Q2 2021 Manhattan Associates Inc Earnings Call
[music].
Good afternoon, and my name is fine and the audio.
On the French supposed to meet the 30 day.
And that's it's not I would like to welcome everyone to the mine.
And to eat.
The 21 earnings call.
All lines have been placed on mute to prevent any background of points. After the speaker's remarks, and that'll be a question and answer session.
I'd like to ask the question. During this time simply press Star then the number 1 on your telephone keypad, if you would like to the draw your question.
Most of the balance sheet how's.
As a reminder, ladies and gentlemen, this call is being recorded today July 27 out.
I'd now like to introduce Mr. Michael Bauer head of Investor Relations of Manhattan Associates, Sir you may begin thank.
Thank you Ron and good afternoon, everyone and welcome to Manhattan Associates 2020.
21 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. The 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.
Certainties and not guarantees of future performance and that actual results may differ materially from the projections contained and our forward looking statements I refer you to the reports Manhattan Associates files with the SEC important factors.
That could cause actual results to differ materially from those and our projections, particularly our annual report.
Report on form 10-K for fiscal year, 2020, and the risk factor discussion and that report as well as any risk factor updates, we provide and 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 and in 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 that are related GAAP measures in accordance with the SEC rules, you'll find reconciliation schedules and the form 8-K, we submitted to the SEC earlier today and on our website at <unk>.
And each 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 of second quarter results and discuss our updated full year outlook.
So Q2 and first half of 2021 results were all time record from Manhattan Associates.
With Q2, total revenue, increasing 22% to $166 million and adjusted earnings per diluted share increasing 53% to 61.
And both of these metrics exceeded our expectations.
Our global teams are very busy and continue to execute.
Extremely well as broad revenue outperformance translated into strong top line growth and also earnings leverage.
Furthermore, demand continues to strengthen for a growing set of cloud solutions, resulting in record second quarter bookings with <unk> increasing 117.
So on 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 <unk>.
<unk> per as many of you are aware of our solutions are mission critical and the we're focused on providing modern cloud native solutions are architected to unify commerce and supply chain experiences and technology is differentiating and industry, leading and by providing solutions or the scalable version lists and extensible.
Now the customers are able to adapt more quickly to changing market conditions and are better positioned to.
Profitably scale their businesses.
On the sales front competitive win rates remained strong and about 70% is that commitment to innovation keeps from Manhattan associates of Todd.
Our car industry rankings.
From a vertical perspective retail manufacturing and wholesale drove more than 80% of our bookings in the quarter and if we drill and the hurdle to the sub verticals of pretty diverse, including apparel department stores, food and beverage industrial as well as durable and non durable goods.
And now.
And now our Manhattan active solutions pipeline continues to grow nicely to benefiting from our market leadership position, our unparalleled technology and global infrastructure and favorable market tailwind, which are all driving strong demand from modern adaptable scalable and resilient supply chain inventory.
<unk> and omni channel solutions.
We're experiencing solid demand across all of our product suites.
About 90% of our pipeline consists of cloud opportunities with existing customers converting conversion accelerating somewhat.
And in addition, net new potential customers represent.
About 40% of the pipeline demand.
America's pipeline is particularly strong, but we're starting to see Europe and.
APAC strengthen heading into the second half as well.
And our global services team executed amazingly, well and Q2.
<unk> over 1.
100 go lives and as expected our services segment returned to growth and this quarter, increasing 18% compared with the prior year period.
And with strong demand for our services, we're aggressively recruiting talent globally, but like everyone. We expect the market to be extremely competitive.
Services and technical talent and the second half of which we have factored into our operational planning and guidance.
Now on the innovation front, it's still quite early and at journeys and journeys of unified mission critical commerce and supply chain systems, but that said given our solution breadth industry.
And for service per Ts and commitment to innovation, we are uniquely positioned.
And to successfully do so.
With our R&D spend approaching $90 million annually growing opportunities to innovate within white space and the large opportunity to drive penetration of our Manhattan active solutions.
<unk> with new and existing customers.
We're very well positioned for long term sustainable growth.
And I was most of you know in late May and for the second straight year, we held our annual user conference momentum connect virtually <unk>.
The like last year, we saw strong registration of attendance.
History of the conference, which offer the mix of live sessions and the plethora of on demand sessions as well and the <unk>.
Also for the second year running we made a major product announcement. This time regarding on transportation management solution.
Now before we get into the details of Manhattan active transportation management a quick.
Quick short recap of our multi year product strategy is probably in order and back in 2014, we started on our mission to modernize our product lines to ensure both Manhattan and of customers, we're strategically positioned for future needs a.
Our strategy really has 2 key elements.
Relaunching.
<unk> and industry, leading solutions like <unk>, and Tms as true cloud native solutions and.
And leveraging our leading edge cloud native platform to create solution capability and unification to a degree that really was previously impossible now and 2017.
We launched Manhattan active omni and the first of these unified cloud Native suite of solutions Manhattan active omni unifies contact Center order management customer engagement point of sale and store inventory and fulfillment into a single offering utilized our customers deliver unparalleled omni channel customer experiences.
And without ever needing to and install additional applications or ever perform and upgrade.
And now in 2020, we shipped Manhattan active warehouse management, the industry's first tier 1 cloud native of WNS and this year, but momentum connect we announced Manhattan active transportation management.
<unk> with the industry's fastest and smartest multi modal transportation optimization engine and.
And together with Manhattan active Wm Manhattan active TM forms.
The Manhattan active supply chain, the industry's first unified supply chain execution.
<unk> platform.
And we believe Manhattan active supply chain is really a game changer for our customers for the last couple of decades, we've had of a front row seat to see the challenges and opportunities that come with integrating <unk> and Tms and high volume high complexity.
Supply chains and along the way we came to realize that the the way to solve this problem was not just better integration, but rather through of truly unified distribution and transportation solution and.
Unfortunately, the advent of micro services and of cloud Native architecture presented us with the unique opportunity.
Digitally to to build such a unified offering and.
And we launched it in May of this year.
Solution unification and delivers some obvious benefits like single user experiences for all things supply chain execution.
Dramatically simplified integration picture and a common.
<unk> and analogy platform for our customers to extend the solution and innovate alongside us.
But we believe the the opportunities the unified supply chain platform brings are actually much larger than that unification of the WNS in the Tms allies as to sole entirely new set of problems.
And <unk> approach to solving problems that benefits, our customers and our base application and it also allows them to solve problems creatively using our entire catalog of micro services.
And perhaps most importantly of all.
And the lies at customers to breakdown of our organization.
So the whole silos between distribution and transportation and to think about optimizing inventory flow and customer deliveries because now more than ever and supply chain professionals are effectively customer service associates, because their actions directly impact customer outcomes and.
<unk> on loyalty.
So and Manhattan active supply chain comprises the newly Manhattan active transportation management combined with Manhattan active warehouse management and frankly, it's been a great first year from Manhattan active Wm.
And the market response of market response, the Manhattan active.
And brand and this really exceeded our expectations and our product and delivery teams are fully engaged with the busy summer of go lives.
In hindsight. It does appear that there was a significant market demand for tier 1 cloud native WNS and this quarter's new Manhattan active Wm subscriptions.
W continue to show a nice diversification of geographies and industries and a nice mix of net new Wm logos and conversions from our existing on premise WNS.
And the early reports of the customers are seeing significant benefit from innovations like customer grade.
And it will experience for warehouse associates or the streaming and it's first of a kind employee engagement capability built directly into WNS.
And I'll close out my product remarks today with the few updates on our other major Manhattan active platform Manhattan active omni channel.
The last quarter I updated.
The view on some pretty nice signings and grow and pipeline for our point of sale of application and this quarter out of stay a little bit about what we're seeing and order management.
We kicked off projects this year and a number of large well known global retailers to implement at core order management applications and.
Not only will they activate core Oems.
And they will also take advantage of the Manhattan exclusive innovations like interactive inventory for dynamic order promising and Theyre also using NAV digital self service capabilities to allow their customers. The change order pickup windows to create their own returns to create their own exchanges all directly.
On their own mobile devices, and we continue to push the boundaries of the the problems, we solve with Manhattan active omni and with an increasing frequency of our omni channel micro services that are of the center of our customer's headless commerce architectures all for the future.
Good of the industry.
And that concludes my brief business update Dennis is going to provide you with an update on our financial performance and outlook and then I'll close our prepared remarks with a brief summary, before we before we move to Q&A. So Dennis.
Thanks, Eddie and as Eddie mentioned record Q2, and first half results and nearly every.
The major metric category, we put up record numbers growth profitability cash flow and balance sheet results were all solid for the quarter.
Our quality of earnings performance was outstanding top to bottom there are no 1 time adjustments and these results just great execution.
And here is the summer.
Q2 financial highlights, which includes our guidance for total revenue operating profit and earnings per share. You also can refer to today's earnings release for our adjusted and GAAP guidance.
Also unless otherwise stated growth rates are on a year.
Summary of our basis.
So total revenue was up $166 million or was $166 million up 22%.
Our outperformance was broad and across all revenue line items.
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 to $640 to $643 million to $650 million. So our new range is 643 to 600.
And over $80 million on total revenue 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.
And <unk> at the midpoint.
And for Q3, we expect total revenue of $162 million to $165 million or 9% growth at the midpoint.
For adjusted EPS EPS was up 61 sensor was 60.
18% is up 53%.
And GAAP EPS was <unk> 48.
For adjusted EPS, we are raising full year guidance, our full year guidance range to $2 to $2 <unk> with the midpoint of $2 and <unk>.
Up 23.
The 1 set from our previous midpoint of $1.65.
For GAAP earnings per share our guidance range as of $1.50 to $1.56, with the midpoint of $1.53, and Thats up 33% from our previous midpoint of $1.15.
For Q3, we expect adjusted.
The the EPS to be 53 to 55.
Moving to revenue lines.
Cloud revenue was $29 million up 55%.
For Q3, we expect cloud revenue of roughly $35 million and are raising our previous full year.
<unk> 2021 cloud revenue estimate of $111 million to $113 million were raising that up to $117 million to $119 million equating to 48% growth at the midpoint.
Q2 was a record second quarter with RPI.
With bookings totaling $489 million up 117% year over year.
And 16% sequentially.
With the RPI continuing to compound positively our visibility into future subscription revenue continues to strengthen.
As mentioned in Q1.
And we will update our forward looking guide post on our Q4 call and we intend to guide <unk> 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 RP O performance, we are raising our 2021 estimate of $450 million to $550 million.
$2.550 million to $600 million.
License revenue for the quarter was $8.8 million as our base of existing customers.
Added users and the quarter.
And maintenance revenue was up or I'm, sorry was $38 million up 5%.
On license revenue and solid cash collections as.
As previously discussed we expect second half license and maintenance revenue to decline on.
On customer conversions to cloud.
Which is positive for our company, our customers RP O and future subscription revenue growth.
And we expect license to decline to about $6 million, and Q3, and $4.5 million and Q4.
For maintenance revenue.
We're targeting roughly $36 million, and Q3, and $35.5 million and Q4.
For perspective on cloud demand full year 2020 license revenue was down 22% and maintenance down 1%.
Our 2.
We in 'twenty, 1 and forecast as license down about 54% and the second half and down 29% for the full year.
No question cloud demand is outstripping license.
Maintenance will be down about 1% for full year 2000.
'twenty 1 also maintenance will have a longer attrition tail as customers typically maintain customer support through the cloud conversion cycle.
Moving to services revenue services, the revenue was $85 million up 18%.
And with our cloud momentum fueling.
And our services and revenue growth. Our Q3 services revenue estimate is $86 million and for Q4 of our estimate is $83 million the sequential.
The decline is driven by Q4 retail peak season impact as customers typically idle implementations.
And our final revenue.
Revenue line hardware delivered $6 million and revenue up 66%.
So that covers growth how about profitability.
Our consolidated subscription maintenance and services margin for the quarter was 55, 9%.
Up over 350 basis points compared to the year the year ago period, and it was predominantly driven by our revenue performance and cloud operating leverage.
We expect Q3 consolidated cloud subscription maintenance and services margin to be about 55, 2%.
And Q4 margin to be 52, 7% again, driven by retail peak season, resulting in a second half margin of approximately 54% ahead of our prior outlook of 51, 1%.
And how about the bottom line Q2.
Operating income totaled $50 million up 46%.
Operating margin was 32% up over 490 basis points.
GAAP operating margin was 23, 7%.
We are increasing our full year adjusted operating margin range.
The $25, 5% to 26%.
Up about 400 basis points over prior guidance of 21% to 22%.
For Q3, we expect a range of 27 to 27, 5%.
And for Q4 of range estimate of 22.
And 2.5% to 23%.
Just a reminder of our second half license and maintenance of tread expectations combined with Q4 retail peak seasonality is factored into our Q4 estimates.
That said, we are very pleased with our earnings leverage and we are continuing to invest.
Significantly and our business to drive long term sustainable double digit topline growth balanced with top quartile operating margins.
Now turning to cash cash flow taxes and cap structure.
Another solid performance.
We closed Q2 cash on hand totaling $209 million with zero debt.
Our operating cash flow was $46 million.
Resulting in year to date operating cash flow of $85 million up 41%.
Our Q2 free cash flow margin was 27%.
And note our Capex estimate for 2021 continues to be $6 million to $8 million.
Also we invested $33 million of share buybacks, and Q2, resulting and $60 million and buybacks year to date.
For the third quarter and full year, we estimate our diluted.
<unk> shares outstanding to be about $64.4 million shares which assumes no buyback activity.
And also our board raised our buyback authority to $50 million.
Regarding taxes, our adjusted effective income tax rate for Q2 was 21, 7% and.
Tax rate was 23%.
For full year 2021, we continue to expect and adjusted tax rate of about 21, and 5% and of GAAP tax rate of approximately 20%.
So that covers the financial update thank you and back to Eddie.
Thanks, Dennis well, we're very.
Of our gaps with our strong second quarter and year to date results and.
While the global macro environment remains somewhat turbulent Manhattan associates is entering into the second half of 2021 with the with some tailwind.
And we've accelerated the pace of our innovation and delivering the right solutions at the right time.
The result is a strong business momentum and a great opportunity for us to deliver success to our customers and help shape their digital transformation.
And before opening it up for questions I do want to take this opportunity to thank all of my Manhattan Associates teammates across the globe now many of you of.
And we're going to return to our offices and <unk>.
The continued to be inspired by your flexibility resilience and ongoing commitment to ensure our customers are successful.
So thanks again I'll second that.
Bren.
And now open to take.
And take questions.
As a reminder to ask the question you will need the press star 1 on your telephone keypad again Thats star 1 on your telephone keypad.
Yes.
Your first question comes from the line of Terry Tillman from true with Securities. Your line is open.
Hey, gentlemen, good afternoon and.
Paul and congratulations on the results and the outlook update.
I guess I have 2 questions. The first 1 Eddie for you in terms of now delivering on the innovation around the active Wm and TM and <unk>.
Combined are you actually seeing sales cycles, where they actually want to buy boats and of the products at the same time or is it more of a differentiator.
And it's just helping spur of the conversations and improved close rates on just either or that's the first question. Yes, yes. Good question Terry.
Well it's early.
<unk> were 6 weeks past release of the Manhattan active TM, but the answer is yes, we have we have sold.
<unk>.
At least 1 of it comes to mind, new brand new customers, So new logo not done business with us before and.
The contracted for both Manhattan active Wm, and Manhattan active T and so feel pretty good about that and off to a good start 6 weekend.
That's great and then just the follow up question Dennis for you and thanks for all of the financial color is up what.
And what I'm curious about is I think I forgot if it was the fourth quarter of the first quarter profit in the fourth quarter call. You gave us kind of of long term roadmap and how like the cloud subscription revenue and how its going to layer on from this growing RPM, but what I'm curious about it.
Yes, you guys are well ahead of expectations on RPM, but also your cloud subscription revenue has been coming along faster than I would've expected does that change kind of how the the the glide path or the acceleration curve is going to be the you talked about and a couple of years on cloud subscription revenue or could it be maybe more evened out because of what you're seeing thank you.
It is the former versus the latter Terry it will change and.
We'll address that we'll address those updates on the Q4 call.
For sure great visibility forward visibility.
It sounds great.
Your next question comes from the line of Joe <unk> from Baird. Your line is open.
Great Hi, everyone.
I wanted to go to the comment just on existing customers, maybe are choosing to migrate a little more quickly.
Alright, Thank you said of accelerating somewhat.
Is that just a function of maybe tie in and comfort. The fact that we're over a year now with active W. Are on the end market. So theres been a chance to see it theres, maybe some reference examples.
Or is there something else going on there where given whats happening from.
From a industry backdrop, just the elevated and importance of supply chain, maybe of comfort with cloud ultimately feeds and as well that are more and more customers are arriving at the conclusion of that now has the right time the to maybe have embraced the new product yeah, Yeah, I think you've answered the question well there Joe.
No we are wary.
We were a year in or or year, or so and the certainly it takes a little time not so much from a reference ability perspective put the kind of the budgeting cycles and even though were existing customers. Those 2 on the call and sales cycles and I take a while and so we're starting to see more of them.
And I come to fruition, but also the accelerating need.
For digital transformation and the core supply chain execution space.
The we've talked about this before that the distribution centers don't look the same today as they did.
5 of certainly 10 years ago, and the need for that modern.
Software engine and technology to be able to power of those distribution.
And centers is certainly something thats fueling fueling the growth too.
Okay, that's great and then.
And just on the development of cloud and other gross margins and the upside you're starting to see I guess bigger.
Bigger picture of it because there's a couple of quarters and our ROE now of the sequential gross margin improvement.
Do you think you're at the point with and you know.
And the the context of the broader transition the and really the investment on cloud infrastructure and and the personnel they used to making over a number of years now you're at a point, where they're just should be greater leverage behind that past investment and so on.
Understandably you know, there's seasonal changes and gross margin, but maybe as we look to the out years.
And there's an opportunity to build on 2020 ones levels, Yeah, well Dennis the big some of the you know some of the details here as well, but certainly there's opportunity to build on scale and leverage and so forth I do think you know.
We had of the virtual momentum conference. This year you know so you know with some we ended some under spend there frankly, we still have the opportunity that we believe to invest more in marketing and awareness. We're doing okay, clearly, but we've got to get the message out and make sure. We're not you know 1 of the world's best kept.
Secrets from a technology and the supply chain perspective, so there's still you know still some some under spend there from my perspective and.
And we'll continue to make you know make those investments as well as material and investments in and research and development.
Yes, Joe I'll piggyback on Eddie too. So we're we're in year 4 of 5.
<unk>, 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 were pretty excited about that but bottom line is is we're going to continue to invest and and.
And the TNT and and Thats the talent and technology, we think we are.
Overall objective is as you know.
As I said and the.
Call and continue to say is as the objective is really to create long term sustainable double digit top line growth and be a top quartile margin performer against any any tech comps out there and I think we're doing pretty good there.
Okay. That's great. Thank you very much.
Thank you Joe.
Your next question comes from the line of Brian Peterson from Raymond James Your line is sort of thing.
Thanks, gentlemen, and congrats on the really strong <unk> number so Dennis maybe a follow up on that last question.
You know I've seen I think we've seen the initial outlook of the last 3 years imply a decline and operating margins, but now we're seeing the expansion in 2020, we'll see margins up again this year.
And I I know, there's still a lot of moving parts, but are we at the point, where we can kind of call of trough and in operating margins or was there any dynamic related to hiring or investments.
And so we need to keep in mind, there, we're not going to call. The trough at this stage, so we'll evaluate that and and discuss that and the Q4 earnings call Brian We.
We are going to continue to continue to invest and the business, but suffice to say, we're we're pretty confident and our ability to generate operating leverage.
Got it and maybe just 1 follow up from me on the Rps and that was pretty strong again this quarter I'm curious if you had to look back in the first half of the year and and clearly RPM of exceeded our expectations. Do you think the upside was more related to volume or just like the sales cycles or maybe related to deal value and any way.
You can kind of slice and dice it that way and just be curious to get your thoughts there. Thanks, guys and it's pretty pretty balance Brian actually you know so we've you know we've.
Seen nice deal volume, we've seen some some bigger deals not much but a little bit on the longer contract side. So really a really nice balance that's driving that a number of frankly.
Frankly, yes, we're seeing a nice balance of not just our installed base, but net new customers and our portfolio is well pretty exciting.
Good to hear and Scott Thank you Brian.
Yes.
Your next question comes from the line of Mark Scheffel of from benchmark.
Your line is open.
Hi, good afternoon, and thank you for taking my question, let me start up of saying congratulations on nice.
This job on the quarter.
And other another another good quarter.
Driving and you just want to drive down into some of the drivers of growth and the quarter.
Were there particular product areas that you saw.
Certain of our performance more so than others and it appears just based on some of your commentary in your prepared remarks that WNS kind of led the way as that sort of a good read.
Certainly WNS was the the preponderance.
Our heritage there and so forth and it tends to be sort of the lead the lead product.
But much like Q1 that was very nice balance across the product portfolio WNS was strong for sure and it was the lead dog, but.
But <unk> really really stepped up in Q2 and delivered some nice numbers and <unk>.
Yes.
Point of sale and the inventory part.
Participated as well, so pretty pretty nice balance frankly and.
Pipeline is continues to strengthen as well so were similar across similar balance and the pipeline.
Okay, Great and then just diving down a little bit on the point of sale.
And I am prone.
Product that Youre, having on the Q1 call you were seeing a pick.
And from large point of sale projects and the sense was at retailers and we're just kind of start restarting some of the strategic initiatives that they had and I was wondering if that momentum carried over into the second quarter here. It appears that it appears that of debt. Yeah. Yeah continue you know continues to have nights the ninth.
Nice momentum.
The the.
Good news is that some of these implement these implementation timelines of getting shorter and shorter. So that you had the 3 point of sale customers go live just in the last just the left in the back half of the back half of this quarter.
And.
The nice thing of bags.
Up to the point of sale pipeline for us is the.
50% of the pipeline again brand new customers that we've never done business with before so.
And this is as we've said many many times not going to be an overnight success, but we really do feel like the flywheel given the the wins.
Some go lives were getting under our belt now and the pipeline that we're starting to see on <unk>.
I will pick up some momentum.
Okay very good and then finally here.
Just stepping stepping back taking like of 30000 foot view Eddie.
Just on the over performance it appears that Youre seeing a sense of heightened urgency.
And so you have your customers regarding modernizing our supply chain and I was just.
I'm wondering if you could just address how customers were maybe thinking differently about supply chain modernization today the density.
On a year or 2 ago, yes, well I think.
The combination of needing of recognizing that they need a resilience and the <unk>.
Supply chain and they need contingency and the supply chain and frankly, it's a very competitive competitive world out there.
Set of little bit of different ways, and I said in the in the script.
Fly chain. These days is of customer service attributes right. So each 1 of the customers supply chain associates and.
And our customers feel like their customer service advocates.
And so I think the need continues to grow the need continues to heightened to bring supply changes the to the forefront and b of competitive differentiator for for our customers.
Okay, great. Thank you.
The resulting.
Great.
Nice job.
Thanks Martin.
Yeah.
Your next question comes from the line of <unk> Kim from Loop capital markets. Your line is open and thank you.
Congrats on another strong quarter, Eddie and Dennis So.
Yes.
Now that you rolled out at the P and I believe that's the last of the high profile.
Alex.
And to be activated into the active product family and if I can say that I'm. So can you just give us an update on the what your overall thoughts on what's next and maybe this is a good time to.
The update us on your acquisition strategy.
Thanks, Yeah, so still plenty of work to do.
And the in the supply chain space.
Have a frankly a lot of a much longer list of of innovations in the hopper than the other than we can get through and the next quarter or 2 and.
And so we will we're continuing to bear down on the on the investment strategy build out of the innovation into the white space that the that we see I do think that you know.
And there's a couple of areas.
And in addition to the constant buildout of the constant changing markets that drive new.
New needs in the omni suite of solutions into WNS into Tms and theirs.
And 2 categories I think the there and a.
Pumping that.
Ah is a continuum and 1 is.
Greater and greater levels of customer engagement.
And so all of this work and digital self service and what we've called consumer grade CRM still I think is a very vibrant market and the white space for us to drive into and then the second piece is inventory optimization and I'm not suggesting that.
Any of our customers of the market is not focused on inventory optimization, but there is still a real race to drive customer satisfaction and meet all of those SLA and the.
And we have yet to see the real acute focus on inventory.
Station and the Omni channel World and we believe that's we believe that's coming and we're investing ahead of that trend.
Hey.
That's great Thanks and Dennis.
We used to get.
The metric and a number of deals above $1 million and the good old like the license.
The optimists, so how should we think about what is that similar metric for large subscription deals should we look at it from the total of our appeal perspective.
Like.
Should we be asking you how much of our growth is driven by these large deals or something like that just wanted to get your sense on how.
Some of your day to assess your overall.
Kind of exposure to big deal activity, because you have mentioned that our peer growth can be lumpy, depending on the sizable bookings and whatnot.
Yes so.
From a from an RP O point of view it can be lumpy from quarter to quarter.
Bottom line is it's compounding from a growth point of view and that's that's that's a.
Very linear.
And in essence.
And that's from a from a.
What I would judge what I would judge our performance.
Is really the RP O.
Overall ARPA growth from quarter to quarter.
And the guidance, we're giving guidance.
And then a question that I always ask any meaningful change and the overall contract length.
<unk> had on meaningful impact on the <unk> no.
But on at all.
Sounds good. Thank you very much thank you yeah.
Yeah.
Once again to ask a question why did the best far and 1 on the telephone keypad and gone this far along on the telephone keypad. Your next question comes from the line of Matt.
Oh from William Blair. Your line is open.
Hey, guys. Thanks for taking my questions.
Eddie I think in your prepared remarks, you mentioned that you are seeing existing customers accelerate the conversion to the cloud maybe just care to expand on on those comments a little bit on in terms of what's driving that.
I, just think timing timing, Matt for the most part.
We were about a year from release.
Upgrade cycles.
Budgeting for upgrade cycles, and so forth and it take some you know it takes some time so I think that's that's 1 factor.
And then and then the the continuing need to modernize the distribution center.
And get.
And get access to get.
Almost immediate access to the innovation that we're the we're.
And developing.
Hey, Matt.
The map the other.
And just jumping in here is as broader suite of solutions, we've been delivering new innovation over the last 4 years and.
And what we're seeing is really.
Our pipeline build and just and the sales process pretty nice diversity.
<unk> of across the solutions.
Got it and then from a geographic perspective, I think you called out of the Americas has been particularly strong and the pipeline, but also seen.
And some improvement and.
EMEA and.
First of the act.
Is that just driven by America reopening quicker of being more Rio more open than some of those other geographies or what sort of behind the the.
And the pipeline strength there.
I think that's it Matt.
Even within APAC and and.
On EMEA returning.
And you can see the the micro.
On the micro <unk>.
Trends there are certain countries and so forth.
The other that are still.
<unk> from a from a.
The.
And our perspective of opening and open up the door.
And April so forth. So yeah, I, just think it's a little bit of of lag and a little bit of a little bit of timing there before we see the same kind of modernization.
Trends.
Really start to blossom, and those and as Mark, but we will book book, but we can certainly see it I think it's on the on the doorstep frankly.
Okay.
Great guys Thats all I have thanks, a lot. Thank you Matt.
Your next question comes from the line of Mark <unk>.
And from Rosenblatt Securities. Your line is open.
Thank you and good evening, guys Hi, Mark.
The.
Just a quick follow up to the other question on of the Rps strength, obviously blue thread.
The first couple of quarters.
And I was wondering how much.
Of your original guidance had how much macro conservatism might of been built in.
And sort of how that may or may not still.
The extended into the second half of the year relative to the obvious incremental strength that you've been seeing.
Yes, I mean theres no.
The question coming.
And coming into the year.
We were.
We were a little cautious about how things were going to shape up here and here and around the world.
But now.
<unk>.
We're seeing we're seeing the demand we see and the bookings we're seeing the pipeline grow.
So feeling and fee and of feeling stronger about it hence all of the raises the raises across the across the board. So.
And we are.
We certainly try to be and under promise.
And over deliver organization so.
And we'd like to we'd like to keep that trend.
And that keep that trend going but I think as you can see from.
The raises that we provided and <unk>.
Delivered and guidance that we've given and so forth, where we're not exactly.
Holding back.
Now we are feeling more confident.
Got it and just.
The last 1 on Europe.
The comment on strength there just to follow onto the last question is there some quantification to that strength of its too early to tell just how strong Europe will come back.
Just maybe some color on azure.
Looking.
Over the next 6 to 12 months and it's just been a little flatter.
And then a little flatter relative to the U S over the last 2 or 3 quarters and.
And we see it coming coming back to normality. If you wanted if you'd like to put it that way.
Typically we've seen.
Your represent.
Somewhere between 12, and 15% of software and software revenues.
And it's been a little lower.
Not materially, but a little bit lower than that for the last couple of 3 quarters, and we see it coming back to normal ranges here and the near future.
Got it on.
Thanks, guys.
Our pleasure on.
At <unk>.
Ladies and gentlemen.
Manhattan Associates Q2, 2021 and earnings call. Thank you for participating you may now disconnect.
Yeah.
Thank you.
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Okay.
Good afternoon. My name is from an all day.
The conference facilitator today.
And then I would like to welcome everyone to the Manhattan Associates Q2, 'twenty 'twenty 1.
This call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, and there won't be a question and answer session. If you would like to ask the question. During this time simply press Star then the number 1 on your telephone keypad. If you would like to the draw your question press the balance sheet.
How is it.
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.
Thank you Ron and good afternoon, everyone and welcome to Manhattan Associates, 2021 second quarter earnings call.
And well review, our cautionary language and then turn the call over to Eddie Capel, our CEO during this call and cleaning the question and answer session with the May make forward looking statements regarding future events or the future financial performance of Manhattan Associates you of course.
And 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 and all forward looking statements I refer you to the reports Manhattan Associates files with the SEC important factors.
That could cause actual results to differ materially from those and our projections, particularly out of annual report on form 10-K for fiscal year 2000.
And in 'twenty, and the risk factor discussion and that report as well as any risk factor updates, we provide and our subsequent form 10 Qs. We note in particular that uncertainty regarding the impact of the COVID-19 pandemic on outperformance could cause actual results to differ materially from our projections. We are under no obligation to update these statements and.
And our comments include certain non-GAAP financial measures and an effort to provide additional information to investors. We have reconciled all non-GAAP measures related GAAP measures in accordance with SEC rules the Phi.
The reconciliation schedules and the form 8-K, we submitted to the SEC earlier today and on our website at M and H Dot Com now I will turn.
Additional over the Eddie Thanks.
Thanks, Mike and good afternoon, everybody and thank you for joining us as we review of second quarter results and discuss our updated full year outlook.
So Q2 and first half of 2021 results were at all time record from Manhattan Associates.
Q2 total.
Total revenue, increasing 22% to $166 million and adjusted earnings per diluted share increasing 53% to 61.
And both of these metrics exceeded our expectations.
Our global teams are very busy and continue to execute extremely well.
Turn the call revenue outperformance translated into strong topline growth and also earnings leverage.
Furthermore, demand continues to strengthen for a growing set of cloud solutions, resulting in record second quarter bookings with <unk>, increasing 117% year over year.
Broad and 16% sequentially to $489 million.
So with momentum accelerating and forward revenue visibility improving once again, we're increasing our 2021 guidance, including our Po.
Now as many of you are aware of our solutions.
And sort of mission critical and the we're focused on providing modern cloud native solutions are architected to unify commerce and supply chain experiences and technology is differentiating and industry, leading and by providing solutions of the scalable version lists and extensible our customers are able to adapt.
<unk> quickly to changing market conditions and are better positioned to.
Profitably scale their businesses.
On the sales front competitive win rates remained strong and about 70% is that commitment to innovation keeps from Manhattan associates of top our industry rankings.
That's more from a vertical perspective retail manufacturing and wholesale drove more than 80% of our bookings in the quarter and if we drill ineligible to the sub verticals of pretty diverse, including apparel department stores, food and beverage industrial as well as durable and non durable goods.
Now on Manhattan active solutions pipeline continues to grow nicely to benefiting from our market leadership position, our unparalleled technology and global infrastructure and favorable market tailwind, which are all driving strong demand for a modern adaptable scalable and resilient supply chain inventory and.
And on solutions.
We're experiencing solid demand across all of our product suites.
About 90% of our pipeline consists of cloud opportunities with existing customers conversion conversion accelerating somewhat.
And in addition, net new potential customers represent about.
40% of the pipeline demand.
America's pipeline is particularly strong, but we're starting to see Europe and.
APAC strengthen heading into the second half as well.
And our global services team executed amazingly, well and Q2.
Inducted over 100.
<unk> go lives and as expected our services segment returned to growth and this quarter, increasing 18% compared with the prior year period.
And 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.
<unk> and technical talent and the second half.
And which we have factored into our operational planning and guidance.
Now on the innovation front, it's still quite early and at journeys and journeys of unified mission critical commerce and supply chain systems, but that said given our solution breadth industry expertise.
The Ts and commitment to innovation, we are uniquely positioned.
To successfully do so.
With our R&D spend approaching $90 million annually growing opportunities to innovate within white space and a large opportunity to drive penetration of our Manhattan active solutions with new.
New and existing customers.
We're very well positioned for long term sustainable growth.
And I was most of you know in late May and for the second straight year, we held our annual user conference momentum connect virtually liked.
And like last year, we saw strong registration of attendance of the <unk>.
Conference, which offer the mix of live sessions and the plethora of on demand sessions as well and also for the second year of running we made a major product announcement. This time regarding on transportation management solution.
And before we get into the details of Manhattan active transportation management, a quick short recap.
Recap of our multiyear product strategy is probably in order and back in 2014, we started on our mission to modernize our product lines to ensure both Manhattan and of customers, we're strategically positioned for future needs and.
Our strategy really has 2 key elements relaunching and industry.
3 leading solutions like WNS, OLS, and Tms as true cloud native solutions and <unk>.
And leveraging our leading edge cloud native platform to create solution capability and unification to a degree that really was previously impossible now and 2017 we.
Launch and Manhattan active omni and the first of these unified cloud Native suite of solutions Manhattan active omni unifies contact Center order management customer engagement point of sale and store inventory and fulfillment into a single offering utilized our customers to deliver unparalleled omni channel customer experiences with that.
Ever needing to and install additional applications or ever perform and upgrade.
And 2020, we shipped Manhattan active warehouse management, the industry's first tier 1 cloud native of WNS and this year that momentum connect we announced Manhattan active transportation management within.
Of the industry's fastest and smartest multi modal transportation optimization engine.
And together with Manhattan active Wm Manhattan active TM forms the Manhattan active supply chain, the industry's first unified supply chain execution platform.
And we believe Manhattan active supply chain is really a game changer for our customers for the last couple of decades, we've had.
Front row seat to see the challenges and opportunities that come with integrating <unk> and Tms and high volume high complexity digital supply chains and along the.
The way, we came to realize that the the way to solve this problem was not just better integration, but rather through of truly unified distribution and transportation solution.
And unfortunately, the advent of micro services and of cloud Native architecture presented us with the unique opportunity to to build such a unified.
And we launched it in May of this year.
Solution unification and delivers some obvious benefits like single user experiences for all things supply chain execution of drew.
Dramatically simplified integration picture and a common technology platform for our customers.
I'd offer extend the solution and innovate alongside us.
But we believe the the opportunities the unified supply chain platform brings are actually much larger than that unification of the WNS and the Tms allies as to so entirely new set of problems of holistic approach to solving.
<unk> trends that benefits, our customers and our base application and it also allows them to solve problems creatively using our entire catalog of micro services.
And perhaps most importantly of all.
And the lies at customers to breakdown and the organizational silos between distribution.
Problem and transportation and to think about optimizing inventory flow and customer deliveries because now more than ever supply chain professionals.
<unk> customer service associates, because their actions directly impact customer outcomes and brand loyalty.
And so.
So and Manhattan active supply chain comprises the newly Manhattan active transportation management combined with Manhattan active warehouse management and.
And frankly, it's been a great first year from Manhattan active Wm.
Market response, and a market response for Manhattan active Wm has really exceeded our expectations.
Patients and our product and delivery teams are fully engaged with the busy summer of go lives.
In hindsight. It does appear that there was a significant market demand for tier 1 cloud native WNS and this quarter's new Manhattan active Wm subscriptions.
Continue to show a nice diverse.
Diversification of geographies and industries and a nice mix of net new Wm logos and conversions from our existing on premise WNS.
And early reports of the customers are seeing significant benefit from innovations like customer grade mobile experience for warehouses associates.
Of the streaming and it's first of a kind employee engagement capability built directly into the WNS.
And I'll close out my product remarks today with a few updates on either of the major Manhattan active platform Manhattan active omni channel.
Last quarter I updated you on some pretty nice signings and grow and Pi.
And for our point of sale application and this quarter I would tell you a little bit about what we're seeing and order management.
We kicked off projects this year and a number of large well known global retailers to implement at core order management applications and.
And not only will they activate core Oems. They will also take advantage of.
Pipeline patent exclusive innovations like interactive inventory for dynamic order promising and Theyre also using the digital self service capabilities to allow their customers to change order pickup windows to create their own returns to create their own exchanges all directly on their own mobile devices and.
From continue to push the boundaries of the the problems, we solve with Manhattan active omni and with an increasing frequency of our omni channel micro services that are of the center of our customer's headless commerce architectures.
<unk> for the future.
And of the industry.
And that concludes my.
And we can do business update Dennis is going to provide you with an update on our financial performance and outlook and then I'll close our prepared remarks with a brief summary, before we before we move to Q&A. So Dennis.
Thanks, Eddie and as Eddie mentioned record Q2, and first half results and nearly every major metric category, we put up.
Brief numbers growth profitability cash flow and balance sheet results were all solid for the quarter.
Our quality of earnings performance was outstanding top to bottom there are no 1 time adjustments and these results just great execution.
And here is the summary of Q2 financial highlights.
<unk>, which includes our guidance for total revenue operating profit and earnings per share. You also can refer to today's earnings release for our adjusted and GAAP guidance.
Also unless otherwise stated growth rates are on a year over year basis.
So the total revenue was up $166 million or was $166 million up 22%.
Our outperformance was broad and across all revenue line items.
Like Q1, we again experienced notable strength and cloud based on our strong first half.
Second half outlook, we are raising our total revenue guidance from our previous range of 625 to $640 to $643 million to $650 million. So our new range is $643 million to $650 million on total revenue targeting.
And the 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.
Targeting and for Q3, we expect total revenue of $162 million to $165 million or 9% growth at the midpoint.
For adjusted EPS.
<unk> was up 61 sensor was 61 cents up 53%.
And GAAP.
<unk> was <unk> 48.
For adjusted EPS, we are raising full year guidance, our full year guidance range to $2 to $2.6 with the midpoint of $2 and <unk>.
Up 23% from our previous midpoint of $1.65.
For GAAP earnings per share our guidance range as of $1.50 to $1.56, with the midpoint of $1.53, and Thats up 33% from our previous midpoint of $1.15.
For Q3, we expect adjusted EPS to be 53 to 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 to 100.
$10 million, we're raising that up to $117 million to $119 million equating to 48% growth at the midpoint.
Q2 was a record second quarter with RPM and <unk>.
With bookings totaling $489 million up 107.
The 13% year over year.
And 16% sequentially.
And with RPI continuing to compound positively our visibility into future subscription revenue continues to strengthen.
As mentioned in Q1, we will update our forward looking guide post on our Q4 call.
And we intend to guide <unk> 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 RP O performance, we are raising our 2000.
'twenty, 1 estimate of $450 million to $550 million.
$2.550 million to $600 million.
License revenue for the quarter was $8.8 million as our base of existing customers added users and the quarter.
And maintenance revenue was.
And was up or I'm, sorry was $38 million up 5%.
On license revenue and solid cash collections.
As previously discussed we expect second half license and maintenance revenue to decline on customer conversions to cloud.
Which is positive for our company.
And our customers RP O and future subscription revenue growth.
We expect license to decline to about $6 million, and Q3, and $4.5 million and Q4.
For maintenance revenue, we are targeting roughly $36 million and Q3 and.
$5.5 million and Q4.
For perspective.
And on cloud demand full year 2020 license revenue was down 22% and maintenance down 1%.
Our 2021 forecast as license down about 54%.
<unk> 30 from the second half and down 29% for the full year No question cloud demand is outstripping license.
Maintenance will be down about 1% for full year 2021 also maintenance will have a longer attrition tail as customers.
<unk> typically maintain customer support through the cloud conversion cycle.
Moving to services revenue services revenue was $85 million up 18%.
With our cloud momentum fueling our services and revenue growth, our Q3 services revenue.
That is $86 million and for Q4 of our estimate is $83 million. The sequential decline is driven by Q4 retail peak season impact as customers typically idle implementations.
And our final revenue line hardware delivered $6 million and revenue.
<unk> up 66%.
So that covers growth how about profitability.
Our consolidated subscription maintenance and services margin for the quarter was 55, 9%.
Up over 350 basis points compared to the year the year.
Go period and.
And it was predominantly driven by our revenue performance and cloud operating leverage.
We expect Q3 consolidated cloud subscriptions maintenance and services margin to be about 55, 2%.
And Q4 margin to be 52, 7%.
And again driven by retail peak season, resulting in a second half margin of approximately 54% ahead of our prior outlook of.
51, 1%.
And how about the bottom line Q2 operating income totaled $50 million up 46.
6%.
Operating margin was 32% up over 490 basis points.
GAAP operating margin was 23, 7%.
We are increasing our full year adjusted operating margin range to 25, and 5% to 26%.
Up about 400 basis points over prior guidance of 21% to 22%.
For Q3, we expect a range of 27 to 27, 5%.
And for Q4 of range estimate of 22, 5% to 23%.
Just.
Just a reminder of our second half license and maintenance of trade expectations combined with Q4 retail peak seasonality is factored into our Q4 estimates.
That said, we are very pleased with our earnings leverage and we are continuing to invest significantly and our business to drive long term sustainable.
Annabelle and double digit topline growth balanced with top quartile operating margins.
Now turning to cash and cash flow taxes and cap structure and.
Other solid performance.
We closed with Q2 cash on hand totaling 2.
$209 million with zero debt.
Our operating cash flow was $46 million, resulting in year to date operating cash flow of $85 million up 41%.
Our Q2 free cash flow margin was 27%.
And note our Capex estimate for 2000.
And 21 continues to be $6 million to $8 million.
Also we invested $33 million and share buybacks, and Q2, resulting and $60 million and buybacks year to date.
For the third quarter and full year, we estimate our diluted shares outstanding to be about $64.4.
Shares, which assumes no buyback activity and.
And also 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%.
And for full year 2021, we continue to expect and adjusted tax rate of about 21, and 5% and of GAAP tax rate of approximately 20%.
So that covers the financial update thank you and back to Eddie very good. Thanks, Dennis but we're very pleased with our strong second quarter and year to day results.
And while the global macro environment remains somewhat turbulent Manhattan associates is entering into the second half of 2021 with the with some tailwind.
We've accelerated the pace of our innovation and delivering the right solutions at the right time.
And the result is strong business momentum and a great opportunity.
So the success to our customers and help shape the digital transformation.
And before opening it up for questions I do want to take this opportunity to thank all of my Manhattan Associates teammates across the globe now many of you of starting to return to our offices and.
I continue.
<unk> for inspired by your flexibility resilience and ongoing commitment to ensure and customers are successful.
So thanks again.
And second that.
Bren.
Now open to take.
Take questions.
As a reminder to ask a question and you.
To be a press star 1 on your tariff.
So on Keybanc and again, that's far and 1 on your telephone keypad.
Your first question comes from the line of Terry Tillman from true with Securities. Your line is open.
Hey, gentlemen, good afternoon, and definitely congratulations on the results and the.
And we'll look update.
I guess I have 2 questions. The first 1 Eddie for you in terms of now delivering on the innovation around the active Wm and TM.
And combined are you actually seeing sales cycles, where they actually want to buy boats and of the products at the same time or is it more of a differentiator and it's just helping spur of the conversation.
Our and improved close rates on just either or that's the first question, yes, yes. Good question Terry.
Well it's early of.
Of course, we're 6 weeks past release of the Manhattan active TM, but the answer is yes, we have we have sold.
At least 1.
And that comes to mind, new brand new customers, So new logo not done business with us before and the.
The contracted for both Manhattan active Wm and Manhattan active TN, so feel pretty good about that and off to a good start 6 weekend.
That's great and then just the follow up question Dennis for you.
Thanks for all of the financial color is what.
And I'm curious about is I think I forgot if it was the fourth quarter of the first quarter profit was the fourth quarter call. You gave us kind of of long term roadmap and how like the cloud subscription revenue and how its going to layer on from this growing RP O, but what I'm curious about it.
Yes, you guys are well ahead.
And your expectations on RPM, but also your cloud subscription revenue has been coming along faster than I would've expected does that change kind of how the the the glide path or the acceleration curve is going to be the you talked about and a couple of years on cloud subscription revenue or could it be maybe more evened out because of what you're seeing thank you.
Head of it is the former versus the latter Terry it will change and.
We will address that we'll address those updates on the Q4 call.
Sure great visibility forward visibility.
It sounds great.
Your next.
And then from is from the line of Joe.
Inc. From Baird. Your line is open.
Great Hi, everyone.
Okay.
I wanted to go to the comment just on existing customers may be choosing to migrate a little more quickly.
Alright, thank you.
Question on accelerating somewhat.
Is that just a function of maybe tie in and comfort is the fact that we're over a year now with active Wm and markets out there has been a chance the see it theres maybe some reference examples.
Or is there something else going on there where given whats happening from the industry.
You said the drop just the elevated the importance of supply chain, maybe comp per with cloud ultimately feeds and as well that.
More customers are arriving at the conclusion of that now has the right time to maybe embrace the new product.
Yes, I think you answered the question well there Joe.
We're a year and.
The streets or year, or so and certainly it takes a little time not so much from a reference ability perspective, but the the budgeting cycles and even though of existing customers. Those 2 on the call and sales cycles and I take a while and.
And we're starting to see more of them.
Come to fruition, but also the accelerating need for.
Our digital transformation and that core supply chain execution space.
We've talked about this before that.
The distribution centers don't look the same today as they did.
And we're certainly 10 years ago and the need for that modern software engine and technology to be able to power of those distribution centers.
Its certainly something thats fueling fueling the growth too.
Okay. That's great and then just on the development of cloud and other gross margin and the upside youre starting to see I guess.
And our picture.
A couple of quarters and are right now of the sequential gross margin improvement.
Do you think you're at the point within the.
And the context of the broader transition.
And really the investment on the cloud infrastructure and personnel that you've been making over a number of years now youre at a point, where they're just should be greater leverage behind that past investments and so understandably.
There is seasonal changes and gross margin, but maybe as we look to the out years.
There is an opportunity to build on 2020, 1 as levels, yeah, well Dennis would take some of the some of the details here as well, but certainly there is opportunity to build on scale and leverage and so forth I do think we had of virtual.
<unk> of momentum conference. This year you know so.
We ended some under spend there frankly, we still have the opportunity that we believe to invest more in marketing and awareness. We're doing okay, clearly, but we've got to get the message out and make sure. We're not 1 of the world's best kept secrets from AR.
Virtual acknowledging and a supply chain perspective, so there's still you know still some some under spend there from our perspective and.
We will continue to make those investments as well as material and investments in research and development.
Yes, Joe I'll piggyback on Eddie too. So we're we're in year 4 of 5 so.
Today, we're probably.
When we look at where we're at we're probably a year ahead of what we expected we are pretty excited about that but bottom line is is we're going to continue to invest and.
And the TNT and and Thats the talent and technology. We think we are overall objective.
I'd says is as.
As I said and the <unk>.
Call and continue to say is as the objective is really to create long term sustainable double digit top line growth and be a top quartile margin performer against any any tech comps out there and I think we're doing pretty good there.
Okay. That's great. Thank you very much.
Thank you Joe.
Your next question comes from the line of Brian Peterson from Raymond James Your line is sort of thing.
Thanks, gentlemen, and congrats on the really strong ARPA number so Dennis city of follow up on that last question.
And I've seen.
And I think we've seen the initial outlook of the last 3 years imply a decline in operating margin, but now we're seeing the expansion in 2020, we'll see margins up again this year.
I know theres still a lot of moving parts, but are we at the point, where we can kind of call of trough and in operating margins or is there any dynamic related to hiring our investments.
We need to keep in mind, there, we're not going to call. The trough at this stage, so we'll evaluate that and and discuss that in the Q4 earnings call Brian We.
We are going to continue to continue to invest and the business, but suffice to say, we're we're pretty confident and our ability to generate operating leverage.
Got it and maybe just 1 follow up from me on the Rps and that was pretty strong again this quarter I'm curious if you had to look back in the first half of the year and and clearly <unk> exceeded our expectations do you think the upside was more related to volume or just like the sales cycles or maybe related to deal value and anyway.
And kind of slice and dice it that way and just be curious to get your thoughts there thanks and pretty.
And pretty balance Brian actually so we've.
We've seen nice deal volume, we've seen some some bigger deals not much but a little bit on the longer contract side. So really a really nice balance that's driving that number of frankly.
Yes, we're seeing a nice balance of not just our installed base, but net new customers and our portfolio is well pretty exciting.
Good to hear thanks, guys. Thank you Brian.
Yes.
Your next question comes from the line of Mark Scheffel of from benchmark.
Frankly, the line is open.
Hi, good afternoon, and thank you for taking my question, let me start up of saying congratulations on.
This job on the quarter or another and another another good quarter.
Driving and just wanted to dive down into some of the drivers of growth and the quarter.
Were there particular product areas that you saw.
And our performance of more so than others and it appears just based on some of your commentary in your prepared remarks that WNS kind of led the way its not the sort of a good read.
Certainly WNS was the preponderance.
Our heritage there and so forth and it tends to be sort of the lead the lead product.
Certain of but much like Q1 that was very nice balance across the product portfolio WNS was strong for sure and it was the lead dog, but.
But <unk> really really stepped up and Q2 and delivered some nice numbers and the Tms.
Point of sale and the inventory purchases.
Participated as well, so pretty pretty nice balance frankly and.
Pipeline is continues to strengthen as well so were similar across similar balance and the pipeline.
Okay, Great and then just diving down a little bit on the point of sale.
Product that you are having on the Q1 call Youre seeing a P.
Pick up and.
From large point of sale projects and the sense was at retailers and we're just kind of restarting some of the strategic initiatives that they had and I was wondering if that momentum.
Carried over into the second quarter here. It appears that it appears of the 2 yes, yes continue continues to have nice the nice momentum.
On the.
The good news is that.
Some of these implement these implementation timelines of getting shorter and shorter so that you had the 3 point of sale customers go live just in the last just unless and the back half of the back half of this quarter.
And.
And the.
And the nice thing.
The bag the point of sale pipeline for us is.
The 50% of the pipeline again brand new customers that we've never done business with before so.
As we've said many many times is not going to be an overnight success, but we really do feel like the flywheel given the the wins.
<unk>. Some go lives were getting under our belt now and the pipeline that we're starting to see.
And I will pick up some momentum.
Okay very good and then finally here.
Just stepping stepping back taking like of 30000 foot view Eddie.
Based on the over performance. It appears that you are seeing a sense of.
Of heightened urgency from your customers regarding modernizing our supply chain and I was just.
I'm wondering if you could just address how customers were maybe thinking differently about supply chain modernization today than they were a year or 2 ago, yes, well I think.
The combination of needing of recognizing that they need a resilient.
Williams, and the supply chain and they need contingency and the supply chain and frankly, it's a very competitive competitive world out there.
And set a little bit of a different ways and I said in the in the script and our supply chain. These days is of customer service attribute alright, so each 1 of the customers supply chain associates.
Associates, and our customers feel like their customer service advocates.
And so I think the need continues to grow the need continues to heightened to bring supply changes the 2.
Of the forefront and b of competitive differentiator for for our customers.
Okay, great. Thank you.
Nice job.
Thanks Mark.
Your next question comes from the line of Xi'an and Kim from Loop capital markets. Your line is open and thank you. So congrats on another strong quarter, Eddie and Dennis.
Thank you.
Yes.
No doubt.
You rolled out at the PM I believe that's the last of the high profile.
Products.
To the activated into the active product family.
See debt. So can you just give us on update on what your overall thoughts on what's next maybe if this is a good time to update us on your.
And the strategy.
Thanks, Yeah. It was still plenty of work to do young and the and the supply chain space. You know, we have and frankly, a lot of a much longer list of of innovations in the Hopper. Then then we can get through and the next quarter or 2.
We will.
<unk> to bear down on the on the investment strategy build out and the innovation into the white space that we see I do think that the.
A couple of areas.
In addition to the constant build out of the constant changing markets that drive new needs.
Continuing the omni suite of solutions into WNS into Tms the 2.
2 categories I think that are and the.
<unk>.
Ah is a continuum and 1 is.
Greater and greater levels of customer engagement.
And.
And all of this work and digital self service and what we've called consumer grade.
Still I think is a very vibrant market and the white space for us to drive into.
And then the second piece is inventory optimization and I'm not suggesting that.
Any of that.
So those are the markets not focused on inventory optimization, but there is still a real race to drive customer satisfaction and meet all of those SLA and.
And we have yet to see the real acute focus on inventory optimization.
The customer in the Omni channel World and we believe Thats, we believe thats coming and we.
We're investing ahead of that trend.
Okay. That's.
That's great thanks and debt.
<unk>.
We used to get on.
And the metric and a number of deals above $1 million and the good old like the licensing of your days.
And so how should we think about what is that similar metric for large subscription deals should we look at it from the total of our appeal perspective.
And should.
Should we be asking you how much of our growth is driven by these large deals or something like that just wanted to get your sense on how we should assess.
Overall kind of.
Exposure to big deal activity because of that you have mentioned the IPO growth could be lumpy, depending on the sizable bookings and whatnot.
Yes so.
From a from an <unk> point of view, it can be lumpy from quarter to quarter, but bottomline.
Europe is it's compounding from a growth point of view and that's that's that's a.
Very linear.
And in essence.
That's from a from a.
What I would judge what I would judge our performance by Us really.
<unk> and RP.
Overall, ARPA growth from quarter to quarter and the guidance we're giving.
And then a question that I always ask any meaningful change and the overall contract lengths debt that may had a meaningful impact on the <unk>.
No okay.
The Dol.
Alright sounds good. Thank you very much thank you.
Once again asking the question you already the best bar 1 on the telephone keypad and then that's fine.
All of them on the telephone keypad. Your next question comes from the line of Matt Pfau.
William Blair Your line is open.
Hey, guys. Thanks for taking my questions.
Eddie I think in your prepared remarks, you mentioned that you are seeing existing customers accelerate the conversion to the cloud maybe just care to expand on those comments a little bit on in terms of what's driving that.
And we just think timing timing, Matt for the most part.
We were about a year from release.
Upgrade cycles.
Budgeting for upgrade cycles, and so forth and take some you know it takes some time, so I think Thats you know Thats 1 factor and.
And then the the continuing need to modernize the distribution center.
And <unk>.
Get access to get.
Almost immediate access to the innovation that we're the we're.
And developing.
Hey, Matt.
And then Matt the other.
And just jumping in here is as broader suite of solutions, we've been delivering new innovation over the last 4 years and.
And what we're seeing is really.
From a pipeline build and just and the sales process pretty nice diversity.
The loss the solutions.
Got it and then from a geographic perspective, I think you called out of the Americas has been particularly strong and the pipeline, but also seen.
Some improvement and.
EMEA and APAC.
Yes.
Is that just driven by America reopening quicker of being more Rio more open than some of those other geographies or what sort of behind the the.
The pipeline strength there.
Thats it Matt.
Even within APAC and.
And EMEA returning.
Equity the the micro.
On the.
The micro.
Trends there are certain countries and so forth.
The other that are still.
<unk> from a from a.
Yeah.
And our perspective of opening and open up the doors and so.
So yes, I, just think it's a little bit of of lag and a little bit of a little bit of timing there before we see the same kind of modernization.
Trends.
Really start to blossom, and those and as Mark, but we'll book, but we can certainly see it I think it's on the on the doorstep frankly.
And so forth Greg.
Great guys. That's all I have thanks, a lot. Thank you Matt.
Your next question comes from the line of Mark <unk>.
And from Rosenblatt Securities. Your line is open.
Thank you and good evening, guys and Mark.
Just a quick follow up to the.
Okay and for other question on of the Rps of strength, obviously blue.
Just first couple of quarters and.
And I was wondering how much.
Of your original guidance had how much macro conservatism might of been built in.
And sort of how that may or may not still be extended into the second half of the year.
The relative to the obvious incremental strength that you've been seeing.
Yes.
The question coming coming.
Coming into the year.
We were a little cautious about how things were going to shape up here and here and around the world.
But now.
Obviously, we're seeing.
The demand, we see and the bookings we're seeing the pipeline grow.
So feeling fine of feeling stronger about it hence all the raises the raises across the across the board. So.
And we are.
We certainly try to be and under promise over deliver organization. So.
We see the we'd like to keep that trend.
And that trend going but.
As you can see from that.
The raises that we've provided the.
We've delivered and guidance that we've given and so forth where we're not exactly.
Holding back.
And now we're feeling more confident.
Got it and.
Just the.
Last 1 on Europe.
The comment on strength there just to follow on to the last question is there some quantification to that strength of its too early to tell just how strong Europe will come back.
And maybe some color on.
At Europe over the next 6 to 12 months and it's just been.
And we'd ladder.
Relative to sort of and a little flatter relative to the U S over the last 2 or 3 quarters and we.
We see it coming coming back to normality, if you want if you'd like to put it that way.
Typically we've seen.
Europe represent somewhere between 12% and 15% of software.
And a little software revenues.
And it's been a little lower.
No not materially, but a little bit lower than that for the last couple of 3 quarters, and we see it coming back to normal ranges here and the near future.
Got it.
Awesome. Thanks, guys.
Pleasure Mark Thank you.
Ladies.
There gentlemen.
Manhattan Associates Q2, 2021 and earnings call. Thank you for participating you may now disconnect.