Manhattan Associates Aktie

Awesome. All right. Perfect. Thank you, everybody, for joining us here today. My name is Dylan Becker. I'm the research analyst at William Blair that covers Manhattan. We have Eric, Sanjeev and Linda. So we've got a full quorum here from the Manhattan side of the equation.

For all of the necessary disclosures, you can find those on williamblair.com. But thank you all for joining us.

And I know that there's varying levels of familiarity, but there was a release earlier this week, Eric, to just maybe just kind of start the conversation, if you could kind of give us a sense, I know you announced a small reduction in force. Just kind of where you're seeing that operationally, what drove that and how we should kind of be thinking about it?

Sure. Yes. We announced a small reduction in force, about 6% globally. And since I joined Manhattan at the beginning of last year, I've talked about investing more in sales and marketing, but not at the expense of lowering margin. So we have always said we needed to find areas in the business where we could reduce cost and invest more in things that would help us accelerate the cloud growth faster.

And one of the key areas that we looked at this time, as Linda stepped into her role as CFO, was we have never as a company de-supported any product. And we're not changing that. But we do have a number of legacy products that we have a shrinking number of customers running because we have more and more of those customers moving to our cloud products. So this was about resetting the cost primarily around those legacy products. We can continue to support and give those customers the same great support that they've always had on those products, but we saw an opportunity to reduce some of the spend around those.

Makes sense. Okay. Very helpful background. But now if we kind of zoom out and step back, for those that are maybe not as familiar with the business, right, could you give us a sense of Manhattan, kind of the evolution of supply chain software and digitization, kind of what you guys are seeing and the problems that you're solving?

Yes. So Manhattan has been in the supply chain and commerce software business for more than 30 years and started out really doing a lot of supply chain consulting. And that turned into building systems, and then building on-prem systems, and about a dozen years ago, we started working on building the cloud solution.

And for the past 10 years, that's really been the key element of our growth as a company, is that cloud business. And that's what continues to drive our growth, and more than 20% year-on-year growth in the cloud business across warehouse management, transportation management, order management, point of sale and supply chain planning. And then most recently, with putting active AI agents into all of those products, that had really accelerated growth again.

Excellent. And we'll definitely get into each of those components. But maybe from an industry perspective as well too, what's happened, kind of this secular shift around rising complexity, maybe a shift in consumer expectations and sentiment that's driving kind of this digitization or modernization from the industry off of maybe what has otherwise historically served as legacy systems?

Yes. And I'll let you guys jump into this as well. But one of the things that we've seen, you look back over the past year and there's been a lot of noise in the market, right? We've had Liberation Day and tariffs that are on and off. We've had wars. We've had the SaaSPocalypse. But what we've seen from our customers and our prospects is that they're kind of not getting too distracted by the headlines and really recognizing that supply chain is mission-critical and it is strategic and it is one of their differentiators.

So that's kind of resulted in we continue to set record sales bookings quarters. You kind of look at the last 2 quarters, calendar Q4 and Q1, were probably the noisiest in terms of war and SaaSPocalypse and what's AI going to do to software. And we had our best Q4 ever, followed by our best Q1 ever and carried a lot of momentum into Q2. So we're pretty pleased with where we are.

Yes. I mean, I think, Eric, you -- most of it. Just in general, since COVID days, supply chain has become a lot more known word and I think people are kind of asking us more than asking us less.

Sure. And maybe, Sanjeev, for you, right, you've kind of been the architect of the shift to the cloud in some context, right? How you've seen that evolve, kind of the propensity or the buyers' willingness, if you will, to move to more modern systems?

Yes. So I think if you go back to our journey 10, 12 years back, biggest strategic decision we made was to invest in a new platform and build it ground-up, compared to everybody else who did a lift-and-shift to the cloud. At that point of time, we kind of decided that we will build everything as API first, headless. And I think as you look into the new AI world, that has played out extremely well for us from that respect.

Now the second aspect, if I look through the various things which worked out in our favor well was when we decided to rebuild this thing functionally, we took a little different approach of building this. So we kind of broke down the traditional boundaries of WMS, TMS, labor, slotting, all of those things. And we looked at it more from a capability perspective, on what is the capability required, and build them as a true micro-services architecture, right? So you have a unified commerce platform -- supply chain commerce platform, versus a WMS application or a TMS or a labor or a slotting. We still sell them that way, but underlying it is a unified platform.

The third dimension to that as part of the journey which kind of really helps is how we actually build the platform, right? So 12 years back, instead of writing traditional software or enterprise software, we decided to actually write a code generator and not write code directly. This is before AI, this is pre-AI, everything else. And I've shared this data 2 weeks back at our conference, we generate 75% of our code today and have been generating for the last 10 years. We generate about 45 million lines of code every night overall from the codebase.

And the reason was not efficiency really when we did this thing. The core driver behind that was how do we keep up as changes come along, right? Because we knew that the software will change and the models will change. The biggest thing which I obviously was very sure of is the user interface will completely change, because we've seen that happen over the last 30 years, from green screens to mobile UIs, web, mobile. The transition has happened over a period of time. So that was kind of one of the drivers when we wrote the generator, saying, okay, we need to be ready for whatever comes next, right? And that has played out really well as we get into the AI space.

And that I call what is our deterministic spine when we generate, so we can bring in anything else. And it has become a lot easier to kind of plug in AI, the probabilistic spine of AI, back into the deterministic spine.

Yes. And it's probably a good going-off point into AI as well too, but how that positions you to kind of balance between those 2, right? There's a lot of rules and configuration and deterministic necessity, if you will, in supply chain, but pairing that with the probabilistic capabilities of some of these models?

Yes. So that's one other difference in approach we kind of took. So in supply chain world at least, our customers will tell us is almost correct is equal to wrong. So we have to be right all the time. And for that, you need to be very deterministic in actions you take, right? If you have to ship 100 somewhere and you ship 101, that can break us up. You cannot kind of really do those things.

So when you look at the AI-native companies, they start from the point where you take an LLM and you throw a bunch of stuff at it and it figures out what needs to be done. And that's kind of their starting position. And our starting position always was a very hybrid approach, of you need a lot of stuff that has to be very deterministic. It doesn't need AI or a probabilistic thing. Now there are certain decision points you need in this workflow where we can throw in an LLM and have it makes decisions. But there are a lot of places where we've built a lot of algorithms in the past, and those algorithms are as good as anything else and they have to be used to get a very deterministic answer.

So that's been a big difference between our approach versus some of the approaches you will see being thrown out there. And the good news is even if people who kind of took that approach now are probably aligning with our point of view, is you need to bring in this determinism back into the AI and you cannot throw everything on the probabilistic side of it.

And I think another thing that we've seen in the market over the past several months is, for a long time, you saw companies that were I call it a fear of missing out, right? They were trying to figure out how to use AI, they're creating leaderboards. And then we saw the issues of token maxing, right? So now the conversation is how do we make sure we're getting value out of AI and how do we make sure we're not overspending.

So we've done a lot of things in our platform to address those things. And you start with our platform, based on the architecture that Sanjeev described, is truly AI-native. So we're never talking to our customers about data lakes or data indexing projects or the latency and the security risk that come with all of that. When we're doing AI on our system, we're doing it using the same APIs that a human user would use. So it doesn't introduce any new complexity, any new security threats, et cetera, and it allows a much faster time to value. When we turn on the AI-based agents, they can use them same day. So we're seeing customers get real value in production right away.

We've also created a dashboard so they can see that. They can see exactly which agents their teams are using and what value they're getting out of those agents. Again, going back to, am I getting value out of the AI that I'm using?

And then finally, these agents are all smart enough to, again, to Sanjeev's point, look at what function should be done by that deterministic backbone of the platform that's based on decades of deep industry knowledge. And where should we be probabilistic? And when we do use probabilistic which LLM should it use, which LLM is most cost effective? So that also addresses the customers' concerns about what value they're getting. And we're not out there trying to help them do token maxing. We're trying to make sure that they're getting ROI, improving the ROI.

Yes. This seems to be a general misconception of the market, that you can throw AI at it and it will solve every problem no matter what that is. And I think that's far from the truth. People will realize that it needs a structure. And the deterministic spine we've built provides it that core structure. And then you can kind of -- the brain from the AI, which you can mix it up nicely and create a hybrid system, you'll get the best results.

And you guys are already starting to see this, right, so maybe if we start to talk about your agentic deployments, the use cases that the customers are kind of using these agents for, the ROI kind of case studies that you're seeing from an early example perspective. And then I guess we'll flow to Linda on monetization of those. But yes, I guess, how are customers kind of deploying agents actively today?

So I'll kind of start and then Linda can kind of add to it. So one is, if you look at supply chain in general, it's an industry which is -- which deals with exceptions all the time, right? Most of the supply chain professionals kind of on a day-to-day basis, the core of the job is find an exception, figure out how to solve that exception, resolve that issue and then kind of get going.

And sometimes those exceptions can take 3, 4, 6, 7 hours to resolve. And by the time you kind of resolve that, the truck which is leaving that day has already missed the shipment. And that's a pretty big cost. And what we've seen in some of these use cases is the agents are able to help resolve those exceptions as soon as they kind of really happen. And that makes a huge difference, right?

So if there's a problem with the order not getting allocated, somebody who's chasing that allocation can take 2, 3 hours. And by the time they figure out that the inventory is sitting in the receiving dock, the truck has already kind of left and you missed the shipment. If an agent can figure that out, that this didn't get vacated and it's just sitting there and it can actually move that inventory from there to put away, you can make that shipment. And that's a big difference we are kind of seeing already in production, right?

So we're seeing customers who are increasing their shipments by anywhere from 6% to 30%, which is a huge number in terms of the overall business metric they can achieve through these things. And this is one example, right? And supply chain is full of all the exception management. And that seems to be the biggest core theme we are seeing. There are other things we are kind of doing with it from a user experience perspective, from a productivity perspective and data insights, but that probably, I would say, from an ROI perspective, has been the biggest benefit people are seeing right now.

And maybe, Linda, for you as well too, as you're kind of deploying more agents in the field, how you guys are thinking about kind of the monetization structure. I know we have the 90-day kind of proof of concept, get it in the hands of customers, let them identify the value and then we'll kind of figure out what that ROI kind of ends up -- or I guess, our take rate on that ROI. But how are you thinking about monetization as we start to layer in more agents across the network?

Yes. So from a monetization perspective, we're basically going to be pricing this as a percent uplift on their base subscription. And we're using the pilot program as a way to figure out how much do they actually need. For example, if they only want to roll out 1 site or a small number of agents at first, they might be able to select a lower tier from a subscription standpoint. And then as they want to roll that out to more sites or they want to develop more agents, then they could choose to go up from there. So we're giving them the flexibility depending on how much they want to use.

And I'm sure that customers are kind of clamoring once they see the value, to kind of deploy more agents. But there's probably a little bit of a data readiness problem that they have to solve first, I guess, as we talk about this modernization. I guess maybe the question more so -- yes, I want to address it, but the question is more so like how is the conversation on the topic of AI incentivizing core system modernization for your warehouse management solutions?

Yes. One part of it is AI, that becomes one of the big carrots for customers who are not in our modern cloud platform. It gives them one more incentive, one more reason to kind of move to the cloud platform. Now we've stacked up the deck all along, I mean cloud platform is far more richer than our own on-prem product for us. And I think this can tip the scales easily on why they need to move to this thing.

Now you kind of mentioned data readiness, and I kind of said before. So one part of this, one big difference from our perspective really is when you start with a cloud platform, you're already ready, right? We can start you day 0 when you say "I want to turn this on." Any other approach you will see out there, right, starts with, "Okay, you got this data, I'm going to create this data lake. I'm going to index this. I'm going to put the security, I'm going to figure out how to kind of get you ready." And that could be a 3, 6-month, 1-year project before you even start using it first time in production. And the approach we took from being API first, being headless, right, you can throw the agent and start using them day 1, right? So I think we took the whole data readiness question completely out of the mix.

Yes. No, that makes perfect sense.

And in fact, a few weeks ago at our user conference, the largest-ever attended conference by customers and by prospects. And we had a number of customers on one of our keynotes that shared their stories of how they're using our AI. And they kind of ranged from one customer that had been using it for 3 months to one that have been using it for only 3 weeks but already finding that value and already justifying the ROI. So I think that's one of the big differentiators that we've got, is we're able to very quickly turn it on, show value and justify the expense.

And a big initiative since you've come onboard as well, Eric, we talked about kind of adding sales capacity and leaning into conversions off of the legacy on-prem base, I guess, can you kind of just dive into the nuances of where you're adding kind of structured teams, how you think about those investments kind of ramping and cross-selling, I guess?

Yes. So if you think about what we've done over the past quarters from a sales standpoint, we've put more structure around I call them the intersections. You think of all of our products and then the deal types across conversions and new logo and renewals, and we've made sure that we've got teams that are dedicated to those intersections, so that we're not overlooking anything and not having people too focused on the low-hanging fruit, right?

So what that's done is that's created the best pipeline we've ever had in most of those intersections. And we've got -- take as an example, point of sale, we now have people that are career point-of-sale people doing those sales opportunities as opposed to somebody that maybe has spent their whole career in warehouse trying to sell a product that's related. So that's put a whole lot more focus on building that pipeline and continues to drive those high win rates. We've talked about more than 70% win rate across all of those products.

You mentioned conversion. Conversion was a big opportunity to create that dedicated team because in the past at Manhattan, we've always taken the approach of they'll convert to the cloud when they're ready. And we decided it was the right time to get more proactive and more consultative with those customers and talk to them about not only the value of what they get on the cloud platform versus what they have today, but as we're introducing AI, that's probably the biggest step-up, right? This is the biggest carrot we've ever seen of what they could have versus what they have.

And then the other thing that we're out there proactively talking to them about is they probably have this image in their head that that conversion from the on-prem to the cloud is going to be something big and complex, because that's what they're used to over the past many decades when they were converting and upgrading on-prem products. Those were big, complex, long, expensive projects. It's not that way anymore.

So we're committing to fixed time line and fixed price conversions that are leveraging AI that we've built to auto-configure. We know exactly what they're running today. We know where they're going. We're seeing 40% decreases in the number of extensions. The extensions that we do have to write, we're writing twice as fast. So just everything we're doing is much, much faster, which takes the risk out of them moving to the cloud and allows them to take advantage of the carrot that's out there and all of this new functionality, including the AI.

Yes. And so it's effectively enabling customers to, yes, adopt and lean in more aggressively.

Exactly.

I guess on the professional services component, right, as you're moving to a fixed fee, I guess, how should investors interpret that dynamic, right? In one angle, it's conviction and efficiency that you're seeing. On the delivery side, it's reducing risk from the equation. But how do you think about kind of what that unlocks maybe in being able to expand the scope or volume of projects that you're serving as well?

Yes. What that unlocks is the ability to do a much higher volume at a much faster pace, which is driving faster cloud growth. In Q4 of this year, our cloud revenue will surpass services revenue. And once it does, it's going to -- that gap is just going to get bigger and bigger. And as you would expect, our cloud margins are bigger than our services margin. So that's going to create the ability for us to accelerate margin growth even faster. So this is just kind of setting that process off and running.

The fact that we are growing services revenue this year just tells you, you can assume that everything we're doing in services, we're doing it faster now than we were doing it a year ago. So when we're growing services revenue, that means we're doing more volume, right? We've got more go-lives, more new customers. 55% of our bookings over the past 5 quarters have been new logo. So we just continue to put more and more new customers into the system.

And maybe what's the right way of thinking about what that kind of normalized balance looks like between each of those components, between conversions, new logos, expansions, you said kind of 55% from new in the most recent period, but...

Historically, Manhattan has always talked about thirds. About 1/3 of the bookings will be new logo, 1/3 will be, call it, expansion within the cloud customer base and 1/3 will be conversion from on-prem to the cloud. And as I mentioned in the past 5 quarters, we've really been running really fast with new logo and it's been 55% over the past 5 quarters.

Our expectations with the focus that we've put on cross-sell, upsell and conversion, that we would like to see get back to thirds, but not because that new logo is coming down. It's because we're driving even faster on conversions and cross-sell. So we see the opportunity there.

The other thing you have to think about is last 5 quarters, 55% new logo, that's created more cross-sell, upsell opportunity. So there's just more and more opportunity out there for us every quarter.

Yes. And you guys talk a fair bit about the idea of unification, right? Historically, had been more oriented on warehouse management. We have additional modules. Ask maybe Sanjeev and Eric as well too, but that kind of platform simplification from a technology perspective, how customers are buying into that kind of unification vision, if you will?

Yes. So I mean, I think like I said, when we started the platform, we broke down the boundaries between what is a WMS and what is a TMS. For example, a shipment is a shipment, it can be used in WMS and TMS. So somebody who implements WMS with us is already more than half the way there with TMS functionality already in there. So for them to turn on TMS becomes a lot more simpler task.

And then we can kind of really articulate the value between that having as a single supply chain system versus having it as a WMS and TMS, right? So when you get an order down, typically, traditionally, a TMS would kind of plan that autoroute without knowing what's there in the warehouse. You do not know what the inventory is, you get a plan, warehouse kicks 10% of that out, and now you got a not optimized truck leaving, right? Versus this being a single system, when you can do the planning, knew exactly what you have from an inventory perspective, so you can plan accordingly and chances of you shipping a truck at the right capacity levels are much higher, right?

All of those things just pay for itself. So you just take that particular single-use case and that can pay for WMS and TMS together on what you would save on the transportation costs.

Yes. And we're seeing every quarter more and more of the new logo customers are buying multi-products at one time. And we introduced warehouse management in the cloud a little over 5 years ago, so we're kind of in that natural renewal cycle of that. And when we introduce warehouse in the cloud, we didn't have transportation. That came later.

So you've got a big renewal cycle coming where we expect to see a lot of these warehouse customers adding transportation. Because when we -- again, when we look at new logo, about half of the customers that buy warehouse as a new logo now also buy transportation at the same time. So it's a very natural connection.

And then we just launched supply chain planning in the cloud about a little over a year ago, and we're seeing that become a more and more common add-on to all of these products. And of course, order management and point of sale go very well together. So we're seeing more and more of that unification story across multi-product customers.

And I would think that that has favorable kind of economic benefits as well too around kind of stickiness of relationship [ when you have the option ]. But I guess maybe from a platform differentiation perspective, right, kind of a competition question, I guess, to some extent, but I would assume that not many others can kind of offer that full breadth of platform capability. I guess, just kind of how you think about that as a core differentiator.

Yes. So a couple of things. So there are companies who would kind of give you the functionality, but the way they deliver the functionality is through 16 systems put together, which makes this whole thing a lot more complex to implement -- integrate because it comes from basic integration. And we've taken the word integration out completely, right? When you kind of take software from us, it is a set of capabilities you take from us and you use what you buy. But it's all kind of done without any integration needs, as a core micro-services. So that's kind of one big difference from a platform capability.

Like Eric mentioned about omni order management and POS customers, our customers who are using our order management are already using POS. Almost every component will require POS, right? To turn that on, POS is really getting the register on, and start using the system. So it becomes a lot more simpler for them to move from one product to another product because core of it is already in there.

And is that starting to show up -- you kind of hinted at the renewal cycle dynamic, kind of those customers coming up with the initial contract terms? Now you have more capability and resources to kind of educate customers of the additional products that you have. But how that's maybe kind of trending from a dynamic kind of customer cross-sell and upsell?

Yes. And again, last year, middle of the year, we put this dedicated renewal team in place. And the reason for that is exactly what you're talking about is to make sure that, a couple of quarters before the renewal comes up, we're having the conversations about what are the natural cross-sells and upsells for that customer, what products should we be adding on to make sure that we take maximum advantage of that renewal cycle.

So what we're seeing in our pipeline is the amount of cross-sell, upsell at the time of renewal is significantly going up in the pipeline, not just for -- like Q1 was really our first quarter where we had this team in place, but we're already seeing that pipeline created across deals that are coming up for renewal even in Q3 and Q4.

And the other thing with customers is when they start using one product of ours and get comfortable with it in a couple of years, they become a lot better believers in the overall system and the architecture, which creates the traction for the next set of products.

Sure. Maybe Linda, bringing you in here as well too, how are you -- we've talked about a lot of like the opportunity across all of these different segments and lines of business. And Eric I think hinted at the fact that subscription revenue will surpass more than 50% of the overall business mix. But how do you think about kind of drawing down against that opportunity, what that can look like from a business perspective as it pertains to the growth profile, the profitability profile, the investments maybe in some of these platforms or products as well too?

Yes. I mean I think just as we think about the metrics of the business and what's important to keep an eye on, historically, our investors have focused on RPO. But I think a very important metric just given our focus on accelerating cloud revenue growth is going to be that ramped ARR metric that we introduced at the beginning of the year. So what that's doing is it's looking at our contracted revenue in 4 years' time. As an example, at the end of 2025, that had grown 23% year-over-year. So that just showcases again, number one, visibility into our future cloud revenue, but also our ability to accelerate growth.

So that's definitely our main focus is trying to accelerate that, because I think as Eric mentioned as well, the cloud revenue does have a higher margin than our other items, and that will help us to accelerate or grow our operating margin.

Sure. And is there maybe a way to kind of think about that too? Because these are multiyear commit contracts where there's an embedded ramp. We also talked about the fact of kind of delivering faster, getting them online faster. How those kind of like converge, I guess, or thinking about what that convergence looks like between those 2 metrics?

Yes. So when you think about when we sign a contract, that -- the revenue starts to come to us as we deploy, right? And when we sign a contract, we agree on a deployment schedule, and that revenue is going to ramp based on that schedule. If they get behind, the revenue still ramps. So that is committed revenue. But if we can move them faster, then the revenue grows faster.

So I think we see a lot of scenarios where maybe a customer takes a conservative approach just in case they can't move fast enough. But as we can help them move faster, they are very willing to move faster because they get their ROI faster. So we just are really maximizing our opportunity to take advantage of accelerating revenue growth simply by deploying faster. So it doesn't require any new sales. It just means we deploy faster.

Yes. And maybe part of the platform simplification as well too, I know traditionally you've kind of catered to the larger enterprise kind of types of retailers and, I guess, manufacturers there. But what does it mean in unlocking the incremental opportunity to maybe go a little bit more down-market and grow kind of the overall pie and your ability to kind of simplify that?

Yes. So we've always talked about we're focused on Tier 1 and Tier 2. And that, Tier 1 and Tier 2 make up about 80% of the spend in the market. However, I think when you get to the lower areas of Tier 2, maybe we're not in all of those deals. Maybe there are some customers in that space that think, oh, Manhattan has been the leader for -- in the Magic Quadrant for 18 years, but they're big and complex. Because we're known for solving the biggest, most challenging deals.

But what we want to do is make sure that we can scale down very easily. And that part of that focus on speed and simplicity is if we can take time and dollars out of deployment, that takes down the total cost of ownership. So that allows us to expand that addressable market and go deeper into the Tier 2. So that's been a focus for us. And I think in the second half, we'll have more announcements and put more clarity of how we're going to get even more focused on expanding that addressable market.

Sure. Maybe one other component too, but what role -- I know this has been an area of emphasis as well that you've kind of been building, but what role do partners play in kind of the educational component, obviously, the delivery component of getting kind of the software and some of these additional modules to customers?

Yes. So we've had a good set of partners for a long time, including technology partners and services partners. But when it comes to services partners, we hadn't always had the best relationship with all of them. So about a year ago, we changed our partner model and committed to them of what -- number one, what we expect of them. And bottom line, we're expecting them to create pipeline and bring us deals, and not just follow us around and look for services opportunity. And when we do that, we made commitments to them about how we will help them win the deal and win that services.

So we're seeing a lot of partners really lean in and create new pipeline. In fact, we had 1 partner that just announced a program that they're putting in place. Our big user conference in the U.S. is called Momentum, and we follow that up with user conferences in EMEA and APAC that we call Exchange. So as a lead-up to EMEA Exchange, they're doing a 6-city tour where they're inviting prospects that are currently customers of our competitors coming up on renewal cycles, to educate them on Manhattan Active and ultimately get a bigger audience of prospects at Exchange, ready to make purchasing decisions via Exchange.

So we've got a whole new focus from our partner ecosystem on creating that pipeline. And a lot of our partners have relationships with kind of that Tier 2 type of customer, right? So we're seeing new deals that we wouldn't have otherwise seen.

I know we're kind of coming up on time here, but maybe one other way to kind of exit the conversation. We've talked a lot about different factors that are driving kind of momentum and enthusiasm in the business. Maybe one for each of you, maybe from kind of an industry perspective, from a technological perspective and from a financial perspective, but everything that we've kind of discussed today, what excites you most? Or what are you kind of most enthused about kind of the opportunity ahead for Manhattan as we think about kind of this compounding financial profile of the business?

Yes, maybe I'll take the industry perspective. I think it's quite exciting to see, I mentioned it earlier, best Q4 we've ever had from a sales perspective, the best Q1 we've ever had from a sales perspective, during some times where there's a lot of turmoil in the market. I think it just really shows that customers understand that supply chain is mission-critical and they are investing in this. And when they look at this, I mentioned 70% win rates, nobody has invested like we have, nobody else has the platform that we have. So when they look at this market, they're overwhelmingly coming to Manhattan.

Yes. So I'll go from the technology perspective. When you think about enterprise software, right, and you think about 4 years, 5 years from now on what will differentiate enterprise software from each other, I define it simply as it will be measured in terms of its IQ, the autonomous part and how much it can automate and bring intelligence, and its EQ, which is really the contextual intelligence and software adapting to users versus users adapting to software. So I think that's kind of my measure of how do you see software -- enterprise software, how do you measure software 5 years from now.

So what is exciting for me really is all the work we have done over the last 10 years, building the deterministic spine, is bringing the AI into it, the probabilistic part of it and delivering that intelligent software of the future.

Yes. And I think on the financial side, what's the most exciting is, obviously, our goal, like we've said, is to accelerate our cloud revenue growth. What's exciting is that we have multiple ways that we can do that, right? We have a lot of good programs that we've put in place between our product specialists on the sales side, our new focus on renewals and conversions, the specialist programs for those, as well as obviously having top products, new exciting features we're adding. So yes, we're excited that we're moving ahead.

Fantastic. Thank you all for the conversation. Appreciate it. And we will carry on the conversation, for those interested, upstairs here. I believe it's in the Richardson room in the next 5, 10 minutes or so.

Thank you.

Good afternoon. My name is Joe, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates First Quarter 2026 Earnings Conference Call. [Operator Instructions]

And as a reminder, ladies and gentlemen, this call is being recorded today, April 21, 2026. I would now like to introduce you to your host, Mr. Michael Bauer, Head of Investor Relations of Manhattan Associates. Mr. Bauer, please go ahead.

Great. Thanks, Joe, and good afternoon, everyone. Welcome to Manhattan Associates' 2026 First Quarter Earnings Call. I will review our cautionary language and then turn the call over to our President and Chief Executive Officer, Eric Clark. During this call, including the Q&A session, we may make forward-looking statements regarding future events or Manhattan Associates' future financial performance. We caution you that these forward-looking statements involve risks and uncertainties are not guarantees of future performance, and actual results may differ materially from the projections contained in our forward-looking statements.

I refer you to Manhattan Associates' SEC reports for important factors that could cause actual results to differ materially from those in our projections, particularly our annual report on Form 10-K for fiscal year 2025 and the risk factor discussion in that report and any risk factor updates we provide in our subsequent Form 10-Qs.

Please note that the turbulent global macro environment could impact our performance and cause actual results to differ materially from our projections. We are under no obligation to update these statements. In addition, our comments include certain non-GAAP financial measures to provide additional information to investors. We have reconciled all non-GAAP measures to the related GAAP measures in accordance with SEC rules. You'll find reconciliation schedules in the Form 8-K we filed with the SEC earlier today and on our website at manh.com.

Now I'll turn the call over to Eric.

Great. Thank you, Mike. Good afternoon, everyone, and thank you for joining us as we review our first quarter results and discuss our increased full year 2026 outlook. Manhattan is off to a strong start to 2026, navigating a volatile global macro, reporting record better-than-expected results. On solid demand, our Q1 revenue growth accelerated, highlighted by 24% growth in cloud revenue and our services revenue growth also continues to steadily improve.

Throughout 2025, we spoke about the strategic investments that we're making to improve our go-to-market effectiveness and accelerate our selling velocity. And while results from these initiatives will certainly not be linear, these investments have started to pay off in the first quarter and contributed to RPO increasing 24% to $2.35 billion. New customer bookings remained strong as over 55% of new cloud bookings were generated from net new logos with the largest Q1 deal influenced by Google Cloud Marketplace.

We also experienced notable deal volume improvements across all deal types as well as a larger contribution from products beyond Active Warehouse, including Active Omni, Active Transportation and Active Planning. And we had strong bookings from all regions. Our win rate metric continues to be consistently above 70%, and our renewal performance was solid and supportive of the plan that we highlighted last quarter. All of this provides a glimpse into the large opportunity that we have across all of our industry-leading solutions.

In summary, bookings momentum continued in Q1, aligning with our goal of accelerating both ramped ARR and cloud revenue growth. From a vertical sales perspective, our end markets are diverse, and we have healthy established footprints across numerous subsectors, which include retail, grocery, food distribution, life sciences, industrial, technology, airlines, third-party logistics and more. For example, Q1 deals included a global retailer that became a new logo Active Warehouse and Active Transportation customer, one of the world's largest retailers became a new logo Active Omni customer, a large auto parts distributor became a new logo active warehouse and active omni customer.

An HVAC-focused distributor became a new logo active warehouse and active transportation customer, a global wellness retailer converted from on-prem to active warehouse and a multinational food distributor that was an existing active transportation customer expanded to become an active warehouse customer.

In addition to several other impressive Q1 deals, our active agent pilot program is off to a better-than-expected start. As I mentioned last quarter, our active agent offering consists of 2 primary elements: a set of base agents ready to be activated immediately and our agent foundry offering, which enables our customers to quickly build and deploy their own agents within the Active platform. And because we build all these agents directly into the Active platform, our customers don't need to implement costly and complex external data lakes to make them work.

Our unified cloud-native API-first architecture enables us to deploy agents with almost no configuration or additional upfront effort, embedding AI agents directly into the workflow, no data lakes, no latency, deployed in minutes, not months, creating value for our customers in real time. And although our AI product set has only been in the market for 1 full quarter, we have an impressive list of pilot and paying customers that stretches across our diverse end markets and include some of the world's most distinguished and identifiable organizations.

For perspective, these customers include a global manufacturer and distributor of engineered components, a global 3PL, a global energy management and industrial automation company, a global manufacturer and distributor of beauty products, a global health care services company as well as several more Tier 1 retail brands, grocery chains and others.

We're very excited that these existing active customers are interested in beginning their agentic journey with Manhattan, and we're focused on helping them drive higher productivity, ROI and improved levels of customer satisfaction as we expand active agents across our customer bases.

For this quarter's product update, I'd like to go a bit deeper on our Active Agent foundry and some of the strong deployment results, which provide a bit more insight into why we believe AI is a significant opportunity for Manhattan and why we are uniquely positioned to win. Core to our Agentic AI philosophy is the concept of embedding both interactive and autonomous agents directly within the workflows of our key users. Rather than wave planners and shipping supervisors trying to incorporate stand-alone disconnected AI platforms, our active agents meet them where they live all day within our waving screens, within fulfillment progress monitors and within labor planning UIs.

By making AI ever present and highly available, our AI capabilities feel natural. They're steeped in both domain expertise and real-time operational data, always making suggestions and ready to take action autonomously. Our teams of forward deployed engineers assist our customers to activate our base agents and to build their own agents using our agent foundry. As we look across the early success stories, we see an even balance in the value created by base and custom agents, and we believe that trend will persist.

One of the real advantages of building with Foundry is the ability to quickly target specific pockets of opportunity within a particular customer operation. For example, one of our retail customers here in the U.S. saw a 5% improvement in order cycle times and reduced labor requirements in their largest distribution center via the use of a Foundry-developed custom agent. In this case, the agent dynamically reallocates resources to ensure replenishments are completed in time for orders to be fully picked and shipped. The continual matching of work to be completed within the requisite resources available is one of the most challenging issues a DC operator deals with nonstop each day. Unlike a manufacturing facility with a steady and predictable flow of work, DCs experience continuous peaks and valleys of different types of activity. This variability is driven by the inherent unpredictability of customer ordering and the high variability of what actually makes up those orders.

In this case, the active agent looks both upstream and downstream, dynamically determining the work that needs to be done in each zone and continuously optimizes the assignments to ensure orders are complete and to maximize order shipment volume.

The next example of a Foundry-created agent comes from one of our health care customers. From an operational standpoint, it's often just a few unfilled units which stand in the way of large orders being ready to ship. This customer worked with our forward deployed engineers to create an agent which actively seeks out these aging units, ensuring that tasks are created and prioritized to get shipments completed faster. The use of this agent resulted in a double-digit percentage reduction in loading times and improvement in on-time shipment departures.

On the base agent front, a number of our customers are using our WAVE Coordinator Agent to make sure orders are effectively turning into executable tasks. This agent finds and repairs any data conditions within items, orders, tasks or users, which prevent the optimal flow of work to the floor, ensuring every unit on every line, on every order has a path to clean execution. Specifically, this agent resulted in improved on-time shipments for one of our food distribution customers as exceptions requiring triage were reduced by up to 75%.

And for one of our industrial distribution customers, this very same agent increased line shipped by over 30% and improved order cycle times by over 25%. Now these are meaningful improvements that drive revenue and ROI for our customers. By leveraging case studies like this, in Q1, we saw strong demand for active agents. We now have dozens of customers in various stages of AI maturity, exploring and realizing benefits as we leverage our FDE teams to continue to build additional agents for these customers and introduce the Active Agent Foundry to more of our active customers.

As you'd imagine, active agents will feature prominently at our Momentum user conference next month. Each of our product tracks will feature the latest in our Agentic AI capabilities, and we'll have a number of customers giving testimonials to the power of our embedded active agents. One of the important additions to this year's conference will be an active agent boot camp. The day before the conference begins, we'll host an interactive session where customers can get hands-on experience with Foundry. They'll choose a relevant issue from their own operations and work in a live sandbox guided by our FDE team to build and test their agents. This hands-on experience is key to moving quickly from interest to production use cases.

We're happy to give as many customers as we can an opportunity to experience the ease and power of our active agent Foundry, we can't wait to see what they come up with in Las Vegas next month. I'll close out my product updates by providing a bit more detail on 2 important wins that I highlighted earlier. First, we closed a substantial new logo order management deal with one of the world's largest retailers. This deal represents our largest ever OMS bookings deal and speaks to the ongoing power of having the most capable and scalable OMS product in the industry. While historically, this customer chose to build their e-commerce tech stack in-house, their e-commerce business grew in scale and complexity to the point where they no longer believed it made sense to build the back-end intelligence layer on their own. So we're proud to welcome them into the Manhattan family.

And finally, the power of solution unification continues to deliver for us. Both during the sales process and in our implementation results, we're bringing solutions to life only possible when warehouse and transportation are truly unified. We closed a large unified warehouse and transportation deal at a major retailer in Q1, in large part due to the power and simplicity of running a single application for distribution and logistics. That unified approach lowers integration complexity and accelerates time to value. This win adds to the growing list of customers recognizing the value of the unified active platform.

Next month at Momentum, our customers and prospects will hear directly from one of our large retail customers as they share the valuable benefits they're already achieving from having warehouse and transportation live together on the Active platform. So with a strong pipeline across our product suite, numerous opportunities to drive growth and our unique ability to consistently deliver leading innovation to the supply chain commerce universe, we're very optimistic about our long-term growth opportunity.

So that concludes my business update. And as you all know, we have a new CFO. So before I introduce Linda, I'd like to thank Dennis Story for all of his contributions over the past 20 years. And now I'd like to introduce you to our new CFO, Linda Pinne. As many of you know, Linda previously served as our Global Corporate Controller and Chief Accounting Officer. And with her 20-plus years of experience right here at Manhattan, she brings a wealth of company-specific industry and financial expertise that I'm sure all of you will appreciate.

So with that, I'll hand it over to Linda to report on our financial performance and outlook, and then I will close out our prepared remarks before we open it up to Q&A. So Linda, over to you.

All right. Great. Thanks, Eric. Before I jump into the numbers, I'd like to thank Eric and the Board for the opportunity to lead our talented finance team. I look forward to helping Eric and the rest of the team execute on the enormous opportunity in front of us.

Regarding Q1, our global teams continued to perform well, delivering better-than-expected top and bottom line results in a volatile macro environment. FX volatility continues to impact us. In Q1, it was a 2-point tailwind to year-over-year total revenue growth, which was in line with the outlook we provided last quarter. However, it was an approximate $5 million headwind to sequential RPO growth and about a $25 million tailwind to year-over-year RPO growth.

Now to our results. Our growth rates are reported on a year-over-year basis unless otherwise stated. For the quarter, total revenue was $282 million, up 7%. Excluding license and maintenance revenue, which removes the compression driven by our cloud transition, our total revenue was up 13%. Cloud revenue increased 24% to $117 million. The better-than-expected performance was driven by a combination of strong execution, catch-up overage fees and lower-than-modeled churn rates of our renewal portfolio.

Services revenue was also better than expected and increased 4% to $126 million. We ended Q1 with RPO of $2.35 billion, up 24% compared to the prior year and 5% sequentially. As Eric previously highlighted, the strong Q1 performance was driven by a good mix of both sales from new and existing customers. This includes renewals, which were in line with our 2026 annual plan that we discussed last quarter. Contract duration remains at about 5.5 to 6 years, resulting in 38% of RPO to be recognized as revenue over the next 24 months. Q1 adjusted operating profit was $91 million with an operating margin of 32.4%. The better-than-expected performance was driven by strong cloud revenue growth, which offset some of the increased go-to-market investments we highlighted in Q4.

Turning to EPS. We delivered better-than-expected adjusted earnings per share of $1.24, up 4%. GAAP EPS was $0.82, down 4% and was adversely impacted by higher-than-expected tax expense due to a decrease of stock-based compensation benefits. Moving to cash. Q1 operating cash flow increased 12% to $84 million, resulting in a 28.3% free cash flow margin and 33.1% adjusted EBITDA margin.

Turning to the balance sheet. Deferred revenue increased 20% year-over-year to $356 million. We ended the quarter with $226 million in cash and $0 debt. Accordingly, we leveraged our strong cash position and invested $150 million in share repurchases in the quarter and have $350 million remaining in the share repurchase authority we announced in March.

Moving to our 2026 guidance. As noted on prior earnings calls, our goal is to update our RPO outlook on an annual basis. Also, as previously discussed, our bookings performance is impacted by the number and relative value of large deals we close in any quarter, which can potentially cause nonlinear bookings throughout the year. So with that, we continue to target RPO of $2.62 billion to $2.68 billion, which represents a range of 18% to 20% growth.

Moving to the P&L. Our long-term and long-standing financial objective is to deliver sustainable double-digit top line growth and top quartile operating margins benchmarked against enterprise software comps. These are drivers to our best-in-class return on invested capital as we maintain a balanced investment approach to growth and profitability.

As Eric highlighted, the macro environment remains volatile. While clarity from external variables remains limited, given our strong Q1 performance, we are raising our full year total revenue, operating margin and EPS outlook. This guidance is also provided in today's earnings release. For total revenue, we expect $1.147 billion to $1.157 billion, with the $1.152 billion midpoint, comparing favorably to our prior outlook and representing 11% growth, excluding license and maintenance attrition and 7% all in. This continues to include a 1-point tailwind from FX.

For Q2, we continue to target total revenue of $285 million to $289 million. For the rest of the year, at the midpoint, our targets remain at about $296 million for Q3 and accounting for retail peak seasonality, $287 million for Q4. For adjusted operating margin, we are increasing the midpoint to 35%, up from our prior midpoint of 34.75%, which includes a 100 basis point headwind from our license and maintenance revenue attrition to cloud.

At the midpoint, we continue to expect adjusted operating margin to be about 34.7% in Q2, 36.9% in Q3 and accounting for retail peak seasonality, 36.1% in Q4. Our full year adjusted EPS range is increasing to $5.29 to $5.37. On a quarterly basis, we are targeting Q2 EPS of $1.30, Q3 of $1.43 and accounting for retail peak seasonality, $1.36 in Q4. For full year GAAP EPS, our midpoint increases by $0.14 to $3.59, and we are targeting Q2 GAAP EPS of $0.86.

So here are some additional details on our 2026 outlook. We are increasing our cloud revenue midpoint to $495 million, representing 21% growth and continue to target $121.5 million in Q2, $126 million in Q3 and $130.5 million in Q4. We expect services revenue to increase 3% to $518 million, which continues to assume $131.5 million in Q2, $137 million in Q3 and accounting for retail peak seasonality, $124 million in Q4.

On attrition to cloud, we expect maintenance to decline 17% to about $108 million, and we continue to target $27 million in Q2, $25.5 million in Q3 and $25 million in Q4. We expect license to be about $1 million per quarter and hardware to range between $6 million and $6.5 million per quarter.

Finally, we expect our tax rate to be about 22% and our diluted share count to be about 60 million shares, which assumes no buyback activity. In summary, a great start to the year and solid execution by the Manhattan team. Thank you, and back to Eric for some closing remarks.

Great. Thank you, Linda. We're very pleased with our strong start to 2026 and our continued business momentum. Manhattan's business fundamentals are solid, and we have numerous opportunities to continue to accelerate profitable growth and reduce time to value for our customers. Thanks to everyone for joining the call, and thank you to our global team for the great execution. That concludes our prepared remarks, and we'd be happy to take any questions.

[Operator Instructions]

And our first question comes from the line of Terry Tillman with Truist Securities.

Eric, Linda, Mike and Dennis. A nice job on the bookings. Good to see that. I'd be remiss if I didn't say something about Dennis though. I think that was almost 80 Manhattan calls that I think you've been on. Congrats to all your accomplishments and best of luck in retirement. And Linda, congratulations to you as well as the new CFO.

Thank you.

Yes. I had two questions. First, I definitely wanted to ask about agent and Eric, you gave a lot of good color there. I appreciate that. My two part on Agentic is, if you look through the rest of the year, how do you see the progression from these pilots and POCs into potentially scaled revenue.

And then the second part is, I saw a demo at NRF going back what seems like months ago. And there is the opportunity to actually let this run autonomously then, like WAVE Coordinator Agent. How many of these early adopters are actually just letting it ride and just operate autonomously? And then I had a follow-up.

Okay. Yes. So in terms of scaling and monetization, as you know, we launched in Q1, and our primary go-to-market is through a 90-day pilot. So that is a paid pilot. And at the end of that pilot, we have the conversation about converting to subscription. So in Q2, while we continue to sign up additional pilot customers, we'll also be having conversations with the Q1 customers about conversion to subscriptions. And in fact, those conversations have already begun with many of them.

So we expect this to continue to scale as we go throughout each quarter. And I think we'll have more clarity on what that means as we go throughout each quarter. So we continue to take a conservative approach to the monetization, and we expect to have a bigger impact, obviously, in '27 than we'll have in '26.

And then in terms of the second part of autonomous agents, all of our agents are designed to be -- well, I shouldn't say that. Most of our agents are designed to be autonomous if they so choose. So they can be working alongside a user and providing suggestions to a user. And then when the user feels comfortable, they can allow the agent to work autonomously.

Again, you go back to our architecture that's all micro services, all API-driven. So this concept that's been kicked around in the AI space here recently about headless we're set up for headless. Our user interface can be the screens that we build or our unit of interface can be an AI agent.

Yes. Got it. That's helpful. Just my follow-up question -- follow-up question just on this, so I'll just -- I'll throw it out there. On cloud subscription revenue, it was 24% growth, that's acceleration. How much of that, though, was FX? I think you all called out total revenue had about 2-point benefit. But I'm just curious how much of the revenue acceleration is kind of core versus FX? And then for the full year, maybe an update on FX impact to subscription revenue.

Yes. So for the quarter, it was a little bit over 1% tailwind on the cloud revenue. And for the full year, we're also expecting about a 1% overall tailwind on our revenue.

[Operator Instructions]

And the next question comes from the line of Brian Peterson with Raymond James.

Congrats on the strong quarter. And Dennis, it's been really great working with you. So I wanted to ask on the RPO. Obviously, it was much stronger than we expected. The net new mix at 55%, it looks like that held steady. Is there any commonality in the deal timing or the deal sizes that drove some of that net new, Eric? I'd love for you to unpack that a little bit.

Yes. So I think one of the really good signs that we're seeing, and I mentioned it a bit in my prepared remarks, is the investments that we made and the strategy that we put in place last year to increase deal volume across all of those deal types is paying off. So our deal volume across all these types was up in Q1. So not nearly as dependent on large deals. In fact, the largest 2 deals we closed in the quarter came from Europe and APAC. So we saw a good variation of deal size. And that allows us to I think, to be more aggressive in that space as well. And when you look at the 55%, that kind of continues from the success that we had in new logo last year.

But I've always said over a period of time, it's kind of going to go back to thirds. And we looked at that data. And if you go back 3 years, over the past 3 years, it is in thirds, but we've been really, really strong in the past 5 quarters of bringing in new logo. And we continue to see great pipeline, and we continue to have great win rates against our competitors. So we expect that to continue.

That's great to hear. And Eric, I'd love to get an update on some of the fixed services aspects that you were talking about. I know last quarter, you mentioned there was some interest in that. Any update on the uptake there? And how should we think about that impacting services in 2026?

Yes. So -- and that kind of goes back again to increase in deal volume, just the number of deals that we closed in Q1 and also increase in deal volume and dollar volume across cross-sells and upsells. So we've got the team actively engaging looking for those opportunities to expand within our customer base, and we're seeing good success there.

The next question comes from the line of Joe Vruwink with Baird.

Great. And I'll also extend my congrats to Dennis and Linda. More of a thematic question maybe, but when it comes to software categories that still have a fair amount of on-prem deployments, there seems to be a growing appreciation that's maybe not well suited to take advantage of AI. And so we're starting to hear more anecdotes and feedback that modernization campaigns need to pick up. Obviously, Manhattan kind of has its own irons in the fire to accelerate conversion activity. But are you starting to see the customer mindset change and maybe their planning windows are shifting forward on this idea that they need to pick up the pace?

Yes. And we talked about that last year as well. We started to see some of the tone and the pace changing when we were able to go out and offer fixed fee, fixed time frame deployments when they saw a way to get there quicker. And then the fact that we can offer them -- once they get to the Active platform, we can offer them base agents that they can turn on and use day 1. So all of these are absolutely creating more interest. But I also agree with your point that we've moved up now to about 23% of our on-prem customer base has converted or started the conversion to the cloud, but we still have a large installed base and a large opportunity to go do additional conversions. And I agree with your point that those probably aren't ripe for AI takeover. Those are conversions that are going to happen within our ecosystem.

Okay. Understood. And then just on the strong RPO addition in 1Q, and it seems like that was driven by the new logo performance, even though I appreciate a lot of good volume there, but I guess the dollars skewed more towards new logos. How much of that maybe relates to this dynamic around ERP upgrades still happening? And if you're on maybe an attach with your ERP vendor historically, you're starting to see that be a feeder and the conversion on that getting upgraded into a Manhattan solution being high?

Yes, that definitely continues to be a tailwind for us, and we see significant pipeline in that space. But I think same answer that I gave last year when we talked about this, an even bigger tailwind is some of our competitors in the industry that haven't made the investments in cloud and haven't made the investments in a unified platform. We continue to have just kind of off-the-chart win rates when we compete for their incumbents, and we're taking a lot of business from our competitors.

And the next question comes from the line of Dylan Becker with William Blair.

I'll echo congrats to Dennis and Linda here as well, too. But maybe, Eric, starting for you, if we kind of go back to the Agentic deployment conversation. I thought it was pretty impressive some of the statistics you disclosed and kind of value those early pilot customers are seeing. I guess, to one, maybe the first aspect, how that's maybe driving or fueling your expectation of scaling kind of that proof-of-concept cohort, if you will, right, just kind of tied to the value and referenceability that those customers are seeing as well as maybe layering in conviction on that conversion or their willingness to kind of pay for those agents over time.

I understand kind of the conservatism in the framework, but how that's kind of layering confidence in the contribution here over, obviously, '26 and then '27?

Yes. So there's a lot of excitement about the opportunity here. And in terms of customers being willing to pay for it in some of the early conversations we've had around moving from pilot to subscription, there have been customers that have justified the entire ROI just by reduction in overtime. So when they look at all the different ways they can get value out of these AI agents, we aren't seeing customers have a problem justify the ROI of what they're getting. So that gives us pretty good confidence.

But again, we're early. So we're still very conservative in what we're putting in, in terms of revenue for this year. But I think you look at what we did in terms of number and volume of deployments and agents that we put in, in Q1 in the very first quarter this was available, and I expect that to continue to grow and build as we go through the next 3 quarters. So I think when we start talking about outlook for 2027, there should be a meaningful impact from AI.

Very helpful. And then if we do kind of stick on the topic of kind of accelerated deal volume and velocity attributable to a lot of the structural kind of changes that have taken place over the last year or so, if you will. I think it's impressive to see that the services piece is stepping up in light of kind of the fixed contract dynamic, I guess. How should we think about or how are you guys thinking about the implications of that relative to kind of the broader software or subscription and services kind of mix shift as you're layering on more cloud contracts and maybe those customers are realizing value faster, kind of that pull-forward implication, if you will, to subscription revenues?

No, thank you. And it's a great question because as we've talked about in previous calls, we've got a lot of focus and investment on speed and simplicity and making it faster and easier for our customers to deploy and faster and easier for them to recognize, reduce that time to value. And in doing that, obviously, that makes services projects shorter. So when you look at our revenue growth, it's because we're doing more services projects. And some of that is the active selling that we're doing into our installed base. Some of it is this newfound opportunity around forward deployed engineers.

You look at what's happening in the AI space and some of these large foundation companies, and model companies are creating partnerships with all of the consultancies out there because they don't have forward deployed engineers. And even some of the large cloud companies that have very, very small services teams, they've got to go create partnerships with those same consulting companies to try to create interest in deploying their AI agents. So I think what we're seeing is this services team that we have here at Manhattan has become a massive advantage for us because we are skilling and tooling teams of forward deployed engineers that are made up of people from R&D and services engineers that can very quickly get these agents active and productive and adding value to our customers, and we can do that at scale.

So I think, again, one of the things that our customers love hearing from us when we're having these AI conversations because, by the way, as you know, they're having AI conversations with every one of their partners and everybody else trying to get in the door. We're the only people that can come and say, we can turn these on and have you actively using them and getting value on day 1.

And the next question comes from the line of George Kurosawa with Citi.

Okay. I wanted to touch on the cloud revenue upside, a lot stronger than what we've seen in recent quarters. You called out some components of that in terms of improving churn in the renewal book, I believe, and then something on the overages side. Maybe you could just double-click on some of those dynamics and how we should think about how sustainable those drivers are going forward?

Yes. So as you mentioned, we mentioned 3 drivers. One, of course, was just strong execution in the quarter. We also did have some onetime cloud overage fees that would not be recurring. And then as you noted, we had lower than modeled churn on our renewals. But again, as far as going forward, we're continuing to take a conservative position on our outlook for Q2 to Q4, keeping those metrics in line with what we previously disclosed last quarter, just given the volatility in the macro environment right now.

Okay. That's great color and makes sense. I wanted to touch on this forward deployed engineer concept you just touched on, Eric. Maybe if you could talk about that's a concept you guys have been leaning into in the most recent quarters, if there's -- what you had to change kind of structurally, if there's any specific hiring that you had to do, just how you sort of put that group into place? And maybe if you could just talk a little more about the impact that you're seeing there?

Yes. So as I mentioned a quarter ago, we were hiring early in Q1. And to date, we've added about 120 headcount into our services team, and we've got another roughly 70 either pending start or open. So we continue to add talent into our services team. And really, that's just based on demand. But when you look at what we're doing with forward deployed engineers, the bulk of those FDEs are coming from people that have experience here at Manhattan across the services engineering team and the R&D team because we want people that are deep in our product and deep in understanding supply chain and deep in understanding our customers' needs so that we can quickly create those custom agents within the foundry.

The next question comes from the line of Guy Hardwick with Barclays.

So a question on the pilots. So once the 90-day pilots are completed, what kind of uplift are you seeing in terms of percentage uplift to the SaaS subscription contracts?

Yes, it varies. We're not disclosing price list information on that, but it varies based on how they're using it, where they're using it. And all of AI has a cost, right? How many times are you hitting LLMs and how many APIs and et cetera, et cetera. So it's a unique conversation with each customer.

Okay. But I think I understand that you have guided to that the margins to be similar for SaaS. Is that correct?

Yes. Yes. We've modeled it so that the margin remains consistent.

Okay. And just sorry, my follow-up actually, in terms of the fixed fee deployments, what percentage of the services revenue is that now or what you expect it to be this year?

I don't have an answer for that. We haven't modeled that. But that's something that we'll continue to do more and more fixed fee because when -- as we put more and more automation and AI into the way we deliver services, that's part of how we sell the value of what we're delivering. So when you're using AI and automation, you don't want to sell services by the hour, you want to sell it by the outcome.

The next question comes from the line of Parker Lane with Stifel.

Eric, you talked about customers not really having any trouble justifying the ROI of agents. So maybe zooming in again on the pricing model here. What has been the reception to the more subscription-based arrangement for paying for agents versus a true consumption? And are you contracting in a similar fashion in terms of duration? Or are you giving smaller windows to sort of analyze that level of utilization and adoption over time and then go back and rework the subscription arrangement?

Yes. So the one thing that we have shared about pricing is that our intention here was to make it simple. Back to the speed and simplicity and easy to understand, easy to buy, easy to operate. So while all AI will be based on some kind of consumption because there is a cost to the consumption, we work with them to identify based on the POC and the pilot what kind of consumption are you using to do these tasks and automation that you want to do. And that's how we come to an uplift. And the reason that works is because a lot of these customers are somewhere along their journey in deployment. So they still have committed uplift. So rather than having to reprice the AI and talk about consumption all the time, we let it grow with them.

The next question comes from the line of Mark Schappel with Loop Capital Markets.

Really nice job on the quarter. Eric, I was wondering if you could just share some more details on the large deal completed through the Google Marketplace, including maybe how it originated, how it kind of grew during the quarter? And also, does it include your agents?

Yes. So if you go back to last year, I think the largest deal that we've ever closed in Europe went through Google Cloud Marketplace. And now this is the largest order management deal we've ever done and one of the largest deals we've done in APAC that's gone through Google Cloud Marketplace. So -- and I would say this one is similar to the other one. And there have been other smaller deals, too, but it's interesting that 2 of our largest deals in Europe and APAC have gone through the marketplace. And in both of those cases of the large deals, I wouldn't say that was the determining factor of why they did it, but it certainly reduced some of the friction because these customers have committed spend with Google, and this allows them to retire some of that committed spend as they work with us.

So we view it more as an opportunity to help close deals and be a differentiator at this point, more so than creating net new pipeline. Is that the question you were looking for?

Yes, I think that's sufficient. And then as a follow-up, of the base agents that you released, I believe, in January, I know it's still early, but which ones are generating the strongest customer interest so far?

Well, the one that I mentioned and kind of give some examples of -- we've got multiple customers getting different types of value using the exact same agent is the WAVE planning agent. We've also had a lot of success with our labor agent. I would say we've got probably a couple of agents in each product that tend to be the hot couple of agents. And then what customers use beyond those top 2, it varies by customer. And then everybody is adding custom agents.

The next question comes from the line of Chris Quintero with Morgan Stanley.

Eric, Linda, great to speak with you again, and congrats on the CFO role. And Dennis, congrats on all your accomplishments over the years. I wanted to ask about the go-to-market changes. Really great to see that already impacting the results here with RPO. So maybe, Eric, just curious kind of which one of those are really the ones that are benefiting you today? And how do you think about the remaining ones impacting you later on in the year and into the future?

Yes. So I think we look at several things when it comes to how that team is building pipeline in terms of total pipeline dollars, but also volume of deals in the pipeline at different sizes, volume of deals of different sizes across cross-sell, upsell. The cross-sell and upsell that comes from renewal and all these different metrics. So what we're seeing is volume increases in all of these areas because we have specialists focused on all of those areas, and we have people focused on those areas that that's the only way they make money.

So I think what we've done is we've created just more opportunities to find both subscription and services revenue across our new logo opportunities and our installed base.

Got it. That's helpful. And then I wanted to ask about services. Obviously, a bit more macro-sensitive part of the business. And we did hear about some services partners having some projects kind of getting delayed because of macro volatility and customer nervousness. But curious to get your sense on what you saw in the quarter and if you're even seeing any of that yourself on your services business.

Really haven't seen that, and I'm not aware of partners that have seen that. So typically, when partners see that, we hear about it. But no, I haven't seen that in the quarter.

And the next question comes from the line of Lachlan Brown with Rothschild & Company, Redburn.

Congrats on the quarter. With the customers that have been on the pilot program for your agent solutions, how has the overall consumption been of these products? I guess listening to your remarks, it sounds like it's been pretty strong, but just any commentary on whether it's been over, under or in line with expectations? And has this changed any initial thinking around available consumption usage when they move to the subscription package?

No. Maybe what I'll start with is, I mentioned in the prepared remarks, we had -- when you think of product sales in Q1, the breadth of product sales was probably the most diverse that it's been since 2022. So we're really selling across every one of our products. We're also offering these AI agents across all of these products. So we've got customers actively using agents across every product. And as I mentioned before, it depends on how they use them and where they're using and how much consumption and that consumption is how we determine how we create that price with that customer. So no big challenges, big issues there. I think it's all been coming in as we expected.

Appreciate it. And maybe one for Linda. Just on the upward revenue guidance revision, quite a notable increase at the bottom end, but a small increase at the top end of the range. So could you just run us through the puts and takes in the outlook with the confidence to raise the lower end while being somewhat conservative at the top?

Yes. I mean it's pretty much the same. I mean, basically, we took our beat from Q1, and we applied that to each one of our metrics. So we raised all 3 metrics. But as I mentioned before, we are keeping the Q2 to Q4 parameters, the same that we had mentioned on last quarter's call. Just again, we're executing well. We're very optimistic, but it is only the first quarter, and there's a lot of volatility in the macro environment. So we felt it was prudent to keep our out quarters the same as what we had previously communicated.

This concludes the question-and-answer session, and I will turn it back over to Eric Clark for closing remarks.

Yes. Well, again, thank you all for joining. Really proud of the team and the execution from the team to deliver a really strong Q1 and position us very well for 2026, and we're excited about where we are and look forward to continuing to deliver. Thank you.

Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Perfect. Let's go ahead and get started here. So thank you, everyone, for joining. My name is Chris Quintero. I'm the back-office software analyst here at Morgan Stanley. And I'm really excited to be joined by the Manhattan team here, Eric Clark, CEO; and Sanjeev Siotia, CTO. Thank you all for being here.

Thank you. Thanks for having us.

Absolutely. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.

So to kick things off, for investors who maybe aren't as familiar with Manhattan Associates, maybe you can give us a quick overview of what you all do, key products, who your core customers are.

Yes. So Manhattan has been in business for 30-plus years, always focused on the supply chain and commerce space. So our key products are across warehouse management, transportation management, order management, point-of-sale and supply chain planning. And about 10, 12 years ago, Manhattan recreated itself as a cloud company. So now all of those products are available on our cloud platform that we call the active platform. And over the past 10 years, we've been in the process of converting our on-prem customers into the cloud. At the same time, we've been aggressively in the market going after new logo customers and taking market share from the competition.

Got it. That's a helpful overview. Let's just jump right into AI. Eric, Sanjeev, you guys both have put out some really interesting blog posts as it relates to what the future of software looks like in an agentic world. Maybe give us a quick recap of kind of what you all shared in those blog posts.

Sure. Maybe I'll kick off and let you go deeper, Sanjeev. But yes, clearly, there's been a lot of talk about AI and how that's going to impact software and SaaS. We're very clear believers that AI is going to benefit and make some software more valuable. And there are other software players that likely will be hurt by that. And Sanjeev will share more about kind of the differences.

But one of the things that makes us unique in this conversation is the platform that Sanjeev and team created a dozen years ago is all microservices, all API-driven. So when we go to our customers and our prospects and talk about AI, we don't have to start the conversation talking about pulling out all your data and moving it to a data lake and indexing this and data security here and duplication and latency and all those things.

All of our AI that we deliver is native in the platform. So we're using the same APIs that a user could use to run the software. So that's a very different conversation about AI. And when we talk to our customers, we can have them live up and running on an AI demo today. Because, again, we are versionless software. All of our customers already have access to our AI agents. They just have to subscribe to them. So that puts us in a very different position, a very different part of the conversation than a lot of this debate that's going on out there about how AI is going to impact software.

Yes. I'll add a little bit to just how the investors are taking the whole narrative around cost and AI is going to replace software because cost is going to drop, right? I mean it's not paper towel. It's not a commodity that you buy. No enterprise CEO is going to kind of throw out their system because something else is 10% or 20% cheaper, right? I mean iPhone didn't disrupt BlackBerry because iPhone was cheaper, right? Digital cameras didn't replace those things because they were cheaper. So most of the time when you see disruptions, they come from because whatever the next thing is, is better, right?

So I think the right discussion that we had is how can you innovate faster? What can you innovate, right? That was kind of part of the article. And I'm not even go to the math, right? The 10%, 20%, even if I concede that something will become 20% cheaper, that's not good enough to kind of go replace these complex enterprise systems, right? It takes a lot to build enterprise software and coding is just a very small piece of it. So I kind of use the word 6% policy is if you do the math, I mean, you're looking at 6%, 7% of the total cost. So how much -- you cannot kind of make software cheaper, right?

So I think the focus really needs to shift in is how will AI disrupt is how can you become more innovative? Can you deliver with velocity? Can you do a lot more with it, right? That's the discussion that we had. And I would be happy if that discussion started as this narrative around innovation versus, hey, it's going to be cheaper, so let's just write out software.

Yes. Now we'll definitely talk about the innovation piece. But maybe just on the 6%, give people a quick overview how you get to that number and what it exactly is?

So roughly, if you kind of look at any organization, most public companies, you can look at the data, they spend somewhere between 10% to 25% on R&D, right? And if you look at the R&D cost, 25% of the time is essentially spent on writing code actually. A lot of time is spent on understanding requirements, business requirements, figuring out how do you architect it, how do you scale it, how do you kind of you put in production, how do you support it. That's where a lot of cost goes in. And people are focused on this narrow bucket of just the software piece. If I even take the high end of 25%, multiply by 25% of the software, you get to 6.25%. And that's basically what everybody is kind of writing out software because maybe the 6% will become cheaper.

Yes. No, that aligns pretty closely with what our team, Sanjit Singh, our team covers the infrastructure side of software, and he's always said that the actual coding part of building software is a minority part of what a developer's time is actually spent on.

Let's talk about the innovation, the opportunity Manhattan has with AI. How do you all view as your kind of right to win with AI? And what are some of the early capabilities? I know you've launched some agents and agent building platform, too. So maybe hit on that as well.

Yes. So I'll kind of pick on -- Eric kind of touched upon a few of those things already, right? So if you look at us, the unique approach we have taken it goes back to our build 12 years back. is we are very API-centric. Everything is API first, right? So the way I describe agentic AI in a very simple way is you give it an objective and you run a think-see-do loop, right? You think about what the problem statement is, break it down, you look at the data and then you take actions, right, until you get to the outcome. And that's when the think-see-do loop can finish.

The think part of it for all of us will come from the hyperscalers, right? The big guys, they're building the models, none of us are building the models. And that will be a commodity almost to everybody accessible to anybody. The see-and-do is where we feel our opportunity and differentiation comes from is the see part comes from -- for us comes from our APIs. For everybody else, like Eric mentioned, they have to create a data lake. So the conversation to even start with an AI starts with, okay, let's get all your data into this data lake. Now let's figure out who has access to this data, let's put governance around it, and then you can start figuring out who can use AI, right?

With us, that question doesn't even come because our APIs are already just naturally secure. When you get to the do part of it, it becomes even more because every action, the whole system is accessible to AI to actually take actions. rest of them have to figure out what APIs to kind of even put for AI to go execute. So I think the whole -- the think-see-do loop, we can put in people's production today, right, versus somebody else who will take 3, 5, 6 months to even figure out how to go execute that. I think that gives us a very big advantage.

Yes. Maybe, Sanjeev, sticking with you, you've been one of the key architects of building that micro services active platform Manhattan in the cloud. Curious what parallels you can draw, if any, between kind of the AI evolution we're seeing now with that kind of initial cloud evolution?

Yes. So actually, funny, what I would say is our cloud journey was our AI journey is the AI evolution, and I'll kind of explain this in a second, right? So when we started building for the cloud, one of the things we kind of made a decision was we'll build everything API first. Why did we decide that? We have seen historically that every 10, 15 years, user interfaces changed, right, from green screens to the GUI to web screen to mobile phone. And when we were building in 2014, we wanted to future-proof ourselves. So we said, okay, we do not know what the user interface will be 5 years, 10 years from now. So let's kind of just make sure that we kind of build everything headless so we can kind of live in a world on whatever the new user interface will be. So that's kind of part 1.

Part 2 was composability, right? When we built this whole thing, we wanted to make sure that we can compose our solutions, right? So we kind of broke traditional boundaries of WMS, TMS, everything else. We thought of it as an overall holistic solution and build these things as composable pieces, which can be stitched together, right? Still AI came through, people were kind of writing those workflows on their own. Now AI can help those workflows.

And the third big piece, which we have not talked too much about in the past, and I've started kind of talking a lot about it because this whole code generation has started coming is when you build enterprise systems, it takes time. It takes anywhere from 3 to 5 years to kind of put something really out there. And what happens in those cases is the stuff you build in year 1 looks very different than the stuff you build in year 5 because -- and you build a tech debt in not all systems. So what we did in our approach from a cloud journey was we took actually 6 to 8 months in the initial part of it to write a generator, where people can express -- the developers can express their business intent and we can actually generate code.

So we actually -- today, we have about roughly somewhere between 60 million to 65 million lines of code. 75% of that is generated, right? We do not write that piece of code, that's all completely generated. Now the advantage of that was not efficiency, right? We didn't do it because I mean, efficiency was part of it. But the big advantage was how do you kind of keep this tech debt out, right? How do you kind of make sure that when you have a new requirement, you can put it in the core and that goes across the product. So that was the core. Now that became our AI evolution because all 3 pieces which I talked about, right, the user interface, AI can be that user interface. You can kind of put the head of the AI to kind of really make that UX very conversational. The composability, AI needs that composability so you can kind of take the right pieces and build those workflows together, right?

And then this code generation. AI is built into our code now, right? So there are a lot of use cases of AI, like we write a lot of natural language audits. We can kind of figure out when you're talking to us in a different language, we can even interpret the synonyms out of it using AI. And that's built into the code generated every night, right? So it's very deterministic. So I think our cloud journey was our AI evolution, you can call it serendipity, architectural foresight, whatever you want to call it, but that is the same journey. So we are -- we have been on this AI native journey, I will say, for 10 years now.

Yes. Yes. Let's talk about some of the newer stuff you all have launched, the agentic AI that went commercial in January of this year. You've introduced agent foundry, active agents. What are some of those? And what are some of the key use cases you're really targeting with some of the agents and the customers that are building on foundry, what are they building?

Yes. So as we kind of think through these AIs, we look at it into 4 buckets of things. The first bucket is UX because we believe that AI will fundamentally change how all of us interact with any kind of software. So there will be a pretty big change from that. So that's the UX bucket. The second piece as any complex software provider in the ISV is how do you accelerate time to value. So what can you do using AI to accelerate time to value. The third piece is productivity. Every is looking for how can I make something more productive, impact the top line, bottom line, FTEs. And the fourth piece is data insights. How can I draw more data insights using AI from my data.

So we're looking at those 4 buckets and every agent we have put out there, they fit into one of these buckets, right? Sometimes an agent can fit into multiple of these buckets, but that's been the core, right? I'll give you -- and you asked about -- and then agent foundry, right, because we are completely AI -- API native, we exposed our agent foundry so people can write their own things in do loop, right? They have their use cases. They can put it together very quickly, and they can get benefit from it, right?

We've talked about -- publicly about one thing about Eaton, so I'm going to use that example. At Eaton, RFDs created an agent in about a week, 1.5 weeks. They had a problem with around their dock cleanups, and it was an exception process and somebody would have to kind of sit down every 30 minutes, check something, see if that exceptions happen and then take an action on it, right? Our FTE team was able to quickly create an agent and take that problem away. And the biggest impact to that was not just the saving of the FTE, they increased their fill rate by 3%, right, in that warehouse. That's a very significant impact to the bottom line. So that single agent provided enough value to them to justify any kind of cost we would ask them to pay.

So when we go to market with our AI solutions, and you mentioned the foundry and agents, et cetera, what we sell is access to a standard set of base agents across every product. So things like a wave agent, a labor planning agent, et cetera, and the ability to modify any of those agents because many of our customers create extensions on our platform. So they're not all using our software the exact same way. So they might want to modify those agents to make them more valuable to them.

And then finally, we also give them access to the foundry that Sanjeev talked about, where they can build an agent from scratch, right, just handle a custom challenge that only they have or maybe to address, again, extensions that they've built because their process may be very unique. So that whole landscape of agentic AI is available through one SKU that we offer, and then they have access to use that as much as they need to.

Got it. I want to go back to kind of the whole kind of cloud transition and the opportunity there. Supply chain software as an entire kind of like subsector within the software has been a bit slower to move to the cloud. I think it's got the lowest percentage on the cloud, around 40% is what we estimate. Curious why do you think that is? And how do you think about the evolution of how that continues to progress into the cloud over time?

I think a big part of that is, number one, supply chain is mission-critical software, right? It is the backbone of what they're doing. And number two, it's very complex. And a lot of these customers that haven't moved to the cloud yet, they have memory of -- for their existence, every 5 to 10 years, they do a software upgrade. And the old on-prem model, right, when you get ready to do that upgrade, it's like open heart surgery. And it is a massive disruption. These projects often went long, went over budget, and they've got pain and scars from those things.

So I think there are customers that are -- they try to sweat that project as long as they can and get value out of that software as long as they can before they go through the next one. So one of the things that we're doing with our customer base is talking with all of our on-prem customers and helping them realize that memory from the past is not what you're going to experience this time. And we've built automation and leveraged AI to simplify that transition from our on-prem products to our cloud products.

And to go even further, midway through last year, we introduced fixed price and fixed time line for those conversion opportunities. So we're taking the risk out of it for them and essentially just making the carrot bigger. And we're making it very clear, if you're running a 2020 version of software, you haven't had new updates in quite some time. So let's look at all the features and functions that have been made available since then. And on top of that, now we've got agentic AI available on the platform. So the gap between what those on-prem customers are running and what they could be running in the cloud keeps getting bigger and bigger. And then I'll go back to where I started. This is mission-critical software. It is strategic. If they're trying to be strategic and differentiated on old software, they're not going to have success there very long.

Yes. You mentioned a little bit about that fixed fee implementation. What are some of the other kind of incentives? Obviously, the agents are only available in the cloud, too, but what are some of the other incentives you've rolled out to help migrate? You still have about 70% to 80% of the customer base that's still on the on-premise products.

Yes. And if you think about it, we rolled out our cloud version of warehouse management just over 5 years ago. So we've got a lot of customers that are still in that window of -- they've put in their products 5 years ago, and they haven't really taken the next step to change. So I think naturally, that will start to pick up and accelerate over the next year or 2, but we're doing a lot to help accelerate that. So as we talked about the fixed fee and the fixed time line, making it really clear the difference between what they're running today and what they could be running if they move to the cloud and then going back every quarter and showing them. Once you do this move to the cloud, you'll never have another conversion again, right?

It's versionless software. You get new updates every quarter. So we keep showing them every quarter. If you were on the cloud, this is what you would have gotten new this quarter. So I think we're creating the carrot out there. And without a doubt, our pipeline and conversations around conversions today are vastly different than the volume we had a year ago. We made a lot of progress in being more proactive and consultative in helping those customers understand when and why it makes sense for them to convert to the cloud.

Yes. And investors are rightly super excited about that whole cloud conversion opportunity for you all. But when I -- when I've spoken to some of your customers, one of the reasons they've given me why they haven't really wanted to move to the cloud has been we've done a ton of customizations on the on-premise product, kind of what you were saying earlier. Curious kind of how you think about getting past that to help migrate those customers? Is that really where kind of the agent foundry comes in to help them build those customizations extensions on the platform?

Yes. So some of it, right, if you think about -- and we have done a lot of conversions, right? We've still done 22%. We have converted already. So we have a lot of experience on this thing. So when we look at conversion customers, what we find is the new product just base features, it covers 30%, 40% of the extensions, which they've already built, right? So those extensions just completely go away. The remaining part of the extensions, all of these customers were used to this 5-year or 10-year cycle where they'll pay us the onetime upgrade fees.

And with the help of AI, with help of every other tools we have, we can get them converted into this in a little bit less cost than they were paying for natural upgrades, right? So those 2 factors combined, that takes that objection away. And some people are just a little bit more risk averse. And for those risk covers, we have enough proof points now over the last 3 years on the others who have converted, right? So I think that will give them another incentive and kind of take away their -- the questioning of the -- can you move to the new version without any issues.

Yes, absolutely. Let's switch over to go-to-market. Eric, that's been a big focus of yours. You made a lot of changes there. So can you give us a quick overview of what have some of those changes been and how they progressed versus your initial set of expectations?

Yes, definitely. So when I joined Manhattan about a year ago, one of the statements that I made was I think we are often underappreciated in the market and particularly outside of WMS. When it comes to warehouse, I don't think a deal happens in the market that we're not aware of. We've been in it long enough. We've been ready to leader for 20 years or something, right? So we get invited to every deal. But across those other products that I mentioned, that's not always true. So we wanted to invest in sales and marketing and make sure that we got invited to all of those opportunities.

So one of the things that we did is we took Bob Powell, who had been running sales in the U.S. for quite some time. He's a 20-year veteran of the company. We made him our Global Chief Sales Officer. And that enabled us to start taking some of the practices that we're having success with in the U.S. and globalize them. So that included things like building out product specialist teams. So -- we have a lot of veterans like Bob that have been here 15, 20, 25 years. And you can assume that most of those people, the bulk of their experience is warehouse. And the -- when you go to try to sell point of sale, you're competing with different people, right? You're competing with different software players. You're selling to different people in the company. It's a completely different sale than warehouse.

So we recognized that we needed to build product specialist sales teams for point-of-sale and transportation and supply chain planning, et cetera. So we started building those out midyear last year. Then we also hired Greg Betz from Microsoft to come in as our COO to build some programs around conversions and programs around renewals to make sure that we were maximizing the renewal opportunity, not just the price uplift, but also the cross-sell and upsell opportunity across every one of those renewals. So -- and then you add on top of all of that, this AI opportunity. First time since we've -- in the history of our company that we've had an opportunity to go sell something to every single one of our cloud customers that there's no deployment cycle. There's no ramp. We turn it on, and it's an uplift to the revenue. So that kind of near-term revenue growth has not existed for us in the past.

So -- and then on top of all that, we brought in a new Chief Marketing Officer, who's really helping us in terms of market awareness and brand awareness outside of the warehouse management space. So I think where we sit today, the amount of opportunities in the pipeline, the ability to execute is vastly different than where we were a year ago. And I'll add one more to that, that's kind of related to this, but not exactly in the sales space.

We've turned our services team into a sales engine as well. And our services team traditionally has been follow the sales team and deploy product after it gets sold. But our services team is the primary engine around conversions. They have built and support so many of these on-prem customers. They know what it takes to convert them. And they've also gone out and looked at customers where maybe our customer has subscribed to 50 warehouses, but they've only deployed 30. So going out and having conversations with them about fixed fee deployment of the next 20. Look, I know what it takes to do this. I know what it looks like. I know where it's going. Let me convert the rest of your warehouses, accelerate their ROI and accelerate our revenue growth at the same time.

Yes. So a lot of it is getting yourself into more of these deals that you weren't previously, expanding that brand recognition, bring your best-in-class products to those deals?

Exactly. It's volume of deals, and that's volume of deals that we're competing for in the market, but also just volume of services deals. So there's a big opportunity -- a big services opportunity within our installed base to go deploy products faster. I always tell the team, there's 2 ways we can grow our cloud revenue faster. One is sell more. Two is deploy faster because we sell based on these prescribed ramps. But if we can deliver faster than that and ramp faster than that, cloud revenue grows faster. So we've got the services team focused on that now.

Absolutely. partnerships. That's also been a key part of your strategy, too, system integrators, the big ones, but also some ISVs, too, right? Google Marketplace, Shopify, I think Google Marketplace was the biggest deal in Q2 that was influenced by that partnership. So talk to us a bit how you've evolved the partnership strategy, especially in relation to your services business.

Yes. Yes. So then that's another thing we've got Greg Betz focused on our COO. So driving partnerships, technology partnerships as well as the big GSI partnerships. So I'll start with technology. We announced last year at our Momentum conference in May that we've always been a big partner with Google, but we entered the Google Cloud Marketplace. That's been a driver of new opportunities and new logos. You mentioned our biggest deal in Q2. I think if you look at all of the new logo bookings we did last year, more than 10% went through the marketplace. So it's significant, and we see growing pipeline in that area as well.

Shopify has been big for us in the order management space, where we have some good synergies with them. We're working on some additional software and technology partners that we'll be announcing at momentum this year. But we've also just announced a big change in our partner program with GSIs and our services partners that are rolling out software with us. And we've got a lot of those partners that are really excited about what we announced at our sales kickoff in January.

So a whole lot more clarity around what we expect of them, what they can expect from us. We've given them access to demo environments, given them access to more of our training and education, our proactive tool set, our AI tool sets so they can invest and build industry-specific templates that then they can take to market and advocate on our behalf. And again, just using those partners to be more feet on the street and get involved in more of those deals across all of the other products outside of WMS.

Yes. Is also the strategy to kind of capture some of those like SAP, on-prem to cloud migrations as well. We've coined this term ERP super cycle. As we get closer to that 2027 deadline, are these GSI partnerships really going to be helpful to drive some of those new customer additions?

They're absolutely super important in that area because I think whether you're talking about POS or one of these other products where maybe there are deals in the market that we haven't been invited to, I promise you, at least one of our partners is aware of those deals. So we need them to bring those deals to us. And the same is true in this SAP cycle of moving from on-prem to the cloud, at least one of our partners is aware of all of those SAP customers that are moving.

And many of those customers, as they have to make this change and move to the cloud, they want to look at what's available, what are the best-of-breed products. And when they compete, when they put supply chain out there, whether it's warehouse or transportation, order management, et cetera, when they put it out there for competition, we win. And our win rates show that. We continue to have 70-plus percent win rates against -- across all of our product sets. So again, more at bats, more opportunity to compete, and we feel good about our chances of winning.

Yes. Maybe give us a quick overview of like who some of those key competitors are and where do you really differentiate versus those?

Yes. So that's one of the things that we've gotten better about this year. When you asked that question of who the key competitors are, I think the habit was to name the ones that were the key competitors in the warehouse space, right? And those are the ERPs and the Blue Yonders and people like that. But it's very different in the POS, and it's different than supply chain planning. So we've gotten much more specific about who our competitors are across each of our products and make sure that we've got the marketing, the sales and the go-to-market to address each one of those. But again, the positive side is across all of those products, 70-plus percent win rate.

Yes. Let's switch over to services. That piece revenue returned to growth in Q4. You're guiding to about 3% growth in '26. What's driving that recovery? And how sustainable do you think that can be on the services side?

Yes. So we guided to the revenue growth for this year. We also said in the January earnings call that at that point, we had already added about 100 services headcount this year. You compare that to a year ago where we actually removed about 100 services headcount. So we're in a very different position in terms of demand. And you should assume that every project that we're doing in services now, we're doing it faster than we were doing it a year ago. And we continue to invest in that speed and acceleration.

So the reason that services is growing is because we're doing a whole lot more projects. And that healthy really strong new logo that we did last year and particularly in Q4, I think where 55% of our bookings last year were new logos, 75% in Q4 was new logo. So that set us up in a really good position. But also think about all of this focus on conversion and fixed price conversion and all the focus on expansion at the time of renewal and then the focus on our services team driving how do we go deploy everything that's already sold, there's just more deals. There are more services deals out there.

So -- we track go-lives by quarter for each one of our products, and we just continue to set high bar marks in terms of go-lives every quarter. So that's a long answer. The short answer is volume. There's just a whole lot of volume and a whole lot of interest. And then the last one on top of that, Sanjeev mentioned the forward deployed engineers around AI. I think for a long time, people have talked about us as a software company, we have a large services team. Well, our services team, we hire from the best engineering schools in the country. They are engineers. So nobody is better prepared than Manhattan for this AI push, right? We're able to spin up forward deployed engineering teams so that when we sell these proof of concepts, not only -- we're not selling it to them and saying, good luck. We're helping them deploy it. We're helping them learn how to build custom agents, helping them learn how to modify agents, making sure that they find value in the AI that we deliver.

Yes, really being a close partner to those customers. You mentioned that a little bit, but the renewal opportunity. As you mentioned, cloud product first went live in 2020. You've added a bunch of new ones since then. And as those customers start to come up for renewal, you cross-sell into those existing customers. So talk to us about what's the magnitude of the opportunity? And what's the timing of when you expect those large renewals to happen?

Yes. So you can, like you said, kind of do the math on when we launched our different cloud products and make some assumptions if our average deal length is about 5 years of when those renewals are happening. Now that's not exact science because there are different length of deals, but it's no secret that in 2026, we are going to have a big opportunity around renewals. And as I mentioned, halfway through last year, we set up this dedicated renewals team to help maximize that opportunity.

What I mean by that is in the old account manager program, maybe an account manager did a renewal every 1 or 2 years on one of their accounts. So you don't take a whole lot of learnings from one to the next. And now with this dedicated team that's working with the account managers, we've got a going-in position of what's the price uplift going to be, what's the duration going to be? What are the logical upsells and cross-sells based on what they're running today. And we set ourselves up for a whole lot more success in maximizing that opportunity.

And then the second thing that comes with that is, I mentioned we start with a price uplift and a duration. We like to start the conversation around renewal at 3 years because I'd like to have this conversation again in 3 years. I don't want to wait 5 years or 7 years. So one of the biggest pushbacks from customers is they want a longer duration on the renewal. And of course, it's a give and take. Let's talk about what else you want to buy, what you want to add on and really making that process smooth and in partnership to find the value that they're looking for and the value that we're looking for, that's what we're talking about in maximizing the renewal cycle.

Got it. Let's talk about RPO. That reached $2.2 billion in Q4, up 25%. I think you mentioned record cloud bookings. You've guided to about 18%, 20% growth for that metric in '26. So could you walk us through what are some of those building blocks to get you to that 2026 growth rate?

Yes. So -- and let me tie it back to a little bit to this renewal cycle. I mentioned -- I kind of like the idea of a 3-year renewal and get another bite at the apple in 3 years. But if you think about it, if I do a 3-year renewal versus a 7-year renewal, that has a pretty significant difference in how much RPO we book, but it actually has no impact at all on our growth rate in the next 3 years. And that's why we started -- in our last earnings call, we shared the ramped ARR number because I want to make it more clear what's really happening in that ARR growth. And I think historically, people have looked at RPO as the indicator of ARR growth. And as renewals become a bigger and bigger part of our bookings, RPO is going to be a less clear indicator of ARR growth. So that's the reason for doing that.

Got it. Longer term, you guys have talked about sustaining that 20% plus kind of cloud subscription growth rate for multiple years. What ultimately gives you the confidence in that type of durability for that metric?

Yes. I think we've always said one of the great things about our model is it's very, very predictable. I talked about when we sell a deal, there's a ramp and a clear view of how that revenue is going to ramp. So that gives us great confidence and great revenue visibility growth for the next several years. The ramped ARR that we shared is a 4-year ARR of 23% growth year-over-year, right? So all of the indicators are there that gives us strong confidence in what we need to do from a new bookings perspective to continue that 20-plus percent growth rate and not only continue that 20-plus percent growth rate, but we're really focused on reaccelerating and growing that to a bigger and bigger number in the future.

Yes, absolutely. Let's shift to margins before I open it up to the audience here. Margins are coming down a little bit in 2026. Your maintenance and license revenue, that attrition is accelerating a bit more as you guys have talked about. How should investors think about that dynamic? Is this just a kind of onetime thing? Is this something that's going to continue for a couple of years? And how do we think about getting back to that margin expansion cadence?

Yes. So for a guidance on margin, we kind of use the same methodology that we've used in the past couple of years, which is remove the maintenance and license that is declining as we shift people from on-prem to the cloud. But when you remove that, we're 75 basis points improvement year-over-year. So that's the same thing we've guided to the past couple of years. We guided there again this year. If you look at the history, we've got a history of beating that. And our goal is that we would continue to underpromise and overdeliver. But you'll also see that what we are forecasting in terms of that drop in maintenance and license is bigger than what we actually did last year. Reason for that is we're expecting to see more and more traction in this conversion cycle.

Any questions from the audience here? I must be asking all the right questions.

Yes, exactly.

Cool. Maybe last one here, Eric, for me. And Sanjeev will love your perspective, too. As you both reflect on 2025, what are some of the key lessons that you learned that you're going to apply for 2026 in terms of things that worked really well as well as things that you're looking to improve upon?

Yes. So when I look back at 2025, I think one of the big highlights is record bookings performance and 55% of our bookings was new logo. Historically, we've always said that the bookings will come in one-thirds, 1/3 in new logo, 1/3 in conversion and 1/3 in expansion. And I've kind of guided that in '26, we'll get back to 1/3, but I want to be really clear, we're not going to do that by new logos coming down to meet the other 2. We're going to do that by all this focus we have on conversion and expansion so that we can operate at the same level that we've been operating at new logo. So I think that's the big aha moment and those are the investments that we made last year to really drive those other 2 pieces up to and perform at the level that new logo is.

And I think what I'll add is I think we've done a very good job over the last 10, 12 years innovating. We don't tell our story about -- we don't talk about it well. We don't communicate it very well. So I think for me, for 2026, the big part of it becomes is how do we start telling our story a lot more, which is why I saw the blog post for me and probably see some more coming out of it. You just start telling our story and let think people know what we really actually do.

So expect more blog posts?

Yes.

Absolutely. Awesome. We can end it there. Eric, Sanjeev, thank you so much.

Thank you. Appreciate it.

Good morning, everyone. We're going to go ahead and get started. My name is Brian Peterson. I'm one of the application software analyst here at Raymond James. Very happy to have Manhattan Associates with us today.

We actually have a broader team here CEO, Eric Clark -- CT, I want get this right, CEO, Sanjeev Siotia; Michael Bauer from Investor Relations, Dennis Story and Linda Pinne. So thank you for bringing the Rockstar team here.

So Eric, we'll start with you, maybe kind of a 60-second overview for people in the audience that aren't familiar with Manhattan.

Great. Well, thanks for having us, first of all. And so Manhattan has been in business for about 36 years in the supply chain space. So if you break that down, where we really focus is warehouse management, transportation management, order management, point-of-sale and supply chain planning. Very well known in the warehouse space. What I always say is there's not a deal that happens in the warehouse space that we're not invited to. We've had a presence there and we've been recognized as a leader for many, many years. And then across those other products that I mentioned, we've entered those markets at various times. We are well known in some of those spaces, but not all of those spaces and big focus this year from a sales and marketing perspective is to make sure that we do get invited to every deal that we want to be in across all of those products.

And so you've been here for -- been in the seat for about a year. I'd love to understand maybe lessons learned and what are some of the key things that you've implemented in your first year in the seat.

Yes. So what I joined, I was, first of all, really impressed with the quality of the products. So I mentioned 36 years, but really, we're a 10-, 12-year-old cloud company. So this company has successfully reinvented itself a couple of times and most recently was this reinvention around cloud technology. And the reason it's so impressive is because Sanjeev and the team really committed to this cloud-first, all APIs, all microservice driven. And through the years, they haven't done things like so many other software players have, where they've bought things and bolted them on and integrated and so forth. And because they really stuck to that foundation, now that AI has come into play, it's made it very quick and easy for us to deploy AI natively in our platform.

And so I wanted to hit on both of that, but maybe just quickly, the fourth quarter that you just put up was very impressive, any kind of key highlights or anything that you call out on the demand environment for what you saw at least through December.

Yes. So you think about last year, Liberation Day back in April and all the things that were changing with tariffs and everything else, I think a lot of people were concerned in the supply chain space. Is that going to be a tough go. We saw the demand continue to be strong. You mentioned Q4 was a record bookings quarter for us. 75% of that came from new logo. And then full year, we had 55% of our bookings from new logos. So we're seeing a lot of strength in companies in the market that are truly going out and recompeting their solution. And when they are doing that, they're looking at Manhattan as really the only player that offers this unified platform across everything they're looking for.

It's all right. A lot of time on this. But just broadly speaking, I think there's a lot of concerns that AI will eat into the value propositions of App software. I know you both have written on this separately. So maybe I'll just open it up to you guys. What is your stance on that? And how should investors be thinking about the AI application for Manhattan.

Yes. So I'll kick off, and then I'll let our CTO and Sanjeev talk more about that. But yes, this is one of those narratives that I think got overplayed very quickly in lots of different ways. But the reality is there will be software and SaaS companies that AI can really eat at them, right? And I talked about it in the blog that I wrote as Winners and Losers. But the AI -- the SaaS companies that will benefit from AI, where AI makes them stronger, we'll have the opportunity to put that AI growth on top of the cloud growth.

And that's the opportunity that we see. And maybe I'll let Sanjeev kind of dig into why we see that and why we're so confident that that's where we're going to sit in this.

Yes. And I think I wrote part of it in my blog too, right? So if you have a pharma database, it's easy to kind of like really think about replacing even though that's not that easy. When you think about a complex applications like supply chain and everything else, there's a lot more which kind of goes in. So I do not see a scenario where somebody -- we can would kind of go right this application up and somebody will just go buy that stuff, right?

Now AI, this is a net additive to us, in terms of what we've done with AI and how we have done it with AI because AI is kind of natively built into the product. I mentioned in my blog, we generate a lot of our code. And if I go back to why we did all of those things that goes back to 14 years back when we started building this thing.

First thing, when we said we had 2 choices, go, lift and shift what we had and put it on the cloud or rethink on how the world will be 5 years, 10 years from now and how do you prepare for the future. We made a decision that we will make a big investment to build for the future, right? And part of that, the 3 or 4 core elements went into it, right? What we saw generally from a past history perspective, right, is user interfaces change every 10 to 15 years. And when we we're building in 2014, we kind of knew that some sort of a user interface will come in the next 3, 4, 5 years, and we have to prepare for it. So we took an approach that we're going to build everything as an API-first approach, right? To be ready for whatever the new interface will be. We didn't know it will be AI, but now it's kind of proving that our strategy kind of worked really well from that perspective.

Second thing as we look through this, right, is when you think about workflows, we serve all tiers of customers. And our premise was we're going to build everything as composable, right? We want to make sure that the our APIs, the workflows can be composed naturally, right, by configurations, by whatever else. And that, again, I'll come back and tie back to the AI, how it plays. So build it as a composable thing.

The third piece, when you build enterprise software, right, no matter what you do, it takes you N number of years. It doesn't get done in a month, 2 months. And typically, when you build software, what happens is what you build in first month looks quite different than what you build in the fourth year, right? And then you build that technical debt all along.

So we made a very strategic decision way back in 2015 that we're actually not going to write a lot of software. We're going to generate a lot of software, mainly from a consistency perspective, right, so that we don't accrue any technical debt as we progress. Those 3 aspects have really, really paid us well.

We actually even begin with when people say microservices, when we started it off, I don't even call it microservices. I used to call it components or component types, right? And the microservices kind of word came in later on. And I feel like AI native, we are way ahead of that thing is if I think about building an AI native platform right now, I would do exactly what we did in 2014. So I would say we have been building this AI native platform now for the last 10 years.

Well, maybe just because I'll address it specifically. I think there's some belief that a lot of these customers may go out and build these things themselves. And I know you are one of the most -- WMS solution is very, very, very complex. But can you like address that specifically and why we wouldn't see customers trying to build these applications themselves?

Yes. I'll give you an example, right? So when we started in 2015, we already had a 20-year history with building WMS system. So we had all the domain experts in the house. We had a generator in 6 months, we wrote, right, which an AI could kind of write the generator and do something with it. And even with all that, it took a whole lot of us for 3 years to go build a system.

So if anybody thinks they can go build WMS in a weekend, they probably do not understand the complexity of what is required, right? We have roughly, let's say, 180 components. So the magnitude of just understanding what to build is pretty large for somebody to kind of cross that bridge. So that's kind of one of the reasons why I feel that there's a pretty large entry barrier for somebody to go just go build a new WM system on their own.

So maybe I'll add to that a little bit. But what about the complexity to implement some of these systems, right? And then I guess maybe taking the question a little bit differently. What is the opportunity for AI on the services side to potentially get more efficient? Is there anything that you can do there with customers?

Absolutely, right? I think Eric talked about it a lot from a simplicity perspective, right? I think the time to value to accelerate is absolutely exists, right? We are looking at every aspect of implementation, whether it's interface mapping, design, how do you convert configurations, how do you test, all of those aspects, AI will absolutely be 100% effective, right? And we're seeing time reduced, right? We're seeing acceleration from our implementation perspective with respect to AI.

And part of what that has allowed us to do is as we leverage more AI and automation in our services business, it's allowed us to start to do fixed price and fixed time line deployments. Now we've started that with our conversions because we know, hey, you're running on one of our on-prem products. We know exactly what you're running. We know exactly where you're going. So it's very clear to us what that's going to take. And so we started offering fixed price, fixed time line on that.

But I expect that over time, as we get more and more confident in some of the automation that we're creating that we'll do that with -- we'll be able to do that with new logo eventually also. We also have the opportunity even more quickly to go and do that with customers that maybe have licensed software for, I don't know, call it, 50 warehouses, but they've only deployed 20. So we want to go help them get the next 30 deployed more quickly. So these are all opportunities to leverage that AI and automation to move faster. Because if you remember, our -- the way our revenue ramps, it's based on a contracted revenue ramp, we can drive them faster than that, revenue ramps faster.

Maybe just to remind us, where are we on the conversion time? I know most of the WMS space is still on-premise today, but where are we in that conversion effort? And like how should we be thinking about that trajectory over time?

Yes. So what we shared on the last earnings call is that we've got about now 22% of our on-prem customers have either started or completed that journey to the cloud. So we still got a big, big opportunity for conversion. And we've had these cloud products now for, call it, roughly 10 years in most cases. So only 22% went in the first 10 years. I think in the next 10 years, we'll see it go a lot faster than that.

And part of it is it's just natural. A lot of these companies forever have been on a cycle where they do an upgrade every 5 to 10 years. So some of them just weren't on their cycle yet. But now we've got this case where the gap between what they have and what they could have is just getting bigger, faster. And we're never going to build AI into the on-prem platform. So to take of all these new features, they've got to get to the cloud.

And maybe just like thinking about WMS specifically in terms of the competitive landscape, what are you seeing out there? And is AI increasingly more important in these conversations? Or is it not yet? Or is it on the road map? Or I'd love to get a competitive update on WMS.

Yes. So from a competitive update standpoint, we mentioned we still have 70-plus percent win rates. I also mentioned in the last earnings call, a lot of people consider Blue Yonder to be our biggest competitor, and we've got 90-plus percent win rates against them in 2025. So from a competitive standpoint, we're doing very, very well. We're very pleased with where we are.

AI, of course, is a part of every conversation, right? People want to understand where are you going? How are you investing? How can we take advantage of AI with your platform. With our customers -- sorry, with our competitors, we've got some competitors that can tell a compelling AI story. But when our customers really break that story down and if the story starts with, well, first, we've got to move everything to a data lake, and then we've got to do all this data indexing, and we're going to perform functions over here and then move it back in.

And we've got to think about security of the data lake and we've got to think about latency. None of that conversation happens with us. We turn it on and you use it. Again, we're versionless software. So every one of our customers is running the same version of the software, which means right now, every one of our customers has access to our AI agents. If they simply turn them on, they can use them today.

And I think there's been some debate about the cloud-based ERP migrations and if that's an opportunity for you guys. Any update on what you're seeing maybe from SAP or Oracle? Any kind of ERP replacement cycles?

Yes. So I think that ERP replacement cycle is always a tailwind for us, right? But I also think that -- because any time somebody is going through this process of, hey, I've got to relook at my whole SAP landscape because SAP is forcing me to do this upgrade, then it's an opportunity to think about best of breed and do they want to stop using SAP for WMS and come to us. And we've been very successful in that cycle.

I will say, though, a lot of customers -- the dates continue to shift from SAP, for example. So that deadline doesn't feel as firm and it maybe isn't producing the tailwind that we thought it would as quickly as it is, but it's a constant tailwind...

Constant in the market.

Yes.

Sanjeev, maybe double-click a little bit on the AI products that you guys have announced. And dive into some of the functionality and what can that do for your customers?

Yes. So when we kind of think about AI themes, and I'll talk from a broad industry perspective on where AI can kind of impact software. The 4 areas we see. One is just user experience, right? When you think about how this is even the human computer interface, how it's evolved, right? It started from a punch card, went to a green screen, went to Internet, went to mobile, right? And now with the natural language interface, I think that overall, you will see the software just generally change in terms of how you converse with software and how humans interact with it. So that's kind of one piece we are focused on. And I think the overall industry should be focused on.

And the second piece we talked about time to value, right? And how do we kind of accelerate our implementation, how do we reduce that time required to get somebody live and realize the value. So that's kind of another big area of focus for any package software, I guess, should be a pretty big part of focus.

The third big piece, which kind of covers everything in some way is productivity, right? We're looking at every operator who uses our system and say, okay, how do we make them more productive? What actions can we automate? What can we kind of make better judgments so that those buses automate.

And the fourth piece is around data insights, right? What can you get out of this data, which you have? What insights can you draw? And how can you kind of infer problems earlier and take actions. So those are kind of 4 broad themes of all the agents we are building. They probably fit in all of these 4 categories. We have agents in each of those categories. And I think these 4 broad topics I mentioned to you, I feel just as a general broad software industry, they are the right topics to think through and how do you make progress on those.

And so as we're thinking about supply chain, what are some early like 1 or 2 use cases that you would think would be the most interesting that would fit in one of those 4 buckets?

Sometimes I'll not kind of say there are some videos out there where there's kind of a little bit big sexy, big bullet things. Where I find is even solving small problems, can actually make a pretty big impact.

I'll take an example, we publicly talked about Eaton, right? We built an agent. It took our forward deployment, uses about a week, 2 weeks to build that thing. And all it was really about was they had an exception process when something happens, somebody is constantly monitoring it, and then they will figure out how to chase the problem and fix the problem, right? The whole process we could automate in a week through an agent, and that increased their shipping by 3%, right? That's a pretty big impact to the...

In the first week...

In the first week, right? So it wasn't really a big large problem you had to solve. You can solve a lot of these exception problems, which is true across supply chain, right? Think about supply chain, there are a lot of small exceptions people deal with. And solving these small problems and add them up, they can make a pretty big impact, right? There will be big problems we'll solve, too, right?

But the way we solve that is when you subscribe to our AI pack, you get a standard set of agents that we built and we continue to build. We'll continue to add standard agents. But what's been really exciting is what you also get with our AI pack is the foundry, which allows you to either modify any of those agents and customize them for your operation or you can build an agent from scratch. And the one Sanjeev just mentioned was one that was built from scratch in about a week or 2 with our team.

And we see that pattern across our customer base, right? I mean I've talked to a lot of customers. They all have a spreadsheet on all of the exceptions they manage, how do they manage. They have a bunch of FTEs managing those exceptions. And then even more than saving the FTEs, right, it's really the impact of the underlying metric, right? The shipping on time, the fulfillment rates, all of those things start changing once you automate a lot of these things and speed them up.

And what about the opportunity to use that with other agents, right, across other systems? I know people maybe don't talk about Active Omni enough and what kind of data that could provide in terms of the whole e-commerce solution. But maybe talk about that more on the front-end customer side and less so maybe on the supply chain side.

Yes. I think just overall, AI will have a broader impact. And customer service side, obviously, has a pretty big impact. I think that's what people talk about the most talk about the most, right. [Technical Difficulty] So call center agent kind of trying to get when a customer calls in, just getting a quick summary of what this customer could be calling about, giving them the right answers to the call center agent right there in the face, summarizing the calls, figuring out what happened in the call, right? Those are all kind of really net additive to the customer satisfaction side of it, right?

I've lost my train of thought just -- so from an Omni perspective, right, if you -- store manager, let's say, take a store as an example. So today, a lot of store managers are trying to figure how do they kind of uplift their shares. They don't have data. They don't know what's going on, with the foot traffic and everything else. We can analyze a lot of the data and start putting that out to the store manager upfront saying, this is what XYZ can do because store X is doing better, right?

I'll go back to the call center topic for a second. One thing which we find really useful there is sometimes when you have these call centers, there's a very high turnover rate there. So you get a lot of junior guys, and they got a lot of experienced call center guys. Where we see AI kind of help really is bridge that gap between them, right? But a lot of these junior guys who do not know the SOP, who do not know how to kind of operate. Now with the help of AI and with the learnings that they get from the senior guys, we can kind of codify that.

And then you can kind of feed to all these guys to take the real actions, right, so they can service the customer a lot better, right? So that's kind of another big impact where you can bridge the gap between the junior most salesperson to a very senior salesperson.

Got it. And you mentioned the retail store owner. I wanted to unpack point-of-sale a little bit. You've had some strong wins there. Where are we in the evolution of that business? And how do we think about that opportunity longer term?

Yes. So point-of-sale is one of the products we're really excited about going into '26. So if you remember, last year, we built a sales specialist team around point of sale as well as POS and others. But we're starting to see the fruits of that labor now in terms of the pipeline and the opportunity that we've got. We've never been disappointed with our win rate. Again, 70-plus win rate across all the products. It's just about getting more at bats and competing for more. And when we look at our pipeline across some of these products like POS and TMS and supply chain planning, it's the biggest invest that we've had going into a year. So really happy about where we are.

And maybe talk about how you're attacking that opportunity. I know there's been some go-to-market changes, partnership efforts, like maybe unpack what you've done in the last year.

Yes. So we built a sales specialist team. We've changed our partner model and a big focus on changing the partner model to really get more specific and prescriptive with our partners about what we expect from them and how they can help us grow and what we can do to help them grow in return. And part of that is in the POS space, if you think about all the POS deals that happen out there, our partners are Accenture and Deloitte and IBM, et cetera, et cetera, they are aware as a company. They are aware of every one of those deals that's out there.

So we want the Manhattan team at those companies to be making sure that they are aware and bringing us into those deals. And so you think about all the things that we've done across all the different elements, the regionalization of some of these things has just expanded that opportunity for us.

And maybe just supply -- a similar question but on supply chain planning. I know that's a newer product. Where are we in the adoption of that?

Yes. So supply chain planning, we just rolled out in the cloud platform about a year ago. So it's our newest product on the cloud platform. And I think we've said every quarter that it's moving faster than we had kind of anticipated. And I think the most exciting thing about supply chain planning is we've now seen multiple customers become new logo Manhattan customers with supply chain planning.

And in the beginning, we kind of expected, hey, that's going to be a logical add-on if you're a warehouse or transportation or order management, add the supply chain planning. But when we see new customers come in and start with supply chain planning, that tells us 2 things. Number one, we've built a product that can compete head-to-head against all these other your pure-play supply chain planning products. But number two, it tells us they're coming to us because they want to bring more to us later. They see the value of this platform.

So we talked about this last year actually. So the confidence that you've talked about to, say, 20% plus growth in cloud, that's well above industry averages that we see. So talk about the visibility that you have. I know we talked about the products, but the confidence that gives you to say, hey, we can grow our cloud revenue 20%.

Yes. No, I think, again, you look at the things that we've done, and we started these things in '25 to make sure that we were set up for this in '26, but put Bob Howell as our Chief Sales Officer, so he could standardize some things globally, build out that sales specialist capability across each one of our products globally.

We brought in Greg Betz from Microsoft to really get us focused on a conversion program that was -- historically, we've said people will convert to the cloud when they're ready. And now we're just making sure that we're having that conversation with every one of our on-prem customers so they understand the difference between what they have and they could be and also so that they understand how easy it is to make that conversion. Greg and his team are also focused on this renewal program where we make sure that we're maximizing not only the price uplift, but the cross-sell opportunity at the time of renewal.

And then recently, we added a new Chief Marketing Officer, who's come in and really helping the team think differently about how we create pipeline and create opportunities, partner with our partners to really get a different level of market awareness across all of our products.

And specifically on the conversion side, like how important do you think this fixed services dynamic can be for customers? Is that -- could that be a real catalyst in terms of moving people over to the cloud?

Absolutely. Because if you think about all of these customers that are on-prem, they have this pattern in their head, right? Every 5 to 10 years, they do a massive upgrade. And that upgrade is a big project. And it's like open-heart surgery, right? The last one they did probably ran long, probably was over budget. They probably still have -- feel pain from that process.

So going to them and helping them understand that, hey, this one is much easier. We know what you're running. We know where you're going. We've built automation. We've built AI. It can happen fast. It's a low cost. And by the way, it's the last time you'll ever do it because after you do it, you're on versionless software. When we have that kind of conversation, some of these companies that were trying to make this -- forget about this pain and pushed off as long as possible. Now they're saying, okay, let's talk about this. That makes sense.

Well, and I want to expand on that a little bit and Sanjeev, feel free to weigh in. So you talked about versionless and not needing to upgrade again. But 80% of the customer, well, 78%, keeping honest on the math, are still on-premise, right? So they need to go through a migration. But what is the value that you can provide them, not if it's just WMS, but what about OMS and TMS? And you're selling them multiple supply chain solutions. So what do you think that you can sell to them over time as they're -- again, early in the journey, but the value of the integrated platform?

Yes. I'll jump in first, and then I'll let you go because I think that's a really important question. When we get our on-prem warehouse customers to convert to the cloud, it immediately opens the opportunity to cross-sell transportation, cross-sell supply chain planning, upsell the AI packs. All of these cross-sell upsell opportunities don't exist in the on-prem.

Now I want to also say that 55% of what we sold last year was new logo. So we've always been a believer that, hey, if we can expand our share, every one of those new logo customers, we're creating those same cross-sell and upsell opportunities. But now we've got a sales force that's built to go do both, which we've never had before.

Yes. I mean I'll add. A lot of times, customers who are still on on-prem, there has been an inertia on moving, and you need some sort of a force multiplier to help them kind of find a reason to move. I think AI would be a pretty big incentive for them to say, okay, I want to move from X to Y, and this is what I will get out of it when I move, right? So that's kind of a big large factor on how we can overcome that inertia of movement. And once you kind of move to Eric's point, right, it becomes a lot more easier to kind of use the rest of our products, which are already there on the platform.

Maybe you said AI from a different perspective, but would love to understand how you guys are using it internally and what efficiencies you've been able to get from AI.

Yes. So we've been using AI internally for the last 3 years almost now, right, almost every function of ours. I'll take our ops, DevOps side of it, right? We've grown our customer base in the last 2, 3 years. Our number of AIs, which have gone live is probably about 2, 2.5x. DevOps team is completely flat. We have not grown our headcount there at all, right? And a lot of that has come from using AI to kind of manage those processes to make sure that we can continue to keep that right. We use it for our development. I mean I talked about code generation. Of course, we kind of wrote our own generator. But the remaining portion of it now, we're starting to use a lot more AI in that.

Our customer service organization, same thing trying to -- when they get a trouble ticket, they're trying to figure out, okay, is this happened before and AI is kind of helping with that aspects. Services, we talk about time to value. I mean our services team is using it extensively to figure out how do they reduce that total time it takes to implement the software. That's a pretty big piece. So I would say, I mean, it's pretty broadly used across the company, and we're using more and more.

And our sales team is using it. They're using it to get intel on opportunities, potential customers that we're going after. They're also using it to do better, more applicable demos faster in the cycle. So they can actually show the customers exactly how you're going to use our software very early in the sales cycle.

And we can respond to more RFPs, for example, in the sales team, right? I mean they're filling 80% of the RFP using this. So human kind of reviews it, but it takes a lot of that mundane task away.

And so I want to understand the sales side in terms of staffing and hiring. Do you feel like you're where you need to be to go attack the opportunity in front of you?

So our sales team is massively more efficient today than they were a year ago, and we're still going to add more because the opportunity is there. The opportunity across all of those products, conversion, new logo, cross-sell, the opportunity is there. So we're continuing to invest in sales and marketing.

And maybe just last one to wrap up here, but you guys generate a significant amount of cash. Obviously, there's investment in R&D, but I would love to understand how you're thinking about priorities for deploying that cash?

So no change there. We've always said if there were an M&A opportunity that made sense, we wouldn't hesitate to look at it. But again, I think a big part of the strategic advantage position that we're in right now is because Sanjeev and the team have really stuck to this platform approach. We haven't bought anything and bolted it on and integrated it. So if we were to acquire something, we'd have to rewrite it. And we feel like we can write it ourselves faster than that. So M&A isn't a big part of our strategy, which means buybacks, big focus on buybacks.

All right. We'll wrap it up there. Everyone, thank you.

Thank you.

Good afternoon. My name is Julien, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Manhattan Associates' Q4 2025 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, January 27, 2026.

I would now like to introduce you to our host, Mr. Michael Bauer, Head of Investor Relations of Manhattan Associates. Mr. Bauer, you may begin your conference.

Great. Thanks, Julien, and good afternoon, everyone. Welcome to Manhattan Associates' 2025 Fourth Quarter Earnings Call. I will review our cautionary language and then turn the call over to our President and Chief Executive Officer, Eric Clark.

During this call, including the Q&A session, we may make forward-looking statements regarding the future events or Manhattan Associates' future financial performance. We caution you that these forward-looking statements involve risks and uncertainties, are not guarantees of future performance, and actual results may differ materially from projections contained in our forward-looking statements. I refer you to Manhattan Associates' SEC reports for important factors that could cause actual results to differ materially from those in our projections, particularly our annual report on Form 10-K for fiscal year 2024 and the risk factor discussion in that report and any risk factor updates we provide in our subsequent Form 10-Qs. Please note that the turbulent global macro environment could impact our outperformance and cause actual results to differ materially from our projections. We are under no obligation to update these statements.

In addition, our comments include certain non-GAAP financial measures to provide additional information to investors. We have reconciled all non-GAAP measures to the related GAAP measures in accordance with SEC rules. You'll find reconciliation schedules in the Form 8-K we filed with the SEC earlier today and on our website at manh.com.

Now I'll turn the call over to Eric.

Thank you, Mike. Good afternoon, everyone, and thank you for joining us as we review our better-than-expected fourth quarter and full year 2025 results, as well as provide our outlook for 2026.

2025 was a successful year for Manhattan, and we ended the year strong, achieving record cloud bookings in the fourth quarter. In a volatile environment, Manhattan achieved annual records across RPO, cloud bookings, total revenue, operating income, free cash flow and earnings per share. Recall, back in April on my first earnings call, I highlighted how Manhattan's strengths are well established as our platform, our products and our people are recognized as world class. Through strategic investments, we've strengthened each of these areas in 2025, positioning us to accelerate our momentum in 2026 and beyond, so let me briefly touch on each.

In 2025, we extended our position as the leading innovator within the supply chain commerce universe and enabled faster implementation of our industry-leading solutions. While I will provide a more detailed platform and product update in a few minutes, I'm excited to say that several weeks ago, on the heels of a successful early access program, we announced the commercial availability of our initial set of AI agents and our Agent Foundry, which is our offering that enables customers to build or customize new agents directly in the Active platform using natural language. Excitingly, results and feedback from our early adopters indicate that our AI agent workforce generates significant value as increased automation and simplicity can drive higher productivity, ROI and improve customer satisfaction.

In 2025, our R&D team launched additional new offerings, including Enterprise Promise & Fulfill, which is designed to optimize B2B order promising and fulfillment, as well as introduce numerous industry-leading features and functionality across our supply chain commerce solutions. On the people front, to improve our effectiveness and accelerate our selling velocity to both new and existing customers, in 2025, we made key hires and introduced several new programs within our sales and marketing organization.

To briefly recap, we reorganized our entire global sales team under the leadership of our Chief Sales Officer, Bob Howell, and added several new sales leaders and product specialists to the team. Additionally, we hired Greg Betz as our Chief Operating Officer. And under his leadership, we have introduced several new programs to drive growth. Last week at our sales kickoff in Atlanta, we hosted a Partner Day that was attended by more than 100 people from across our partner community. Greg and his team introduced our updated partner program for global SIs, Manhattan specialists as well as technology partners like Google and Shopify.

And a few weeks ago, we announced the hiring of Katie Foote as Chief Marketing Officer. Katie brings more than 20 years of marketing leadership for technology companies. Most recently, she was the CMO at CaptivateIQ. And prior to that, she held several leadership roles at salesforce.com. I'm excited to say that Katie hit the ground running and spent her first week with Manhattan at NRF in New York. We're delighted to have her on the team.

Now pivoting to quarterly results. Q4 was a record quarter that exceeded expectations. Revenue increased 6% to $270 million, highlighted by 20% growth in cloud and a return to growth in services. This resulted in adjusted earnings per diluted share increasing to $1.21. RPO increased 25% to $2.2 billion. In Q4, competitive win rates remained over 70%, and more than 75% of our new cloud bookings were generated from net new logos. For the full year, our team did a fantastic job of gaining market share as new logos represented more than 55% of our 2025 new cloud bookings. With our growing opportunity for expansion from existing customers, we anticipate net new logos to revert to 1/3 of our new cloud bookings over time.

Manhattan has always had strong cloud revenue visibility, and that gives us confidence in the durability of our growth. To better assist investors' assessment of our business, today, Dennis will provide additional color on renewals and annual recurring revenue. Many of our contracts will reach or approach full ramp pricing by the fourth year of subscription. So to better showcase this dynamic, we're introducing a 4-year annualized value of recurring revenue or a ramped ARR. This ramped ARR, alongside RPO, will help investors quantify the pace of our cloud revenue growth over time. At the conclusion of 2025, our ramped ARR exceeded $600 million and was up 23% compared to the ramped ARR at the conclusion of 2024.

From a vertical sales perspective, our end markets are diverse, and we have healthy established footprints across numerous subsectors, which include retail, grocery, food distribution, life sciences, industrial, technology, airlines, third-party logistics and more. For example, Q4 deals included the following: A Fortune 100 home improvement company became a new logo Active Warehouse customer; an upscale department store chain became a new logo Active Omni and Active Warehouse customer; the largest global provider of medical surgical products became a new logo Active Warehouse customer; a lifestyle brand and omnichannel retailer of premium home furnishings that was an existing Warehouse customer expanded to include Active Omni; a medical supplies, equipment and services company became a new logo Active Supply Chain Planning customer; a home furnishing wholesaler became a new logo Active Transportation and Active Warehouse customer; and many more as well.

So looking out to the new year, our pipeline remains strong across our product suite, and we have numerous opportunities to drive growth, including adding new customers, cross-selling our growing unified product portfolio and converting our on-premise customers to the cloud and renewing our initial sizable cohort of Active Warehouse customers. So now let me briefly provide some updates on our industry-leading products. As I stated earlier, we recently made our Agentic AI product set commercially available to our entire Active customer community. Our Active Agent offering consists of 2 primary elements: a set of base agents that are ready to be activated immediately and our Agent Foundry offering, which enables our customers to quickly build and deploy their own agents within the Active platform. We designed our base AI agents in collaboration with a set of key customers to provide immediate value to our customers by solving important day-to-day problems in areas like warehouse, transportation, contact center and stores.

Because we built our active agents directly into the platform, our customers don't need to implement costly and complex external data lakes to make them work. Our API-first architecture enables us to solve a growing list of high-impact problems with almost no configuration or additional upfront effort. And while our Active Agents are highly capable today, we have an aggressive product road map which will both enhance our existing agents with new features and deliver entirely new agents. Our agile software delivery process enables us to deliver these additional Agentic features on an incremental basis throughout 2026.

In addition to these base agents, this month, we also released our Agent Foundry. This intuitive tool enables our customers to build their own AI agents. Foundry provides a visual editor to allow customers to either start with an existing base agent and enhance it or to create an agent entirely from scratch. To achieve this, Foundry provides our customers with a comprehensive set of both base API and Agentic tooling. And during our early access program this fall, our forward deployed engineers used Foundry to enable our customers to create powerful new agents purpose-built to tackle specific operational challenges.

In terms of commercialization, our goal is to make it easy for our customers to start their Agentic journey with us, and we're going to do that by offering a low-risk Active Agent pilot to get started. We're confident that the combination of our powerful base agents, the flexibility provided by Foundry and the deep technical and domain expertise of our Manhattan forward-deployed engineers will provide a compelling reason for our customers to add an Active Agent subscription after they complete their pilot.

Our Active Agents made their public debut a few weeks ago at NRF, where there was interest -- strong interest for these new AI capabilities and our Active Store offering, which is centered around our Active Point-of-Sale application. Designed from the outset to be mobile first and cloud native, Active Point-of-Sale now also embeds Agentic AI to help store associates become more effective sellers. With real-time insights into sales performance and the ability to understand what's selling well across the network, our store associate agent provides prescriptive recommendations within the Point-of-Sale application. Because many of our active store customers also use our Active OMS, these selling insights and recommendations [indiscernible] view of our customers' commerce activity.

Speaking of order management, this quarter, we are also releasing a powerful new fulfillment optimization simulation capability. Our customers can now experiment with a variety of optimization settings to ensure they're meeting the overall needs of their business at any given time. Many of our customers change their view of what optimal fulfillment means throughout the course of the year. During the holiday season, speed of delivery may predominate, while at the end of the spring season, there's slightly more emphasis on shipping distressed inventory to avoid markdowns. Our new simulation feature enables our customers to test a number of these strategies, compare the outcomes and ensure the system is ready to pivot fulfillment strategies when the business calls for it. Like interactive inventory, we project fulfillment simulation to have strong cross-sell potential for our Active Omni customers.

And finally, we continue to experience strong sales and implementation results across our supply chain execution applications. Our active warehouse application continues to differentiate itself, both its functional and technical superiority. During selection processes, the vast majority of prospects reached the conclusion that only Manhattan's Active Warehouse application will meet their needs. And 2025 was also a strong year for our Active Transportation application with respect to both strategic wins and key go-lives around the globe.

Our unification message continues to resonate. Customers no longer want to select separate stacks for warehouse and transportation. They see the real power of a single platform optimizing inbound and outbound flow throughout their supply chain.

So that concludes my business update. I'll now turn it over to Dennis to report on our financial performance and outlook, and then we'll move on to Q&A. So Dennis?

Thank you, Eric. As Eric highlighted, in 2025, we set records across bookings, our P&L and cash flow. Congratulations to our team members around the globe for great execution in a volatile macro environment. I'll start by recapping our better-than-expected financial performance for the quarter and year. All growth rates are on an as-reported year-over-year basis unless otherwise stated.

Regarding FX, it was a 1 point tailwind to our Q4 revenue growth rate and did not have a material impact on our full year revenue growth rate. For RPO, FX was less than a $1 million tailwind to sequential RPO growth and a $41 million tailwind to year-over-year RPO growth. As Eric highlighted, to better assist investors' assessment of our business today, we are providing additional color on renewals and annual recurring revenue, ARR. Many of our contracts reach or approach full rent pricing in the full year of the subscription agreement. And so to provide additional insight on our cloud revenue visibility, we are introducing a 4-year annualized value of recurring revenue, or ramped ARR.

Our assumptions for ramped ARR are as follows. If a renewal is set to occur during this 4-year period, it renews at current pricing with no churn or price increases assumed. Also if the pricing ramp schedule extends beyond the 4-year window, which today, that would be any ramps beyond 2029, that future uplift is not included. At the conclusion of 2025, our ramped ARR exceeded $600 million and was up 23% compared to the ramp period at the end of 2024. Please recall, deals that include ramp pricing are only time-based, which supports our strong cloud revenue visibility.

So moving to Q4. Total revenue was $270 million, up 6%, and full year revenue totaled $1.08 billion, up 4%. Excluding license and maintenance revenue, which removes the revenue compression by our cloud transition, Q4 revenue growth was 9% and full year, 5%. Q4 cloud revenue totaled $109 million, up 20%, and includes a customer liquidation headwind of $1.3 million that was not embedded in our guidance. This resulted in full year cloud revenue increasing 21% to $408 million.

As Eric stated, we achieved record cloud bookings in Q4 as we closed out 2025 with RPO of $2.2 billion, growing 25% year-over-year and 7% sequentially. Our RPO strength was driven by continued new logo momentum, which was a significant contributor to our approximately 20% growth in new cloud bookings for the year. Renewals, which does not include cross-sales, were about 18% of total bookings in 2025. Contract duration remains at 5.5 to 6 years, resulting in 38% of RPO to be recognized as revenue over the next 24 months.

Q4 services revenue of $120 million was better than expected as solid execution returned this line item back to growth earlier than our original plan. For the full year, services revenue declined 4% to $503 million. Q4 adjusted operating profit was $91 million with an operating margin of 33.8%. Full year adjusted operating profit totaled $387 million with 35.8% operating margin and represents over 100 basis points of improvement over 2024. The better than the expected Q4 and 2025 results were driven by strong cloud revenue combined with operating leverage as our cloud business scales.

Q4 earnings per share increased 3% to $1.21, and GAAP earnings per share increased 12% to $0.86, [ big offer ] there. This resulted in full year adjusted earnings per share increasing 7% to $5.06 and GAAP earnings per share to increase 3% to $3.60. As discussed in Q2 and Q3, our higher tax rate is due to an increase in tax reserves caused by the acceleration of our domestic R&D cost deductions under the July 4th U.S. tax law change. As such, this change was the predominant driver to the $15 million reduction in Q4 cash taxes and $36 million reduction in our annual cash taxes.

So moving to cash. Q4 operating cash flow increased 40% to $147 million with a 52.7% free cash flow margin and 34.4% adjusted EBITDA margin. Our full year operating cash flow increased 32% to $389 million with a 34.6% free cash flow margin and 36.4% adjusted EBITDA margin.

Turning to the balance sheet. Deferred revenue increased 21% year-over-year to $337 million. We ended the year with $329 million in cash and 0 debt. Accordingly, we leveraged our strong cash position and invested $75 million in share repurchases in the quarter, resulting in $275 million in buybacks in 2025. Additionally, our Board has approved the replenishment of our $100 million share repurchase authority.

So moving on to our 2026 guidance. Our long-term and long-standing financial objective is to deliver sustainable double-digit top line growth and top quartile operating margins benchmarked against enterprise software comps. Software comps -- these are drivers to our best-in-class return on invested capital as we maintain a balanced investment approach to growth and profitability. As noted on prior earnings calls, our goal is to update our RPO outlook on an annual basis. Additionally, as previously discussed, our bookings performance is impacted by the number and relative value of large deals we close in any quarter, which can potentially cause lumpiness or nonlinear bookings throughout the year. All guidance references made on today's call will be at the midpoint of their respective ranges.

So with that, for RPO, we are targeting $2.62 billion to $2.68 billion RPO, representing a range of 18% to 20% growth. Included in our target is an 18% to 20% contribution from renewals, which implies double-digit growth in both new bookings and renewals when normalizing for FX movements. For full year 2026, we expect total revenue of $1.133 billion to $1.153 billion. The $1.143 billion midpoint represents 10% growth excluding license and maintenance attrition and 6% all in.

For Q1, we are targeting $272 million to $274 million, which at the midpoint represents 10% growth, excluding license and maintenance attrition and 4% all in. For the rest of the year, at the midpoint, we are targeting total revenue of about $287 million in Q2, $296 million in Q3, and accounting for retail peak seasonality, $287 million in Q4. For 2026 adjusted operating margin, we expect a range of 34.5% to 35%. Removing the impacts of license and maintenance attrition to 34.75% midpoint represents about 75 bps of margin expansion compared to 2025 and includes increased investment in our business, particularly in sales and marketing and expanding our services teams.

On a quarterly basis, at the midpoint, adjusted operating margin is expected to be about 31%; in Q1, 34.7%; in Q2, 36.9%; in Q3, and accounting for retail peak seasonality, 36.1% in Q4. This results in a full year adjusted EPS guidance range of $5.04 to $5.20 and a GAAP EPS range of $3.37 to $3.53. For Q1, we are targeting adjusted earnings per share of $1.08 to $1.10 and GAAP earnings per share of $0.64 to $0.66. For Q2 through Q4, we expect GAAP earnings per share to be about $0.40 lower than adjusted EPS per quarter, with the vast majority of accounting for our investment in equity-based compensation.

So here are some more additional details on our 2026 outlook. We expect cloud revenue to increase 21% to $492 million, which assumes $114 million in Q1, $121.5 million in Q2, $126 million in Q3 and $130.5 million in Q4. We expect services revenue to increase 3% to $517 million, which assumes $124 million in Q1, $131.5 million in Q2, $137 million in Q3, and accounting for retail peak seasonality, $124 million in Q4.

On attrition to cloud, we expect maintenance and license to represent about a 4-point headwind to total revenue growth in 2026. As such, we expect maintenance to decline 19% to $105.5 million, which assumes $28 million in Q1, $27 million in Q2, $25.5 million in Q3 and $25 million in Q4. We expect license to be about $1 million per quarter and hardware to be between $6 million and $6.5 million per quarter.

To support our strong bookings growth and the significant Agentic AI opportunity, we have already onboarded about 100 new services associates in January, and we anticipate these new hires, coupled with license and maintenance attrition, will result in consolidated subscription, maintenance and services margin to be flat as reported compared to 2025. On a quarterly basis, we expect consolidated subscription, maintenance and services margin to be about 57% in Q1, 59% in Q2, 60% in Q3, and accounting for retail peak seasonality, 60% in Q4. Removing the impacts of license and maintenance attrition, our target implies 50 basis points of year-over-year improvement. And we expect our effective tax rate to be 22% and our diluted share count to be 61 million shares, which assumes no buyback activity.

So in summary, 2025 was a great year of progress and execution. Thank you, and back to Eric for some closing remarks.

Great. Thank you, Dennis. To recap, 2025 was a successful year for Manhattan, and we ended the year on a strong note. Business fundamentals are solid, and we enter 2026 with accelerating momentum across the organization. So a big thank you for joining the call, and thank you to our global team for all the great work they do for our customers.

And that concludes our prepared remarks, and we'd be happy to take questions. Thank you.

[Operator Instructions] And our first question comes from the line of Terry Tillman with Truist Securities.

I appreciate the time here. And then first, congrats on the 4Q bookings, that's impressive, and also just the 4Q cash flow finish. I have a question maybe for you, Eric, first, in terms of both cloud migrations for WMS and starting to drive that kind of muscle tissue around fast renewals. I think those were some focus areas going into the year. Just really top '25 and then to '26. Can you show any progress reports on both of those areas and potentially the impact in the model in '26 from a couple of those major initiatives? And then I had a follow-up for Dennis.

Great. Yes. Thanks, Terry. So I'll start with kind of that conversion and driving some of our on-prem customers onto Active Warehouse. You recall that we started that effort kind of midyear in 2025, and we saw some early success. We're now seeing, I would say, the fruits of that effort. And we're seeing the pipeline really start to build. We've already closed some of these deals in Q1. So that helped us get off to a quick start in Q1.

And that's a part of -- Dennis just talked about -- we've added 100 services headcount already in January. And that's a big difference from where we were a year ago in January. I think that says a lot about the confidence level we have in the book of business that we've built around services. So you combine the conversion opportunity with the new logo that we've brought in and what we see in terms of opportunity around forward deployed engineers to help drive our AI efforts, and we're very bullish in that area. Yes. Did I hit everything there, Terry?

Yes, you did. I mean, that was -- maybe just another part of this first question. So I may accidentally do 2.5 here, I apologize to everybody. It's not 1 of those things that gets a lot of attention because we just care about the numbers. It's always about the numbers and spreadsheets. But you talked about faster implementation times and fast time to value, I think, last year. Again, that's not going to get a lot of the accolades. But where are you in some of those progress efforts?

Yes. Great question, and thanks for asking. So we're making really good progress in those efforts. And that's coming into play in some of our deployments, even some of the deployments that maybe were multiyear deployments that started years ago, and we're able to start accelerating those now. It's also coming into play in many of these conversions that we're actually closing them as fixed fee, fixed time line deals because we've got the confidence in that pace.

So the other thing that will -- where it comes into play, Terry, we shared for the first time today, the ramped ARR, and it grew 23% year-over-year. Part of what's driving that is we're able to sell more deals at a faster pace. We're driving a faster ramp of that revenue, and you're seeing that confidence come through in that area as well.

That's great. I appreciate that, Eric. And I guess, Dennis, the 4Q free cash flow strength. I'm curious, though, looking in '26, is there any way you can share any commentary on cash taxes or anything that we need to think about and just maybe the relationship of free cash flow to EBIT or EBITDA in '26, just for some kind of parameters?

Yes, Terry, I think that's just -- it's similar from cash taxes.

Yep, got it. Thanks.

And our next question comes from the line of Brian Peterson with Raymond James.

Congrats on the quarter. So Eric, I wanted to dive into the RPO number. That looks like a very strong number versus what we had expected, particularly on the net new side. So I'd love to understand maybe in terms of deal timing, what products are out there, geos? Is there anything that you could share about what really drove that fourth quarter strength?

Yes. The great thing about that fourth quarter strength is that it really comes across a variety of products and a variety of deal types. And I shared several examples there. We always talk about the big deals can be lumpy and you don't know when they're going to come. But I think Q4, we rounded out the year in a very complementary way with a lot of those deal types across a lot of -- across our entire product suite. So that gives us confidence in the pipeline that we've got going into next year as well.

But the other thing I'll kind of -- great RPO. We're really proud of what we did in terms of RPO sequential growth quarter-over-quarter and year-over-year. But we also recognize that as we come into 2026, where we know it's a year where we've got kind of an uptick in renewals, we want to give you that ramped ARR so that we don't have to go focus on renewing every deal at 5 years. If we can renew some of these deals at 3 years, that gives us another opportunity to increase price sooner.

But when the only metric we give you to -- for you to measure growth is RPO, that might give you concerns if we're only giving you RPO. So that's why we're now going to give you this combination of RPO and ramped ARR so you can have confidence in the growth that we're projecting.

Got it. And I appreciate the new disclosures, guys. Dennis, I did have 1 clarification. You said 18% to 20% is coming for renewals in 2026. Is that the mix of the RPO target? I just want to make sure I understand the disclosure around that 18% to 20%.

Yes. Yes, that is the mix.

Yes. And again, if we held ourselves to make sure we renewed every deal at 5 years, it could be a higher number, but we don't think that's in the best interest of the business. So that's why we want to give ourselves the ability to renew some deals at 3 years as well.

And our next question comes from the line of George Kurosawa with Citi.

Great. Maybe just to stay on this topic of renewals. I think if I got the numbers right, 18% of RPO bookings from renewals in '25 and now expecting 18% to 20%. I think we were maybe estimating that might be a bit of a bigger uplift. Am I right in thinking here that maybe there's some level of conservatism baked into that? Or maybe there's the duration dynamics that you were just discussing? Or anything else we should keep in mind there?

I think those are the key things. And maybe those 2 things go together, conservatism on duration. Again, if we really held ourselves to make sure that we renew every deal at 5 years, that 18% to 20% could be higher and the total RPO growth year-over-year could be higher. But we think we've got a very sticky product, and our customers are not leaving us. All of our customers are renewing. So having the opportunity to have another conversation about price increase in 3 years versus 5 years is an advantage to us.

Okay. Okay. Very helpful. And then I wanted to touch on the services business. I think you mentioned you're looking to hire into that group. You're guiding to 3% growth for the year. Historically, that's been a line item that's maybe a little bit lower visibility relative to the rest of the business. What's kind of underpinning your confidence there?

Yes. So it's a few things. Number one, that strong bookings growth in Q4 and really strong in total for all of last year is going to continue to drive services well into 2026. But then, again, we put these conversion programs in place in the middle of last year. They're really starting to bear fruit. We're seeing the pipeline. We're seeing the deal volume pick up. That's creating services opportunity.

And then I think the big one is Agentic AI. You look at a lot of SaaS companies that are out there trying to sell Agentic AI, and they don't have the army of services people that we have. And we see this as an opportunity to use that army of services people as a big advantage because we have the domain expertise. We can go in with forward-deployed engineers and help our customers realize value very, very quickly. This is the first time since Manhattan launched the cloud products where we've got an opportunity to go out to every cloud customer all at 1 time and have an immediate upsell opportunity that can add value from day 1. So this is new for us, and we want to make sure that we get that message to all of our customers as quickly as possible.

And our next question comes from the line of Joe Vruwink with Baird.

A lot of questions on the renewal component to RPO next year. I wanted to ask about the remainder, the new bookings component. And what's kind of interesting is so new logos, so heavy and what you were able to achieve in 2025. You said your expectation is that balance is back towards normal. And yet, there's still a pretty healthy bookings component for '26. So that would seem to be kind of the pace of migration or maybe cross-sell to -- it's the same customers kind of picking up the slack. Are you seeing kind of some early evidence? I know you talked about deals closing already here in 1Q around the more consultative approach to conversions. But what are some of the other things you're doing to accelerate the pace of migration? Because that new bookings number looks pretty good relative to where our expectations were.

Yes. So when you think about new bookings for us, that includes new logo. It includes expansion within existing accounts and of course, converting from on-prem to the cloud. We've talked about conversions quite a bit, as you mentioned. But that expansion is a big opportunity for us. We've done really well in acquiring new logos. And we've got this renewal cycle of Warehouse, Active Warehouse. So the opportunity to cross-sell and expand is really ripe for us as well, and that's a big focus area for us.

We also consider that taking market share because when we cross-sell new products, we're taking that from someone else. So that's kind of continued focus on taking market share. So we'll do that in 2026 with new logos and cross-selling new products to existing customers.

Okay. That's great. And then on the services outlook, so I guess that's good that kind of the update, maybe as hard as that was a year ago. You really haven't missed on a service communication since then, and now you're bringing people back. Are there aspects of the services pipeline where you would maybe say it's a lower risk factor? I know Terry asked about this question. But I think about these 6 time line propositions that would seem to actually provide a high degree of confidence in services outlook. Are there are things around maybe a different go-to-market approach where you're trying to derisk what you're communicating tonight?

Yes. So I think, number one, we always try to derisk what we're communicating and take a conservative approach. Of all of the revenue, services is the tough one to predict a year from now. It's easier to predict closer to now. But we've got -- the confidence that we have and what we've shared is based on the things that I mentioned. Those -- all of that pipeline and new logo that we sold last year and in Q4 gives a whole lot of clarity. Those ramp time lines are fixed. So that gives a whole lot of clarity to what we're doing. And the things that we're doing around conversions and creating fixed fee, yes, those -- as that volume picks up, that gives us an opportunity to potentially see upside in services as well.

And our next question comes from the line of Dylan Becker with William Blair.

I appreciate the question here. Maybe, Eric, starting with you. I think it's very clear that the RPO strength is quite exceptional. I guess maybe if you were to reconcile kind of that outperformance relative to maybe the contribution from some of these newer initiatives that we've onboarded over the last maybe few quarters here, if we think about a dedicated migration team, partner emphasis, obviously, like more of an expansion motion as well, too. Is that something that you're starting to already see kind of some of the fruits of the labor from? And maybe how we think about that layering in over time as well, too, and contributing to strength throughout the balance of the year, maybe as those start to ramp and become more material contributors over time?

Yes. So I think some of the things that -- some of the programs that we put in place in 2025 did have a positive impact. But realistically, most of the pipeline we close is a little bit longer-term sales cycle. So I think you've got to credit what the team had in place before we went into 2025. Maybe we influenced some of that in the second half and got a little bit better result. But largely, the result that we got was based on the preparation that happened before '25. Now that being said, I think we did a whole lot of great preparation in '25 for '26. And that's when I think we will really start to see the fruits from our labor around these programs that we put in place in the second half of '25.

Perfect. Okay. Great. And then maybe for Dennis or Eric, you have a comment as well, too. On the fully ramped metric as well, too, obviously, some nice room for incremental kind of contribution step-ups relative to what we're doing today from a cloud revenue perspective. I guess how you think about the in-year contribution of those ramps of effectively kind of like what's committed, what you have visibility into? I know, Dennis, you called out high levels of visibility here, but maybe kind of parsing through what's rolling off of kind of that grant backlog and giving you conviction in that 20% growth versus kind of what's an incremental net new that you kind of have to go and get in a particular year?

So maybe I'll start with that just to make sure I understand the question very clearly. When we talk about that ramped ARR, what we're doing is at the end of 2025, everything that is sold, we're looking at the ramps over the next 4 years and then comparing that to the same thing a year ago. So in that ramped ARR, it doesn't assume any new sales. That is all committed revenue. And then everything new that we sell adds to that committed revenue. Is that kind of the question you're asking? Or am I missing something there?

It was more in the context of how that flows through to reported cloud revenues, right, of what's the kind of the step up in that ARR that you actually realized in a particular year, just giving you kind of conviction on the durability of the 20% growth algorithm, if that makes sense.

Yes. And the ramps vary. And in any given year, we've got -- as you know, some of our products like POS and Order Management ramp quicker, but some of the long complex warehouse do often take 4 years to fully ramp. And in any given year, we've got some that are 4 years in, some that are 3 years in and 2 years in and 1 year in. But you've seen the volume over the past several years of our sales growth. So we -- each 1 of those categories is kind of stepping up each year, which is compounding that growth each year.

And then maybe 1 thing I'll add to that, sorry, is our GRR, gross retention rates, are world-class, and that really gives us confidence. So Dennis talked about the assumptions around this new ramped ARR number is that we're assuming no churn and no price increase. Well, that also creates upside because we're -- there's more opportunity for price increase than there is return.

And our next question comes from the line of Parker Lane with Stifel.

Eric, great to see the commercial availability of the AI Agent and the Agent Foundry. I was just wondering if you could go a little bit deeper on the monetization strategy around these agents? If you expect that to be fairly static across the different types of agents you're providing, including those that are more customized? And when you look out to 2026, I know we're really early here, but what sort of momentum do you anticipate seeing within your base from an adoption standpoint? And perhaps any thoughts on how much that could contribute to growth here in the near term?

Yes. Thank you for that. So number one, we're really excited about what we've launched. And we think this is truly different in the market. We're in a unique position where we really have stuck to our model on creating a true API-driven micro services platform that is truly integrated. So we don't have to start the conversation with a project of data indexing and moving to a data lake. We start the project by turning it on, and you've got live agents working in your system that are natively working in your Active platform. So that's something that's really unique. And I think we've got a lot of customers that are looking for ways to figure out how to take advantage of AI. And this gives them a very easy opportunity to turn it on and play with it, look at it and see what value they can create.

So our approach is we're starting with proof of concepts or pilots with our customers. And we're offering this at a very low-cost, low-risk scenario. It's a 90-day proof of concept, and it will come with forward-deployed engineers that will make sure that they learn how to use all of the standard agents that they can turn on day one. And those forward deployed engineers will also help them build at least 1 or 2 custom agents using our Agent Foundry and train them how to build their own custom agents. Clearly, all of this is so that when we get to the end of that 90-day proof of concept, we've got customers that say there's no way we can turn this off. It's adding so much value, we've got to use it. And that's when we monetize it.

So we're pricing this. We want to keep it very simple for our customers. So it's an uplift, kind of like we do with labor and slotting and some of the other things that we have within our product. it's a standard uplift, and that makes it easy for our salespeople to have the conversation and easy for our customers to buy.

And just one for you. Just a clarification on the customer liquidation headwind you faced, was that $1.3 million for the fourth quarter that wasn't contemplated in the guide? And if so, what's the annualized headwind you anticipate there in '26?

Yes. It was in the quarter, $1.3 million. Or $2.5 million.

$1.3 million in the quarter, $2.5 million annualized.

Got it. Okay.

So that wasn't in our numbers a quarter ago. That happened quickly and surprisingly, but it's now baked into all of our numbers.

And next is Chris Quintero with Morgan Stanley.

I really appreciate the ARR disclosure here. That's super helpful, especially with all the different dynamics hitting the RPO metric. So thank you for that additional color. I've got 2 questions on services. Usually, the #1 question I get from investors is how do we think about the services business over the medium and long term. Clearly, it's really great to see that get back to growth. You have some easy comps from '25, but you also have a lot of renewals coming up. So is there any color you can give us around what does that kind of medium normalized kind of growth rate for the services business potentially look like here?

Yes. So it doesn't surprise me that you get that question a lot because I think in the services -- in IT services world, that question is going around a lot. I think what's unique about our services business is that it is so domain specific. And that gives us a unique advantage across our products, but also when we're talking about things like Agentic AI. The real value in Agentic AI is being able to tie it to that domain knowledge and domain expertise, and that's what we're doing with our forward deployed engineers.

All that being said -- and based on some of the comments I made earlier -- these are all the things that give us confidence for that mid-single-digit growth rate in services. We don't expect this to be a double-digit growth rate, and we don't necessarily want it to be. We want to -- our focus is on growing the cloud business double digit, 20-plus percent.

Got it. That's super helpful. And then if we go back to this call last year, you all talked about some of those implementation -- in-flight implementations that got pushed out. Any update on that? Like how -- did all those close in '25? Are you still kind of working through some of those? Any additional color there would be helpful.

Yes. I think there's a little bit of all over the board on some of those. But the reality is, I think in a large part, none of them stopped. As we said a year ago, none of them are stopping. They were just slowing down. They're all back deploying again to some extent. Some of them are now ahead of where they were ahead of schedule, and we continue to have these conversations.

If you remember, we talked about not only are we offering fixed fee conversions. But in some cases, we're going out to some of these customers and offering fixed fee. Hey, let us do the next 10 DCs that we've already got the recipe for, let us go roll this out quickly. So there's a big effort to make sure all of those catch up or get ahead of their scheduled plan.

And our next question comes from the line of Guy Hardwick with Barclays.

Eric, I also at NRF, and I was able to be fortunate enough to speak to some Manhattan Associates reps and obviously, a home in on the Active Agent subscriptions, which you mentioned in your prepared remarks. So I know it was asked a little bit earlier, but asking in a different way. Are you assuming any incremental subscription bookings from Active Agent subscription in that [ 2.6 to 2.68 ] RPO guidance for the year. Or is it within the SaaS revenue guidance? Or would anything be incremental if it's not?

Yes. So we've taken a very conservative approach. Anything we do in AI is incremental to what we've talked about today.

Okay. Got it. And just as a follow-up. I guess that given you -- I mean in terms of the Q4 bookings, how much was that a catch-up from perhaps the bookings being a little bit disappointing in Q3? So how much was it of bookings, which should have fallen in Q3, fill in Q4? And then how much was down to your sales guys over delivering or perhaps delivering better than expected?

Yes. I think when we talked about Q3 bookings. It was a little below what we wanted it to be. But at the time, I said we are still on track to hit our full year number. And that is a little bit just the lumpiness, but we beat our full year guidance by $40 million. So it absolutely was more than just timing by quarter. It was over performance by the team.

And our next question comes from the line of Mark Schappel with Loop Capital Markets.

Nice job on the quarter, especially on the RPO print. Eric, a question for you here. Could you just comment on the CIO sentiment you're seeing with respect to greenlighting large WMS and TMS conversion projects and maybe how that sentiment has evolved over, say, the past 6 to 9 months?

Yes. I would say the sentiment really hasn't changed drastically over the 6 to 9 months. I would say that our customers that are in programs are -- really like everything we're doing about speeding them up, speed and simplicity, how can they get their ROI faster. The reason companies embark on this is because it truly does create efficiency and it does create cost savings, and it does create ROI for them. So the faster they can achieve that, the better.

But you can -- I gave you several examples of Q4 companies and the types of companies that we sold to and what they bought, many of them being new logos. We still see a very healthy pipeline of companies that are recognizing if they want to achieve the things that they need to do to meet their business strategies, they need software that supports that. And there's not another provider in the market that can provide what we can in these spaces, and that's why we continue to see these very, very strong win rates against the competition.

Great. And then as a follow-up here, in terms of your sales motion, obviously, a very strong quarter for new logos again this quarter. Could you also talk a little bit about the mix this quarter with conversions and cross-sells? And also, how we should expect that to -- or how we should expect that mix to evolve in the coming year?

Sure. We always say that over time that it's kind of the rule of 1/3, 1/3 will be new logo, 1/3 will be expansion and 1/3 will be conversion. But clearly, what we saw in '25 is we had -- we had 55% come from new logos. So that was a pretty remarkable performance. Now if any 1 of those 3 categories is going to be higher than the others, I would absolutely want it to be new logo because that means we're going out and we're taking market share.

That being said, I think just being realistically and the more new logo we win, the more opportunity we have for expansion, and we know we have a ripe set of customers that are getting ready for conversion. So we're just kind of weighing that as probably the rule of thirds over a longer period of time will come back into play. But we see big opportunity in all of those categories.

And our last question comes from the line of Clark Wright with DA Davidson.

Most of my questions have been asked here already. But I just wanted to understand, again, going back to the services revenue and the opportunity that you have there once the customer is converted to the cloud. What's driving really the upsell from there on out? And how do you continue to drive value through services and your domain expertise moving forward?

Yes. So once a customer converts to the cloud, keep in mind, every quarter, they get quarterly updates. So new features and functions that come to them through release notes, and then our teams will help them determine which of these features and functions can add value to you right away, which do you want to think about later, et cetera. So the customers that are having the most success and getting the most value out of this software platform that we've built are the ones that are really looking at that quarterly. So then it comes in, the services that are related to that come in very small doses each quarter. As compared to back in the old on-prem days, maybe it was an upgrade every 5 or 10 years with no services in between. So now it's more of a steady dose of services throughout the life of the partnership.

Awesome. That's helpful. And then just in terms of -- go ahead.

Please go ahead.

I was wondering in terms of the strength of the new business that you're talking about, has there been any specific verticals where you've seen more traction than others?

Well, I think what's been exciting for us is it's been very diverse. People really know us as we're really strong in retail and a lot of people think about us is that retail strength. But when I kind of listed out the wins and talked about the wins that we had in Q4, it goes far beyond retail. And it's great to see we're getting more and more strength and more dominance outside of retail.

Thank you. And ladies and gentlemen, with that, this does conclude today's question-and-answer session. I would now like to turn the floor back to Eric Clark for any closing remarks.

I know we ran a few minutes long, but thank you all for sticking with us. Really appreciate your time. We're pleased of where we are here in Q1 and excited about the year ahead.

Thank you. And with that, ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time, and have a wonderful day.

Good afternoon. My name is Von, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates Quarter 3 2025 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, October 21, 2025.

I would now like to introduce your host, Mr. Michael Bauer, Head of Investor Relations of Manhattan Associates. Mr. Bauer, you may begin your conference.

...will review our cautionary language and then turn the call over to our President and Chief Executive Officer, Eric Clark.

During this call, including the Q&A session, we may make forward-looking statements regarding future events or Manhattan Associates future financial performance. We caution you that these forward-looking statements involve risks and uncertainties, are not guarantees of future performance, and actual results may differ materially from the projections contained in our forward-looking statements.

I refer you to Manhattan Associates SEC reports for important factors that could cause actual results to differ materially from those in our projections, particularly our annual report on Form 10-K for fiscal year 2024 and the risk factor discussion in that report and any risk factor updates we provide in our subsequent Form 10-Qs.

Please note that the turbulent global macro environment could impact our performance and cause actual results to differ materially from our projections. We are under no obligation to update these statements. In addition, our comments include certain non-GAAP financial measures to provide additional information to investors. We have reconciled all non-GAAP measures to related GAAP measures in accordance with SEC rules. You'll find reconciliation schedules in the Form 8-K we filed with the SEC earlier today and on our website at manh.com.

Now I'll turn the call over to Eric.

Great. Thank you, Mike. Good afternoon, everyone, and thank you for joining us as we review our third quarter results, discuss our Q4 outlook and provide some color on our 2026 cloud revenue growth.

Our Q3 results were better than expected as 21% cloud revenue growth drove our top line outperformance and earnings leverage. Also encouraging was our continued services revenue outperformance versus expectations. While the global macro environment remains volatile, our consistent execution throughout 2025 as well as our services backlog and pipeline all set the stage to get back to growth in services in 2026.

RPO increased 23% year-over-year to $2.1 billion Win rates remained very strong at 70%, and we experienced strength selling to existing customers, highlighted by a meaningful sequential uptick in conversions and a growing pipeline of future conversion opportunities. However, like the year ago period, Q3 seasonality, coupled with general lumpiness of large deals, pressured net new logos, which were about 17% of our new cloud bookings in Q3, but still represent 50% of new cloud bookings year-to-date.

Importantly, our 2025 year-to-date bookings performance is in line with our original projections and supports continued 20% subscription growth. And like the year ago period, Q4 is off to a solid start. In light of these factors, we expect to achieve toward the high end of our full year 2025 RPO outlook.

As I stated in the past, Manhattan's business fundamentals are strong, and we are optimistic about our long-term opportunity. Our platform is superior and our product portfolio offers best-in-class functionality across the supply chain commerce ecosystem. This is driving solid pipeline, which provides our sales team with numerous opportunities to drive growth.

Those opportunities include adding new customers, cross-selling our unified product portfolio and converting our on-premise customers to the cloud. At the end of the third quarter, new logos continue to represent approximately 35% of our pipeline. From a vertical perspective, our end markets are diverse, and we have a healthy established footprint across numerous subsectors, which include retail, grocery, food distribution, life sciences, industrial, technology, airlines, third-party logistics and more.

For example, Q3 bookings included the following notable deals: the global developer, manufacturer and distributor of medical devices became a new logo active warehouse customer; a global top 10 retailer was a conversion from on-prem to active warehouse; a North American food distributor that was an existing active transportation and inventory customer expanded to include active warehouse and active one; a global developer, manufacturer and distributor of pharmaceuticals converted from on-prem to active warehouse; a food and beverage distributor converted from on-prem to active warehouse and at the same time, added our entire active portfolio, including active transportation, active omni and active supply chain planning; a leading telecommunications company became a new logo with active scale as well as a number of others.

And while the timing of large deals and the mix of bookings will vary on a quarterly basis, we believe our bookings breadth from both new and existing customers over a broad set of industries and across our full product portfolio exemplifies our multiple opportunities for sustainable long-term growth. To successfully execute on these robust opportunities, we continue to strategically invest in our sales and marketing team and mature our go-to-market partnerships.

I want to share several updates since our last call. First, we continue to add key sales talent to the team, including sales specialists in our newer products. Additionally, in Q3, we launched a dedicated renewal team led by a Manhattan veteran. This team brings consistency across all of our renewals to make sure we are maximizing the opportunity for cross-sell and expansion at the time of renewal.

We also launched a conversion program. This enables us to take a more proactive and consultative approach to converting our on-prem customers to Manhattan Active. We've been very encouraged by the early results, including some early wins and significant pipeline growth for conversions.

And this afternoon, we announced the addition of Greg Betz to the newly created position of Chief Operating Officer. Greg brings more than 2 decades of experience leading complex global organizations. He has a proven track record of operational excellence and strategic execution. Most recently, Greg led Microsoft's global cloud onboarding organization called FastTrack, a flagship program designed to accelerate customer conversions to Microsoft cloud solutions.

In his new position here at Manhattan, Greg will play a key role in helping scale the operational frameworks around conversions and renewals as well as drive the next generation of our partner model across global SIs, Manhattan specialists and technology partners like Google and Shopify. I'm delighted to welcome Greg Betz to the team.

So now I'll turn to some updates on our products. We are investing in Agentic AI across all of our Manhattan Active solutions, and we are focused on delivering high-impact use cases for key personas across our user community. Earlier this month, we made good on the promise that we made at momentum about being ready to roll out Agentic AI this fall. We're currently working with a number of strategic customers as part of an early access program focused on agent deployments.

The applications covered as part of this early access program include warehouse, transportation, store and contact center. Our aim is to gather feedback, create additional capabilities and roll out to multiple groups of early access customers throughout this quarter. We will move to general availability for this initial set of agents in early 2026.

So I'd like to share a couple of examples of the value that our initial set of agents are already providing. In Active Warehouse, we have embedded agents into the workflow that monitor operational performance in real time and make high-impact recommendations to key user -- to make key users more productive. This includes areas like wave planning, which drives all of the outbound activity within a DC. Our wave agent empowers DC super users to ensure that orders are being allocated effectively and turned into tasks and that those tasks are being released reliably and completed on the DC floor.

In Active Transportation, we have created freight audit and pay agents. By automating the induction and payment of freight bills, our agents increase efficiency, speed and accuracy while reducing or even removing the need for human involvement. And remember, all of this is executed within our unified cloud native API-first platform, embedding AI agents into the workflow to make people more productive; no data lakes, no latency, deployed in minutes, not months and creating value for our customers in real time.

Another announcement that we made at momentum was the launch of the new product, Enterprise Promise & Fulfill. EPF Is designed to work seamlessly with leading ERPs like SAP to help our customers add agility and responsiveness to their supply chains. With EPF, we help our customers monetize their inventory more effectively by helping them sell to anyone and fulfill from anywhere. And we improve the end customer experience by providing transparency and flexibility throughout the fulfillment process. We already have a number of customers live with EPF, and we've signed some substantial new deals recently, including one of the large global 3PLs.

As our wholesale customers continue to find growth through acquisition and industry consolidation, they're faced with increasingly complex and fragmented fulfillment networks. Their ability to maximize their value of acquisitions is in part on their ability to hide this network complexity and instead to present a simple interface to their sales force, and EPF helps them do just that.

EPF also serves another important purpose for us. It provides a natural bridge between our supply chain planning and supply chain execution solutions, particularly outside of retail. The combination of planning and EPF serves as a nexus of network inventory and facilitates the forecasting, procurement, promising and selling of that inventory across the widest possible market.

And speaking of supply chain planning, we continue to make progress in this exciting new focus area for us. Our message around unifying planning and execution is absolutely resonating and is helping us find our way into deals that we weren't seeing just a year ago. The cloud native architecture, which underpins the Manhattan Active platform allows us to unlock use cases that vendors focused only on planning simply can't match.

We now have our first customer live on supply chain planning, a U.S.-based retailer with over 700 stores. This customer also runs active warehouse and active transportation. A number of the other customers that we have going live in the next few months also run other Manhattan Active products, reflecting the strength of the cross-sell potential.

We also continue to hire planning talent aggressively into our engineering teams, allowing us to make rapid progress on building out both core planning capabilities as well as differentiating unification features across planning and execution.

So that concludes my product update. And before I hand it off to Dennis, I'd like to share that as we indicated last quarter, our Chairman, Eddie Capel, will be completing his transition away from any remaining executive management responsibilities as of January 1 and will continue in his role as Chairman of the Board.

And with that, Dennis will provide you with an update on our financial performance and outlook, and then I'll close our prepared remarks before we open it up to Q&A. So Dennis, over to you.

Thanks, Eric. Our Manhattan global teams continue to execute well in a challenging macro environment. For the quarter, we delivered a better-than-expected financial performance on the top and bottom lines as our reported results returned to the exceeding the Rule of 40, and we continue to generate solid free cash flow.

Regarding FX, in Q3, it was a 1 point tailwind to year-over-year total revenue growth but did not have a material impact on year-to-date revenue growth. FX was a $2 million headwind to potential -- or sequential RPO growth and a $7 million tailwind to year-over-year RPO growth.

Now turning to our Q3 results. Our growth rates are reported on a year-over-year basis, unless otherwise stated. For the quarter, total revenue was $276 million, up 3% excluding license and maintenance revenue, which removes the compression driven by our cloud transition, our total revenue was up 7%. Cloud revenue increased 21% to $105 million and was slightly better than expected.

Services revenue declined 3% to $133 million, driving the better-than-expected performance with solid execution and timing of about $2 million of service revenue shifting to Q3 from Q4. As previously discussed, the year-over-year decline in services revenue reflects customary budgetary constraints that shifted services work to future periods. We ended Q3 with RPO of $2.1 billion, up 23% compared to the prior year and 3% sequentially.

As Eric discussed, and like the year-ago period, our bookings were impacted by the lumpiness of large deals and Q3 seasonality. Importantly, Manhattan's demand remains robust, win rates are strong and our year-to-date bookings performance has accelerated compared to the year ago period. Again, in light of these factors, we expect to achieve towards the high end of our 2025 RPO outlook ex FX, despite the ongoing macro uncertainty.

Our average contract duration remains at 5.5 to 6 years. And as previously discussed, some customers are electing longer ramp time lines. While our customer contracts are noncancelable, we believe the current macro environment has resulted in some customers taking a more conservative approach to the implementation time line of their contracts. Accordingly, we expect 38% of RPO to be recognized as revenue over the next 24 months.

As we've previously stated, our teams are focused on accelerating the adoption of our products, and this will be one of the key areas of focus for our newly appointed CEO, Greg Betz. Also remember, our contracts always allow customers to amend their time line for quicker deployments, but not slower ones.

Adjusted operating profit was $103 million with an adjusted operating margin of 37.5%. This is up about 40 basis points year-over-year and nicely ahead of plan. Our performance was driven by strong cloud revenue growth, combined with operating leverage as our cloud business continues to scale.

Turning to our earnings per share. We delivered Q3 adjusted earnings per share of $1.36, up 1% and GAAP EPS of $0.96, down 7%. As discussed last quarter, our higher tax rate is due to an increase in tax reserves caused by the acceleration of our domestic R&D cost deductions under the July 4 U.S. tax law change. As such, this change will also lower our cash taxes paid and benefited Q3 operating cash flow by approximately $20 million and will likely benefit Q4 operating cash flow by about $15 million.

So moving to cash. Operating cash flow increased 9% to $93 million. Removing the benefit from the U.S. tax law change, operating cash flow increased about 18%. As reported, this resulted in a 32% free cash flow margin and a 38% adjusted EBITDA margin. Year-to-date, our operating cash flow is up 27% to $242 million.

Regarding the balance sheet, deferred revenue increased 17% to $297 million. We ended the quarter with $264 million in cash and 0 debt. In the quarter, we leveraged our strong cash position and invested $50 million in share repurchases, resulting in $200 million in buybacks year-to-date. Additionally, our Board has approved the replenishment of our $100 million share repurchase authority.

Now on to our updated 2025 guidance. Our long-term and long-standing financial objective is to deliver sustainable double-digit top line growth and top quartile operating margins benchmarked against enterprise software comps. These are drivers to our best-in-class return on invested capital as we maintain a balanced investment approach to growth and profitability.

As noted on prior earnings calls, our goal is to update our RPO outlook on an annual basis. Year-to-date, FX has been about a $40 million tailwind to RPO and removing this impact, we expect to achieve towards the high end of our guidance. Additionally, as previously discussed, our bookings performance is impacted by the number and relative value of large deals we close in any quarter, which can potentially cause lumpiness or nonlinear bookings throughout the year. This was evidenced by our Q3 performance and our expectations of a strong conclusion of the year.

As discussed earlier on this call, the macro environment remains uncertain, while clarity on external variables remains limited. Given our strong year-to-date performance, we are raising our full year total revenue, operating margin and EPS outlooks. This guidance is also provided in our earnings release.

With that, for RPO, we continue to target $2.11 billion to $2.15 billion, excluding FX movements. For total revenue, we expect $1.03 billion to $1.077 billion, with a $1.075 billion midpoint comparing favorably to our prior outlook due to our year-to-date outperformance. For adjusted operating margin, we are increasing the midpoint to 35.6% from our prior midpoint of 35%, while increasing investment in our business.

Our full year adjusted earnings per share midpoint is increasing $0.16 to $4.96 and while our GAAP earnings per share midpoint increases $0.17 to $3.44. This implies Q4 total revenue of $264 million, which is $3 million lower than our prior Q4 midpoint as we now anticipate $1 million less of hardware revenue and as previously discussed, the timing of $2 million of services revenue that shifted to Q3 from Q4. This results in our adjusted operating margin target of 33% and earnings per share of $1.11.

Now moving to our 2026 preliminary parameters. To be better aligned with our software peers and to provide adequate time for calendar budget cycles to firm up, going forward, we intend to provide our initial annual guidance that will continue to include all the familiar line item transparency on our Q4 call. Otherwise, our philosophy towards guidance remains unchanged and given our visibility, we continue to expect 20% cloud revenue growth in 2026. And as Eric previously highlighted, we also expect services to grow in 2026.

Additionally, with initiatives now in place to drive migration of our maintenance paying customers to cloud, we anticipate maintenance attrition will begin to accelerate next year. Removing the impacts of license and maintenance attrition, we expect our adjusted operating margin to expand between 50 to 75 basis points, which is in line with our historical approach to margin expansion while also increasing investment in our business, particularly in sales and marketing.

And finally, while the global macroeconomic environment remains volatile, and we are in the very early stages of our 2026 budget cycle, we believe consensus 2026 estimates are generally appropriate. In summary, solid year-to-date execution by the Manhattan team globally, and we are looking forward to ending the year strong.

Thank you, and back to Eric with some closing remarks.

Great. Thank you, Dennis. We are pleased with our Q3 and year-to-date financial results. And while we had to navigate some seasonality in Q3, we expect to achieve towards the high end of our RPO goals in 2025 and grow cloud revenue 20% in 2026.

We're optimistic about our expanding market opportunity, and we're making strategic investments to accelerate our growth initiative to drive new logos our unified product portfolio and convert our on-premise customers to the cloud.

And with that, thank you to everyone for joining the call, and thank you to the Manhattan team for their dedication to our customers. And that concludes our prepared remarks, and we'd be happy to take any questions.

[Operator Instructions] Our first question comes from Terry Tillman from Truist Securities.

I had 2 questions. There's a lot of investor focus on RPO, a lot of interest in the story in general, but in particular, I know you're not giving any perspective for next year, but can you just share a little bit more on maybe your level of optimism about RPO levels and just visibility into that potential metric as we move into '26 and beyond because there's a lot of things going on here. You're going to get renewals based next year, potential cross-selling, conversions, et cetera. Just anything at least qualitatively, you could share more around RPO as you think going forward and just optimism there? And then I have a follow-up.

Sure. So when you look at the third quarter RPO, if you normalize the year-ago period for FX, it's actually double-digit growth of RPO in third quarter, and that's also a 23% increase year-over-year. When you look forward to fourth quarter and next year, I think one of the things that gives us a lot of clarity and a lot of optimism in where we expect to be with RPO next year is the renewal cycle. And you mentioned that, and it's something that we've talked about before.

If you think about the way we talk about current RPO, keep in mind, current RPO is 24 months. we've got a major renewal cycle coming over the next 18 months, and those are some big warehouse management customers that current RPO is dwindling down to 0 until we renew and then it gets kind of re-upped at a larger scale than it was before. So having visibility to that renewal cycle and visibility to what we've got in the pipeline is what gives us that confidence.

That's great. I felt like I always like hearing about the customer examples and the diversity for the new deals. I heard more this quarter felt like on conversions, but I'd just like to unpack a little bit more on some of your conversion strategies and unlocking the on-prem customer base and getting them to move to cloud. So kind of related to that, how are you thinking about the mix of cloud for your WMS customer base maybe ending this year and as we look out over the next couple of years, how do you see it trending?

Yes. So thanks for the question, Terry. We're pretty excited about the early success around conversions. So I stated a quarter ago that we were going to take a more proactive and a more consultative approach to conversions. Our theory historically has been our customers will convert when they're ready. And we've had more focus on going out and taking share from our competitors as opposed to converting our on-prem to the cloud.

And as I stated before, we haven't lost any on-prem customers to anybody else's cloud. So we've had success in letting them convert when they're ready to convert. However, as the most recent versions of our on-prem software get older and older, the opportunity that is in front of these customers with the new version of our cloud is getting bigger and bigger. And the gap between those on-prem versions is getting bigger and bigger. And bringing in a genetic AI is going to make that change even faster.

So we've taken, as I mentioned, a more consultative approach, gone out to a first cohort of customers, which we identified about 100 customers that were similar. They're all warehouse customers. They're all similar size running a similar number of warehouses. So we had confidence to go out to them and offer them fixed fee, fixed time line conversion to Active Warehouse. And we were very pleased by the pickup rate and the number of customers that were ready to have that conversation quickly once they learned more about it.

So that very quickly turned into about 30 new pipeline deals for us. And we saw deal closing in Q3. We've got more expected to close in Q4, and it's given a whole lot of energy around our conversion pipeline which, as you know, creates cloud revenue and creates services revenue. So in Q4, we will take that to additional cohorts from warehouse management. We're also taking it to a cohort around transportation management.

And we're even using a similar theory to go after some of our customers that may be behind in their DC rollouts and offer them faster ways and fixed fee ways to get back on track with our DC rollout. So lot of excitement in the building here around what that's driving for us.

Good luck in the 4Q.

[Operator Instructions] Our next question will be from Brian Peterson from Raymond James. .

So Eric, you talked about the fourth quarter was off to a pretty strong start in terms of RPO or bookings. Is there any additional color that you could add to that? And maybe how did that fourth quarter look so far this year versus what you saw in the fourth quarter of last year at this point in the year?

I think in any software business, the linearity typically is towards month 3 in a quarter. But sometimes when you have deals push into the next quarter and slip into the next quarter, that gets you off to a quicker start. Compared to a year ago, we experienced some of that. A year ago, we had a lower bookings Q3, similar to this year. And I think what you saw from us last year is we came back with a very strong Q4, and we expect to do something similar to that this year.

Understood. And Greg looks like a very impressive hire. I just want to understand from your perspective, Eric, where do you see him coming in and helping you guys as you think about the growth story going forward?

Yes. So I think I mentioned getting him involved in some of our programs around conversions and renewals, strengthening, maturing our partner ecosystem. A lot of things that he's going to be focused on are about building pipeline from both existing customers and new logos faster. And I think, as I've talked about before, we've already got a lot of programs in place there, but I think we've got some low-hanging fruit where he can come in and make a difference pretty quickly.

Our next question comes from Joe Vruwink from Baird.

Great. On the fixed fee and time conversion strategy, can you maybe address the risk factor associated with this approach? I guess are you able to share with customers? Obviously, if you're kind of commonizing the cohort, you probably have a pretty good experience to say that when an implementation remains in scope without change orders. They have been finishing on time and on budget? Is that kind of the approach here? And how do you think about the risk Manhattan takes on in this strategy?

Yes. So it's really about repeatability and similarity. So as you mentioned, this cohort of customers has a lot of things that are very similar. And because they're running our software that we deployed. We know exactly what their extensions are. We know how many warehouses they have. So there's not a whole lot of surprise there for us. So we can be pretty confident in what it takes.

The other thing that plays into that is as we build more and more automation and leverage AI in our conversions and deployments, we want to monetize that. So over time, I think you'll see us doing more fixed fee across everything that we're doing, just to make sure that we can monetize what we've built and monetize some of the acceleration that we've created. And that allows us to hold our margins.

Sure. No, that's important. I want to be clear, is the biggest change -- because you're talking when you alluded to how 2026 might look, the 2026 sub growth, the return to growth in services, margin expansion, I mean a lot of that at kind of a higher level, I suppose, is what you have been saying. Is that kind of the key message here is that you're not making kind of the explicit ranges that you normally give in preliminary commentary but generally speaking, things are tracking to what you thought about 2026?

Yes, that's right. And we're comfortable that the contents that's out there is in the right ballpark, and we'll give clear guidance on the next call.

Our next question comes from Chris Quintero from Morgan Stanley.

I want to kind of -- similar to Terry's question, but from the services angle. Just curious how would you kind of describe it from a qualitative perspective in terms of the momentum as we head into '26. I know it's still early, but just curious at a high level, any qualitative commentary? Because there's a lot of stuff going on there, right? You're moving to more of a fixed fee. You're spending of some of these implementation time lines, but you also have a huge on-premise space that you're trying to move over. So just kind of curious at a high level, how would you kind of describe that qualitatively?

Yes. So throughout this year, we've seen the services pipeline continue to strengthen. The backlog continue to strengthen. So we are optimistic about how that's building, and we feel like we're in a good place where we are right now in Q4 and feel like we're going to be in a better place as we go into next year. And again, you look at where we are year-to-date growth on RPO, we're still expecting to hit the high end of the guidance on full year exceeding our financial numbers in Q3 and year-to-date. So we're pleased with where we are and the business continues to operate well and perform well.

Got it. Super helpful. And then as you were kind of talking through some of the customer examples from the quarter, I was really struck by the food and beverage customer that converted and added the entire active portfolio. So just curious if there are any kind of lessons from that conversion? And how applicable could this be to the rest of the base?

Yes. So the examples I gave this quarter, heavy dose of conversions and a heavy dose of cross-sell, and that one had both. So I think the message there is this unification story is truly resonating. I mentioned that one of the big takeaways from our Momentum conference in May is we had a lot of customers that said, A year ago, it was a great story, but now we've seen that it's real, and we've got to get on board. And once they realize that, it takes a bit of time for it to start happening, but it's happening. And we see it in the pipeline and we saw it in the results in Q3.

Our next question comes from Dylan Becker from William Blair. .

Appreciate it. And maybe for Eric, starting out here, we talked about kind of structure and maybe some mechanization of a handful of processes around conversions, renewals. We've talked about partners in the past. All of that kind of ties into growing capacity in backlog kind of evidence in the RPO and bookings commentary maybe but how are you thinking about scaling the kind of SI ecosystem to help kind of match the capacity side of the equation relative to what feels like a pretty healthy backlog and growth from a demand perspective as things shape up into 2026?

Yes. So we've started having those conversations with our SI partners. In fact, we had one of them here in the office all day today. And they're pretty excited about where we're headed as well. I think some of the changes that we're making really put us, our partner program more similar to what they're used to with ServiceNow or Salesforce where they've got more clear expectations of how we're going to support them and then grow their business but also more clear expectations about what we expect from them in terms of bringing us opportunities and bringing us deals and then having us help them win those deals together. So I think building that clarity and that trust.

The other thing that we did is Greg Betz will be taking over our training education certification team, which will make it more easily available for our partners and will give us a better opportunity to build that ecosystem of certified consultants out in the market. and also measure our partners on how many certified consultants they've got by product to make sure that they're building their teams the way that we need and expect them to.

Okay. That's very helpful. And then maybe you entered at obviously foundry at the conference and the opportunity for AI and agents, maybe some early use cases, more GA deployments expected here in 2026. But could you talk or expand on some of the kind of the receptivity and use cases you're seeing from customers, maybe to what extent that's serving as an additional carat on this accelerated kind of conversion opportunity? You called out several examples around kind of unification, it feels like, to get full platform value, obviously, adopt more and lean into the Agentic approach, but we're wondering if that's resonating in conversations.

Yes. So thanks for that. And short answer is yes. It's resonating very well. And in fact, as the word has gotten out in the Manhattan community that we have some early access customers out there, I've been in a few conversations with customers where they've told me, "Hey, I thought I was one of your best customers. How come I'm not in the early access program?" so we've had to let some more in, and we've continued to have waves of customers getting into the early access program. And the feedback has been quite positive and very encouraging.

In fact, the transportation example that I gave earlier, one of our customers even asked if they could extend that across the part of transportation that isn't on Manhattan yet and use that agent across their entire transportation network. So we're exploring that option with them as well because while it is in their plan to move Manhattan across their entire transportation network. If we can get our agents out there in advance, that gives us an opportunity to help them move even faster across that domain.

Our next question comes from Parker Lane with Stifel.

Eric, you talked about the new dedicated renewal team and the over program, obviously, added Greg Betz here this afternoon. How should we think about the investments you're making in sales and marketing around this. This a lot of people that have been shifted into these new teams or initiatives is there some incremental step-up in investments that you're making?

Yes. So definitely incremental step-up in investment, but it's also a mix of leveraging Manhattan veterans to make sure that we've got some of that knowledge on board as well. So I mentioned that our new dedicated renewal team is led by a Manhattan veteran. Jon Liberman has been with the company 27 years, knows this company inside and out. And we've built a team around him of people that have been in the company as well as people from outside the company that have experience in renewal Greg Betz is another example of bringing in somebody from Microsoft that's been very focused on conversions and getting customers to not only convert but expand within the Microsoft cloud platform.

So all of those concepts are things where we want to have a combination of outside knowledge and skills and ideas with all of the deep knowledge that we've got here at Manhattan. One of the things that we take pride in at Manhattan is the longevity of this team, and we want to make sure that we take advantage of that as well. I don't think any of our competitors can put together that mix of longevity with new skills like we can.

Got it. One follow-up on a comment you made earlier about working with customers that are a little bit behind on DC rollout. Is that primarily something that's related to services in budget unlock inside of them? Or are there other commonalities that you find in that cohort that you can work on to get them to go on?

Really, it's a mix. There are some cases where maybe they've gotten -- the customer has gotten focused on something else and haven't been as focused on getting all of their warehouses rolled out. So it's really kind of I would say, similar to -- I mentioned earlier about conversions. We've always taken the approach of, they'll come to us when they're ready. There's been a little bit of that with DCs as well. Maybe we'll -- when we sell the new deal, it includes the first 5 warehouses and we get those done and then we move on to the next customer, and we don't go ask them about 6 through 15. So now we're doing that. And we're taking a more proactive consultative approach to make sure they get everything deployed.

Our next question comes from George Kurosawa from Citi.

I wanted to ask about the services upside in the quarter. It was nice to see the stabilization there. Maybe you should unpack the drivers of that upside? And maybe that it seemed like the $2 million pulled from Q4 into Q3. Was that a function of maybe resume projects that have been maybe paused or slowed a bit earlier in the year? Or was there some other dynamic at play there?

Yes. Thank you. So I think, first and foremost, the services team continues to execute at a very high level. And some of that, what you saw Q4 being pulled into Q3 as a result of that. They're executing at a high level and they're finding the opportunity to bring things quicker, and we've got happy customers that want to move faster. So we'll continue to look for opportunities. And I mentioned earlier, we've got a building pipeline and a building backlog in services, which gives us a whole lot of optimism going into 2026.

Okay. Great. Great. And then you referenced some of the hiring you're doing on the go-to-market side. Maybe you could just give some color on how that's going relative to your plan and what the initial productivity ramp looks like for those new is?

Yes. So I mentioned last quarter, we had brought in new leaders for both TMS and POS. We also brought in a strategic selling leader. All of those leaders are building out their teams and continue to bring in talent. I've kind of described it as a little bit of a snowball effect. We start to bring in talent that is well known in the market, and that talent attracts more talent. And you kind of go from recruiting talent to deciding which ones you want to bring in because everybody wants to join.

So we're kind of in a luxury right now where we've got kind of a great pipeline of very strong candidates coming in, and we continue to bring them in at what we think is the right pace so that we can continue to get people effective very quickly, not have too many coming in at one time, but we'll continue to have a steady growth of our sales team across the next several quarters.

George, we continue -- we also continue to drive solid margins in terms of the investment that Eric is talking about. So very strong operating margins. .

Our next question comes from Guy Hardwick from Barclays.

Eric, I was wondering if you could -- I know you touched on this in the last quarter, but whether you could expand a little bit more on the impact of genic AI both externally and internally, maybe starting internally. I mean the R&D to sales ratio is still rising as you're investing. But at what point will we potentially see some leverage on R&D from agentic AI and then also externally in terms of incremental revenues. And I know the model may have to be different for agentic AI than the SaaS model, but perhaps you could expand a little bit on that?

So internally, we are absolutely seeing leverage from Agentic AI right now and not just in R&D, but across just about every department within the company. I would say, specifically in R&D, and I mentioned this last quarter as well, we've taken the approach, while you've seen some companies in the market talk about big layoffs because of Agentic AI. We've taken a different approach and that is we're doing a whole lot more by leveraging Agentic AI.

So we continue to add talent to the company, and we continue to hire. But every quarter as we do our quarterly releases on all of our products, we have more and more features each quarter. So we're making the gap between us and the competition, bigger and bigger every quarter. making it harder and harder for anybody else to be able to compete with us.

So that's internal. And then external, as I mentioned, we're really excited about what we've got with Agentic AI. We've got a lot of customers that are excited about it. I think what's truly unique about what we have with Agentic AI in our platform is because our team has stuck to this model of truly cloud-native microservice API first, we don't have to be talking about data lakes. And we don't have to be talking about latency. We don't have to have discussions about increased security because you're moving data somewhere else and then you've got to take an action to move it back into the core system.

Everything, all of our agent AI can be done eternity our platform, which allows us to deploy agents in minutes, not months. and allows our customers to take advantage of it right away. All of those things resonate very, very well with our customers. When they're having conversations with lots of software partners about how to take advantage of AI. It's a very different conversation with us that they like. So that's going to create a lot of opportunities for us to truly own and control the domain around supply chain when it comes to Agentic AI.

Now from a revenue perspective, we've taken a very conservative approach. We're just getting into this. And we want to work through it with our customers and see what this is going to look like before we start to talk about how much revenue growth it's going to do for us, again, different than some of the other players in the software space.

And just a quick follow-up for Dennis. Just to be clear, the RPO guidance of $2.11 billion to $2.15 billion excludes FX? So on a reported basis, it could be a lot higher than that, including FX?

Yes. Absolutely.

Our next question comes from Mark Schappel from Loop Capital Markets.

Eric, it was good to hear the call out on the supply chain planning win as part of the larger deals. I was wondering if you could just provide some additional color on where the relatively new application stands with respect to, say, reference customers built out to date? And also, too, if you could just maybe touch on where you would like to see that product by the end of next year 2026?

Yes. So as I've said on the past couple of calls, we're ahead of schedule in terms of customers and pipeline. And I think one thing that's been, I guess, expected is that it's a great unification play. Customers that are using warehouse and transportation, it's a natural add-on maybe the thing that was a little less expected, but very positive for us. is we're also seeing customers look at supply chain planning as an entry point to -- as the first product that they bought for Manhattan or the first active products that they've used.

So that's very encouraging for us. The pipeline is, again, in good shape and ahead of where we expected it to be. So I don't have a number in mind of where it needs to be at the end of next year. But if you look at all of our products as we've launched them, how they've grown, we're very pleased with where this one is.

Great. And then shifting over to point-of-sale, not much discussion around point of sale this quarter. I was wondering if you could just maybe spell out some of the challenges that you face in that business right now?

Well, point-of-sale is a pretty exciting place to be. So I did mention in my kind of list of new deals. I talked about Omni, which includes point of sale. So we do have some new point of sale in there. And if you look purely at point-of-sale transactions, which is how we charge for point of sale based on transactions, were up over Q3, up over 80% year-over-year. So that's a combination of our point-of-sale customers continuing to add new stores, store growth, as well as more transactions in the stores and more registers and putting our point-of-sale product into more places.

So yes, I think point-of-sale is one of those gifts that keeps on giving. And as we see our retail customers grow, we're growing right along with them. So Q3, up 80% year-over-year. We're pretty excited about the retail season and peak coming up here in Q4.

Our next question comes from Lachlan Brown from Rothschild & Co.

Could you talk to the feedback that you've had from the early access program on Agentic AI? And how should we think about the gross margin impact from these solutions? I guess some of your peers have pointed to a level of dilution given the high cost to compute. Should we expect something similar here? Or is the intention to preserve those margins within the cloud solutions?

Absolutely, intention is to preserve our margins. So we are not expecting any dilution there. We haven't shared our pricing. In the early access program, we're still working with customers and finalizing how we're going to price this, and that's another part of the reason that we haven't really talked about revenue impact. But when we in our Q4 call a quarter from now, we'll have more information on how we're going to price and what we expect in that area. But I think you can be very confident that for us, this is about revenue growth and margin expansion.

That's clear. And with new...

Sorry, I didn't -- sorry, I didn't answer your full question. You also asked me the feedback we're getting. I think that the key piece of the feedback is A lot of these customers in the early access program because they've talked with other partners, software players about this. They thought the early access program was going to be months of deployment. What does it take? How long does it take? So I think a big surprise to how quickly we can turn these on because we truly have the standard platform, our standard agents can be turned on and use the same day. So a lot of excitement around that.

And then also, the second piece that I would say that's pretty consistent is, okay, we can do all of this just by turning on standard agents. What if I can go build one that does this for my unique process and just getting people starting to think about what else they can do, and that's the whole point of the foundry. We can turn on the standard agents right away, but we've also got the ability to build custom agents for you or we've also given you the ability to build your own custom agents or have a partner build your custom agents.

I appreciate a good level of color. With logos being 35% of the pipeline, I might have thought that existing customer expansion would have started to become a greater proportion, just given the stronger renewal cycle that's anticipated to come up next year or over the next 18 months. When would you anticipate cohort to come into the pipeline? And could you remind me how long does it typically take for a customer in the pipeline to convert to a booking?

Yes. So first of all, when we talk about 35% we're talking about 35% of our new cloud pipeline. So that does not include renewals. So renewals is a separate pipeline. And when it comes to how long does it take to convert Obviously, renewals and conversions and cross-sell are much quicker than new logo. The new logo pipeline, this is not a 3-month sale for the most part. These are typically multiple quarter sales cycles. And then once we do sell, it varies by product. I would say on 1 in POS, we can roll out very, very quickly.

And warehouse, as was mentioned in some of the prepared remarks in the beginning, we do have customers that take conservative approaches to the deployment of warehouses and can do that over quite some period of time. But again, all the focus that we've put around automation and leveraging AI in the deployments and accelerating that makes it faster, easier and more economical for them to move faster because the faster they deploy, the faster they achieve the ROI.

This now concludes our question-and-answer session. I would like to turn the floor back over to Eric Clark for closing comments.

Yes. Thank you all for joining. I appreciate all the questions. I guess I would close by saying we're very pleased with where we are. Strong fundamentals back to exceeding the Rule of 40 and free cash flow margin of 32%. We're making the investments that we feel very confident are going to continue to drive the business in the right way. and again, confidence in hitting towards the high end of our RPO guidance for this year and very optimistic about 2026. So thank you all.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.

Good afternoon. My name is Julian, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates Q2 2025 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, July 22, 2025. I would now like to introduce you to our host, Mr. Michael Bauer, Head of Investor Relations of Manhattan Associates. Mr. Bauer, you may begin your conference.

Thank you, Julian, and good afternoon, everyone. Welcome to the Manhattan Associates 2025 Second Quarter Earnings Call. I will review our cautionary language and then turn the call over to our Executive Chairman, Eddie Capel, for some brief opening commentary before he hands it off to our President and Chief Executive Officer, Eric Clark. During this call, including the Q&A session, we may make forward-looking statements regarding future events or Manhattan Associates' future financial performance.

We caution you that these forward-looking statements involve risks and uncertainties are not guarantees of future performance, and actual results may differ materially from the projections contained in our forward-looking statements. I refer you to Manhattan Associates' SEC reports for important factors that could cause actual results to differ materially from those in our projections, particularly our annual report on Form 10-K for fiscal year 2024 and the risk factor discussion in that report and any risk factor updates we provide in our subsequent Form 10-Qs.

Please note that the turbulent global macro environment could impact our performance and cause actual results to differ materially from our projections. We are under no obligation to update these statements. In addition, our comments include certain non-GAAP financial measures to provide additional information to investors. We have reconciled all non-GAAP measures to the related GAAP measures in accordance with SEC rules. You'll find reconciliation schedules in the Form 8-K we filed with the SEC earlier today and on our website at manh.com. Now I'll turn the call over to Eddie.

Thanks, Mike, and good afternoon, everyone. It's my pleasure one more time to kick things off, and welcome, everyone, today's call. Now before we get to the real substance of the update, though, I'd like to commend Eric on his first 160 days as CEO. The transition really couldn't have been smoother. We've had a very successful Momentum Conference a couple of months ago.

You're going to hear about excellent Q2 performance and execution in just a moment, and Eric is making a meaningful and positive impact to our company across the board. Manhattan's fundamentals continue to be strong. And as always, we're innovating at pace, driving success for our customers, employees and shareholders.

And with this in mind, the Board and I plan to meet a transition away from all of my remaining executive management responsibilities during the balance of 2025. So that beginning on January 1, 2026, my title and role at Manhattan will be Chairman of the Board. I continue, as you would expect, to be as excited as ever about Manhattan's future and the opportunity in front of us. And I look forward to supporting Eric and our global teams in any possible way that I can. So with that, over to Eric.

Great. Thank you, Eddie. Good afternoon, everyone, and thank you for joining us as we review our record second quarter results and discuss our increased full year 2025 outlook and briefly recap some of the market-leading innovation that we announced at our customer conference just a couple of months ago.

Our Q2 results were better than expected as 22% cloud revenue growth drove top-line outperformance and earnings leverage. And while the global macro environment remains volatile, for consecutive quarters, our services revenue has slightly outperformed expectations. This execution is encouraging. However, given the inherent flexibility of time and material contracts, coupled with the ongoing tariff and general market uncertainty, we remain cautious on our services revenue growth.

Importantly, our business fundamentals are solid, and we remain optimistic on our long-term opportunity. Manhattan's platform is superior and our product portfolio offers best-in-class functionality across the supply chain commerce ecosystem. This is driving a solid pipeline and providing our sales team with numerous opportunities to drive growth. Those opportunities include adding new customers, cross-selling our growing unified product portfolio and converting our on-premise customers to the cloud.

All of these sales channels contributed to RPO increasing 26% year-over-year and surpassing the $2 billion milestone at the end of the quarter. Win rates against our top 5 competitors in the quarter were consistent at over 70%. And like Q1, we once again experienced strength from new customers as more than 70% of our new cloud bookings were generated from net new logos.

With new logos representing approximately 35% of our current pipeline, we anticipate bookings from net new logos to revert back to the standard 1/3 of our bookings over time. From a vertical perspective, our end markets are diverse, and we have healthy established footprints across numerous subsectors, which include retail, grocery, food distribution, life sciences, industrial, technology, airlines, third-party logistics and more.

For example, Q2 deals included a global logistics and supply chain company that became a new logo with MAWM and MAO, a grocery wholesaler that became a new logo with MAWM, a global producer, wholesaler and retailer of luxury goods that converted from on-prem to MAWM. A global beverage and snack provider that became a new logo with MAO. A global automated warehouse services company that became a new logo with MAWM and MATM. And finally, a regional health care system that became a new logo with Manhattan Active Supply Chain Planning and Manhattan Active Scale as well as a number of others that we closed during the quarter.

And while the timing of large deals and the mix of bookings will vary on a quarterly basis, we believe our bookings breadth from both new and existing customers over a broad set of industries and across our full product portfolio exemplifies our multiple opportunities for sustainable long-term growth.

To accelerate our sales velocity and drive even further share gains within our large addressable market, we're strategically increasing our investment in sales and marketing. So I want to share several updates since our last call. First, we promoted Bob Howell to Chief Sales Officer. Bob has been a sales leader at Manhattan for nearly 20 years and has over 25 years of supply chain experience.

Bob's knowledge, leadership and strong executive -- strong execution leading our Americas sales organization makes him ideal for this expanded role. We look forward to Bob bringing his proven disciplined approach to our entire global sales team. Second, we've hired several new sales leaders on the team. So this includes a new strategic sales leader to facilitate executive demand creation as well as new sales leaders for both POS and TMS. These are 2 large markets where we have industry-leading solutions and a tremendous runway for market share gains.

Third, we've added and will continue to add more feet on the street. This includes individual sales talent and product specialists. Since our last earnings call, we've hired more sales talent than in any quarter in the past 10 years. And fourth, we've expanded key go-to-market partnerships with Google and Shopify. Announced in May at our user conference, Manhattan solutions are now available on Google Cloud Marketplace. This expanded alliance removes friction and enables customers to more easily procure, deploy and manage our industry-leading solutions.

This sales channel has already hit the ground running. In fact, our largest deal in Q2 was influenced by Google Cloud Marketplace, and we have a growing pipeline of Google Marketplace deals. We're also excited about our expanded partnership with Shopify. The connector app to Manhattan Active Order Management is now available in the Shopify App Store. Several enterprise-class retailers are live on the app as we partner with Shopify to deliver a leading end-to-end commerce solution.

We believe this deeper partnership will drive quicker adoption and deployments of our OMS and POS solutions. Now let's turn to some brief updates on our products. First, I'd like to provide an update on Agentic AI. Earlier this year at Momentum, we provided some exciting updates on our existing AI capabilities in Manhattan Assist and Manhattan Active Maven. And we also announced new capabilities in our forthcoming agent platform.

So starting with Manhattan Assist. We've now serviced hundreds of thousands of inquiries from customers across the globe, spanning all Manhattan Active platform applications. For multiple quarters, customers have been receiving high-quality responses to questions regarding application capabilities. More importantly, Manhattan Assist is providing detailed guidance on how to best configure applications like Warehouse, Transportation and Order Management to drive optimal business outcomes.

More recently, we've added the ability for customers to upload their own operational documentation and for Manhattan Assist to provide answers which reflect each customer's operational preferences. Customers are uploading content, including training documents, process flows and annotated screenshots. Armed with this additional information, Assist Now enables associates to ask questions about customer-specific distribution centers or store operations.

We believe this set of new capabilities expands the user pool for Assist and commensurately expands the value it creates across our customers each day. But we didn't stop there. At Momentum, we also announced our next big step forward with Agentic AI. Starting this fall, each Manhattan Active platform application will include purpose-built agents for each app's respective roles and personas.

These agents will intelligently automate and optimize processes, allowing associates to be faster and far more effective. For example, our labor optimization agent will recommend real-time reassignment of associates in the DC based on upcoming workload and historical productivity at the associate level. For years, DC managers have found it challenging to dynamically balance department-level capacity with fulfillment demand, and we think Agentic AI offers a unique path forward for finally solving this difficult problem.

And in the store, associates can receive detailed selling guidance in real time. When a store associate is actively selling, our store selling agent will provide personalized selling guidance based on the customers' omnichannel transaction history and the items they're purchasing at that moment. And in between customer visits, the agent will provide selling insights to store associates, including highlighting what items or styles are currently selling well, either online or in other stores in their area.

Right now, we're actively collaborating with store operations leaders from across our point-of-sale customer base to hone these use cases in advance of our release later this year. But I believe the most exciting part of our AI story is the agent foundry. In addition to these out-of-the-box agents within each application, Manhattan Active Agent Foundry enables our customers to build their own agents within our platform.

Foundry will provide customers the freedom to define the scope and capability of the agents they want their associates to use. Customers can either start with an existing Manhattan agent and provide tweaks of their own or they can create an agent completely from scratch using our library of APIs.

And finally, Foundry also provides the ability to interact with other agents, including agents outside of the Manhattan Active platform through our native support of both agent-to-agent and model context protocol. The excitement we heard from our customers after our AI announcements at Momentum was overwhelming, and we're excited to get these base agents and agent foundry into the hands of our customers later this year.

Now on a different note, I'm happy to share that we continue to see exceptional cross-sell results when it comes to our unified product platform. Our functional and technical unification message continues to resonate with customers of all sizes across geographies and across industries. Over the past 5 quarters, roughly 80% of our customers that bought MATM also bought or had previously purchased MAWM. So our customers are truly experiencing the value of unification. The cross-sell results that we've seen since launching Manhattan Active Supply Chain Execution have far exceeded what we were able to achieve with our prior platform.

And we continue to double down on this investment strategy with an engineering team focused solely on building unified functional advantages. We also recently launched a product council dedicated to serving our unified customers because we know that the best way to innovate is to co-create alongside the world-class supply chain practitioners in our customer base.

So that concludes my business update. Next, Dennis will 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 move to Q&A. So Dennis, take it away.

Okay. Thanks, Eric. Our Manhattan global teams continue to execute well in a challenging macro environment. For the quarter, we delivered a better-than-expected financial performance on the top and bottom lines. This includes solid results across RPO bookings, cloud revenue growth, gross and operating margin expansion as well as free cash flow generation. FX volatility persists. In Q2, it was a 1-point tailwind to year-over-year total revenue growth, but did not have a material impact on first-half revenue growth. FX was also a $29 million tailwind to sequential RPO growth and a $28 million tailwind to year-over-year RPO growth.

Now turning to our Q2 results, which were better than expected regardless of FX movements. Our growth rates are reported on a year-over-year basis unless otherwise stated. For the quarter, total revenue was $272 million, up 3%. Cloud revenue increased 22% to $100 million, and services revenue declined 6% to $129 million. Both were a bit better than expected.

As previously discussed, the year-over-year decline in services revenue reflects customer budgetary constraints that shifted services work to future periods. As Eric highlighted, given the uncertain macro environment and inherent flexibility of time and material contracts, we remain cautious on our services revenue growth. We ended Q2 with RPO of $2.01 billion, up 26% compared to the prior year and 6% sequentially.

The solid Q2 performance was driven by strength in new customers and a healthy contribution from existing customers. Our average contract duration remains at 5.5 to 6 years. Like Q1, some customers are electing longer ramp timelines. While the full contract is noncancelable, we believe the current macro environment has resulted in some customers taking a more conservative approach to the implementation timeline of their contracts.

Accordingly, we expect 38% of RPO to be recognized as revenue over the next 24 months. As we've previously stated, our teams are focused on accelerating the adoption of our products and our contracts always allow customers to amend their timeline for quicker deployments, but not slower ones. Adjusted operating profit was $101 million with an adjusted operating margin of 37.1%.

This is up 210 basis points year-over-year. Our performance was driven by strong cloud revenue growth, combined with operating leverage as our cloud business continues to scale. Turning to earnings per share. We delivered Q2 adjusted earnings per share of $1.31, up 11% and GAAP earnings per share of $0.93, up 9%. Moving to cash. Operating cash flow increased 1% to a solid $74 million. Note, our Q2 growth rate was adversely impacted by strong cash collections in the year-ago period.

This resulted in a 26% free cash flow margin and a 38% adjusted EBITDA margin with the difference due to the cash taxes paid in the quarter. Year-to-date, our operating cash flow is up 17% to $149 million. Regarding the balance sheet, deferred revenue increased 16% to $300 million. We ended the quarter with $231 million in cash and 0 debt. In the quarter, we leveraged our strong cash position and invested $50 million in share repurchases, resulting in $150 million in buybacks year-to-date.

Additionally, our Board has approved the replenishment of our $100 million share repurchase authority. Now on to our updated 2025 guidance. Our long-term and long-standing financial objective is to deliver sustainable double-digit top-line growth and top-quartile operating margins benchmarked against enterprise software comps. These are drivers to our best-in-class return on invested capital as we maintain a balanced investment approach to growth and profitability.

As noted on prior earnings calls, our goal is to update our RPO outlook on an annual basis. Year-to-date, FX has been about a $42 million tailwind to RPO. And removing this impact, we are entering the second half of the year tracking to the high end of our guidance. Additionally, as previously discussed, our bookings performance is impacted by the number and relative value of large deals we close in any quarter, which can potentially cause lumpiness or nonlinear bookings throughout the year.

As discussed earlier on this call, the macro environment remains uncertain. While clarity on external variables remains limited, given our strong first half performance and second half visibility, we are raising our full year total revenue, operating margin and EPS outlook. This guidance is also provided in our earnings release. And regarding FX, it is about a $4 million tailwind to second-half revenue from guidance we provided in late April.

With that, for RPO, we continue to target $2.11 billion to $2.15 billion, excluding FX movements. For total revenue, we expect $1.071 billion to $1.075 billion with a $1.073 billion midpoint comparing favorably to our prior outlook due to our first half outperformance. For Q3, we continue to target total revenue of $270 million to $272 million, accounting for retail peak seasonality. For Q4, we continue to target a midpoint of $267 million.

For adjusted operating margin, we are increasing the midpoint to 35% from our prior midpoint of 33.25%. At the midpoint, we are targeting Q3 adjusted operating margin of 35% and accounting for retail peak seasonality about 33.2% in Q4. Our full year adjusted earnings per share at the midpoint is increasing by $0.21 to $4.80, up from our prior midpoint of $4.59 and includes our annual tax rate increasing to 22.5%, up from 21%, which represents an $0.08 headwind to the second half of the year.

The increase in our tax rate is related to an increase in tax reserves caused by the acceleration of our domestic R&D cost deductions under the July 4 U.S. tax law change. As such, this change will also lower our cash taxes paid and likely benefit operating cash flow by approximately $30 million in 2025. On a quarterly basis, we are targeting a Q3 tax rate of 25% and earnings per share of $1.17 and accounting for retail peak seasonality and a tax rate of 22.5%, $1.13 in Q4.

For GAAP EPS, our range is increasing to $3.23 to $3.31. For Q3, we are targeting GAAP EPS of $0.77. Here are some additional details on our 2025 outlook. For the full year 2025 on our first half outperformance, our cloud revenue midpoint upticks to $408.5 million on a quarterly basis we continue to assume $104.5 million in Q3 and $109 million in Q4. For services, we continue to expect a midpoint of $497 million. On a quarterly basis, this assumes $127 million in Q3 and accounting for retail peak seasonality, $120 million in Q4.

For maintenance, our midpoint increases to $128 million or a 7% decline on attrition to the cloud. On a quarterly basis, we expect Q3 $32 million and Q4 $29 million. And finally, we expect our diluted share count to be 61.3 million shares, which assumes no buyback activity. In summary, a solid Q2 performance by the Manhattan global team. Thank you, and back to Eric for some closing remarks.

Great. Thank you, Dennis. We're really pleased with our better-than-expected second quarter and first half results. As we have stated, the global macro environment remains challenging. However, we're optimistic about our business fundamentals and our growth opportunity. We believe our industry-leading unified cloud platform positions Manhattan as the clear choice for modern supply chain commerce solutions. So thank you, everyone, for joining the call, and thank you to the Manhattan team for their dedication and execution. And that concludes our prepared remarks, and we'd be happy to take questions.

[Operator Instructions] And our first question comes from the line of Terrell Tillman with Truist Securities.

Nice to see these results. So good job on that. Two questions. First question is on the supply chain unification. It resonated at the Momentum event that I attended. I think you all showed a bunch of logos in terms of combined TM and WM transactions. I mean, maybe easier said than done, but is there anything you can programmatically kind of now do to even put more kind of gas on the fire here in terms of whether it's tuning the products better together? Is it go-to-market investments, maybe AI fuses them better together? Just what can you do on your own in your controllables to even drive more of these unification deals? And then I had a follow-up.

Yes. Great. Thank you, Terry. Love the question. As I mentioned in my prepared remarks, we're truly doubling down on our investment in unification, and we're doing that in several ways. So we have created an engineering team that's focused solely on building these unified functional advantages.

So we want to make that even bigger and more clear of why it makes sense to leverage our unified platform. We've also engaged with our customers by creating this product council that's dedicated to serving these unified customers to really find out directly from them what they're looking for, what they need and co-innovate and co-create. And then sales and awareness is a big part of that as well. But I think one of the common themes that I heard at Momentum this year because you're right, we talked a lot about unification, but our customers also talked a lot about unification.

And one of the themes was that customers would tell me a year ago at Momentum that unification was a compelling strategy. Customers believed in it. People were starting to lean in. But this year at Momentum, it came to life. And there were customers on stage telling their stories of how it increased efficiency, how it increased ROI, how it created strategic advantages for them. So we're really seeing our customers buying in.

And also, to your point, yes, I think Manhattan Active Warehouse Management and Transportation Management are probably leading the way, and we've more than doubled our unification logos in that area from year-over-year. But we're also seeing lots of unification logos, and I mentioned some of them in my opening remarks that are unified leveraging MAO and supply chain planning and POS. So great optimism, and we're continuing to lean in and invest here around unification.

That's great. My follow-up question is on cloud subscription revenue. It picked up a bit in terms of the growth rate compared to first quarter. So that was nice to see. It does look like you have this large balance of RPO. So I guess that supports going forward visibility. But I would just love an update on confidence level in sustaining 20% growth beyond just the next quarter or 2. Just anything you could share on that subscription revenue visibility.

Yes. So when we originally provided the multiyear metric of the sustained multiyear 20% growth, we said we weren't going to update that metric every quarter. But I can tell you, we do remain confident. And the reasons why we remain confident, we've got a large booked business in RPO, like you mentioned, and that gives us good visibility, particularly good visibility in the second half and next year.

Our bookings and pipeline continue to be solid. Our TAM is expanding. As I mentioned, we're making changes to accelerate sales velocity. That includes specialization, and that specialization around products, around renewals, around conversions, strengthening partnerships, adding sales talent. And then another big factor that we talk about when it comes to maintaining that 20-plus percent growth is the renewal cycle. And that really starts to pick up pace next year, particularly with our Manhattan Active Warehouse Management.

And if you walk through the mechanics of that, you think about as the contract progresses, the dollars move from RPO to subscription revenue. And by the end of the contract, there's no RPO left. And then when we renew, it renews that RPO and refreshes that RPO, but it also does that at a higher level for a number of reasons. Number one, we've ramped that customer through the first x number of years of the contract. So we've ramped up DCs and users.

So we're now going to be renewing at a run rate that's much higher. We've also got the opportunity to cross-sell when we renew. So when those customers that are going to be renewing in '26, when they bought Warehouse Management, we didn't have Transportation Management or Supply Chain Management or AI agents.

So all of those things are opportunities for cross-sell. Of course, there's also the opportunity for price increases in some cases, and all of this will drive higher RPO and higher subscription revenue. So -- and then add to that the fact that as we've mentioned in previous calls, we do have customers that are maybe taking a conservative view of their deployment cycles and are rolling out a little bit slower.

We are actively working with those customers to find opportunities for them to move faster. And as they move faster, that grows our subscription revenue faster as well. So we think we've got lots of levers to pull to be proactive and work with our customers to drive this and continue the success.

And our next question comes from the line of Joe Vruwink with Baird.

Eric, just 4 different go-to-market investment areas you walked through. I appreciate some of these take time to become productive and revenue-enhancing. But maybe you could go into a bit more just qualitative detail on what you think is possible through like the enhanced specialists and new hires. And quantitatively, if you had to put a number on it, I understand, given Terry's question, 20% growth in cloud subs that was intended to be a multiyear target. But do you really think if some of these go-to-market investments pay off, we're thinking about a number beyond the 20% level?

Yes. Thank you for the question. Yes, as I mentioned, we're not making changes to that long-term projection. But we are making a lot of changes to what we're doing in sales and go-to-market. And I think these are low-risk changes that can have a relatively quick impact, some quicker than others.

So you talk about Bob Howell, who I mentioned is taking over as Chief Sales Officer. He's been here 20 years. He's worked closely on a lot of the big deals that we've done in Europe and APAC already. He's worked closely with those teams. So this gives him the opportunity to take some of the things that Bob and his sales team in the Americas have really perfected in terms of specialization, sales diligence, et cetera, and leverage that more globally.

So some of the things that we're doing really well in the Americas, we can tap into in other parts of the world. And I think that's very low risk and can have a quick return. I think some of the things that we're doing with partnerships with Google, with Shopify, as I mentioned, we're already seeing returns. The product specialization, I mentioned we've got new leaders for POS and TMS since the last time we had this call. Those guys are coming up to speed quickly. Obviously, they've been in this market.

They know the business. They know Manhattan more as a competitor. Now they're learning us as a company that they're working for. But the relationships that they have in the market will be valuable, and they will help us to increase our pipelines very quickly.

And I'm confident that the specialized teams that they're building around them will give us the ability to enter new markets. I think one of the things that we've been pretty clear about is we know that we've got market-leading products in POS and TMS, but we probably don't have the market awareness that we want in those spaces. And I think those guys that we brought in can help us address that very, very quickly.

So yes, I think there are several things that we're doing that can have a material impact certainly next year. Some of these things, when you look from a revenue perspective, it's difficult to impact significantly revenue in the second half from a product standpoint. But all of these things should be able to give us a good impact for next year.

Okay. That's great color. I wanted to ask about the RPO bookings much better this quarter than last quarter. I'm curious if you can maybe parcel out how much is customers just acclimating to the macro versus Manhattan works of pipeline sometimes for a while and opportunities come together in a period. Do you think it was just the pipeline opportunities you had going into this period that was conducive to better RPO activity?

Well, I think a big part of it was just very solid execution by our sales team. But from a macro point of view, I think some of the uncertainty has abated, but I think also customers are adapting to moving forward with some uncertainty. And just like we are doing, we're managing through the uncertainty and controlling what we can. I think our customers are doing that as well.

And the pipeline that we went into Q2 was solid, and we continue to see a solid pipeline in the second half. One of the interesting things, we talk about the tough macro that we've been in for a while now. Our last 3 bookings quarters have been our best 3 bookings quarters ever. So -- and you can argue that all 3 of those quarters were during at least a changing, if not a challenging macro. So I think our team continues to execute well, and we've got a product that the market wants and demand is strong.

And our next question comes from the line of Brian Peterson with Raymond James.

On the strong quarter. So I wanted to hit on maintenance. That was a little bit higher than I had expected this quarter. Are you seeing some of your existing on-premise customers kind of renew for longer? And can we get an update on where we stand on the status of that on-premise to cloud migration for WMS?

Yes. So bottom line, we've always taken the approach that our customers are going to convert to cloud when they're ready. And this is the second quarter in a row where we've had really strong bookings from new logo. And ultimately, in the long run, that's going to drive more growth opportunity because that creates more opportunity for cross-sell.

That being said, we are continuing to look at our conversion opportunities and conversion pipelines. And I do see that as an area that we can get more aggressive and not only create more cloud subscription revenue, but also create more services revenue. So conversions is an area that we will continue to focus on.

Now from a percentage standpoint, not a significant change from what we talked about a quarter ago. Roughly 20% of our on-prem customers have started that conversion to the cloud. When I walk through kind of some samples of our new logos and conversions that we closed in Q2, we do continue to close conversions, but we still have a lot of conversions in the pipeline to close over the next several years.

And maybe just a follow-up. I know ERP migrations have gotten a lot of talk kind of industry-wide. As you see that strength in net new, is that a big factor in what's driving new customers to Manhattan or maybe some commonality on what you're seeing on the net new side?

Yes. So the ERP continues to be a tailwind for us, right? As people are making decisions on ERP and looking at what some of the ERP players have to offer and comparing that to what we have to offer, that the change is creating -- the change that they have to do in ERP is creating an opportunity for them to do a change in supply chain as well.

So that's absolutely creating a pipeline for us. And I think the amount of pipeline and what that's driving has been consistent over the past several quarters, and we continue to see pipeline created that way.

Our next question comes from the line of Dylan Becker with William Blair.

Congrats. Appreciate it. Maybe, Eric, sticking on one of those prior topics. Around the idea of conversion momentum, but also on the new logo side. I wonder if you could contextualize some of the efficiency gains you're seeing around kind of delivery and implementation, what you can do to make that process easier and faster?

And maybe if that is a TAM unlock in and of itself as it's kind of historically been viewed as a heavy implementation, if that allows you to go maybe more down market into Tier 2 and what that TAM unlock could potentially look like?

Yes, great question. And in fact, this is something that we talked about at Momentum as well. Our team is having success of leveraging automation and AI to reduce implementation timelines, to reduce the number of extensions required to reduce the number of hours to create an extension. So there's example after example of where we're reducing timelines and reducing cost and deployment.

So that absolutely makes our TAM bigger. And that's one of the things that we're -- one of the message that we're taking to market right now as well as we can reduce the speed or increase the speed and reduce the complexity, it increases our TAM, and it also can be another way to encourage customers to do those migrations and convert from on-prem to the cloud.

So those are messages that we're taking to market right now, and I think they're being received very well. And by the way, at Momentum, our customers were also happy to hear that with that speed and reducing complexity, it gets them to their ROI faster, which is a very important message for them.

Yes. Perfect. Okay. And then we've talked about kind of the pace and productivity, kind of the expectations on sales hiring and where you think about kind of segmenting that out. But if we were to kind of step back and contemplate the renewal cycle in fiscal '26, kind of having come on board now 150, 160 days, could you maybe draw any parallels in your prior experiences of how you're kind of positioning and viewing navigating that renewal opportunity and what that can kind of contextualize from a potential upsell, obviously, unification cross-selling dynamic as well?

Yes. Yes, definitely. So it's not too dissimilar from the cycle that we were on when I joined ServiceNow, when ServiceNow was just over $1 billion, and we were going through significant renewal cycles. And at the same time, we were introducing new products and doing cross-sell and upsell when we did those renewals.

So that will be a big focus for us in the second half of this year, and that's a big part of what Bob Howell and his team are going to be putting together is that global structure that we will use to make sure that we are maximizing the opportunity at renewal and not just renewing but driving growth within those customers as well.

And our next question comes from the line of George Kurosawa with Citi.

Maybe as it relates to the macro backdrop, if you could talk about kind of linearity in the quarter? Did things improve as the quarter progressed? And any comments on how things are trending so far into July?

I wouldn't say there was anything material to note in terms of things improving throughout the quarter or even in July. Typically, in our business, Q3 has been seasonally a weaker quarter and Q4 is seasonally a stronger quarter. We'll see if that plays out. But in terms of the macro, nothing meaningful.

Okay. That's helpful. And then on this 2026, 2027 renewal cycle that you're gearing up for, anything you can help us with in terms of when you're looking at the timelines for when we should expect those to really start to kick in, when you have kind of the big book of business coming back to the table? And how you're thinking about success relative to renewal cycles you've seen in the past?

Yes. So it's not going to hit in one big wave all of a sudden. It hits and gets a little bit bigger every quarter. So it can sneak up on you if you're not prepared for it. And that's why we are making a very clear effort to be prepared for it and build the team, build the comp plan, build the structure all around it so that we can measure it very well.

And in fact, we're already measuring it 18 months out. We're looking at the next 18 months, what the renewals are coming in, making sure that we're preparing and making sure that we can have the right cross-sell conversations in advance so that they can have their budgets ready and we can maximize this opportunity.

Our next question comes from the line of Mark Schappel with Loop Capital Markets.

Nice job on the RPO print. Eric, a question for you. Given that things kind of seem to be settling down a little bit since Liberation Day, what's your observation around or sentiment around CIOs moving forward with, say, large WMS or TMS upgrades or expansions? And then also since Liberation Day, are you seeing any of these initiatives kind of being crowded out by other priorities?

Well, I think one thing is very clear that Liberation Day was just one more reason for CIOs and boards to recognize that this is mission-critical software. And what we are seeing is while some of the uncertainty is maybe getting more clear and some of the uncertainty is getting more common, people are figuring out how to work around the uncertainty. We're seeing that the most forward-leaning companies are not holding back on investing in supply chain.

They recognize this as a differentiator, and they recognize it as something that they need to look for strategic advantages. So we're not seeing large customers use this as a place to save money. That being said, I'll continue to use the same caution that when it comes to rollout cycles, that's where they have a little bit more flexibility in how quickly they want to spend and how quickly they want to deploy.

Great. And then I appreciate your earlier comments on the go-to-market investments you're making. On the marketing front or market awareness front, what can we expect on that front for the balance of the year?

Yes. We're in a period of change right now. So I think maybe a quarter from now, we can give you a bigger update on what that's going to look like, but we have an open search for a Chief Marketing Officer. And we've made it clear that we want to invest. We want to change our awareness and presence in the market, and we're taking the steps to make sure that we do that.

And our next question comes from the line of Chris Quintero with Morgan Stanley.

Great to be on the call with you all. May on the go-to-market changes here, just curious kind of how far along are we on those? How much more is left? And when you think about the new sales reps that you're hiring, what's the kind of background and profile? And is that different from the historical sales rep that you all have hired?

Yes. So in terms of how far along, we're just getting started. I mentioned a lot of these hires were in the past quarter since the last time we did this earnings call. Backgrounds, they're coming from our competitors in many cases. And they're coming from the competitors that we're often routinely beating and they want to come be a part of Manhattan.

So this group of people that we hired has experience across Blue Yonder and Oracle, Mad Mobile, Walmart. And just about every competitor, we're bringing in people that understand those businesses and can help us build a better product and create more market awareness around our product.

Got it. That's helpful, Eric. And then I want to follow up on services. Really nice to see that outperformance in the quarter. The full year guide stays unchanged. So just curious like any change on how you're thinking about the full year or just staying conservative?

Yes. We're staying conservative. Again, that's the part of our business that customers have a lot of flexibility. It's time and material contracts. And if they want to put their foot on the throttle and really go fast, we can help them do that. But if they want to slow down, we do that with them as well. So we're just taking a conservative approach and -- but we're pleased with where we are at this point in the year.

And with that, there are no further questions at this time. I'd like to turn the call back to Eric Clark for closing remarks.

Yes. Thanks very much. Appreciate you joining and appreciate all the questions. Bottom line, we're pleased. We had a very solid quarter, and we did better than expected and had great new logo performance and great margin expansion. I'm personally very excited about the go-to-market changes. I'm excited about what Bob can bring to the global team and also excited to see the impact that Agentic AI will have on our business in the second half and beyond.

Great. Thank you. And everyone, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.