Good afternoon. My name is Alicia, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Manhattan Associates Q3 2024 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. As a reminder, ladies and gentlemen, this call is being recorded today, October 22, 2024. Now, I would like to introduce you to your host, Michael Bauer, Head of Investor Relations of Manhattan Associates. Mr. Bauer, you may proceed.

Great. Thank you, Alicia, and good afternoon, everyone. Welcome to Manhattan Associates' 2024 third 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 the future events or the future financial performance of Manhattan Associates. You are cautioned that these forward-looking statements involve risk and uncertainties, are not guarantees of future performance and that actual results may differ materially from the projections contained in our forward-looking statements. I refer you to the reports Manhattan Associates files with the SEC for important factors that could cause actual results to differ materially from those in our projections. We note the turbulent global macro environment could impact our performance and cause the actual results to differ materially from our projections. We're under no obligation to update these statements. In addition, our comments include certain non-GAAP financial measures 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.

Great. Thanks, Mike. Good afternoon, everyone, and thank you for joining us as we review our third quarter results, discuss our Q4 outlook and provide some very preliminary color at least on 2025. Q3 and year-to-date results set all-time records on both bottom- and top-lines. For the quarter, total revenue increased 12% to $267 million, and adjusted earnings per share increased 29% to $1.35, both of these metrics were above our expectations. Driving the top-line outperformance and earnings leverage was solid cloud and services revenue growth across all geographies, with cloud subscription revenue posting 33% growth in the quarter. Manhattan's business fundamentals are solid and we remain confident and very optimistic about our business opportunity. While the global macro environment remains challenging, demand for our solutions is robust, customer satisfaction is high, and as evidenced by our recent release of the Manhattan Active Supply Chain Planning solution, the investments we're making in R&D and our people are creating a clear differentiation. Delivering consistent market-leading innovation is creating more opportunities across supply chain, omnichannel retail and at the world’s best brands as they look to unify and digitally transform. RPO, remaining performance obligation, increased 27% to roughly $1.7 billion. As we've often cautioned, large, complex deals can be lumpy on a quarter-over-quarter basis. While we haven't seen much of that lumpiness over the past three or four years, this quarter and, to a lesser extent, last quarter, we have seen some. Our third quarter RPO growth was impacted by some large digital transformational projects pushing it. That said, our fourth quarter is off to a great start and demand is solid. Attributes that give us confidence that we will achieve at the high end of our 2024 RPO bookings guidance of $1.8 billion. Across our industry-leading product portfolio, our global pipeline sits at record levels, and our win rates remain strong at about 70%. Despite the uncertain macro environment, these factors give us confidence that we'll achieve the high end of our 2024 RPO bookings goals and are well-positioned for continued success in 2025, 2026, and beyond. Looking deeper into our Q3 bookings from a vertical perspective, 80% of our deals came from retail, manufacturing, and wholesale. Our solution pipeline is at record levels and new potential customers represent about 35% of that demand. This strong demand is driven by best-of-breed cloud native solutions that provide continuous access to innovation and are helping our customers digitally transform their businesses. Our mission-critical solutions help our clients improve customer satisfaction, drive more revenue, and improve efficiency. Our global services team completed over 100 go-lives and continues to perform very well for our customers. Recently, we completed the development and shipped our Manhattan Active Supply Chain Planning solution, which is now generally available. We have seen notable interest from around the globe. Our WMS and TMS users are fascinated by our vision of combining these solutions with planning, and our clients are showing great enthusiasm about our operational capabilities. We take pride in building software that enables our customers to gain a competitive advantage in their respective markets. Our strategy is to continually innovate, and our recent capability enhancements reflect that.

Okay. Thanks, Eddie. Our Manhattan global teams continue to execute well in a challenging macro environment. For the quarter, we delivered a strong balanced financial performance across top-line growth, operating margin, and cash flows. This includes posting record results across RPO, revenue, operating income, and adjusted earnings per share. On an as-reported basis, our Q3 results came in slightly below the Rule of 50. If our revenue growth is normalized for our cloud transition, which excludes license and maintenance revenue, our results exceeded the Rule of 50. Our Q3 results included total revenue of $267 million, up 12%. Excluding license and maintenance revenue, our total revenue was up 15%. Cloud revenue totaled $86 million, up 33%. We ended the quarter with RPO of roughly $1.7 billion, up 27% compared to the prior year and up 5% sequentially. Our Q3 operating cash flow increased 6% to a solid $62 million. This resulted in 23% free cash flow margin and 38% adjusted EBITDA margin. Total deferred revenue increased 18% to $253 million. We leveraged our strong cash position and invested $50 million in share repurchases in the quarter. Our Board has approved the replenishment of our $75 million share repurchase authority. Moving to our updated 2024 guidance, we are tightening our 2024 revenue guidance and increasing our operating margin and EPS guidance. For the full year 2024, we expect total revenue of $1.039 billion to $1.041 billion, representing 12% growth. The operating margin target is increasing to 34%. This compares favorably from our prior midpoint of 32.1%. The Q4 sequential change in operating margin accounts for retail peak seasonality, and moving to 2025, we're targeting total revenue of $1.13 billion to $1.14 billion, which represents 9% to 10% growth. This includes our cloud revenue target of $415 million, representing 23% year-over-year growth. For RPO, we are targeting $2.15 billion, which represents 21% growth. In summary, our preliminary 2025 parameters include total revenue, excluding license and maintenance attrition, to increase 14%; cloud revenue to increase 23%; services revenue to increase 8%; and RPO to increase 21% while increasing our investment in innovation.

Yeah, thanks, Dennis. We're pleased with our Q3 and our year-to-date results. While we continue to be appropriately cautious regarding the volatile macro conditions, we are still confident in achieving the high end of our RPO goals for 2024. Our business fundamentals, win rates, and innovation strategies are solid, and accordingly, we're optimistic about expanding our opportunity. Thank you for joining the call, and I appreciate the great work of our global team.

Great. Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Terry Tillman with Truist Securities. Please proceed with your question.

Yeah, thanks. Hi, Eddie, Dennis, and Mike. Just two questions for me. The first question is, Eddie, I don't recall you usually in press releases giving commentary on the current quarter. So, you said off to a good start and talked about it in your prepared remarks. Could we just dig into that a little bit more? Have you actually seen some of those deals slip or have they actually closed? And the second part of that first question is, what kind of signals are you getting particularly on these bigger transformational deals that there's some budget flush in store here in Q4, and are you assuming that?

Thanks for that question, Terry. So, the good start to Q4 has been a combination of some of the deals that slipped from Q3 into Q4 closing, but also from some of the deals that we expected to close early in Q4 indeed closing. So, we feel good about where we are in that regard, hence the reiteration of the full-year RPO guidance. In terms of budget flush, we don't expect to see that frankly; the days of end-of-year budget flush seem to have disappeared because we're talking about OpEx here and a longer-term revenue stream for us.

Okay, got it. Thanks, Eddie. And I guess, Dennis, just a follow-up on your commentary for '25. On the services side, is there something to be said about some of these customers being more frugal when they sign a contract, or are they using fewer resources and just extending rollout durations? Is there some incremental conservatism you're baking in because of risk factors like the global macro, elections, etc.?

Terry, I'll take the first half of that. Dennis can clarify any conservatism, but I would tell you that we are getting more efficient. The cost of implementing our Manhattan Active Solutions is improving. We are seeing far less customization due to the richness of our solutions. Our system integrator network has also been enhanced, and we are getting more global reach across those system integrators. That's a little bit of what's happening; strong software with a positive outlook.

That's helpful. And then, on the idea of under-promising and over-delivering, is there some incremental conservatism because of factors you can't control? And are you still seeing multiyear, five-year-plus contracts?

Yeah, on the multiyear contracts, we started to see these five-year contracts becoming common because of the stickiness of our systems. That's held pretty well for five to six years now, and that trend continues.

Got it. Thanks.

Great. Thanks. Hi, everyone. I want to begin by following up on the share of bookings coming from net new—14% was the lowest it's been in some time. Is that just emblematic of the type of environment we're in? And is that true within the interest existing customers are expressing, particularly relating to migrations?

Joe, you raise a good point. This is the lowest we've seen for quite some time; however, there was nothing particularly concerning regarding that number. Our pipeline shows about 35% from new logos, and I anticipate this returning to historical norms in Q4 and beyond.

Okay, that's great. On the digital transformation projects, is that largely around WMS? Is there a multi-product scope involved?

In terms of product mix, there's a nice mix contributing to our strong start in Q4. We've secured some WMS deals, OMS deals, and a Point of Sale deal already closed for Q4. The mix remains encouraging as we move forward.

Hey, guys. Thanks for taking my question. I'm curious if there's any commonality in what's driving the delayed deals for some of these larger customers? Is it a certain end market or implementation plans?

No real commonality that I would call out, Brian. There could be a few customers wanting to wait for the election results, but overall, our win rates remain strong, and we're optimistic.

No change in demand, and our vertical diversification is stable, and we remain optimistic about our competitive advantage going forward.

Hi, this is George. I want to ask about the pace of cloud migrations you've seen. Previously you indicated about 15% had migrated over to cloud; has there been an update on this number?

We're now tracking a little less than 20%. It's a bit of a longer-term trajectory, but we're maintaining a six-year timeline for the bulk of our customers to migrate.

Has the duration of contracts on average been increasing, and has that impacted RPO?

The duration of contracts has held stable, primarily at about the five-year mark, since that's what customers perceive as beneficial given the stickiness of our systems.

Eddie, regarding the Insight offering and Spotlights, how do you plan to enhance your benchmarking capabilities over time?

Our approach is to engage in a land-and-expand strategy; as we continue to innovate and expand our total addressable market, cross-selling into our existing customer base becomes crucial.

Could you update on how you're thinking about offloading services work to partners and the receptivity for that?

Our teams have become highly efficient, reducing the need for customization. We've been enhancing our partner ecosystem and seeing growing interest from larger global systems integrators.

Thank you. Our last question will be from the line of Dylan Becker with William Blair. Please proceed with your question.

Thank you, Alicia. We appreciate everyone joining us today and look forward to reconnecting in 90 days with the Q4 results. Until then, happy holidays to everyone, although it may be a little premature. Thank you. Bye-bye.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.