Earnings Call Transcript - MANH Q2 2021

Operator, Operator

Good afternoon. My name is Ren, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates Q2 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. 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 27. I would now like to introduce Mr. Michael Bauer, Head of Investor Relations of Manhattan Associates. Sir, you may begin.

Michael Bauer, Head of Investor Relations

Thank you, Ren, and good afternoon, everyone. Welcome to Manhattan Associates' 2021 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 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 2020 and the risk factor discussion in that report, as well as any risk factor updates we provide in our subsequent Form 10-Qs. We note, in particular, that uncertainty regarding the impact of the COVID-19 pandemic on our performance could cause actual results to differ materially from our projections. We are under no obligation to update these statements. In addition, our comments include certain non-GAAP financial measures in an effort to provide additional information to investors. We have reconciled all non-GAAP measures to the related GAAP measures in accordance with SEC rules. You'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.

Eddie Capel, CEO

Thanks, Mike. And good afternoon, everybody. Thank you for joining us as we review our second quarter results and discuss our updated full year outlook. So Q2 and first half 2021 results were an all-time record for Manhattan Associates, with Q2 total revenue increasing 22% to $166 million and adjusted earnings per diluted share increasing 53% to $0.61, both of these metrics exceeded our expectations. Our global teams are very busy and continue to execute extremely well as broad revenue and performance translated into strong top line growth and also earnings leverage. Furthermore, demand continues to strengthen for our growing set of cloud solutions, resulting in record second quarter bookings, with RPO increasing 117% year-over-year and 16% sequentially to $489 million. So with momentum accelerating and forward revenue visibility improving, once again, we're increasing our 2021 guidance, including RPO. Now, as many of you are aware, our solutions are mission-critical, and we are focused on providing modern, cloud-native solutions that are architected to unify commerce and supply chain experiences. Our technology is differentiating and industry-leading. By providing scalable, versionless, and extensible solutions, our customers can adapt more quickly to changing market conditions and are better positioned to profitably scale their businesses. On the sales front, competitive win rates remain strong at about 70%. That commitment to innovation keeps Manhattan Associates at the top of our industry rankings. From a vertical perspective, retail, manufacturing, and wholesale drove more than 80% of our bookings in the quarter. If we drill in a little to the sub-verticals, they're pretty diverse, including apparel, department stores, food and beverage, industrial, as well as durable and non-durable goods. Our Manhattan Active Solution pipeline continues to grow nicely, benefiting from our market leadership position, our unparalleled technology, and global infrastructure alongside favorable market tailwinds, which are all driving strong demand for modern, adaptable, scalable, and resilient supply chain, inventory, and omnichannel solutions. We're experiencing solid demand across all our product suites. About 90% of our pipeline consists of cloud opportunities with existing customers' conversion accelerating somewhat. Additionally, net new potential customers represent about 40% of the pipeline demand. The Americas pipeline is particularly strong, but we're starting to see Europe and APAC strengthen heading into the second half as well. Our global services team executed amazingly well in Q2. They conducted over 100 go-lives. As expected, our services segment returned to growth in this quarter, increasing 18% compared with the prior year period. With strong demand for our services, we're aggressively recruiting talent globally, but like everyone, we expect the market to be extremely competitive for services and technical talent in the second half, which we have factored into our operational planning and guidance. On the innovation front, it’s still quite early in our journey to unify mission-critical commerce and supply chain systems. But that said, given our solution breadth, industry expertise, and commitment to innovation, we're uniquely positioned to successfully do so. With our R&D spend approaching $19 million annually, we have growing opportunities to innovate within white space and a large opportunity to drive penetration of our Manhattan Active Solution with new and existing customers. We're very well positioned for long-term sustainable growth. As most of you know, in late May and for the second straight year, we held our annual user conference, Momentum Connect, virtually. Like last year, we saw strong registration and attendance at the conference, which offered a mix of live sessions and a plethora of on-demand sessions as well. Also, for the second year running, we made a major product announcement, this time regarding our transportation management solution. Before we get into the details of Manhattan Active Transportation Management, a quick recap of our multi-year product strategies is probably in order. Back in 2014, we started on our mission to modernize our product lines, to ensure both Manhattan and our customers are strategically positioned for future needs. Our strategy had two key elements: relaunching our industry-leading solutions like WMS, OMS, and TMS as true cloud-native solutions and leveraging our leading-edge cloud-native platform to create solution capability and unification to a degree that was previously impossible. In 2017, we launched Manhattan Active Omni, the first of these unified cloud-native suites of solutions. Manhattan Active Omni unifies contact center management, customer engagement, point-of-sale, and store inventory and fulfillment into a single offering, allowing our customers to deliver unparalleled omnichannel customer experiences without ever needing to install additional applications or perform upgrades. In 2020, we shipped Manhattan Active Warehouse Management, the industry’s first Tier 1 cloud-native WMS. This year at Momentum Connect, we announced Manhattan Active Transportation Management with the industry's fastest and smartest multimodal transportation optimization engine. Together with Manhattan Active WM, Manhattan Active TM forms the Manhattan Active Supply Chain, the industry's first unified supply chain execution platform. We believe Manhattan Active Supply Chain is a game-changer for our customers. Over the last couple of decades, we've had a front-row seat to see the challenges and opportunities that come with integrating WMS and TMS in high-volume, high-complexity digital supply chains. Along the way, we came to realize that to solve this problem was not just better integration, but rather through a truly unified distribution and transportation solution. Fortunately, the advent of microservices and cloud-native architecture presented us with the unique opportunity to build such a unified offering. We launched it in May of this year. Solution unification delivers some obvious benefits like single-user experiences for all things supply chain execution, a dramatically simplified integration picture, and a common technology platform for our customers to extend the solution and innovate alongside us. But we believe the opportunities that a unified supply chain platform brings are much larger than that. The unification of a WMS and TMS allows us to solve an entirely new set of problems, a holistic approach to solving problems that benefits our customers in a base application. It also allows them to solve problems creatively using our entire catalog of microservices. Perhaps most importantly, it allows our customers to break down their organizational silos between distribution and transportation, and to think about optimizing inventory flow and customer deliveries because supply chain professionals effectively become customer service associates whose actions directly impact customer outcomes and brand loyalty. Manhattan Active Supply Chain comprises the newly launched Manhattan Active Transportation Management combined with Manhattan Active Warehouse Management. It has been a great first year for Manhattan Active WM. Market response for Manhattan Active WM has exceeded our expectations, and our product and delivery teams are fully engaged with a busy summer of go-lives. In hindsight, it appears that there was significant market demand for a Tier 1 cloud-native WMS. This quarter’s new Manhattan Active WM subscriptions continue to show a nice diversification of geographies and industries, along with a nice mix of net new WM logos and conversions from our existing on-premise WMS. Early reports show customers seeing significant benefits from innovations like customer-grade mobile experiences for warehouse associates, order streaming, and the first-of-a-kind employee engagement capability built directly into WMS. I will close out my product remarks today with just a few updates on the major Manhattan Active platform, Manhattan Active Omni. Last quarter, I updated you on some nice signings and a growing pipeline for our point-of-sale application. In this quarter, I'll tell you a little about what we're seeing in order management. We kicked off projects this year at a number of large, well-known global retailers to implement our core order management applications. Not only will they activate core OMS, but they'll also take advantage of the Manhattan-exclusive innovations like interactive inventory for dynamic order promising. They are also using digital self-service capabilities to allow their customers to change pick-up windows, create their own returns, and create their own exchanges, all directly on their mobile devices. We continue to push the boundaries of the problems we solve with Manhattan Active Omni and with the increasing frequency of our omnichannel microservices, which are at the center of our customers' headless commerce architectures for the future good of the industry. That concludes my brief business update. Dennis is going to provide you with an update on our financial performance and outlook. Then I'll close our prepared remarks with a brief summary before we move to Q&A.

Dennis Story, CFO

Thanks, Eddie. As Eddie mentioned, we had record Q2 and first half results in nearly every major metric category. We achieved record numbers in growth, profitability, cash flow, and balance sheet results were all solid for the quarter. Our quality of earnings performance was outstanding from top to bottom. There are no one-time adjustments in these results, just great execution. Here’s a summary of Q2 financial highlights, which includes our guidance for total revenue, operating profit, and earnings per share. You can also refer to today's earnings release for our adjusted and GAAP guidance. Unless otherwise stated, growth rates are on a year-over-year basis. Total revenue was $166 million, up 22%. Our outperformance was broad-based across all revenue lines. Like Q1, we again experienced notable strength in cloud. Based on our strong first half and second half outlook, we are raising our total revenue guidance from our previous range of $625 million to $640 million, to a new range of $643 million to $650 million. Our new range is $643 million to $650 million, targeting 10% growth at the midpoint of $646 million. Our underlying total revenue growth, excluding license and maintenance—which removes the revenue compression from our cloud transition—is targeted to be 18% at the midpoint. For Q3, we expect total revenue of $162 million to $165 million, or 9% growth at the midpoint. For adjusted EPS, it was up to $0.61, an increase of 53%, while GAAP EPS was $0.48. For adjusted EPS, we are raising full year guidance to a range of $2 to $2.06, with a midpoint of $2.03, up 23% from our previous midpoint of $1.65. For GAAP EPS, our guidance range is $1.50 to $1.56, with a midpoint of $1.53, which is up 33% from our previous midpoint of $1.15. For Q3, we expect adjusted EPS to be $0.53 to $0.55. Moving to revenue lines, cloud revenue was $29 million, up 55%. For Q3, we expect cloud revenue of roughly $30.5 million and are raising our previous full-year 2021 cloud revenue estimate of $111 million to $113 million, to $117 million to $119 million, equating to a 48% growth at the midpoint. Q2 was a record second quarter for RPO with bookings totaling $489 million, up 117% year-over-year and 16% sequentially. With RPO continuing to compound positively, our visibility into future subscription revenue continues to strengthen. As mentioned in Q1, we will update our forward-looking guidepost on our Q4 call, and we intend to guide RPO on an annual basis as bookings can be lumpy, primarily based on sales cycle timing, the number and relative value of large deals, and product mix from quarter to quarter. That said, with our strong year-to-date RPO performance, we are raising our 2021 estimate from $450 million to $550 million to a new range of $550 million to $600 million. License revenue for the quarter was $8.8 million as our base of existing customers added users in the quarter, and maintenance revenue was $38 million, up 5% on license revenue and with solid collections. As previously discussed, we expect second-half license and maintenance revenue to decline due to customer conversions to cloud, which is positive for our company, our customers, RPO, and future subscription revenue growth. We expect license revenue to decline to about $6 million in Q3 and $4.5 million in Q4. For maintenance revenue, we are targeting roughly $36 million in Q3 and $35.5 million in Q4. For perspective, in 2020, license revenue was down 22%, and maintenance was down 1%. Our 2021 forecast anticipates licensing to decline about 54% in the second half, and down 29% for the full year. No question, cloud demand is outstripping license growth. Maintenance will be down about 1% for the full year 2021, with maintenance having a longer attrition tail as customers typically maintain support through the cloud conversion cycle. Moving to services revenue, services revenue was $85 million, up 18%, driven by our cloud momentum. Our Q3 services revenue estimate is $86 million, and our estimate for Q4 is $83 million. The sequential decline for Q4 is driven by retail peak season impacts as customers typically hold off implementations. Our final revenue line, hardware, delivered $6 million in revenue, up 66%. That covers growth. As for profitability, our consolidated subscription, maintenance, and services margin for the quarter was 55.9%, up over 350 basis points compared to the previous year, predominantly driven by revenue performance and cloud operating leverage. We expect Q3 consolidated margins to be about 55.2%, and Q4 margins to be 52.7%, again driven by retail peak season, resulting in a second-half margin of approximately 54%. We are pleased with our earnings leverage and continue to invest significantly in our business to drive long-term sustainable, double-digit top-line growth balanced with top quartile operating margins. Now turning to cash, cash flow, taxes, and capital structure: another solid performance. We closed Q2 with cash on hand totaling $209 million and zero debt. Our operating cash flow was $46 million, leading to year-to-date operating cash flow of $85 million, up 41%. Our Q2 free cash flow margin was 27%, and our CapEx estimate for 2021 continues to be $6 million to $8 million. We invested $33 million in share buybacks in Q2, resulting in $60 million in buybacks year-to-date. For the third quarter and the full year, we estimate our diluted shares outstanding to be about 64.4 million shares, which assumes no buyback activity, and our board raised our buyback authority to $50 million. Regarding taxes, our adjusted effective income tax rate for Q2 was 21.7%, and our GAAP tax rate was 23%. For the full year 2021, we continue to expect an adjusted tax rate of about 21.5% and a GAAP tax rate of approximately 20%. That covers the financial update. Thank you, and back to Eddie.

Eddie Capel, CEO

Very good. Thanks, Dennis. Well, we are very pleased with our strong second quarter and year-to-date results. While the global macro environment remains somewhat turbulent, Manhattan Associates is entering the second half of 2021 with some tailwinds. We've accelerated the pace of our innovation, delivering the right solutions at the right time. As a result, we have strong business momentum and a great opportunity to deliver success to our customers and help shape their digital transformation. Before opening up for questions, I do want to take this opportunity to thank all of my Manhattan Associates teammates across the globe. Many of you have started to return to our offices, and I continue to be inspired by your flexibility, resilience, and ongoing commitment to ensure our customers are successful. Thanks again. Ren, we're now open to take questions.

Operator, Operator

Your first question comes from the line of Terry Tillman from Truist Securities. Your line is open.

Terry Tillman, Analyst

Hey gentlemen, good afternoon, and congratulations on the results and the outlook update. I have two questions. The first, Eddie, for you, in terms of now delivering on the innovation around Active WM and TM, are you seeing sales cycles where they want to buy both products at the same time, or is it more of a differentiator that's helping spur the conversations and improve close rates on just either? That's the first question.

Eddie Capel, CEO

Yes. Good question, Terry. Well, it's early. Of course, we're six weeks past the release of Manhattan Active TM, but the answer is yes, we have sold at least one new customer, so a new logo, not done business with us before, and they contracted for both Manhattan Active WM and Manhattan Active TM. So I'm feeling pretty good about that and off to a good start six weeks in.

Terry Tillman, Analyst

That's great. And then just the follow-up question, Dennis, for you and thanks for all the financial color. I'm curious if you could clarify whether the upside in your RPO, cloud subscription revenue, and how that will change kind of how the glide path or the acceleration curve is going to be that you talked about in a couple of years on cloud subscription revenue, or could it be more evened out because of what you're seeing? Thank you.

Dennis Story, CFO

It is the former versus the latter, Terry. It will change, and we'll address those updates in the Q4 call for sure. Great forward visibility.

Operator, Operator

Your next question comes from the line of Joe Vruwink from Baird. Your line is open.

Joe Vruwink, Analyst

Great. Hi everyone. I wanted to go to the comment just on existing customers, maybe choosing to migrate a little more quickly or I think you said accelerating somewhat. Is that just a function of time and comfort because we're over a year now with Active WM in the market? Is it a chance to see it, maybe some reference examples, or is there something else going on there, given the elevated importance of supply chain and maybe comfort with cloud ultimately feeds in as well?

Eddie Capel, CEO

Yes, I think you've answered the question well there, Joe. We're a year in or so, and certainly it takes a little time, not so much from a reference-ability perspective, but the budgeting cycles—even for existing customers, those sales cycles take a while. We're starting to see more of them come to fruition, but also the accelerating need for digital transformation in that core supply chain execution space. We've talked about this before: distribution centers don't look the same today as they did five or ten years ago, and the need for that modern software engine and technology to power those distribution centers is certainly fueling the growth.

Joe Vruwink, Analyst

Okay. That's great. And then just on the development of cloud and other gross margins and the upside you're starting to see, given a couple of quarters now of sequential gross margin improvement, do you think you're at the point within the context of the broader transition and the investment in cloud infrastructure and personnel that you’ve been making that should be greater leverage behind those past investments?

Eddie Capel, CEO

Yes. There is an opportunity to build on scale and leverage and so forth. We had a virtual momentum conference this year, so we had some underspend there. We still have the opportunity that we believe to invest more in marketing and awareness. We're doing okay clearly, but we need to get the message out and make sure we're not one of the world’s best-kept secrets from a technology and supply chain perspective. There is still some underspend there in our perspective, and we'll continue to make those investments, as well as material investments in research and development.

Dennis Story, CFO

Yes, Joe. I'll piggyback on Eddie too. We're in year four or five, so I'd say we're probably – when we look at where we're at, we’re probably a year ahead of what we expected, and we're pretty excited about that. The bottom line is we're going to continue to invest in technology and talent. Our overall objective is really to create long-term sustainable double-digit top line growth and be a top quartile margin performer against any tech comps out there. I think we're doing pretty good there.

Joe Vruwink, Analyst

Okay. That's great. Thank you very much.

Eddie Capel, CEO

Thank you, Joe.

Operator, Operator

Your next question comes from the line of Brian Peterson from Raymond James. Your line is open.

Brian Peterson, Analyst

Thanks, gentlemen. Congrats on a really strong RPO number. Dennis, maybe a follow-up on that last question. I've noticed that we’ve seen the initial outlook from the last few years imply a decline in operating margins, but now we're seeing the expansion in 2020, and we will see margins up again this year. Are we at the point where we can characterize this as a trough in operating margins or is there any dynamic related to hiring or investments that we need to keep in mind?

Dennis Story, CFO

We're not going to call a trough at this stage. We'll evaluate that and discuss that in the Q4 earnings call, Brian. We are going to continue to invest in the business, but suffice it to say we're pretty confident in our ability to generate operating leverage.

Brian Peterson, Analyst

Got it. And maybe just one follow-up for me on the RPO, that was pretty strong again this quarter. If you had to look back in the first half of the year and clearly RPO exceeded our expectations—was the upside more related to volume, sales cycles, or deal value in any way that you can slice and dice?

Eddie Capel, CEO

That's pretty balanced, Brian, actually. We've seen nice deal volume. We've seen some bigger deals, not much, but a little bit on the longer contract side. It's a balanced driving that RPO number, frankly.

Dennis Story, CFO

Yes. We're seeing a nice balance of not just our install base but net new customers in our portfolio as well. Pretty exciting.

Brian Peterson, Analyst

Good to hear. Thanks guys.

Eddie Capel, CEO

Thank you, Brian.

Operator, Operator

Your next question comes from the line of Mark Schappel from Benchmark. Your line is open.

Mark Schappel, Analyst

Hi, good afternoon. Thank you for taking my question. Let me start off by saying congratulations. Nice job on the quarter. Just want to dive into some of the drivers of growth in the quarter. Were there particular product areas that you saw certain outperformance more so than others? It appears from your commentary that WMS led the way; is that a good read?

Eddie Capel, CEO

Certainly, WMS was the preponderance and the heritage product; it tends to be the lead product. But much like Q1, there was a very nice balance across the product portfolio. WMS was strong for sure, and it was the lead dog, but MAO really stepped up in Q2 and delivered some nice numbers, and TMS, point-of-sale, and inventory participated as well. So pretty nice balance, frankly.

Dennis Story, CFO

Yes. The pipeline continues to strengthen as well.

Eddie Capel, CEO

Yes, similar balance in pipeline.

Mark Schappel, Analyst

Okay, great. And then just on the point-of-sale product that you have: on the Q1 call, you were seeing a pickup in some large point-of-sale projects, the sense was that retailers were restarting some of those strategic initiatives. I just want to confirm that momentum carried over into the second quarter here.

Dennis Story, CFO

Yes, continues to have nice momentum. The good news is that some of these implementation timelines are getting shorter and shorter. We’ve had three point-of-sale customers go live just in the last half of this quarter. The nice thing about the point-of-sale pipeline for us is that about 50% of the pipeline are brand new customers that we’ve never done business with before. So as we’ve said many times, not going to be an overnight success, but we really do feel like the flywheel is starting to pick up some momentum.

Mark Schappel, Analyst

Okay. Very good. And then finally here, just stepping back, taking like a 30,000-foot view: based on the overperformance, it appears you’re seeing a heightened urgency from your customers regarding modernizing their supply chains? Could you address how customers are thinking differently about supply chain modernization today than they were a year or two ago?

Dennis Story, CFO

Yes. I think a combination of needing—or recognizing that they need—resilience in the supply chain and the need for contingency. Frankly, it’s a very competitive world out there. Supply chain these days is a customer service attribute. Each one of the supply chain associates and our customers feel like their customer service advocates. I think the need continues to grow. The need continues to heighten to bring supply chain to the forefront and be a competitive differentiator for our customers.

Mark Schappel, Analyst

Great. Thank you. Nice job.

Eddie Capel, CEO

Thanks, Mark.

Operator, Operator

Your next question comes from the line of Yun Kim from Loop Capital Markets. Your line is open.

Yun Kim, Analyst

Thank you. Congrats on another strong quarter, Eddie and Dennis. Eddie, you mentioned that TM was rolled out, I believe that’s the last of the high-profile products to be activated into the active product family. What are your thoughts on what's next? Maybe this is a good time to update us on your acquisition strategy.

Eddie Capel, CEO

Yes, there's still plenty of work to do in the supply chain space. We have a much longer list of innovations in the hopper than we can get through in the next quarter or two. We're continuing to bear down on the investment strategy to build out the innovation in the white space we see. I think there are a couple of areas. In addition to the constant build-out driven by changing markets that lead to new needs in omni solutions, WMS, and TMS, two categories are popping out: one is greater levels of customer engagement, all the work in digital self-service, the developments in consumer-grade CRM is a vibrant market in it's white space for us. The second piece is inventory optimization. I'm not saying that our customers or the market is not focused on inventory optimization, but there is a race to drive customer satisfaction and meet SLAs. We believe that focus is coming, and we're investing out ahead of that trend.

Yun Kim, Analyst

Okay, great. Thanks. And Dennis, we used to get a metric on the number of deals above $1 million. How should we think about a similar metric for large subscription deals? Should we look at it from the RPO perspective?

Dennis Story, CFO

Yes. From an RPO point of view, it can be lumpy from quarter to quarter, but that’s what I would judge our performance by is really the RPO, overall RPO growth from quarter to quarter and the guidance we are giving.

Yun Kim, Analyst

Got you. Any meaningful change in the overall contract length that may have had a meaningful impact on the RPO?

Dennis Story, CFO

No.

Eddie Capel, CEO

No, not at all.

Yun Kim, Analyst

Alright. Sounds good. Thank you very much.

Eddie Capel, CEO

Thank you, Yun.

Operator, Operator

Your next question comes from the line of Matt Pfau from William Blair. Your line is open.

Matt Pfau, Analyst

Hey, guys. Thanks for taking my questions. Eddie, I think in your prepared remarks you mentioned that you're seeing existing customers accelerate their conversion to the cloud. Could you expand on those comments a bit in terms of what's driving that?

Eddie Capel, CEO

I think it's timing for the most part, Matt. We’re about a year from release, upgrade cycles, budgeting for upgrade cycles, and so forth take some time. So I think that’s one factor. Also, the continuing need to modernize the distribution center and get immediate access to the innovations we’re developing.

Dennis Story, CFO

The other factor, just jumping in here, is the broader suite of solutions. We’ve been delivering new innovations for the last four years, and the pipeline build has diversified across solutions.

Matt Pfau, Analyst

Got it. And from a geographic perspective, I think you called out that the Americas are strong in the pipeline, but also seeing some improvement in EMEA and APAC. Is that just driven by America reopening quicker than some of those other geographies?

Eddie Capel, CEO

Yes, I think that’s it, Matt. Even within APAC and EMEA returning, you can see sort of the micro trends. Certain countries are lagging from a perspective of opening. So, yes, it’s a little bit of timing there before we see the same modernization trends blossom in those areas. But we can certainly see it; I think it’s on the doorstep.

Matt Pfau, Analyst

Okay. Great, guys. That’s all I have. Thanks a lot.

Eddie Capel, CEO

Thank you, Matt.

Operator, Operator

Your next question comes from the line of Mark Zgutowicz from Rosenblatt Securities. Your line is open.

Mark Zgutowicz, Analyst

Thank you. Good evening, guys.

Eddie Capel, CEO

Hi, Mark.

Dennis Story, CFO

Hi, Mark.

Mark Zgutowicz, Analyst

Just a quick follow-up to the earlier question on the RPO strength. Obviously, it has blown through expectations from just the first couple of quarters. How much of your original guidance had or how much macro conservatism was built-in? How does that compare to the second half of the year now relative to the incremental strength you're seeing?

Eddie Capel, CEO

Yes. There was some question coming into the year; we were a little cautious about how things were going to shape up, but now we’re seeing demand, bookings, and pipeline grow. We're feeling stronger about it; hence all the raises across the board. We certainly try to be an under-promise over-deliver organization, so we’d like to keep that trend going. The raises we provided indicate we’re not holding back; we're feeling more confident.

Mark Zgutowicz, Analyst

Got it. Just for my last question on Europe: you mentioned strength there. Can you quantify that strength, or is it too early to tell how strong Europe will come back? Any color as you assess Europe for the next six to twelve months?

Eddie Capel, CEO

Yes. It’s been a little flatter relative to the U.S. over the last two or three quarters. We see it returning to normality, if you want to frame it that way. Typically, we’ve seen Europe represent somewhere between 12% and 15% in software revenue, and it's been a little lower—not materially, but a little bit lower for the last couple of three quarters. We see it coming back to normal ranges here in the near future.

Mark Zgutowicz, Analyst

Got it. Awesome. Thanks, guys.

Eddie Capel, CEO

Pleasure, Mark. Thank you.

Operator, Operator

Ladies and gentlemen, this concludes Manhattan Associates’ Q2 2021 earnings call. Thank you for participating. You may now disconnect.