Good afternoon. My name is Dilem and I'll be your conference facilitator today. At this time, all participants are in a listen-only mode. I'd like to welcome everyone to the Manhattan Associates Q2 Earnings Conference Call. After the speakers' remarks, there will be a question-and-answer session. As a reminder ladies and gentlemen this call is being recorded today July 26, 2022. I would now like to introduce Mr. Michael Bauer, Head of Investor Relations of Manhattan Associates. Mr. Bauer you may begin your conference.

Thank you, Dilem and good afternoon everyone. Welcome to Manhattan Associates' 2022 second 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 are cautioned that these forward-looking statements involve risks 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 2021 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 a turbulent global macro environment could impact our performance and 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 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.

Thanks Mike. Well, good afternoon everyone and thank you for joining us as we review our second quarter results and discuss the increased outlook that we have for full year 2022. Manhattan delivered a record Q2 and record first half results generating Q2 total revenue of $192 million and adjusted earnings per share of $0.69, both exceeding our expectations. Specifically, 48% growth in cloud revenue and 19% growth in services revenue drove a topline outperformance and strong earnings leverage in the quarter. Our global teams are executing very well for our customers and we continue to invest in our people and in R&D. Our consistent investment and unmatched industry expertise are key factors in our continued strong customer satisfaction levels and innovation that differentiates our mission-critical Manhattan Active platform and solutions. The industry-leading innovation that we're delivering to the market is a key component to our customers' success, providing them with the ability to adapt quickly and efficiently to changing market conditions and profitably scale their businesses. Frankly, factors that contributed to a 75% win rate in the quarter. Now, despite FX headwinds in Q2, RPO, the leading indicator of our growth, increased 84% to $898 million. Excluding the FX impact due to the strong dollar, RPO totaled $928 million, up 90%. And regardless of any FX movements, we're on pace to exceed our prior outlook of $1 billion in RPO for the second half of this year. Demand for our cloud solutions is strong and broad-based across products, industry verticals, and geographic locations. It also remains robust from both new and existing customers. Similar to Q1, demand from net new customers was particularly strong and contributed 50% of our total bookings in the quarter. And while the mix of bookings will certainly vary on a quarterly basis, we believe that net new customers generating about 55% of our cloud bookings in the first half of the year exemplifies the unique value that we're delivering to the market and a large and growing opportunity. From a vertical perspective, retail, manufacturing, and wholesale continue to drive more than 80% of our bookings in the quarter. Across our cloud solutions, the sub-verticals are pretty diverse. For example, in the quarter cloud deals won include a manufacturer of recreational vehicles, a food distribution wholesaler, a Japanese multinational conglomerate that specializes in electronics and industrial products, a specialty retailer of automotive parts, an industrial manufacturer and a large fashion brand as well as a number of others. So, as you can see, pretty diverse. And our cloud pipeline continues to be robust with solid demand across our product suites. And net new customers represent about 35% of that demand. On the services front, our global team continues to execute very well conducting well over 100 go-lives in the quarter. And company-wide, we continue to make really great progress against our hiring. We added over 300 new team members during the first half of the year and expect to be at least 4,000 employees by the conclusion of 2022. These hires will contribute to our ability to meet our future customer needs, grow our market share, and extend our addressable market. Now, speaking of our team, we are very proud that we were recently voted by them a Top Place to Work in Atlanta for the 10th consecutive year. And we won similar awards this year in India, Australia, and Singapore. I'm also very happy to report that in mid-May we hosted in person our annual customer conference and it really was a great success. Attendance for the event was strong and terrific to see and talk and collaborate with our customers and partners face-to-face about our innovation and product strategy. At the conference, we brought together the industry's top agents of change and we laid out our vision for agile and sustainable supply chain commerce. So let me spend a moment or two on a couple of the newer product concepts that we rolled out at the event, solution assembly and our Manhattan Active platform developer portal. So, regarding solution assembly. We see this concept as the logical next step for the solution unification strategy that we introduced in 2017. Now as a reminder, solution unification refers to the unique way that we deliver best-in-class order management, point-of-sale, and customer relationship management into a single unified experience called, Manhattan Active Omni. And this same concept holds true for the unification of active supply chain with warehouse management, transportation management, yard management, automation orchestration, and so on. In our Momentum this year, we introduced our customers to the concept of solution assemblies. And assemblies refer to the Manhattan design to develop end-to-end flows which span our major Manhattan Active cloud offerings: Omni, supply chain, and inventory. So let me give you a quick example to illustrate the power of assemblies and the strong cross-selling opportunities within our solutions. Given the challenge that inventory continues to pose, let's review a solution assembly in this area that we specifically demonstrated at Momentum. By assembling Manhattan Active Allocation and Manhattan Active Omni, we help our fashion and apparel customers maximize margin and sell-through of their own inventory from the time the inventory arrives in the market to the end of the selling season. The key to this particular assembly is the way that allocation continuously informs order management about the health of every inventory position throughout the supply chain network. And armed with this real-time inventory health data, OMS uses the global view of direct-to-consumer demand to proactively reduce inventory positions where they're running heavy and avoid those locations where they're running light. Assembling allocation and order management is really made possible via the unique way that we connect APIs across our cloud deployments. And this out-of-the-box assembly reduces both IT complexity and delivers material revenue margin uplift, in this case for our specialty and apparel customers. Now turning now to one of the other key highlights from Momentum, technology. Since we introduced the Manhattan Active platform in 2017, its cloud-native, evergreen, and auto-scaling capabilities have delivered game-changing innovation for our customers. And as we've talked about, these technical capabilities have been really important differentiators for our solution across a number of application categories. Like the functional capabilities of the Manhattan Active applications, our technology, in particular the extensibility of our underlying tech platform, is vital to our technology-focused customers. So, at Momentum we introduced the Manhattan Active platform developer portal, a self-guided reference tool for the technologists and developers within our customer base. Now paired with Pro-Active, our platform's tool for extending the base behavior of Manhattan Active applications, the developer portal provides technologists with the ability to incorporate our extensive library of APIs into their broader technical landscape. And we believe that the strong demand that we're seeing from Manhattan Active applications reflects the mission-critical and strategic innovation that we continue to develop. Enhancing customer experiences and customer service remains top of mind for leading enterprises. And when combined with the capabilities that we offer around maximizing revenue and profitability of owned inventory, we expect demand for our solutions to remain strong. And that concludes my business update. Dennis is going to provide you with an update on our financial performance and our enhanced outlook. And then I'll close our prepared remarks with a brief summary before we move to Q&A.

Thanks, Eddie. Our global teams in Manhattan are performing exceptionally well, resulting in strong financial outcomes while making significant investments in the business. We are performing well against the Rule of 40, consistently improving both our top and bottom lines amid a challenging macroeconomic climate, showcasing strong quality of earnings that encompasses growth, profitability, cash flow, and positive balance sheet metrics. I'll provide a brief overview of the quarter, focusing on year-over-year growth rates unless noted otherwise. We achieved record total revenue of $192 million, which marks a 16% rise as reported and an 18% increase in constant currency. If we exclude license and maintenance revenue that is affected by our cloud transition, total revenue was up 26% as reported. Q2 cloud revenue reached $42 million, an increase of 48%. We ended the quarter with remaining performance obligations (RPO) of $898 million, which represents an 84% growth and 11% sequential increase. Excluding around $30 million in foreign exchange challenges from the first half, RPO reached $928 million, up 90%. We are positioned well to surpass the high end of our $1 billion RPO target in the second half of this year, despite expected potential foreign exchange headwinds of $15 million to $20 million. We anticipate updating guidance during our Q3 earnings call. Our services revenue in Q2 was outstanding, exceeding $100 million and recording $101 million, up 19%, driven by cloud sales fueling global services revenue growth. Our operating profit for Q2 was $53 million, with an adjusted operating margin of 27.5%, and we are continuing to invest in future growth. In Q2, revenue growth coupled with operational efficiency exceeded our previous target of a 24% operating margin for the quarter, leading to record Q2 earnings per share of $0.69, a 13% increase, while GAAP EPS was $0.49. Regarding cash flow, our operating cash flow for Q2 was a healthy $53 million, rising 16%. Our adjusted EBITDA margin stood at 28%, and our free cash flow margin was 27%. As mentioned last quarter, our Q2 cash flow accounted for $13 million in additional cash taxes resulting from the US Tax Cuts and Jobs Act, which did not impact us the previous year. More details on the timing of cash tax payments under this new law can be found in Item eight of our earnings release. In terms of our balance sheet, deferred revenue grew by 42% year over year to reach $179 million. We closed the quarter with $214 million in cash and no debt. During this quarter, we invested $50 million in stock buybacks, totaling $100 million year-to-date. Moreover, our Board has approved the replenishment of our $75 million share repurchase program. Now, moving on to our updated guidance for 2022. As we have consistently stated, our financial goal is to achieve sustainable double-digit growth in revenue and top quartile operating margins compared to enterprise SaaS peers. With strong performance in the first half and increasing visibility, we are raising our 2022 outlook. Our total revenue expectation now ranges from $733 million to $741 million, with a midpoint of $737 million, reflecting an 11% increase reported and a 14% rise excluding foreign exchange impacts. This is an increase from our previous midpoint guidance of $723.5 million and 9% growth. If you exclude license and maintenance attrition, growth would be 21% reported and 24% once you account for foreign exchange. For Q3, we anticipate total revenue between $183 million and $187 million, with a midpoint of $185 million, indicating 9% year-over-year growth. Excluding license and maintenance revenue, the expected midpoint growth for Q3 is 18%, and removing foreign exchange impacts, growth would be 22%. We are raising our operating margin forecast to a range of 25.5% to 25.7%, up from our prior midpoint of 24.5% and our original midpoint of 23.25%. We previously noted that our 2022 operating margin guidance incorporates continued growth investments such as talent acquisition, talent retention, performance-based compensation, and the return of costs impacted by the pandemic, like our in-person Momentum conference. Additionally, our margins are influenced by license and maintenance attrition and customer demand for our cloud products. Regarding full-year adjusted earnings per share, we are increasing our range to $2.35 to $2.39, with a midpoint of $2.37, which shows a 9% rise from our previous midpoint of $2.18. For GAAP EPS, our guidance range has risen to between $1.63 and $1.67. For Q3, we expect adjusted EPS to be between $0.56 and $0.58 and GAAP EPS between $0.36 and $0.38, with the difference between adjusted and GAAP EPS mainly due to investment and equity-based compensation. Looking deeper into the revenue projections for the full year 2022, we are increasing our cloud revenue range to $170 million to $172 million, signifying 40% growth at the midpoint. We anticipate cloud revenue of roughly $44 million in Q3 and $47 million in Q4 at the midpoint. Our services revenue forecast has also been revised upward to $382 million to $387 million, implying 15% growth at the midpoint, which translates to Q3 services revenue of $101 million and $93 million for Q4, considering traditional retail peak seasonality. For maintenance revenue, we have slightly adjusted our range to $135.5 million to $136.5 million at the midpoint for Q3, forecasting maintenance revenue of $33 million and $32 million in Q4. License revenue is expected to account for about 2.5% of total revenue, averaging about $3 million per quarter for the rest of the year. For hardware, we predict around $4 million in Q3 and $5.5 million in Q4. Now, focusing on our strengths in profitability, we expect margins on consolidated subscription maintenance and services to be approximately 54% in Q3 and 53% in Q4. For operating margin at the midpoint, we project around 25% for Q3 and 23% in Q4, taking into account the seasonal decline in margin for Q4 due to retail peak season. Overall, at the midpoint of our guidance, we anticipate achieving a full-year operating margin of 25.6%. Lastly, we foresee our tax rate at 21.7% and the diluted share count to be approximately 63.5 million shares, assuming no buyback activity. That concludes our resilient financial performance update for Q2 and the first half of the year. Thank you. Now, back to Eddie for some closing remarks.

Yes, perfect. Thanks, Dennis. Well, listen, I apologize again for the technical blips that we may have had during the call. I hope it didn't impede your ability to understand the breadth of our Q2. Because despite the FX drag that we saw in the quarter, we're very pleased with our second-quarter results and frankly our year-to-date results. And while we continue to operate in a turbulent global macro environment, our teams are executing incredibly well and our business momentum remains very positive. Demand for our solutions is strong and our pipelines continue to progress very well as new and existing customers both want to shift to our industry-leading cloud-native applications. So thanks everybody again for joining our call. And also, thank you to our employees for all the fabulous work that you're doing around the globe. With that, Dilem will be happy to take any questions.

Thank you, sir. Our first question comes from Terry Tillman from Truist. Please go ahead.

Yeah. First, congratulations, and you can't be silent despite a bad conference call operation, so it's good to see the results in there. I guess if it wasn't for currency, you got pretty darn close to even getting the low end of the ending of your RPO. So that was good to see. And thanks for the FX impact color. All right enough of my preamble. One question I was going to ask you Dennis just relates to, there was a pretty meaningful subscription or cloud subscription revenue acceleration in 2Q. It was up to 48%. I know you're not giving any update on guidepost, but like the idea is the way subscription revenue would build, it would actually really accelerate into 2024, if I'm not mistaken. I know you're not giving any updates, but we're already seeing an acceleration in 2Q. How are you thinking about cloud sub revenue and the visibility over the next couple of quarters and into next year?

Terrific. Thank you.

Yes, yes we can.

I would say we're optimistic about that Terry. But given the guideposts that we provided, we're multi-year. We did make it clear that we'll only revise those longer-term estimates on an annual basis. So we're definitely encouraged, but I think we'll defer frankly that question and the answer to the question until the end of the year.

Okay. Got it. Maybe Dennis I'll follow-up for you though on the cash flow. Anything to think about, I mean, I know the seasonality on expenses and then PS revenue but you had the cash impact the tax cash impact, but you saw a strong cash flow. Any sense on how we think about 3Q and 4Q cash flow? And then I had a final question for Eddie.

Our cash flow margin will probably be similar to our operating margin right in that range.

For both quarters?

Yes.

Okay. It seems like we're back to the familiar topic of the WMS refresh cycle. With the cloud innovation you have, it should encourage more customers to consider that. Can you update us on the customers who are now pursuing the cloud WM strategy? I know you've shared some information over the past few quarters. How many customers are currently in the process? Thank you.

Yes, that's a great question. I think it changes on every few days. So I might be off plus or minus one or two. But we're at about 73 customers under contract Terry across, I think, we're either 11 or 12 countries now one of the two. And we're over 40 sites are live across the customer base. We frankly are pretty busy summer season here of go-lives and so forth. So it's definitely very encouraging.

That's great. Nice job. Good luck for the second half. Thanks.

Thank you. Thank you, Terry. Appreciate it.

Thank you. And I show our next question comes from the line of Brian Peterson from Raymond James. Please go ahead.

Hey, gentlemen, congrats on the strong quarter. So I wanted to unpack the services strength a bit. It was up 19% on an 18% comp. And obviously, the guidance is up for the year. How do you think about the trajectory of that business? I mean, we're all seeing the news in terms of the macro, but obviously the RPO growth is really strong. There just seems to be a lot of crosscurrents out there. So, yes, as we think about maybe the kind of two to three-year outlook for services, how do we think about that in the current macro?

Yes. When we consider the two to three-year outlook, we will provide an update at the end of the year. I believe updating these forecasts every couple of quarters could introduce excessive volatility. However, we have strong visibility into our services demand, particularly due to software sales.

Ladies and gentlemen, please continue to hold. Your call will resume momentarily.

Yes. I'm live. Eddie, I can hear you.

Thank you, Brian. We have experienced strong software sales, and demand for our services remains robust, as evidenced by our hiring. We have added 300 people this year and plan to hire a few hundred more, aiming to surpass 4,000 associates. We have good visibility regarding services demand for the upcoming quarters and we are very optimistic about it. There have been questions about whether the services attach rate for our cloud solutions will match that of our on-prem solutions, and we have consistently affirmed that it will, which is now reflected in our services revenue growth.

No. That's great. And Eddie maybe just following up and sorry for double dipping on the macro questions here, but you mentioned the kind of diversification into the verticals. I'd love to get your sense of the health of the diversification of the customer base today maybe versus prior economic challenge periods of that 2009. And I'd love to just hear kind of how the product portfolio has changed? And maybe where in terms of customer exposure or health is different today versus maybe five years ago?

Yes. I mean clearly more diversity across verticals for us helps with less exposure and so forth. But in general, even where particular segments of the market might be challenged, there is still a desire to make sure they maximize market share, maximize customer satisfaction, and maximize customer retention. And that's what we can help with. So even in a market that tightens up a little bit, there is still obviously competition to ensure that customers are being serviced with inventory, serviced at the levels that they expect and so forth. And those are the areas that we can help. Hence the reason I believe, we continue to see kind of strong demand for both our solutions and our services.

50% net new logos, year-to-date.

Yeah.

Understood. Thanks guys. Congrats.

Thank you, Brian.

Thank you. And I show our next question comes from the line of Matt Pfau from William Blair. Please go ahead.

Hey guys, thanks for taking my question and great results. I wanted to ask on the new customers that you added and the strength that you're seeing there. So maybe just what do you think is driving that? And I appreciate that it can change from quarter-to-quarter. And then, when we look at that 50% coming from net new customers and the cloud pipeline is at 35%, does that indicate that your close rates are better with new customers? Or what accounts for that discrepancy? Thanks.

Yes, I think the variability from quarter to quarter is just a normal aspect of our business. In terms of what is driving the acquisition of new customers, there are a couple of key factors. First, we are increasing our presence in verticals where we have not been as strong before, particularly in manufacturing. This trend is largely due to manufacturing companies moving towards direct-to-consumer models, which requires the sophisticated supply chain capabilities we provide. Secondly, we are successfully replacing some outdated systems, whether they are from past competitors or current ones, because of our strong technology strategy and the advanced capabilities we are offering in the market that are essential today.

Got it. In terms of the macro demand you're seeing, some of your retail customers or prospects might be under pressure due to inflation and higher costs, which your solutions can help address. Is that influencing the products they're interested in or how they're considering adopting your solutions?

Matt, I believe that is likely to continue in the future. Up to now, the focus has been on how our customers can attract, retain, and service their own customers. I think their attention, especially in these turbulent times, is on ensuring strong customer loyalty and effective inventory management. We can assist with both of these challenges.

Okay. Great. Thanks, guys. Appreciate it.

Thanks. Thank you, Matt.

Thank you. And I show our next question comes from the line of Mark Schappel from Loop Capital. Please, go ahead.

Hi. Thank you for taking my question. And nice job on the quarter. Eddie, I was wondering if you could just comment on your point-of-sale solutions or your point-of-sale business during the quarter. If I recall correctly, you started seeing larger projects return to that business a few quarters ago. And I was wondering if that's still the case.

Yes, it is. In fact, we had a couple of very nice wins in the quarter, with more details to come later, but some very strategic wins across our multi-brand conglomerate. Our go-lives are going well. We've seen two or three smaller chains, with 100 to 250 stores, complete the rollout of our point of sale across their entire network. This, as we've mentioned before, is building some nice momentum for us. I'm very excited about the opportunity and the positive reception. We're following a multi-year strategy, but I'm definitely encouraged about our current position.

Thank you for the opportunity to follow up. I'd like to hear your thoughts on the retail sector, as your results and guidance suggest that there are no signs of a slowdown for the year.

Yes. I mean, the pipelines are strong, demand is strong, win rate is strong and that is, obviously, true on the software side, but the pull-through on the services side is also strong too. And, obviously, what that indicates is that, once software is purchased, our customers are anxious to get that software live and delivering value for them. So we feel pretty good about the demand profile for sure, again, based on the pipeline and the visibility we have for the services business over the next several quarters.

Great. Thank you. That’s all for me.

Thanks. Thank you, Mark.

Thank you. And I show our next question comes from the line of where Blair Abernethy from Rosenblatt Securities. Please, go ahead.

Thanks. Nice quarter guys.

Thank you, Blair.

I have a question regarding the point-of-sale aspect. Can you give us an update on your approach to acquiring new customers in this area? Are you depending on channel partners, or what is your strategy for that?

No. Our strategy is one of going direct, Blair. So we're direct in the market. Of course, we've got partners who help with implementations and those kinds of things. But our go-to-market strategy is definitely through our direct sales force and that's where we're seeing the success.

Okay, great. Regarding the cloud question about new customers, could you provide an idea of the average or range for the new cloud customers? Additionally, after a year, how are those businesses performing for you?

Well, we don't disclose the deal size, Blair, I’m sorry. So I can't comment on that. But in terms of the implementations post sale, they're going well. A, they're going well; and B, as I mentioned I think a little earlier, we've got a very busy summer and fall in front of us. Some really terrific brands, both here in the US and around the world and getting great feedback frankly.

Great. Thanks very much for your help.

Our pleasure, Blair, and thanks for taking the time.

Thank you. And I show our last question comes from the line of Joe Vruwink from Baird. Please go ahead.

Great. Hi, everyone. I wanted to go back to macro a little bit. One thing that's been kind of fascinating, we had big supply chain trade shows throughout the spring, summer. Your customer conference was thrown in there. And really every indication we heard throughout that timeframe was supply chain project inquiries going up, year has started stronger than 2021 left off. And that's obviously a big point in contrast to the incremental updates we've been getting from kind of the retail macro where it seems like everything is kind of moderating and a lot of your customers are maybe resetting expectations. How would you maybe characterize the divergence between the two things? And is it maybe the case where a lot of your customers, obviously, realize criticality around supply chain new investments? So, last year was maybe a year of getting budgets ready, vendor assessments in place and now, we're simply moving into the period of allocating these dollars and making the commitments?

Sorry. Please continue to standby. Your host will join momentarily.

Mr. Bauer, I show you're back on? Please remain on the line. Your conference will resume shortly.

Dilem, can you hear?

Yes, I hear you now sir. Mr. Bauer, can you hear me?

Well, again, everyone, we certainly very much appreciate your patience this afternoon given the technical difficulties we had. We are very appreciative of your support. We'll be sure to not have any technical difficulties 90 days from now when we look forward to reviewing our Q3 results with you. In the meantime, please enjoy the rest of the summer. Thank you.

This concludes today's conference call. Thank you for participating. You may all disconnect.