Q4 2020 Manhattan Associates Inc Earnings Call

February 2, 2021

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Ladies and gentlemen, todays conference is scheduled to begin shortly please from do you need for standby. Thank you for your patience.

Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.

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And.

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Good afternoon. My name is for me and I will be your conference facilitator today.

At this time I would like to welcome everyone to the Q4, 'twenty and 'twenty 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 period.

If you would like to ask a question. During this time simply press Star then the number one and your telephone keypad.

If you would like to withdraw your question press the pound key.

A reminder, ladies and gentlemen, this call is being recorded today February two 2021.

I would now like to introduce Eddie Capel CEO, Dennis story, CFO and Michael Bauer Senior director of Investor Relations. Mr. Barry give me begin your conference.

And good afternoon, everyone welcome to Manhattan Associates, 2024th quarter earnings call.

And we'll review our cautionary language and then turn the call over to Eddie Capel CEO. During this call, including the question and answer session. We may make forward looking statements regarding future events for 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 and our projections, particularly on our annual report on form 10-K, K for fiscal year 2000 and.

19, and the risk factor discussion in that report as well as any risk factor updates, we provide and our subsequent form 10 Qs.

And note in particular that uncertainty regarding the impact of COVID-19, pandemic and outperformance could cause actual results to differ materially from our projections.

And no obligation to update these statements and addition, our comments include certain non-GAAP financial measures and an effort to provide additional information to investors. We have reconciled all non-GAAP measures and a related GAAP measures in accordance with SEC rules, you'll find reconciliation schedules and the form 8-K, we submitted to the SEC earlier.

For today and on our website at N and M. A N H dot com.

Now I'll turn the call over to Eddie.

Great. Thanks, Mike.

And good afternoon, everybody and thank you for joining us as we review our fourth quarter 2020 results and discuss our outlook and guidance for 2021.

Also given our journey towards being a cloud first company and the long term nature of our new SaaS contracts and the visibility and momentum that we're seeing we thought it might be helpful to provide you with our initial thinking around a three year trajectory of that business in terms of our P O cloud revenue and adjusted Op.

<unk> margin high through 2023, so we'll cover that a bit later.

But for the quarter Manhattan reported Q4 revenue of $147 million and adjusted earnings per diluted share of <unk> 45.

Both of which exceeded our expectations.

Broad revenue outperformance across our business lines combined with a continued focus on expense management once again drove earnings leverage for the quarter.

Fortunately for Manhattan, our business is entering 2021, with accelerating and velocity and growing opportunities.

And at 'twenty, and 'twenty was a very successful year for Manhattan Associates.

I believe the best year ever in the midst of and ongoing gone going global pandemic.

Beyond the numbers 2020 was a benchmark year of resolve performance and growth for our employees and our customers with.

We strengthened debt.

Company significantly in 2020, and a substantially improved and market leadership position.

In May we launched our cloud native Manhattan active warehouse management solution.

Which we believe is the most significant advancement and WNS technology and over a decade.

And the market reaction to this new product has been equally impressive with already a double digit number of deals closed to date and our pipeline is growth.

We saw and signed the largest Manhattan active warehouse management deal to date and the <unk>.

Susie is and from both new and existing customers for Manhattan active Wm is certainly surpassing our original expectations.

And no time, and our company's history is that product strategy being and complete synergistic alignment with customer and market demand across our full suite of cloud solutions, we're seeing solid growth solid and growing demand.

Pipeline and bookings are at record levels with about 90% of the pipe consisting of cloud opportunities.

Net new potential customers, representing almost 40% of the demand.

We enter 2021 with increasing momentum and greater visibility.

Because of the growing.

Market need for modern adaptable supply chain inventory and omni channel products and that collection of cloud native solutions positions us well a unified platform is industry, leading and provides our customers with the ability to efficiently adapt to changes and consumer behavior.

While simultaneously, helping elevate the entire consumer experience.

Simply put.

<unk> to investing and market, leading innovation and focus on customer success strategically positions us for long term sustainable growth.

Demand for our supply chain and omni channel products and services has been pretty solid and.

For the near term timing of and continued pace of economic recovery remains somewhat unclear recent signs have been encouraging.

And as such we are raising the 2021 full year total revenue and adjusted EPS guidance that we provided on our Q3 call and.

Furthermore, our dedication to innovation remains we expect to invest nearly $90 million and research and development. This year, even with a potentially choppy macro backdrop drop.

And as I mentioned earlier without business visibility strengthening later in the call Dennis who will provide details of how we see at three year trajectory.

And we'll provide you with guidance for 2021, and guideposts with much broader ranges for 'twenty, two and 2023 and.

And this will provide insights into how we see our Po cloud revenue and adjusted operating margins shaping up for the next three years.

And with our appeal as a leading indicator of cloud revenue performance. Our objective is to exit 2023, with roughly $1 billion and remaining performance obligation representing a three year CAGR of about 45%.

And on the sales front competitive win rates remained strong and about 70%.

Our innovation is being recognized as the best and the industry and Q4 and about 20% of our license and cloud deals closed were from new customers.

From a vertical perspective retail consumer goods food and beverage and grocery drove more than 50 percentage of our cloud and license revenue and the quarter.

Now regarding services, we conducted over 100 go lives and the quarter and anticipate a return to service revenue growth in 2021.

While the rate of this services growth will be influenced by the broader economic recovery demand for our expertise remains high and we are aggressively hiring talent to meet the forecasted demand and more broadly we expect to hire two to 300, New associates companywide in 2021 include.

R&D cloud ops sales and marketing.

And the Academy and provide you are just a few specifics on some of that product innovation.

First I'd like to start by providing a quick update on the biggest product launches and Manhattan's history Manhattan active warehouse management as you recall, we announced Manhattan active Wm and Q2, and our virtual annual user conference and since then we've seen strong market interest and adoption frankly surpass.

And even our own ambitious goals.

While the customer and customer mix and is undoubtedly been affected by the global pandemic I'm happy to report that we are seeing broad demand across many industries and for parts of the globe and in fact, we now have customers spanning 10 different industries and eight different countries. They are all currently implementing <unk>.

Latin and active Wm and with.

A very busy and aggressive go live schedule lined up for 2021 as selling and implementation teams are at full strength across the geographies that drive the majority of our revenue and were seeing a nice pipeline for Manhattan active Wm too as we head into 2021.

And in addition to our healthy balance, we're seeing across geographies and industries.

And active Wm implementations and strike a nice balance between existing customers and entirely new net new.

And of our Manhattan active Wm projects in flight right now we're seeing about a 50 50 split between those two categories.

And as you recall one of the key benefits of Manhattan active Wm is it is that it's completely version list is updated and the background for our customers with zero downtime and.

And we provide them with new feature functions every single quarter and for.

Since we announced this new solution and May we've already added a host of new innovative capabilities and the past couple of quarterly releases.

Now turning to transportation management, we closed at 2020 with some great wins and further progress on our goal of evolving Tms at Manhattan Associates.

You'll see us from being a great domestic business for us being a truly global business and to that and we now have a live customer in Europe successfully using Tms and have additional projects and flight in that region. When we continue to see the pipeline build and a number of countries across EMEA and we are building capacity.

To support this project and expectations of the closing in 2021 and.

That cloud Tms solution continues to compete very effectively both home and abroad.

Alright.

Close Mike product updates this afternoon with and Manhattan active omni solution suite, we've just completed taking our customers through the third retail peak season on Manhattan active omni and as you would guess, we processed and all time record high number of orders and shipments and payments and the ongoing channel shift from brick and <unk>.

And more to the digital commerce continues to benefit our omni channel business and as we help more customers successfully capture and deliver on that direct to consumer orders and.

For a particular note. This year was the strength the surge in store related digital activity almost all of our Manhattan active omni customers use that technology to power a pretty vibrant ship from store program, but now we're seeing and increasing increasing number of those customers actually prefer to ship from net stores.

And actually up 300% over 2009 retail peak and this is in order to speed up customer delivery and manage the parcel network constraints much more effectively.

And as you might imagine in store pickup programs continue to accelerate at a rapid rate with activity, both and curbside and traditional store pickup.

But the in store pickup and curbside delivery programs clearly here to stay and we continue to leverage our advanced version of technology to provide these kinds of innovative solutions to our customers.

Very rapid rate.

On a related note by the way one of the byproducts of the booming digital businesses. Unfortunately, very often booming volumes of returns and all of that customers grapple with this so called reverse logistics problems.

Fortunately Manhattan offers technology to optimize that full lifecycle with investing class capabilities and the contact center digital self service for the end consumer and purpose design capabilities for the distribution center for processing, the physical goods and while the volume of returns and many ways.

Is inevitable.

<unk> customer experience isn't always the same.

So delivering that great experience for returns and exchanges at high volume really does take a fully integrated order management system.

And <unk> to effectively process those returns.

So that concludes my business update Dennis is going to provide you with an update on our financial performance and discuss our outlook and then I'll close our prepared remarks with a brief summary, before moving into Q&A. So Dennis.

Thanks, Eddie everyone's strap on your.

Spenders.

Lot of information to cover here.

So as Eddie mentioned fourth quarter total revenue was $147 million down 4% over the prior year exceeding our guidance.

Full year 2020, total revenue of $586 million was down 5% compared to 2019 as you know solely due to COVID-19.

Q4 adjusted earnings per share was <unk> 45 GAAP.

GAAP earnings per share was 32 with stock based compensation accounting for the difference between adjusted and GAAP EPS.

Cloud revenue for the quarter was $23 million up 9% sequentially and 46% over prior year.

For full year 2020, cloud revenue increased 70% to $80 million.

For the first quarter 2001, we estimate cloud revenue to be approximately $24 million up 39% over 2020.

For full year 2021, we estimate cloud revenue to be and the range of $108 million to $110 million.

Growing at about 36, 5% at the midpoint and accounting for approximately 85% of total software revenue up.

Up from less than 50% and 2019.

Starting with Q2, we expect cloud revenue to grow roughly at $2 million sequentially per quarter for the balance of 2021.

Remaining performance obligation or RP O for the quarter totaled $309 million up 20% sequentially.

And 80% over prior year.

Recall RPI <unk> is the leading proxy for our cloud revenue performance and represents the value of contractual obligations required to be performed.

Otherwise referred to as unearned revenue or bookings.

For Manhattan. This disclosed value represents our cloud bookings value of unearned revenue under noncancelable contracts greater than one year.

Contracts with a noncancelable term of one year or less are excluded for.

The reported amount.

As Eddie previously highlighted demand and pipeline growth for our cloud solutions continue to be strong from both new and existing customers.

Reflective of the strength, we anticipate 2021 RP O.

To be and the range of $450 million to $550 million up from our prior estimate of $385 million to $390 million.

Representing growth of approximately 60% at the $500 million midpoint.

One important point on flow through from RPI to cloud revenue as.

As previously stated as you know our performance continues to depend on the number and relative value of large deals we closed and any quarter. Furthermore, some customers have longer implementation cycles associated with large projects, requiring a multi year annual subscription ramp built into the contract term.

For example, the.

For the record Manhattan active warehouse management deal closed and the quarter, we will have much higher levels of contracted and recognize revenue and the out years of the contract compared to year one.

These revenue ramps are common for larger cloud deals and with larger opportunities, becoming more prevalent and our pipeline. We expect <unk> growth to accelerate first followed by gradual steepening ramp and cloud revenue growth, providing us with very good visibility into future subscription revenue.

Net.

Regarding license revenue Q4 was roughly $10 million.

Overall for 2020 license totaled $38 million and was down 22% over prior year as our full suite of cloud solutions have come online.

We expect license attrition to accelerate in 2021 with license revenue declining about 50% for $18 million over 2020.

For full year 2021, we estimate license revenue to be in the range of $18 million to $22 million averaging.

About $5 million per quarter.

And as the yard marker for cloud demand license will be about 3% of total revenue exiting 2021.

Shifting to maintenance revenue for the quarter totaled $39 million up 2% versus the prior year on strong cash collections.

For the full year maintenance revenue declined 1% to $148 million the.

And primarily reflects demand from our WNS installed base converting to cloud subscription and lower license revenue, which we expect this trend to continue in 2021 and beyond.

Our full year 2021 maintenance revenue forecast is $138 million to $142 million, representing an $8 million or five 5% decline.

For Q1, and all subsequent quarters, we estimate maintenance revenue to be approximately $35 million per quarter.

Turning to services and line with our expectations and professional services revenue for the quarter totaled $71 million down 18% year over year, excluding build travel services were down approximately 14%.

As discussed on our Q3 call. We expect our services segment to return to growth and 2021 and build from our Q1 results.

As a reminder, Q1 2020 was a record comp quarter with subsequent quarter run rates dramatically impacted by the pandemic.

So for the first quarter.

We are targeting services revenue and the $74 million to $76 million range down 14% over prior year, but up 4% to 7% sequentially over Q4 2020.

On a year over year basis, we estimate Q2 revenue growth of about 14%.

Q3 about 17% to 18% and.

And 15% to 16% and Q4.

For 2021 for you.

And are targeting a services revenue range of $315 million to $336 million.

Representing 7% midpoint growth dictated by the pace and cadence of economic recovery.

Our consolidated subscription maintenance and services margin for the quarter was 52, 7%.

The better than expected result was driven by revenue performance and cloud operating leverage.

We expect Q1, 2021 subscription maintenance and services margin to be approximately 52% and full year 2021 to be 51, 3%.

And with historical seasonality, we expect first half to be approximately 51, 2% and second half margin slightly higher at 51, 5% with Q4 at 52% accounting for retail peak seasonality.

Now turning to operating income and margin Q.

Q4, adjusted operating income totaled $38 million equating to an adjusted operating margin of 25, 6%.

The better than expected result was driven by broad revenue outperformance combined with continued expense management.

For Q1 2021, we are estimating adjusted operating income of $26 million to $28 million and and operating margin range of $18 eight to 19, 2% with a 19% midpoint is precision bombing right. There for full year 2021, we are.

Estimating and operating income range of $122 million to $134 million that's.

And that's full year.

And with a midpoint of $128 million and and operating margin range of 25 to 21, 5% with a 21% midpoint.

For primary drivers for our investment and our operating margin number one hiring to meet growth demand number two cloud driven decline and license and maintenance revenue number three the reversal of prior cost actions taken in 2020 due to COVID-19.

And number for continued strategic investments and innovation and cloud transition.

As we continue to grow and scale the business, we are confident and our ability to make strong progress on achieving the rule of 40 over time.

Moving on to income taxes, our Q4 adjusted effective income tax rate was 22% with our full year rate at 23, 1%. We expect our Q1 and full year 2021, adjusted effective tax rate to be approximately 23%.

We expect our GAAP tax rate to be approximately 21, 5% for the full year.

And 7% and Q1 due to tax benefits on stock vesting.

Regarding our capital structure.

In January our board of directors lifted the suspension of our share repurchase program and authorized the repurchase of up to $50 million.

For 2021, we are estimating 65.0 million diluted shares outstanding was $64 5 million diluted shares for Q1, which does not assume any share repos.

Turning to cash.

We closed the quarter with cash and investments of $205 million and zero debt.

Our current deferred revenue balance totaled $114 million Q.

Q4 cash flow from operations totaled $38 million up 10% over 2020.

And full year operating cash flow totaled $141 million down just 4% over 2020.

And finally full year capital expenditures totaled $3 million and for 2000, and Tony One we estimate capex investment to be and the range of about $6 million to $10 million.

That covers 2020 now I will provide full year 2021 guidance.

And 2022 2023, Guidepost, then we will turn it back to Eddie for his closing remarks.

Let's go Big picture.

Manhattan's cloud transition is now entering its fourth year, we continue to accelerate investments and innovation with customer demand validating our strategy.

Our cloud solutions are impacting all of our major revenue lines, that's cloud license maintenance and services now driving 50 plus percent of our overall total revenue and growing.

The underlying fundamentals of our total revenue model is shifting dramatically 2021 will be another record year for cloud revenue and RP O.

Driving approximately 85% of total software revenue, while fueling services pipeline and revenue growth.

And 2021, we will absorb a $27 million drag on total revenue masking our growth by five percentage points as license of trips in favor of cloud and maintenance revenue declines as install base customers convert to our cloud solutions.

Our total revenue yard markers for success, our cloud revenue <unk> bookings and services revenue our guidance calls for 4% total revenue growth.

To best gauge overall underlying revenue growth of our company, we compare total revenue ex license and maintenance.

Which we expect to be 10% to 15%.

Growth in 2021 with a midpoint of 12, 5% by comparison in 2020 was down 5% over 2019.

Now for guidance.

For total revenue, we expect a range of $595 to $625 million.

First half second half total revenue splits or 48% first half 52% second half.

For Q1, 2021, we estimate our total revenue range to be 141% to $146 million with a midpoint of $143 million.

For operating profit and margin as previously highlighted we are estimating and operating income range of $122 million to $134 million with a midpoint of $128 million and and operating margin range of 25% to 21, 5% with a 21% mid.

<unk>.

For earnings per share our adjusted EPS target is $1 44 to $1 59 per share with a 47%, 53% first half second half split.

Our GAAP EPS range is estimated to be 96 to $1 11.

For Q1.

Our adjusted EPS estimate is 31 to 33 and GAAP EPS range is 25% to 27.

That covers our 2000 and 'twenty one guidance. So lastly, I'll summarize our 2022 and 2023 guidepost that should better assist investors assessment of our future cloud growth and earnings trajectory.

So entering 2021 visibility into the business is strengthening and benefiting from over three years of data and our cloud transition coupled with the revenue ramp deals becoming more common.

As such we are providing 2022 and 2023 directional guideposts for RPM cloud revenue and adjusted operating margin.

And with revenue ramp deals, becoming more prevalent we expect RP O to accelerate followed by gradual steepening ramp and cloud revenue as such you will see 2022, RPI RPI growth exceed cloud revenue growth.

And 2023, we expect expect cloud revenue growth to outpace RP O as.

As we benefit from our subscription and revenue ramp.

Regarding adjusted operating margin, we are forecasting, adding a 100 basis points annually from 2021 for 23.

With the objective of driving long term sustainable double digit topline growth and top quartile operating margins.

So here are the metrics.

For 2022, we are targeting RP O of 625% to $775 million with a $700 million midpoint equaling 40% growth over 2021.

Cloud revenue of $135 million to $150 million with $143 million midpoint, equaling 31% growth.

And adjusted operating margin of about 22% at the midpoint.

For 2023, we are targeting RP O of $850 million to $1 1 billion with a $950 million midpoint equaling 36% growth over 2022.

Cloud revenue of 190 million to $215 million with a $203 million midpoint equaling 42% growth.

And adjusted operating margin of about 23%.

At the midpoint.

We will update 2022 and 2023 annually.

And as Eddie mentioned, we are targeting RP O to approach $1 billion by the end of 2023 equating to a three year <unk> of $40 to 50%.

Our three year cloud revenue CAGR estimate is 34% to 39%, reflecting the impact of ramp deals and Rps.

And so that covers the financial update thank you very much and back to Eddie for some closing comments terrific. Thanks, Dennis but look we're pleased with our 2020 performance and we're committed to driving operation and operational and financial results as we progress toward our three year financial targets and as we do so we're continuing.

To innovate and advance of market demand, leveraging our technical and domain expertise in order to provide our customers solutions that position them for success and a dynamic and rapidly changing world with the convergence of <unk> strategy and the customer demand and tightening we see no shortage of opportunities to expand our addressable market.

While further strengthening our competitive positioning.

And to wrap up.

I want to thank all of our employees globally.

Your relentless dedication and commitment to our customers' ongoing success.

It's inspirational and it's a key differentiator and driving long term sustainable growth for our company and for <unk> shareholders, and your resourcefulness and perseverance and the face of a worldwide pandemic.

This resulted in what I believe to be our best year ever.

So thank you and May we know.

And now ready to take any questions.

As a reminder to ask a question you will need to cash with Barb one on your telephone.

Draw your question and pass it down.

Ladies and from Y welcome cloud the Q&A roster.

Your first question comes from the line of Gary Coleman.

And Trust Securities. Your line is open.

Yes, Hey, gentlemen, thanks for taking my questions first can you hear me Okay. Yes, we can Terry thank you.

Okay, I've got a preamble here so not nice to hear you, Eddie and Dennis and welcome aboard and Mike.

We do get the suspenders on and thanks for the precision guidance there Dennis.

Two questions. The first one is a two part question for you Eddie.

The idea of active omni and kind of the multiyear cycle and bringing all the innovation together.

Curious how the conversations are going with these tier one companies.

Can you talk about like a platform now are the conversations more elevated is it C level discussions and just kind of how this plays out and now being able to kind of tie. All this together you W. Master Tms et cetera are the conversations changing and then <unk>.

And part of that question.

Yes, I would say the answer to that is definitely yes Terry.

At the end of the day I do feel like the.

Lot of the elevated conversations come from the fact that.

A sizable portion of our suite. These days is driving revenue for our customers.

And the W mass and the Tms, obviously, great facilitators and.

Imperative parts of the supply chain network and business operations.

At the end of the day they are cost savers, they are cost savers.

And but when you cross the bridge and start talking a bag omni channel solutions point of sales solutions storage solutions to really drive revenue growth that's really win.

Compensation and begin to elevate even higher into the into the CEO office.

Yes, and the second part of the question is we heard some aspirational goals of a pretty dramatic.

Growth and the RP overtime and over $1 billion I mean, how do you feel though right now how do you balance the sales capacity and where you are now what's your capacity and what you need to get to to be able to make good on a $1 billion plus <unk> and then I had a follow up for Dennis Yes, we feel great really terrific about the sales capacity.

We're very well aligned to be able to meet those those growth rates.

We are continuing to selectively hire the best of the best and <unk>.

The supply chain, the supply chain market and so forth but.

And that is.

No.

And as sales capacity, we will certainly not be an inhibitor to the growth trajectory that we laid we laid out a very confident about that.

Okay and Dennis so that's.

Thats why you took your guidance for the RPI ending balance at the end of 'twenty, one for 85 to $3 90 up to $4 50 to $5 50.

That's right what I'm curious about is.

Yeah, well first that's a large range and I guess that you want to have some cushion there kind of upside downside case and base case, but how do we think about the progression of Rps for the year I don't want to Miss model Thats kind of each quarter because it is such an important metric now we're focused on so how do I think about it progressing through the year. Thank you and nice job on the quarter.

Yes.

The yard marker is going to be the full year target Terry at $4 50 to the.

$550 million each quarter, we're going to give them.

And art update so youll be able to see that progression, but suffice to say we are targeting.

Strong growth rate at about 60% at the midpoint.

Terry I think he jumped awesome.

Great and for the next question Nate.

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

Great Hi, everyone I wanted to.

Two.

Hey, Tom.

Wanted to start on and just thinking of IPO over the next couple of years and Eddie.

Eddie and Dennis you both throughout a couple of things.

Just having more time and this transition so a better understanding.

Familiarity with ramp structures and how that's going to play out and then just see ang.

Eddie you said better than I expected interest and demand for the new active warehouse management product are.

And any of those individual areas driving this RPI and number out in 2023, it to a higher level than you would have thrown out as we were kind of having this discussion.

I don't know three or six months ago I'm, just trying to gauge how much is maybe new to reflect the new kind of imperative around supply chain as a category versus your new product versus.

And you just have a little more experience under your belt.

I think it's all of those three things and certainly the.

The visibility that we have now.

Selling the full suite of solutions the enthusiasm that we've seen for Manhattan active Wm and no question and I think over the last three quarters at least there has been some reticence on our part to do too much predicting of the future.

Pink along with.

Everybody else on the planet.

Optimistically see some light on the horizon in terms of.

The situation that we have with the pandemic and the economic recovery. So.

I feel a little more comfortable talking about our future trajectory.

And and then just on employing these these.

Ramps structures, obviously, we understand kind of day at the ramification for.

2021 revenue growth, but looking at RPM is the better indicator I'm just wondering.

And are the ramps.

I guess, I'm Mack and his where youre starting to see whether it's new accounts or existing accounts and <unk>.

Gauge with Manhattan and across a bigger total contract value opportunity and so you mentioned the fact that you have this unified platform now our ramps and mechanism, where you are truly getting the full buy and across omni inventory warehouse management.

And so there is maybe a near term revenue ramifications, but otherwise these are much bigger scopes and engagements that Manhattan and traditionally would've secured.

No not really Joe.

There's still a huge amount of opportunity for upsell and cross sell across the suite of solutions.

And the ramp.

We've seen the let's say ramp accelerates and mature for us the right term, but does seem to ramp phenomenon increase as we've introduced.

And where Manhattan active Wm.

Because it by by nature is.

Distributed.

We service tier one as you know many many of our customers have 510, even 20 distribution centers across the planet and it.

It takes time to roll out all of those and 10 20 or 50 distribution centers and so that's why in this particular Wm space, you see a little bit more of and Ah and acute if that's the right word acute ramp philosophy.

And and maybe just as a follow up so it's more a question and then on the multi products.

Bookings activity are you.

Leaving the ramp structure side are you starting to see more customer interest and truly unify and therefore supply chain execution, and and then I'll turn it back over and thank you.

I think we see interest, but Joe and all reality, we've been and the market for six months with Manhattan active Wm. So it would be wrong of me to say that we're starting to see that really be.

Very popular phenomenon, obviously, it's our strategy, but we're about six months in there certainly is interest as customers.

Acquire either Manhattan, active wm and out and active omni and certainly they've got the future and mind, but we're not yet seeing those larger.

Multi product deals that you that you speak of.

Okay, great. Thank you very much.

Sure thing.

Your next question comes from the line of Ian Kim of Loop capital markets. Your line is open.

Okay.

And <unk> growth came in very strong again Eddie.

And as and Mike how much debt was driven by.

Active omni versus active W and.

And could you remind us.

What's the appeal of mixes between the two products and.

Where do you expect that mix to be in 2023 since we are talking about 2023 and this call and.

And then as you don't have to be precisely estimate a ballpark number should be good.

Yeah.

It's a great question interesting one but at this particular juncture, we're not breaking out <unk> by product line.

So really cant give you any guidance there.

Can you just give us qualitatively.

What's really driving sales growth.

This past quarter and you did.

I am assuming the sequential growth is coming from the WNS deal right.

Yes, I would say you know active WAM is it's a mix.

It probably was a subtle comment but now we have the full suite of solutions and the markets.

Omni was a little more challenged as you can imagine and 2020.

But we're seeing nice pick up there and the pipeline.

<unk> strong as well, we're seeing solid pipeline with Tms.

It's the pipeline has got good diversity to it.

Okay, Great and then.

Eddie can you just revisit your acquisition strategy, obviously, you guys had to ask and Wm adoption and gaining momentum.

A lot of visibility given by the ramped deals and Youre just laid out a three year plan how should we think about your acquisition acquisition strategy going forward. Since obviously, it's much easier to cross sell additional modules and products on the pilot.

Same acquisition strategy.

We've had huge that frankly is not born borne fruit for us.

The number one use of our capital is to drive intrinsic innovation.

And for Us.

That is represented by research and research and development.

We certainly are very interested in and.

And acquisitions, but we've got a reasonably high bar right and they've got to be.

<unk>.

GAAP fillers for us and <unk>.

Really be able to give us the ability to be able to expand that reach and our current strategy really drives us into what is.

<unk> white space Okay.

Solutions that we're developing don't really exist out there. So it's very hard for us to invoke and acquisition.

And strategy of that time and again, we are we are very interested and the right and the right opportunities, but and the absence of a.

Acquisition opportunities as the board has authorized share in January.

We will we will reinstitute a.

And as share buyback program.

Okay, great. Thank you so much guidance.

Leisure you and thank you.

Your next question comes from the line of.

Mark.

Blake of Rosenblatt Securities. Your line is open.

Thank you.

Happy new year, Eddie and Dennis.

Two quick ones.

For both of you.

I'm curious, if you've had or seen.

Any prospect.

Prospect conversations within the Omni channel Pos segment, perhaps accelerate now that we sort of exited.

For the holiday season and we.

And we've seen.

Likely the zone.

All right.

Strains on on.

And those channels and.

Perhaps if curbside as sort of being viewed as.

Less of a pandemic.

Service and more as a staple going forward, but just curious maybe post holiday conversations you've had.

Some have accelerated and then just a macro question.

It relates to your guidance three year guidance and the.

The range is sort of what the contemplations are there.

In terms of macro relative to pipeline conversion.

And those types of things would be helpful. Thanks, Yes, sure well in terms of the certainly the first question.

Yes.

Stores of become.

Open again foot track traffic has begun to pick up a little bit.

What we've seen is this again this <unk>.

Synergistic alignment of our strategy and market demands simply put for the last number of years frankly, we've been.

Banging the table talking about the benefits of our omni channel strategies by anywhere.

Ship from ship from anywhere sell from anywhere.

And all of those all of those capabilities and is clearly some of our customers have taken taken up those opportunities and said and essentially said, yes. Those are those are interesting capabilities and we think we'd like to offer them to our consumers whats happened and those include and our buy online pickup and store curbside pick.

Buy online return from store all of those and all of those capabilities, what we've seen happen and the last six months or so interestingly as consumers are now essentially demanding those capabilities, it's no longer there.

The retailers, saying we've got this if you want it consumers are essentially saying look.

I can buy online and pick up the store or pick up at the curbside I'm not going to show up with you. So we're seeing a pool versus a push right of those capabilities and we do believe that both of US curbside Roper's return and store all of those capabilities are here to stay.

And and going to be very prevalent going forward. So we're excited about that with regard to the specific question. You asked about point of sale. There is certainly a growing interest right, but we really do feel like.

And the point of sale.

Our point of sales go to market initiatives in 2020 is kind of a GAAP here right for <unk>.

<unk> reasons, there were a lot of stores closed, but as they reopen and.

And stores are continuing to become more multi function and more multifunction more multifunction that old traditional glorified calculator in the corner of the store doesn't get the job done when <unk> got all of these different capabilities and see if you've got a hand.

Handle inside the other retail stores, so certainly we see and interest and conversation pick up in that and that space.

Excellent thanks, Eddie maybe on the <unk>.

Guidance question, the range sort of what might be contemplating.

Deflated.

Thinking about the ranges of your three year guidance.

Yes.

Some of that macro versus conversion or what are some of those contemplations you mean why the range is so broad.

Alright.

Yeah.

Three years that we're providing is.

Dennis said pretty precision guidance, we think for for 2021, but we've obviously started just expanding the ranges for 2022 and 2023 and debt.

And I think that's pretty pretty commonplace frankly, we've got and we've got.

A lot of opportunity in front of us and we will keep updating that three year guidance on an annual basis.

<unk>.

Intra year guidance of course, we'll update on a quarterly basis.

Got it thanks guys.

Thank you next question.

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

And gentlemen, good to hear from you and welcome Mike Happy New year.

So two questions for me.

So first off maybe a higher level Eddie so there's been a lot of investments over the last few years I think for product innovation is evident to everyone. As we look forward and to kind of that two to five year Road map.

<unk> shifted all right, we heard about innovation and today, but because it pivot more towards go to market and now that you have some of these product investments and a rearview mirror or should we still see kind of off net K.

Cadence on R&D through the next two to three years you should expect.

Spec to see.

Andy continuing and frankly continuing to growth. We've got we've got a very long list of innovative capabilities that.

We still have plan for the market.

<unk> got a balance to make sure you're not too far ahead of and ahead of the market otherwise, you'll you'll be the Apple Newton right. There was a little a little ahead of its time there. So we've got a pace that out but we've got a long list of capabilities that we think will bring real value to the to the market. So no plans for any slowdown and R&D.

<unk> Brian.

Okay got it and maybe just I wanted to maybe look at the ramp deal dynamic from a different perspective, I'm curious does that cadence change if youre looking at active Wm versus active army and just sort of higher level. What are the ramifications on gross margins of having these ramp deals kind of step up over a couple of years.

Period.

Yes.

Yes, definitely a different profile and Manhattan active omni and.

And Manhattan active Wm.

Going ahead, and active omni is sort of that singular corporate application, where orders are flowing through and as we've talked about distribution centers tend to be.

By definition distributed around the world and it takes time to get those systems rolled out. So that's why you see that kind of that ramp profile.

<unk>.

And so not a big impact on margin.

Got this wm rollout strategy and to a pretty good science, we ramp infrastructure Accordingly, we ramped support accordingly.

So really not much of a not much of an impact on GM.

Great. Thank you.

And my pleasure, Brian Thank you.

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

Hey, Thanks, guys for FINMA and wanted to ask on the existing customers that are upgrading to active WR. Maybe you could just give us some idea about what is driving them to move from the on premise to cloud deployment model and are these older deployments or are some of them.

And our customers that have deployed and the past several years.

Yes, pretty good range, there actually actually Matt.

None of which are too many barnacles growing on linear and then nothing.

Nothing really old.

But the primary driver is really there is really two I would say.

One the clear head and shoulders is more immediate access to innovation right. So we've obviously, we've been a serial investors and innovation, but just like every other enterprise application company on the on the planet, we released annually and.

Just the other way of the world right at customers would buy a solution implemented version and.

Come to our customer conference for the next year and hear about all the new capabilities that we have invested in and released knowing that they just implemented and frankly, probably.

234, maybe even five years away from getting their hands on those new capabilities and in the fast moving space that we're operating in a supply chain that can be.

Quite detrimental to business process velocity customer service.

And.

And overall efficiency of the business, so number one head and shoulders as access to innovation, but secondly, remember we when we take on.

Running and the cloud we take over the maintenance of the system of course and and.

The overall operations, so that frees up they're very valuable resources to be able to focus on differentiating their company right versus maintaining systems and so forth and so that combination of access to innovation and freeing up their valuable resources is really yes.

I think are the two primary drivers for the.

And the interest.

Okay, Okay and last one if I can fit it in here just on the increase and the RP O guidance, which seems quite large.

Wondering any more details on what's behind that is it just you have a better confidence that.

Cloud as the preferred deployment model now that you have 90% of your pipeline or deals and net form is there improvement and macro expectations or perhaps something else and there.

So the near term raised and our Po.

And honestly I mean, I think you and everybody know this Matt it's the.

Near term raised and our PEO is essentially analogous with strong but would've been strong license sales.

Right.

Because we've accumulated new deals, which has driven near term off for yoga.

In terms of the long term.

And expectations that.

And a trajectory that we've put other.

And we see a strong market demand, we're very confident and the innovation that we're delivering to the marketplace. Our win rates are strong and.

And the enthusiasm is very good and as Dennis pointed out.

We have got great opportunity for cross sell and upsell and cross.

And then will be our existing customer base given that solutions are on a on a common very modern platform.

Hey, Matt let me piggyback on that.

And large part going into our fourth year, we have great visibility forward visibility into our pipeline.

And number two your question about whether or not theres demand for cloud, 90% of our pipeline and bookings is.

For cloud and as you can imagine and licenses.

As I commented in the script is a trading pretty rapidly we will exit 2021, and our estimate is license will be 3% of total revenue.

And a four year transition.

Okay.

Great. Thanks, guys I appreciate it.

And certainly Matt.

Yeah.

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

Hi, good afternoon, and thank you for taking my question and nice job on the quarter.

And for the year for that matter and.

Question for you could you provide some additional details around the large active wm and deal that was signed in the quarter.

Or was this a new customer was it was a competitive deal.

It was an existing customer.

And I can't go into too much detail name the customer and so forth, but it was an existing customer and there was a competitive nature to it as well they had.

And frankly in a acquisition that they had done some other competitive solutions. So so it was it.

It was a little bit of both but we would certainly call and existing tier one customer, but definitely had a competitive nature to it.

Okay, Great and then just shifting gears to your transportation solutions.

And again, if you could just.

Providing some additional color on the relative.

And we launched Cmos customer that was signed in Europe.

And also too if you could just talk about some of your ongoing initiatives too.

And kind of reposition our solution overseas or just call attention to the yes, yes.

Really the lack of penetration overseas was right or wrong for a choice we focused on the U S market. We are really not released the product could be sold overseas you know I think that we tend to be.

Some would say that and conservative if we're not comfortable that we can very satisfactorily execute on a on a first class implementation and provide first class.

Post implementation support we won't sell a solution and a particular market.

But we chose.

And it's a release Tms solution for for sale in Europe, because we already trained hired and trained our workforce and original question that offering it and the cloud.

And.

<unk> provided a little bit of simplicity into the program. So we didn't need all that all of the technical resources and market and so forth, but of course, we had to do some.

Our product enhancements to be able to support those international.

Markets as well so all of those things come together and.

We're seeing we're seeing a nice growing demand as I said, we've got a nice customer live over there we signed a couple more of their in flight of implementation and.

Interest is certainly gaining.

We might look back in the rearview mirror and say, maybe we should have released those solutions into Europe, a little bit earlier.

But we didn't so now were but now were pedal to the metal as it were marketing selling and successfully implement and Youre right.

Thank you that's helpful. Thanks.

And we're very good question on the line.

Mr. Eddie Capel.

Please proceed with your for the final remarks, Okay very good. Thank you may well. Thank you everybody for joining us as you can tell we're quite pleased with our performance in 2020, we're very excited about 2021 and and the next few years, we think it's going to be a very exciting time for Manhattan associates. So we'll look forward to reporting add on.

One on Q1, and about 90 days and in the meantime, everybody stay safe and thank you for your time.

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

[music].

Yes.

And then.

[music].

And for.

[music].

And.

[music].

Good afternoon. My name is May and I will be your conference facilitator today.

At this time I would like to welcome everyone to the Q4, 'twenty and 'twenty 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 period.

If you would like to ask a question during this time.

Please press Star then the number one and your telephone keypad.

If you would like to withdraw your question press the pound key.

As a reminder, ladies and gentlemen, this call is being recorded today February two goes off and 21.

I would now like to introduce Eddie Capel CEO.

Dennis story, CFO, and Michael Bauer Senior director of Investor Relations. Mr. Barry You May begin your conference.

Thank you Manny and good afternoon, everyone welcome to Manhattan Associates, 2024th 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 for 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 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 and.

And our projections, particularly on our annual report on form 10-K, K for fiscal year 2019, and the risk factor discussion in that report as well as any risk factor updates, we provide and our subsequent form 10 Qs.

And note in particular that uncertainty regarding the impact of COVID-19, pandemic and outperformance could cause actual results to differ materially from our projections.

No obligation to update these statements and addition, our comments include certain non-GAAP financial measures and an effort to provide additional information to investors. We have reconciled all non-GAAP measures and a related GAAP measures in accordance with SEC rules, you'll find reconciliation schedules and the form 8-K, we submitted to the SEC earlier.

And today and on our website at N and M. A N H dot com now I will turn the call over to Eddie.

Thanks, Mike and good afternoon, everybody and thank you for joining us as we review our fourth quarter 2020 results and discuss our outlook and guidance for 2021.

Also given our journey towards being a cloud first company for long term nature of our new SaaS contracts and the visibility and momentum that we're seeing we thought it might be helpful to provide you with our initial thinking around a three year trajectory of that business in terms of <unk> cloud revenue and adjusted.

<unk> operating margins through 2023, so we'll cover that a bit later.

But for the quarter Manhattan reported Q4 revenue of $147 million and adjusted earnings per diluted share of <unk> 45.

Both of which exceeded our expectations.

Broad revenue outperformance across our business lines combined with a continued focus on expense management once again drove earnings leverage for the quarter.

Fortunately for Manhattan AD business is entering 2021, with accelerating and velocity and growing opportunities.

And at 2020 was a very successful year for Manhattan Associates.

Arguably the best year ever in the midst of and ongoing gone going global pandemic.

And it beyond the numbers 2020 was a benchmark year of resolve performance and growth for our employees and our customers.

We strengthened our company.

Company significantly in 2020, and a substantially improved and market leadership position.

And May we launched our cloud native Manhattan active warehouse management solution.

Which we believe is the most significant advancement and WNS technology and over a decade.

And the market reaction to this new product has been equally impressive with already a double digit number of deals closed to date and our pipeline is growth.

We saw and signed the largest Manhattan active warehouse management deal to date and the <unk>.

Louisiana and from both new and existing customers for Manhattan active WNS is certainly surpassing our original expectations.

And no time, and our company's history, as a product strategy being and complete synergistic alignment with customer and market demand.

Across our full suite of cloud solutions, we're seeing solid growth solid and growing demand.

Pipeline and bookings are at record levels with about 90% of the pipe consisting of cloud opportunities and net new potential customers, representing almost 40% of the demand.

We enter 2021 with increasing momentum and greater visibility.

Because of the growing market need for a modern adaptable supply chain inventory and Omnichannel products and ex collection of cloud native solutions positions us well our.

Our unified platform is industry, leading and provides our customers with the ability to efficiently adapt to changes and consumer behavior, while simultaneously, helping elevate the entire consumer experience.

Simply put our commitment to investing and market, leading innovation and focus on customer success strategically positions us for long term sustainable growth.

Demand for our supply chain and omni channel products and services has been pretty solid.

And while the near term timing of and continued pace of economic recovery remains somewhat unclear recent signs have been encouraging.

And as such we are raising the 2021 full year total revenue and adjusted EPS guidance that we provided on our Q3 call and Furthermore, our dedication to innovation remains we expect to invest nearly $90 million and research and development this year, even with the potential.

Really choppy macro backdrop drop.

And as I mentioned earlier without business visibility strengthening later in the call Dennis who will provide details of how we see at three year trajectory.

Who will provide you with guidance for 2021, and guideposts with much broader ranges for 'twenty, two and 2023.

Dennis will provide insights into how we see <unk> cloud revenue and adjusted operating margins shaping up for the next three years.

And with our appeal as a leading indicator of cloud revenue performance.

Our objective is to exit 2023, with roughly $1 billion and remaining performance obligation representing a three year CAGR of about 45%.

And on the sales front competitive win rates remained strong and about 70%.

As our innovation is being recognized as the best and the industry and Q4 and about 20% of our license and cloud deals closed were from new customers from.

From a vertical perspective retail consumer goods food and beverage and grocery drove more than 50 percentage of our cloud and license revenue and the quarter.

Now regarding services, we conducted over 100 go lives and the quarter and anticipate a return to service revenue growth in 2021.

R&D cloud ops sales and marketing.

And for Academy and provide you just a few specifics on some of that product innovation.

And even our own ambitious goals.

While the customer and customer mix and has undoubtedly been affected by the global pandemic I'm happy to report that we are seeing broad demand across many industries and for parts of the globe and in fact, we now have customers spanning 10 different industries and eight different countries. They are all currently implementing <unk>.

Current active wm and with a.

And very busy and aggressive go live schedule lined up for 2021 as selling and implementation teams are at full strength across the geographies that drive the majority of our revenue and we're seeing a nice pipeline for Manhattan active Wm too as we head into 2021.

And in addition to our healthy balance, we're seeing across geographies and industries and Manhattan active Wm implementations struck a nice balance between existing customers and entirely new net new.

Of our Manhattan active Wm projects in flight right now we see about a 50 50 split between those two categories.

And as you recall one of the key benefits of Manhattan active Wm is it is it is that it's completely version lists is updated in the background for our customers with zero downtime.

And we provide them with new feature functions every single quarter and for.

And since we announced this new solution and May we've already added a host of new innovative capabilities and the past couple of quarterly releases.

Now turning to transportation management, we closed at 2020 with some great wins and further progress on our goal of evolving Tms at Manhattan Associates from being a great domestic business for us being a truly global business and to that and we now have a live.

And really Europe successfully using Tms and have additional projects and slide in that region. When we continue to see the pipeline build and a number of countries across EMEA and we are building capacity to support this project and expectations of their closing in 2021.

And our cloud Tms solution continues to compete very effectively both home and abroad.

Alright.

I'll close my product updates this afternoon with and Manhattan active omni solution suite, we've just completed taking our customers through their third retail peak season, and Manhattan active omni and as you would guess we process and all time record high number of orders shipments and payments and the ongoing channel shift from brick.

And with bricks and mortar to digital Commerce continues to benefit our omni channel business and as we help more customers successfully capture and deliver on that direct to consumer orders.

And are of particular note. This year was the surge and store related digital activity.

Almost all of our Manhattan active omni customers use that technology to power a pretty vibrant ship from store program, but and that we're seeing and increasing increasing number of those customers actually prefer to ship from net stores.

Up 300% over 2009 retail peak and this is in order to speed up customer delivery and manage the parcel network constraints much more effectively.

And as you might imagine in store pickup programs continue to accelerate at a rapid rate with activity, both and curbside and traditional store pickup.

But the in store pickup and curbside delivery programs clearly here to stay and we continue to leverage our advanced version of this technology to provide these kinds of innovative solutions to our customers that are at a very rapid rate.

On a related note by the way one of the byproducts of the booming digital businesses. Unfortunately, very often domain volumes of returns and all of our customers grapple with this so called reverse logistics problems.

Is inevitable.

<unk> customer experience isn't always the same.

So delivering that great experience for returns and exchanges of high volume real.

Does take a fully integrated order management system.

And BMS to effectively process those returns.

Thanks, Eddie everyone's strap on your <unk>.

Spenders and there's a lot of information to cover here. So as Eddie mentioned fourth quarter total revenue was $147 million down 4% over the prior year exceeding our guidance full.

Full year 2020, total revenue of $586 million was down 5% compared to 2019 as you know solely due to COVID-19.

Q4 adjusted earnings per share was <unk> 45.

GAAP earnings per share was <unk> 32, with stock based compensation accounting for the difference between adjusted and GAAP EPS.

Cloud revenue for the quarter was $23 million up 9% sequentially and 46% over prior year.

For full year 2020, cloud revenue increased 70% to $80 million.

For the first quarter 2001, we estimate cloud revenue to be approximately $24 million up 39% over 2020.

For full year 2021, we estimate cloud revenue to be and the range of $108 million to $110 million growing at about 36, 5% at the midpoint and accounting for approximately 85% of total software revenue.

Up from less than 50% and 2019.

Starting with Q2, we expect cloud revenue to grow roughly at $2 million sequentially per quarter for the balance of 2021.

Remaining performance obligation or RP O for the quarter totaled $309 million up 20% sequentially.

And 80% over prior year.

Recall RP O is the leading proxy for our cloud revenue performance and represents the value of contractual obligations required to be performed.

Otherwise referred to as unearned revenue or bookings.

For Manhattan. This disclosed value represents our cloud bookings value of unearned revenue under noncancelable contracts greater than one year.

Contracts with a noncancelable term of one year or less are excluded for.

The reported amount.

As Eddie previously highlighted demand and pipeline growth for our cloud solutions continue to be strong from both new and existing customers.

Reflective of the strength, we anticipate 2021 <unk>.

To be and the range of $450 million to $550 million up from our prior estimate of $385 million to $390 million.

Representing growth of approximately 60% at the $500 million midpoint.

One important point on flow through from RPI to cloud revenue.

For example.

The record Manhattan active warehouse management deal closed and the quarter, we will have much higher levels of contracted and recognize revenue and the out years of the contract compared to year one.

<unk>.

Regarding license revenue Q4 was roughly $10 million.

Overall for 2020 license totaled $38 million and was down 22% over prior year as our full suite of cloud solutions have come online.

We expect license attrition to accelerate in 2021 with license revenue declining about 50% or $18 million over 2020.

For full year 2021, we estimate license revenue to be and the range of $18 million to $22 million, averaging about $5 million per quarter.

And as the yard marker for cloud demand license will be about 3% of total revenue exiting 2021.

Shifting to maintenance revenue for the quarter totaled $39 million up 2% versus the prior year on strong cash collections.

For the full year maintenance revenue declined 1% to $148 million.

The decline primarily owed primarily reflects demand from our WNS installed base converting to cloud subscription and lower license revenue, which we expect this trend to continue in 2021 and beyond.

Our full year 2021 maintenance revenue forecast is a $138 million to $142 million, representing an $8 million or five 5% decline.

For Q1, and all subsequent quarters, we estimate maintenance revenue to be approximately $35 million per quarter.

Turning to services and line with our expectations and professional services revenue for the quarter totaled $71 million down 18% year over year and.

Excluding build travel services were down approximately 14%.

As discussed on our Q3 call. We expect our services segment to return to growth and 2021 and build from our Q1 results.

As a reminder, Q1 2020 was a record comp quarter with subsequent quarter run rates dramatically impacted by the pandemic.

So for the first quarter.

We are targeting services revenue and the $74 million to $76 million range down 14% over prior year, but up 4% to 7% sequentially over Q4 2020.

On a year over year basis, we estimate Q2 revenue growth of about 14%.

Q3 about 17% to 18% and.

And 15% to 16% and Q4.

For 2021 for you.

And are targeting a services revenue range of $315 million to $336 million.

Representing 7% midpoint growth dictated by the pace and cadence of economic recovery.

Our consolidated subscription maintenance and services margin for the quarter was 52, 7%.

The better than expected result was driven by revenue performance and cloud operating leverage.

We expect Q1, 2021 subscription maintenance and services margin to be approximately 52% and full year 2021 to be 51, 3%.

And with historical seasonality, we expect first half to be approximately 51, 2% and second half margin slightly higher at 51, 5% with Q4 at 52% accounting for retail peak seasonality.

Now turning to operating income and margin Q.

Q4, adjusted operating income totaled $38 million equating to an adjusted operating margin of 25, 6%.

The better than expected result was driven by broad revenue outperformance combined with continued expense management.

For Q1 2021, we are estimating adjusted operating income of $26 million to $28 million and and operating margin range of $18 eight to 19, 2% with a 19% midpoint as precision bombing right. There for full year 2021, we are.

Estimating and operating income range of $122 million to $134 million that's.

And that's full year.

And with a midpoint of $128 million and and operating margin range of 25 to 21, 5% with a 21% midpoint.

For primary drivers for our investment and our operating margin number one hiring to make growth demand number two cloud driven decline and license and maintenance revenue number three the reversal of prior cost actions taken in 2020 due to COVID-19.

And number for continued strategic investments and innovation and cloud transition.

As we continue to grow and scale the business, we are confident and our ability to make strong progress on achieving the rule of 40 over time.

We expect our GAAP tax rate to be approximately 21, 5% for the full year.

And 7% and Q1 due to tax benefits on stock vesting.

Regarding our capital structure.

And January our board of directors lifted the suspension of our share repurchase program and authorized the repurchase of up to $50 million.

For 2021, we are estimating 65.0 million diluted shares outstanding was $64 5 million diluted shares for Q1, which does not assume any share repos.

Turning to cash.

We closed the quarter with cash and investments of $205 million and zero debt.

Our current deferred revenue balance totaled $114 million Q for cash flow from operations totaled $38 million up 10% over 2020.

And full year operating cash flow totaled $141 million down just 4% over 2020.

Finally, full year capital expenditures totaled $3 million and for 2000, and Tony One we estimate capex investment to be and the range of about $6 million to $10 million.

That covers 2020 now I will provide full year 2021 guidance and 2022 2023, Guidepost then we will turn it back to Eddie for his closing remarks.

Let's go Big picture Manhattan Cloud transition is now entering its fourth year, we continue to accelerate investments and innovation with customer demand validating our strategy our cloud.

And solutions are impacting all of our major revenue lines, that's cloud license maintenance and services now driving 50 plus percent of our overall total revenue and growing.

The underlying fundamentals of our total revenue model is shifting dramatically 2021 will be another record year for cloud revenue and <unk> driving approximately 85% of total software revenue, while fueling services pipeline and revenue growth.

And 2021, we will absorb a $27 million drag on total revenue masking our growth by five percentage points as license and <unk> in favor of cloud and maintenance revenue declines as install base customers convert to our cloud solutions.

Our total revenue yard markers for success, our cloud revenue RPM bookings and services revenue our guidance calls for 4% total revenue growth.

To best gauge overall underlying revenue growth of our company, we compare total revenue ex license and maintenance.

Which we expect to be 10% to 15%.

Growth in 2021 with the midpoint of 12, 5% by comparison in 2020 was down 5% over 2019.

Now for guidance.

For total revenue, we expect a range of 595% to $625 million.

First half second half total revenue splits or 48% first half 52% second half.

For Q1, 2021, we estimate our total revenue range to be 141% to $146 million with a midpoint of $143 million.

<unk>.

For earnings per share our adjusted EPS target is $1 44 to $1 59 per share with a 47%, 53% first half second half split.

Our GAAP EPS range is estimated to be 96 to $1 11.

For Q1.

Our adjusted EPS estimate is 31.

And to 33 and GAAP EPS range is 25% to 27.

That covers our 2021 guidance. So lastly, I'll summarize our 2022 and 2023 guidepost that should better assist investors assessment of our future cloud growth and earnings trajectory.

So entering 2021 visibility into the business is strengthening and benefiting from over three years of data and our cloud transition coupled with the revenue ramp deals becoming more common.

And as such we are providing 2022 and 2023 directional guideposts for RPI cloud revenue and adjusted operating margin.

And with revenue ramp deals, becoming more prevalent we expect RPI to accelerate followed by a gradual steepening ramp and cloud revenue as such you will see 2022, RPI RPI growth exceed cloud revenue growth.

And 2023, we expect expect cloud revenue growth to outpace RP O as.

As we benefit from our subscription revenue ramp.

Regarding adjusted operating margin, we are forecasting, adding 100 basis points annually from 2021, 4% to 23.

With the objective of driving long term sustainable double digit topline growth and top quartile operating margins.

So here are the metrics.

For 2022, we are targeting RP O of $625 million to $775 million with a $700 million midpoint equaling 40% growth over 2021.

Cloud revenue of $135 million to $150 million with $143 million midpoint, equaling 31% growth.

And adjusted operating margin of about 22% at the midpoint.

For 2023, we are targeting <unk> of $850 million to $1 1 billion with a $950 million midpoint equaling 36% growth over 2022.

Cloud revenue.

190 million to $215 million with a $203 million mid point equaling, 42% growth and.

And adjusted operating margin of about 23%.

At the midpoint.

We will update 2022 and 2023 annually.

And as Eddie mentioned, we are targeting RP O to approach $1 billion by the end of 2023 equating to a three year RP O CAGR of 40% to 50%.

Our three year cloud revenue CAGR estimate is 34% to 39%, reflecting the impact of ramp deals and our Rps. So that covers the financial update. Thank you very much and back to Eddie for some closing comments terrific. Thanks, Dennis will share. It look we're pleased with our 2020 performance and.

And we're committed to driving operation and operational and financial results as we progress toward our three year financial targets and as we do so we're continuing to innovate and advance of market demand leveraging our technical and domain expertise in order to provide our customers solutions that position them for success and a dynamic and <unk>.

Lee changing world with the convergence of <unk> strategy and the customer demand tightening, we see no shortage of opportunities to expand our addressable market, while further strengthening our competitive positioning.

And to wrap up.

Want to thank all of our employees globally.

Your relentless dedication and commitment to our customers' ongoing success.

And resulted in what I believe to be our best year ever.

So thank you and May we're now ready to take any questions.

As a reminder to ask a question you will need to correct for one on your telephone.

Your question Greg.

Thank you for standby welcome cloud the Q&A roster.

Yes.

Your first question comes from the line of Terry Tillman.

Trust Securities Your line is open.

Yes, Hi, gentlemen, thanks for taking my questions first can you hear me Okay. Yes, we can Terry thank you.

Okay, I got a preamble here so not nice to hear you, Eddie and Dennis and welcome aboard and Mike.

We do get the suspenders on and thanks for the precision guidance there Dennis.

Two questions. The first one is a two part question for you Eddie.

The idea of active omni and kind of the multi year cycle will bring and all the innovation together I'm curious how the conversations are going with these tier one companies.

Can you talk about like a platform now are the conversations more elevated is it C level discussions and just kind of how this plays out now being able to kind of tie. All this together you W. Master Tms et cetera are the conversations changing and then a second part to that question.

Yes, I would say the answer to that is definitely yes Terry.

At the end of the day I do feel like that the.

A lot of the elevated conversations come from the fact that.

A sizable portion of our suite. These days is driving revenue for our customers.

The <unk> and the Tms, obviously, great facilitators and.

And imperative parts of.

The supply chain network and the business operations.

And the end of the day they are cost savers, they are cost savers.

And but when you cross the bridge and start talking a bag Omnichannel solutions and point of sales solution and storage solutions to really drive revenue growth, that's really when the conversations begin to elevate.

Moving higher into the into the CEO office.

And the second part of the question is we heard from aspirational goals of a pretty dramatic.

Growth and the RP overtime and over a $1 billion I mean, how do you feel though right now Eddie about just the sales capacity and.

And where you are now what's your capacity and what you need to get to to be able to make good on $1 billion plus <unk> and then I had a follow up for Dennis Yes, we feel great really terrific about the sales capacity, we think we're very well aligned to be able to meet those those growth rates.

We are continuing to selectively hire the best of the best and.

And the supply chain, the supply chain market and so forth but.

That is that is.

And the ash sales capacity will certainly not be an inhibitor to the growth trajectory that we laid we laid out a very confident about that.

Yes.

Okay and Dennis.

And if I have this right you took your guidance for the Rps ending balance at the end of 'twenty, one for 85 to $3 90 up to $4 50 to $5 50.

If that's right what I'm curious about is.

Well of course, that's a large range and I guess that you want to have some cushion there kind of upside downside case and base case, but how do we think about the progression of Rps for the year I don't want to Miss model Thats kind of each quarter because it is such an important metric now we're focused on so how do I think about it progressing through the year. Thank you and nice job on the quarter.

Yes.

The yard marker is going to be the full year target area at $4 50 to the.

$550 million each quarter, we're going to give them.

And our update so youll be able to see that progression, but suffice to say we are targeting.

The strong growth rate at about 60% at the midpoint.

And carry I think he dropped off so yes.

Ready for the next question Nate.

Your next question comes from the line of Joe will link all from Baird. Your line is open.

Great Hi, everyone.

Hey, Tom.

Wanted to start on and just thinking of IPO over the next couple of years and Eddie.

And Dennis you both throughout a couple of things.

Just having more time and this transition so a better understanding.

Familiarity with ramp structures and how that's going to play out and then just see ang.

Eddie you said better than I expected interest and demand for the new active warehouse management product are.

And any of those individual areas driving this RPI and number out and 2023 it to a higher level than you would have thrown out as we were kind of having this discussion.

I don't know three or six months ago I'm, just trying to gauge how much is maybe new to reflect the new kind of imperative around supply chain as a category versus your new product versus.

And you just have a little more experience under your belt.

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