondering what the rationale on the customer side would be there?

Well, first of all, you've got existing customers that have an on-premise solution and frankly want to roll that out to additional facilities; they need to buy more users because of capacity. Those types of scenarios exist. There are not many, but there are a few customers that still prefer on-premise solutions. Additionally, there are some of our other solutions that, while we offer in the cloud, our demand forecasting and inventory optimization solutions still have a balance of cloud and on-premise demand. So, there are a number of reasons, and the final one I would say is that geographically around the world, there are still some regions where on-premise currently makes sense.

Great, thanks a lot guys. I appreciate it.

Thank you, Matt.

Your next question comes from Joe Vruwink from Baird.

Great. Hi, everyone. I wanted to go back to the go-live activity because I think I heard a 161 in the quarter there. That's the second straight quarter where it's been above normal level. I imagine you're seeing a lot of activity to get the easy extensions—adding BOPUS and curbside onto order management, things like that. Are you seeing follow-on activity come from these engagements? And now that everything is in the cloud—if these engagements are starting out more short-term in nature, can you use this as an opportunity to circle back and get customers thinking about an upgrade cycle going back to things like Warehouse Management?

It's a great question, Joe. It does depend; certainly to the first part of your inquiry, yes, there is opportunity for ongoing deployments. Just to use the examples you discussed—BOPUS and curbside—there is enthusiasm around those two strategies for the reasons we've already discussed, particularly prior to peak season. There are follow-on activities and capabilities around BOPUS and curbside with digital self-service that typically act as fast followers to those capabilities. So, there is quite a bit of ongoing activity and ongoing cross-sell and upsell capability associated with those. Now, as it relates to whether this could increase adoption of Transportation Management solutions and Warehouse Management solutions, I wouldn't characterize it as a natural extension to BOPUS and curbside, but modernization of distribution centers is becoming imperative. The need to execute on smaller orders and e-commerce orders, coupled with automation and robotics, is driving demand for modern WMS.

Okay, great. And just on the last point, Eddie, in terms of some of the early adopters where you've seen interest in Active Warehouse Management. It strikes me as segments that have probably been comparatively resilient this year, thinking about food and beverage, grocery, and CPG. You're launching new technology into a pretty healthy demand environment. These are also applications where there is a lot of variety on SKUs, very high volume. When you launched the Active Warehouse Management, did you feel like there were certain customer segments where traction early would drive better referenceability later on, and are you seeing that so far with the early awards?

Not particularly in terms of focusing on early referenceability and those kinds of things. We're seeing solid traction and deals, both from our customer base wanting to shift to a cloud strategy and new customer logos. We'll start to publish this as and when we are able, but you see a nice blend of customers across both verticals and geographies.

Hey, Joe. This is Dennis. Just to piggyback on what Eddie was saying, I'd tell you, based on the demand and the pace of growth for Manhattan Active WM and our pipeline, we are in the early stages of a pretty significant replacement cycle. Keep in mind that a large part of that is our installed base but also about 45%—not all MAWM—but 45% of our cloud pipeline is net new opportunities.

Your next question comes from Mark Schappel from Benchmark.

Hi, thank you for taking my question and nice work on the quarter. Eddie, starting with you, one of the benefits of your Active WMS solution is that it gives you an opportunity to really move into verticals where maybe you just weren't all that penetrated before—like industrial, manufacturing, and others. I was wondering if you could just address or give an example of some of the early customer interest you're seeing in Active WM from some of these non-traditional Manhattan verticals?

Yes. We're certainly beginning to see some interest there, Mark; I'm not going to drop names and so forth at this particular juncture. But as you see customers of ours and industries that have typically been heavy wholesale, heavy manufacturing, and not had any consumer contact or direct-to-consumer strategies are now seeing a push to sell direct-to-consumer and require a good bit more sophistication in their distribution strategy. So, we are starting to see early interest from those opportunities. The introduced cloud-based solution gives them immediate access to innovation and is extensible. That is a new phenomenon regardless of vertical. Some of those old verticals that are running old solutions that have been highly customized over the years have been difficult to get access to innovations—now they finally have easy access to that with the Manhattan Active Warehouse Management system. We’re seeing good enthusiasm there.

Great, thank you. And then you mentioned the Manhattan Active Allocation solution, which I guess is new this quarter. It sounds intriguing and interesting. I wonder if you could provide a few more details on the solution itself and some of the opportunities you see there?

Yes, sure. I'll keep it brief and provide a simplified description, given the time we have. In the fast fashion and apparel world, companies typically buy for a season and push product out to the stores. You don’t see a lot of replenishment and inventory optimization activities during that time. However, there is still a healthy amount of sophistication in determining where to push that product based on factors like climate, consumer demand, and size of store. That's the historical way to push and allocate product. In the new world with buy online, pickup in-store, and curbside pickup, it requires another level of sophistication in deciding how to push that product out to the store. So, Manhattan Active Allocation is a brand new rethink of how to go about soft lines in fast fashion distribution and allocation of inventory, and it’s built on our cloud platform, offering speed of implementation and access to immediate innovation.

Great, thank you.

My pleasure, Mark. Thank you.

Your next question comes from Brian Peterson from Raymond James.

Good evening, gentlemen. Hey, thanks for taking the question. Eddie, it's come up a couple of times, just the idea of a WMS refresh. I'm curious to what extent does the multi-tenant cloud portfolio you provide change that, and I'm more interested not on the existing installed base but on the opportunity for some of these legacy competitors. How do you think about the pace of this refresh opportunity relative to what we've seen in past years?

Well, WMS systems don't flip in a matter of days or weeks, Brian. We've seen an acceleration of customer demand, e-commerce demand, delivery expectations, and so forth, particularly over the last seven to eight months, and it's real. Companies with customer facing requirements are under a lot of pressure to meet consumer expectations, which necessitates modern technology. Old Warehouse Management systems that haven't been modernized for years won’t get the job done, so we are seeing a refresh cycle happening. I don’t know if it will be much faster than the cycles we've seen before, but it's there. Fortunately, as we've moved to cloud-based technology, this allows for faster rollouts to customers and prospects.

Got it, thanks Eddie. And maybe one for Dennis. I appreciate all the components of the guidance. Is there anything that you would call out in terms of products or go-to-market that we should be paying attention to on margins next year? Thanks, guys.

No, not really. We expect to benefit from scale, of course. But no major product-by-product margin impacts. We see a lot of opportunity in front of us, and our appetite to be able to invest in innovation has not been quenched at all, that's for sure. We expect to continue to invest in innovation that has a near-term impact on margins.

Yes, Brian, just to piggyback on that. There is also, as the cloud business continues to scale, we're investing in just tooling within our business to drive margins higher in the future, requiring investments as the business scales over the next year or two.

Understood, thanks guys.

Thank you, Brian.

Your next question comes from Yun Kim from Loop Capital Markets.

Thanks. Hey, Eddie and Dennis, congrats on a strong quarter, especially in a tough environment for you guys. Just following up on Terry's question early on. Dennis, I just want to make sure I understand it. How does the ramp cloud deal affect RPO? Does the whole value of the contract swap in the RPO upfront? Or does it get added when the next ramp starts, just like the revenue?

No, it shows up when we close the deal. The bookings show up in RPO or are reported in RPO.

Got it. So that could potentially be choppy as you close on larger deals down the road?

I don't know if it would be choppy. The reason we mention it is that the year one ramp can result in smaller revenue, but the exiting annual subscription value can be significantly larger, which impacts cloud revenue and can squeeze sequential declines. It's more about revenue than bookings.

Okay, great, thanks for that. And then Dennis, it's a very basic question. Can you give us an update on your business around brick-and-mortar or big box retailers? I'm assuming that part of the business for you guys is still under pressure. When can we expect to see that business come back, and how much of your professional services business is still tied to that retail vertical slowdown? I'm assuming some of the weakness in professional services or at least the decline year-over-year is driven by some projects that were postponed prior to COVID?

Yes, certainly, Yun. Some of the services decline is associated with the retail slowdown, as the retail sector has hunkered down. We have a combination of sub-verticals within retail being very busy, focused on meeting customer needs, while others are impacted by store closures and have put projects on hold. We're beginning to see those projects light back up, which is encouraging. In terms of big box retail and how our big box retail customers are doing, they're focusing heavily on e-commerce channels, with big box e-commerce retail growth exceeding 200% year-over-year, which is putting demands on the distribution network. So, we are still quite busy in that big box space.

Yes. From a retail perspective, it's a strategic vertical for us and a great growth opportunity. We're seeing a lot of demand. When looking across sub-verticals within retail itself, there will be continued positive activity from retail in the pipeline as well. We've had very minimal bankruptcy events, no liquidations or chapter 11s; customers are taking the opportunity to restructure their businesses. The challenge for retailers has been the mandated government shutdowns of their retail operations. We have observed a lot of positive activity, not just in closing deals with retail, but we are also witnessing robust activity in pipeline.

Okay, great. Just one high-level question for you guys. The omni-channel commerce has been a hot secular trend for several years and has obviously evolved quickly to be more strategic since COVID. Now that you guys have a cloud-based WMS solution in the market, which should reduce the overall complexity of the implementation and require less customization during deployment. Is there any openness to adopting a larger partner ecosystem that includes global system integrators and perhaps even giving them access to some of your professional services work to help them ramp?

It's probably a long response. We have a large partner ecosystem globally that ranges from big global companies like Deloitte, down to smaller boutique supply chain-focused firms. There is no shortage of implementation partners at our customer conferences. In terms of customization, there is still going to be customization required, regardless of whether it's on-prem or in the cloud. One of the unique features of our cloud solution is that it is extensible, meaning we allow for customization while honoring all the contracts and APIs. So as we do updates every quarter, problematic regressions do not occur, and we'll not have to reimplement customizations. Providing the tools for customization while allowing access to immediate innovation remains a value proposition of our services.

Okay, great. Thank you so much, guys.

Our pleasure, Yun. Thank you.

Your next question comes from Mark Zgutowicz from Rosenblatt.

Good evening. I was just hoping to get a perspective on the downstream benefits of your accelerated POS and curbside pickup adoption. I'm trying to get a sense of where you believe this falls into the pipeline and whether this might be, if we think beyond orders, perhaps retaining business or additional adoption of Active Omni solutions. It’s a stretch, but does it give a slight push to accelerate adoption of your Active Warehouse Management solutions?

Yes, thank you, Mark. I wouldn’t say it will be a push to adoption of Active Warehouse Management. Those two things are reasonably different; however, it’s safe to say that as consumers, we’re starting to expect BOPUS and curbside as the price of admission in retail. Now, advanced BOPUS and curbside are coming to the forefront as retailers look to offer cross-sell and up-sell opportunities in those environments. This requires sophisticated technology systems to enable those operations. While we've seen acceleration in e-commerce, and consumer expectations continue to rise, it is essential for us to innovatively maintain our market-leading position.

Got it. Thank you, Eddie. Appreciate it.

Our pleasure, Mark. Thank you.

That was our last question. At this time, I will turn the call back over to Eddie Capel for closing comments.

Okay, very good Mark. Thank you, everybody for taking the time to participate in this earnings call. I look forward to crystallizing our 2021 view in about 90 days. Of course, it’s very premature, but I wish you all a happy and safe holiday season, and we'll speak again in about 90 days. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.