Manhattan Associates Inc 2026 Q3 Earnings Call

Thank you, Sachi, and good afternoon, everyone. Welcome to Manhattan Associates 2026 third 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 the call, including the Q&A session, we may make forward-looking statements regarding future events or our 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 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 Forms 10-Q.

Please note 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 will find reconciliation schedules in the Form 8-K we filed with the SEC earlier today and on our website at manh.com. Now, I will turn the call over to Eric.

Thank you, Mike. Good afternoon, everyone, and thank you for joining us as we review our third quarter results, discuss our increased full year 2026 outlook, and provide some color on 2027. Manhattan delivered record Q3 and year-to-date results. Our performance was highlighted by 28% cloud revenue growth, RPO increasing 25% to $2.6 billion, and our fourth consecutive quarter of record bookings. We also achieved two milestones, with cloud revenue surpassing services revenue and total quarterly revenue exceeding the $300 million watermark as total revenue growth of 11% was better than expected. The steady acceleration of our business momentum continues to be powered by two primary drivers. First, Manhattan's commitment to innovation and driving speed and simplicity across our best-in-class supply chain solutions. And second, the strategic investments in sales and marketing are unlocking a growing number of opportunities across our large and expanding addressable market.

As we've previously communicated, these investments include building product-focused sales specialist teams to drive new logo growth and cross-sells, a dedicated conversion team to move on-prem customers to the cloud, a dedicated renewal team to focus on expansion, maturing our partner ecosystem to create additional pipeline channels, building seamless agentic AI capabilities driven by Manhattan forward-deployed engineers, and most recently, the introduction of the editions to make the Manhattan Active platform available to customers of all sizes. These investments have contributed to the acceleration of our year-to-date bookings growth as our year-to-date deal volume has already surpassed our total deal volume for the full year of 2025. In addition to strong Q3 deal volume, which included both Enterprise and Essentials editions transactions, we also experienced healthy growth in new logos, upsells, and renewals.

Specifically, new logos were about 35% of new cloud bookings, and our win rate metric remained consistent at above 70%. Our AI offerings, which are built directly into our Active platform, continue to be a meaningful differentiator, contributing to our Q3 deal flow, including an AI upsell through the Google Cloud Marketplace, as well as new pipeline growth. In summary, we continue to experience strong and diversified bookings momentum for the quarter and year to date. Our fourth consecutive record bookings quarter was a key contributor to our growth acceleration in cloud revenue, total revenue, RPO, and next 24-month RPO. From a vertical sales perspective, our end markets are diverse, and we have healthy established footprints across numerous sub-sectors, which include retail, grocery, food distribution, life sciences, industrial, technology, airlines, 3PL, and more.

For example, Q3 deals included a multinational home improvement retailer that increased their existing Active Order deployment and expanded to become an Active Warehouse, Active Transportation, and Active AI customer. A leading U.S. grocer became a new logo Active Warehouse and Active AI customer. A global medical technology developer and manufacturer is converting from on-prem to Active Warehouse. One of the largest consumer cooperatives renewed their Active Warehouse subscription and expanded to become an Active Transportation and Active AI customer. A lifestyle and fashion brand that is an existing Active Order customer expanded to become an Active Warehouse and Active AI customer. An energy transmission and distribution company became a new logo, Active Warehouse and Active Transportation customer. In addition to several other impressive Q3 deals, we continue to make solid progress on monetizing our AI opportunity.

As a reminder, our Active AI offering consists of two primary elements, a set of base agents ready to be activated immediately, and then our Agent Foundry, which enables our customers to quickly build and deploy their own agents. Because we build all of these agents directly into the Active platform, our customers don't need to implement costly and complex external data lakes. Our unified cloud native API first architectures 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, and maximizing value and ROI in real time. This is driving impressive market leading adoption of our agents from our install base. While it remains early, we're maintaining our 100% conversion success from AI pilot to AI subscription.

To help demonstrate the broad use cases and the operational benefits provided by our Active Agent technology, I will provide three brief customer use cases from the quarter. First, a 3PL with multiple agents deployed at several of their sites reduced wave planning by 50%. Agents also lowered appointment booking clerical time by 80% and wave failure investigation time by almost 70%. These are labor-intensive processes that require highly specialized resources. Together, on an annualized basis, these efficiency gains will return thousands of man-hours back to the business. These agents also increased on-time departures, with one site experiencing approximately a 20% increase. Next, a retailer that is also deploying multiple agents was able to reduce invoice write-offs by almost 20% and cut invoice resolution time by over 70%, increasing the company's revenue and cash flow.

Finally, a manufacturer with multiple agents live is using an order fill agent that automatically fills order from inventory available from other sales channels when their specific channel's inventory is depleted. This prevents lost sales, lowers freight overspend, and improves vendor status with key sales channels. Once these agents are implemented across all sites, this customer is forecasting to achieve seven figures worth of increased sales and cost savings. Now, we are excited about the growing use cases and the increasing number of new and existing Active customers that are finding great value in their agentic journey with Manhattan. Now I am going to turn to some product updates. During last quarter's call, I described the upcoming launch of a new way to buy Active products called Editions. We launched Editions in Q3 to make our market leading technology available to a much wider array of customers.

Starting in Q3, our sales team started engaging with prospects using our new Editions-based packaging. The Essentials Edition for the lowest complexity supply chains, the Enterprise Premier Edition for those customers with the most complex and sophisticated supply chain needs, and the Enterprise Edition for those in between. As a reminder, Editions is an important program for both Manhattan and our customers because it ensures that all customers are able to use Manhattan solutions built on our market leading Active platform. By bringing customers of all sizes and complexities onto the same platform, we can make solution unification, extensibility, and agentic AI available across our entire customer base. We are off to a solid start with Editions. In Q3, we closed a number of deals on Active Warehouse Enterprise Edition. Historically, we would have sold and deployed Active Scale to these customers.

Now with Editions, these customers will have the opportunity to take advantage of our leading embedded AI capabilities, access adjacent Manhattan solutions like Active Transportation and Active Order and Active AI, and will be able to easily move to Enterprise Premier Edition when they are ready for our most advanced capabilities. Our sales teams have transitioned seamlessly to Editions, even converting opportunities that originally we pursued with Active Scale into Active Warehouse Enterprise Edition wins within Q3. We also closed our first Essentials Edition of Active Warehouse. This opportunity was not even in the pipeline at the beginning of Q3. This customer reached out to us when we announced Editions, and we closed the deal within the quarter. Both Essentials and Enterprise Editions will unlock an expanded addressable market, faster deal cycle times, and opportunities for partners to drive more deal flow to Manhattan.

Speaking of partners, last quarter, I mentioned the increased deal flow coming from our partner community. That momentum has continued in Q3, and our year to date partner source deals are up more than 4x over last year. One of our core strengths at Manhattan has always been innovation. We continue our strong innovation focus across all of our Active products. Within Active Order, we continue to enhance our market leading position by introducing features that customers can only get from Manhattan. For example, we recently introduced a new fulfillment optimization simulation capability in Active Order. Using this breakthrough feature, customers can experiment with new fulfillment network models, inventory positioning strategies, labor plans, and algorithm configurations.

What makes this new capability so interesting is that we allow our customers to replay an entire day or even an entire week of order processing against these potential changes. We can show them concrete terms how this alternate reality will affect their customer service levels and fulfillment costs, all within a simulation sandbox using their real production data. Many of our larger Active Order customers are now beginning to use this new capability, and the initial findings have been eye-opening. As these customers begin putting their findings into production, I look forward to sharing the measurable operational improvements they achieve. Now, switching gears to our B2B customers. One of the most critical operational KPIs in supply chain and logistics is OTIF. It stands for on-time in-full.