MANH - Manhattan Associates, Inc.

Operator: Good afternoon. My name is Cleo, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates Q2 26 Manhattan Associates Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. As a reminder, ladies and gentlemen, this call is being I would like to now introduce you to your host, Mr. Michael Bauer, Head of Investor Relations of Manhattan Associates, Mr. Bauer, you may begin your conference.
Michael Bauer: Thank you, Cleo, and good afternoon, everyone. Welcome to Manhattan Associates 26 second 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, actual results may differ materially from the projections contained in our forward-looking statements. I refer you to Manhattan's 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-Ks for fiscal year 25 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 will find reconciliation schedules in the Form 8-Ks we filed with the SEC earlier today on our website at manh.com. Now I will turn the call over to Eric.
Eric Clark: Thank you, Mike. Good afternoon, everyone, and thank you for joining us as we review our second quarter results and discuss our increased full year 2026 outlook. Manhattan delivered record Q2 in first half results against a volatile global macro backdrop. Our performance was highlighted by 26% cloud revenue growth, RPO increasing 23% to 2.5 billion and Q2 was our third consecutive quarter of record bookings. This impressive business momentum is being powered by 2 primary drivers. First, Manhattan's continued commitment to innovation and driving speed and simplicity in our best in class solutions across the supply chain commerce universe. And second, the strategic investments in sales and marketing that we announced a year ago are unlocking untapped opportunities within our large addressable market. You will recall that these investments are focused on increasing deal volume and total bookings across our product portfolio. Some examples of these investments include building out product focused sales specialist teams across all of our products, building dedicated conversion teams to focus on moving on-prem to the cloud, building dedicated renewals teams to focus on expansion at the time of renewal, maturing our partner ecosystem to create additional pipeline channels and finally building seamless agentic AI capabilities driven by Manhattan Forward deployed engineers. 3 consecutive quarters of record bookings give us confidence that our go-to-market approach is working. So regarding some of the specifics on our Q2 bookings, sales to existing customers have accelerated and in Q2 conversions from on-prem to Manhattan Active represented >40% of our new cloud bookings. Renewals continue to be in line with our full-year plan and net new logos represented >25% of new cloud bookings in Q2 while our win rate metric remained consistent above 70%. Additionally, in Q2 our AI offering started to become a meaningful differentiator in the field and contributed to both deal activity and pipeline growth. In summary, we experienced strong and diversified bookings momentum in Q2 and the first half of 26. All of this contributed to the cloud revenue acceleration in the first half and supports our focus on accelerating ramped ARR. 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, Q2 deals included a global specialty retailer that is converting from on-prem to active warehouse and expanding to become an active transportation customer. A multinational conglomerate became a new logo active warehouse and active AI customer. 1 of America's largest distributors is converting from on-prem to Active Warehouse. A large equipment retailer that was an existing active Omni customer expanded to become an active warehouse and active transportation customer. A large food distributor became a new logo active warehouse active transportation and active AI customer. And 1 of the world's largest international retailers began the conversion from on-prem to active warehouse. In addition to several other impressive deals in Q2, we made solid progress monetizing our AI opportunity. As a reminder, the active platform enables our customers to access the perfect blend of deterministic workflows with probabilistic AI execution enabling simplicity, and resiliency while optimizing cost to drive optimal ROI for our customers. Our active agent offering consists of 2 primary elements. A set of base agents ready to be activated immediately our agent foundry offering, which enables our customers to quickly build and deploy their own agents supported by our dedicated team of forward deployed engineers. And because we build all these agents directly into the active platform, our customers do not need to implement costly and complex external data lakes. Our unified cloud native API first architecture enables us to add 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. As you might expect, active agents featured prominently at our Momentum user conference in Las Vegas in May. We launched several new base agents, debuted some cutting edge design and configuration capabilities and had hundreds of our attendees get hands on experience building agents for themselves at our very first agent boot camp. Our customers continue to tell us that both the power and ease of use provided by our agent foundry is a real differentiator for Manhattan. 1 of the conference's highlights was a panel featuring 3 of our earliest adopters of active agents, What came through loud and clear from these customers were the real operational benefits they are seeing in production every day with Active Agent technology. Good news is these 3 customers are not outliers. Since an 87% reduction in short picks every day. And at a regional grocer, they are seeing a 49% reduction in late shipments and a 21% reduction in order cycle time. And the numbers that I just cited and what our momentum attendees heard from our panel at Momentum represents an important stake in the ground for us. We are committed to delivering agentic technology that provides material operational value every day. We believe that many customers are already feeling burned out by the AI hype that is in the market. They are pressing their teams to make sure that any AI investment can show material value. With each new customer engagement, we feel increasingly confident that the combination of our base agents and agent foundry makes it a straightforward endeavor demonstrate real value for each customer. Since our launch in Q1, active agents have progressed from an early adopter program to now touching >10% of our active install base either through a pilot or a subscription. And while it is still early, so far we have experienced 100% conversion success from AI pilot to AI subscription. So that brings us to the product update. I am excited to announce a significant update that expands our addressable market. In order to better commercialize our growing opportunity and provide the benefits of the active platform to more of the market, we are introducing Editions for our Manhattan solutions. Editions is a packaging motion, not a new product line. For years Manhattan has powered the most complex highest volume supply chains in the world. Editions allows us to bring that same platform to all customers. It takes the solutions we already sell and makes them available in 3 tiers. The same cloud native platform, the same native AI, same continuous innovation, unified versionless, built for where you are. We are changing how it is packaged and priced, not what it is. So rather than our historical 1 size fits all approach we are now offering 3 editions of each of our major applications. Each Edition packages a set of capabilities and pricing focused on serving a particular market segment. Historically, we have been highly effective at selling and implementing our applications to the most complex supply chain and commerce organizations worldwide. And until now we have not devoted much energy to making that same technology available to the wider market. We have a significant opportunity to bring the power of our best in class capabilities market leading architecture and embedded AI agents to a much larger pool of customers. So allow me to spend just a moment describing each of these 3 additions and how we intend to use them to expand our addressable market. First, let's start with our Enterprise Premier Edition. Enterprise Premier offers our most advanced set of capabilities, focused on customers with complex supply chains and who differentiate their business in part through world class supply chain execution. Premier is our vehicle for continuing to invest in the market leading innovation, which has received accolades from analysts and customers over the past several decades. Our largest and most sophisticated customers will choose Premier given the value they historically ascribed to market leading supply chain innovation. Next is our Enterprise Edition. Which provides us with a couple of important new tools. Number 1, enterprise allows us to funnel all demand for WMS into a single application. Active warehouse. Historically, we have sorry, we have driven demand from lower volume, lower complexity customers to our scale product. Using Enterprise Edition, we are confident we can now serve this market using the same application that we use for our largest and most complex customer. We believe a combination of prescribed feature set more approachable subscription pricing and our new rapid implementation methodology will make us more effective than ever at selling and implementing in this market segment. Enterprise Edition is also an important tool for those selling scenarios where customers really want to be on the industry's leading application platform but may not currently have the ability or willingness to invest in our full feature set. Enterprise Edition allows those customers to start their supply chain journey on the right platform and potentially grow into a larger feature set over time. And finally, let me tell you about the Essentials edition. The beauty of the Essentials is that it offers market leading warehouse transportation, order and store capability that every business needs to operate but at a fraction of the cost of our Premier Edition. Essentials will open new markets for Manhattan with respect to both size of the company and operating geography. Increasing the overall number of transactions we do each quarter in part by increasing the number of new logos we acquire helps in both the short and long term. While the short term subscription and services revenue advantage is obvious, I think the real opportunity is over the longer term. Since launching our active platform, we have been highly effective at cross selling our applications. Customers love the increased simplicity and added operational benefits of being on a unified platform. By increasing the number of new active platform customers using Essentials and Enterprise Editions, we give ourselves many more opportunities to land and expand our footprint with these customers over time. Another advantage of having all of our customers on active platform that these customers have full access to our rapidly expanding set of AI capabilities built right into the platform, because Active Agents including Active Foundry can be added to any Active Edition. We now have a fast and easy way to provide embedded AI into the workflows of more customers. We also see the Essentials Edition as a great partner activation vehicle. For Manhattan, it is an efficient way to add more feet on the street to source demand and expand the pool of Manhattan customers. In summary, the 3 additions are a ladder, not a menu of different products. Essentials is the real platform, right sized for fast time to value. Enterprise adds depth with more configuration, more optimization and broader workflows as operations scale. And Enterprise Premier is the full power that the most complex operations depend upon today. We now allow customers to start their journey where they are and grow into a larger feature set without ever re platforming No longer will small and mid sized companies or even smaller sites within larger enterprises be forced to settle for inferior products. Additions enables higher ROI more productivity and increased levels of customer satisfaction. The same benefits we have always offered the most complex supply chains now available to the broader market. Now, I will hand over to Linda C. Pinne to report on our financial performance and outlook and then I will close our prepared remarks before we open it up to Q&A. Linda C. Pinne, over to you.
Linda C. Pinne: Thanks, Eric. Our Manhattan global teams continue to execute well in a challenging macro environment. For the quarter, we delivered better than expected financial performance on the top and bottom lines. This includes strong results across RPO bookings, cloud revenue growth, and operating margin expansion, as well as free cash flow generation. On an as reported basis, our Q2 and first half results exceeded the rule of 40. FX remains volatile and in Q2, it was a 70 basis point tailwind to year over year total revenue growth. However, it was an approximate $3 million headwind to sequential RPO growth and about a $9 million headwind 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 $298 million up 9% Excluding license and maintenance revenue, which removes the compression driven by our cloud transition, our total revenue was up 13%. Cloud revenue increased 26% to $127 million Our better than expected performance was driven by strong execution and the number of upsells we closed in the quarter. As these types of transactions can generate more near term revenue. Service revenue increased 3% to $133 million and was better than expected as about $1 million of implementation work shifted from Q3 to Q2. We ended Q2 with RPO of $2.47 billion up 23% compared to the prior year and 5% sequentially. Our strong Q2 and year to date performance was driven by a good mix of sales from both new and existing customers. This includes renewals, which were in line with our 2026 annual plan. Please remember when you are doing your RPO bookings analysis, that FX is masking some of Q2's relative strength. As FX was a $29 million sequential tailwind to RPO in the year ago period compared to this quarter's $3 million headwind. Contract duration remains at about 5.5 to 6 years. At the end of Q2, we expect 39% of RPO to be recognized as revenue over the next 24 months. Which is up from 38% at the end of Q1. And reflects strong deal volume and faster deployments. Q2 adjusted operating profit was $104 million with an operating margin of 34.9%. Our better than expected performance was driven by strong cloud revenue growth which offset the increased go-to-market investments that we have previously highlighted and an uptick in bonus accruals to account for our strong Q2 and first half results. Turning to EPS, we delivered better than expected adjusted earnings per share of $1.39 up 6%. GAAP EPS of $0.85 was down 9%. As announced on June 1, this decline resulted from approximately $8 million or $0.11 per share of restructuring expense associated with our strategic decision to reduce investment in legacy areas of the business and reinvest in strategic areas to help drive future subscription growth. Moving to cash, Q2 operating cash flow increased 22% to $91 million resulting in a 30.1% free cash flow margin and 35.4% adjusted EBITDA margin. Regarding the balance sheet, deferred revenue increased 14% year over year to $343 million We ended the quarter with $186 million in cash and 0 debt. Accordingly, we leveraged our strong cash position and invested $125 million in share repurchases in the quarter resulting in $275 million in buybacks year-to-date. As such, we have $225 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 non linear bookings throughout the year. And finally, 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. With all that said, acknowledging the volatile macro environment, given our strong first half performance and solid pipeline, we are confident that RPO will be towards the high end of our target of $2.62 billion to $2.68 billion which represents a range of 18% to 20% growth. Moving to the P&L. 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 $1.160 billion to $1.166 billion with $1.163 billion midpoint comparing favorably to our prior outlook. And representing 11% growth excluding license and maintenance attrition and 8% all in. We now expect FX to be neutral compared to the prior year versus our prior expectation of a 1-point tailwind. As expected, FX was a 1-point tailwind in the first half, However, our guidance now reflects a 1-point headwind in the second half as compared to our prior guidance. Despite the adverse FX moves, our second half total revenue expectations remain unchanged. For Q3, we continue to target total revenue of $294 million to $298 million and accounting for retail peak seasonality about $287 million for Q4. For adjusted operating margin, our full year estimate nudges up to about 35.1% and now includes a higher level of bonus expense to reflect our strong first half results. We expect these higher accruals will offset some of the expected favorable revenue mix of more subscription revenue in the second half of the year. As such, at the midpoint, we continue to expect adjusted operating margin to be about 36.9% in Q3 and accounting for retail peak seasonality about 36.1% in Q4. Our full year adjusted EPS range is increasing to $5.44 to $5.50 On a quarterly basis, we are targeting $1.45 in Q3 and $1.37 in Q4. Despite the 1 time restructuring charge, we are increasing our full year GAAP EPS midpoint to $3.62 and we are targeting Q3 GAAP EPS of about $1.00. Here are some additional details on our 2026 outlook. We are increasing our cloud revenue midpoint to $505.5 million representing 24% growth. We are increasing our Q3 target to about $130 million and Q4 target to $132 million We now expect our service revenue to increase 2% to $513.5 million which assumes about $133 million in Q3 and accounting for retail peak seasonality, $122 million in Q4. The $4.5 million reduction in service revenue from our prior forecast is due to roughly equal parts of adverse FX movements and the timing of European implementations. As such, we expect our EMEA services revenue to trough in Q3 and for growth to improve in Q4. On attrition to cloud, we expect maintenance to decline 12% to about $114 million and are targeting about $27 million in Q3 and $26 million in Q4. We expect license to be about $1 million per quarter and hardware to range between $5 million and $6 million per quarter. Finally, we expect our tax rate to be about 22% and our diluted share count to be about 59 million shares. Which assumes no buyback activity. In summary, strong Q2 and year-to-date results. Thank you and back to Eric for some closing remarks.
Eric Clark: Great. Thank you, Linda C. Pinne. We are very pleased with our strong year to date results and our continued business momentum. Manhattan's business fundamentals are very solid and our teams are doing a great job delivering value to our customers. As evidenced by our 3 consecutive quarters of record bookings in recent introduction of active additions, we have numerous opportunities to grow and expand our market share in the large supply chain commerce market. Thank you to everyone for joining the call and a big thank you to our global team for the continued execution. And that concludes our prepared remarks and we would be happy to take any questions. Thank you.
Operator: We will now be conducting a question and answer session. Our first question is from Terry Tillman with Truist Securities. Please proceed with your question.
Terry Tillman: Eric, Linda C. Pinne and Mike, First, congrats on the RPO in the quarter and the cloud revenue growth acceleration. My 2 questions, I am going to start with agents. We increasingly are getting a lot of questions and curiosity around your agentic business. Eric, appreciate the update. I think you said around 10% or so of customers are either pilot phase or moving into subscription phase. What I am curious about is what that could represent as we look into the second half in terms of as they start converting to these subscription customers and it sounded like you even had some new enterprise wins that included it with the deals. How are you framing kind of the potential materiality and just the shape of this subscription revenue unfolding? In the second half of 27? And then I had a follow-up.
Eric Clark: Yes. Thank you, Terry. So first of all, the numbers you quoted are all correct. So about 10% of our installed base is either on pilot or subscription and we did have some customers just start directly with subscription. So we are seeing a lot of confidence from the customer base on what we have got to offer. I will say, however, though, we have been we have had this commercially available in the market for 2 quarters now. And if you think about it, Q1, was really just the pilot. So we have really had 1 quarter where we have been selling subscriptions So we just do not have enough data points yet to give clear guidance on what we think that is going to amount to in terms of revenue for the half. And of course, we are not giving guidance on 2027 yet. I think you can tell from the excitement that we have got around this that this is this is material. And our customers are seeing great value in it.
Terry Tillman: that is good to hear. Thanks, Eric. And I guess my follow-up question is, this seems very interesting in terms of additions. You guys do not do a lot of regular pricing and packaging, kind of evolution or changes. So you clearly were doing some studying. What I am curious about is with additions. How's this going to work with, like, enabling your sales teams, you know, how quickly they can understand how to sell this and discern when it is what Edition it should be. And kind of related to this is, like, how would you forecast this and kind of minimize potential distraction or disruption from sellers starting to sell this kind of way versus the prior way? Thank you.
Eric Clark: Yeah. So good question. We started the process of rolling this out to our sales team in our mid year sales meeting, which is a standard meeting that we do every year. Lot of excitement from the team because truthfully what this really does is open new markets. Enterprise Premier, the top Edition, is what we have been selling for years. that is the full product. And then when it came to kind of the next tier of customer, we often would sell them scale, which is not our active platform and it does not give them access to the unification and the AI and everything else So and in fact, a lot of those customers have often said, I would rather be on the active platform, but I do not want to pay the extra. So now we have created an Edition that puts them in a great place. They get access to all of those things. And at a later date, if they need some of some more of the complexity that comes in Enterprise Premier, they do not have to replatform to do it. They can just simply change their subscription level and take advantage of those features. And then essentials opens up yet another market opportunity. So we have often talked about we go to market in Tier 1 and Tier 2 and that represents 87% of supply chain spend. Well, this opens up the rest of the market. And the reality is even though that we have been addressing the vast majority of the supply chain market, even in the biggest of the big tier 1 players, many of them have sites that they have just deemed not enough or complex enough to use active warehouse. They did not want to spend the money. So they have been forced to use a lesser product in those areas. Now they can use essentials in those areas, and now they can take advantage of everything that comes with the unified platform across their entire business, all the way down to leveraging AI in those sites. So there is a lot of excitement in our sales force and in the limited number of customers that we started to talk to. there is a lot of excitement and momentum on that side as well.
Terry Tillman: Thanks a bunch. Thank you.
Operator: Thank you. Our next question comes from Joe Vruwink with Baird.
Joe Vruwink: Hi, great. Thanks very much. I think this is going to dovetail on Terry's question. But, you know, when investors hear about go to market changes, normally start to associate risks and worry about maybe a disruption disruptions in selling. But I think what you have been doing over the last year, and there already has been quite a bit of change inside Manhattan, and yet it really has not shown up in cloud bookings. In fact, I think this quarter's cloud bookings relative to our model was the best in some time. So maybe how would you compare and contrast what you are now doing around the new packaging and any risk or near term friction that might create versus more just slotting into something you might have been moving towards organically. And so it is not gonna have the type of friction 1 might think about.
Eric Clark: Yes. Thank you, Joe Vruwink. And first of all, I think you are correct. I remember a year ago when we announced some of the changes in strategic direction for sales there was concerned about change and what that would do and Q3 last year was a bit of a change for us, but then we had 3 consecutive quarters of record bookings. Now this 1 is even easier and the reason I say that is we are already selling scale. We are already selling to this segment of the market. Now we get to sell our premier product in that segment of the market. So the immediate change is we are selling the same types of deals to the same types of customers, but now we are selling our product Over time, it is going to expand the addressable market because it is gonna allow us to sell more sites within existing customers. it is gonna allow us to go lower down in the Tier 2 and 3 customer base. But there is really not any friction in the sales team today.
Joe Vruwink: Okay. that is great. And then just on the RPO bookings, how did it compare to your internal expectations Were there any timing factors at play that maybe pulled deals ahead into the second quarter? And since you talked about progress with AI monetization, is it possible at all to maybe frame kind of the early contribution that starting to show up. I am not sure if the way it gets booked that it would be in RPO right away, but maybe between either revenue or RPO, how that is manifesting in your financials?
Eric Clark: Yeah. So first of all, no on the question of did we pull anything early. it is not timing. I think what we have seen over the past couple of quarters is an increase of deal volume. And that continues to be a benefit of the investments that we made a year ago, focusing on all of the elements of what we have to sell in the market. And that is really the major driver of the of the success we have had over the past few quarters. When it comes to AI, clearly, has contributed, you know, some amount to revenue, it is contributed some amount to RPO, but again, because it is so early, we are not breaking that out. We will look at you when is the right time to break that out and give clear guidance on that in the future. But it in the short term, it is contributing to some of that upside that we talked about in the cloud revenue and referred to as strong results by our team, and we did not break it out any further.
Linda C. Pinne: Than that.
Joe Vruwink: You.
Operator: Thank you, Joe Vruwink. Thank you. Our next question is from Brian Peterson with Raymond James. Please proceed with your question.
Brian Peterson: Thanks and congrats on the really strong quarter. So Eric, just with the new packaging, how are you thinking about customers converting over between the plans? Would you expect them to start on Essentials and then potentially migrate up? And I guess as we think about that base, how many do you ultimately would think end up on Premier at the end of the day when they are fully transitioned?
Eric Clark: Yeah. So really good question. I think the other thing that additions does for us in the short term, number 1, changes some of the scale conversations to be active warehouse conversations on the Enterprise Edition. But the other thing it does is it creates more opportunities for conversions. And as we have had this dedicated conversion team in place for the past year and we have had a lot of discussions with those customers, we have learned a lot about what it is going to take to convert them. And it is very clear across our on-prem solutions and our on-prem customers that we have some of them may never go to Enterprise Premier. You know, that may never be a good fit for them. But we think the vast majority of them will probably go that middle the enterprise edition. And some could start on essentials. But this gives a whole lot more optionality and a whole lot more paths to make that conversion path happen even faster.
Brian Peterson: Got it. Maybe just a follow-up. I hear you on the strong conversions this quarter, but there was also a nice feed on the maintenance I am curious, are customers renewing their maintenance agreements while they go through the cloud conversion? I am just trying to understand how to think about the relationship between maintenance and an indicator of the pace of the cloud conversion. Thanks, guys.
Eric Clark: Yeah. So they do renew their maintenance until they are no longer using that product. But the other thing to think about here is we had really strong bookings quarter on conversions. It was 40% of our more than 40% of our bookings. But that was <2% of our conversion base. Right? You know, last quarter, we talked about 23% of our base had started the conversion. Today it is still <25%. So we got that big boost from <2%. So there is massive opportunity to continue to have this conversation. And now with additions, we think will help us accelerate that even further.
Operator: Thank you. Our next question is from Dylan Becker with William Blair. Please proceed with your question.
Dylan Becker: Hi, everyone. Appreciate the questions. Maybe, Eric, sticking with that point as well too. Historically, we have talked about kind of the aggregate bookings mix being a third, a third, a third, and it had skewed a bit more heavily weighted towards new logos. Good to see the uptick in migrations and expansions. I guess how that is kind of driving conviction with all of these go to market changes. In the long term viability and acceleration in the subscription business as maybe the other 2 components lift up to equilibrium versus maybe the new logo component trending down, if that makes sense? Thank you.
Eric Clark: Yeah, that is exactly right. And that is been our focus. I have always said if you are going to have 1 of those 3 components be really big and bigger than the rest, you would want it to be new logo. But over time, we expect it to get back to thirds and our focus was to make sure that we get back to thirds without new logo declining, but to bring the others up to that to that point. And when we look at first half, bookings across first half, 40% is still new logo. But you are seeing those other 2 get stronger and stronger. And, ultimately, the more new logo we sell, the more opportunity we have to cross sell and upsell. And the more opportunity we have for, you know, add ons and renewals. So just continuing to make this, install base bigger and bigger is giving us more and more opportunities to do the cross sell and upsell. So I think, ultimately, you know, to the point that you were making, long term, having those, you know, kind of back in that third, a third, a third is I think shows a really position of strength.
Dylan Becker: Okay. Very helpful. Thank you. And then maybe, for Linda or Eric, your perspective here as well too. I think you guys called out a 100% conversion, and I know we are not saying kind of what a agentic monetization could look like, but some of those upsells being kind of immediately recognizable in subscription revenue as well too. So how to think about kind of the subscription upside in the quarter and how you are kind of contemplating that going forward given the ease of integration or accessibility of agents if that makes sense to, when how those are kind of turned on and go live or immediately recognizable in subscription revenue with no implementation ramp or lag. Just as agents become proliferate a bit more, that immediate attach contributing subscription revenue. Thanks.
Linda C. Pinne: Yes. So in the quarter, I mean, we definitely did see some upside from the agents, as you said. But at this time, as we expect for the remainder of 2026, it is still pretty small contribution because like we said, we are pretty early in, right. We just started this endeavor at the beginning of the year. So, but you are right. As soon as these conversions happen, that is an immediate, you know, uplift to revenue.
Dylan Becker: Greg. You.
Eric Clark: Yeah. And as and as we have talked about before, unlike all of our other products where they have to ramp as we deploy them, AI agents turn on day 1 and they are fully deployed. So, yeah, as we see that become a more and more prevalent across our customer base, it will have a bigger impact.
Operator: Thank you. Our next question is from George Michael Kurosawa with Citi. Please proceed with your question.
George Michael Kurosawa: Okay, great. Thank you for taking the questions. I wanted to follow-up on that comment about how quickly the agents can be turned on and deployed My understanding is that so far, FTEs have been involved in all or virtually all of the deployments curious with some of the leading edge customers, I am thinking about maybe some of the ones you had on stage. Are they getting to a point where they can start to sort of run on their own and build new custom agents without as much involvement from FTEs from what you have seen so far?
Eric Clark: Yes. So first of all, you are correct that as we do pilots, we include FTEs with everyone. And the reason we do that is we want to make sure that people understand how to use all of the base agents and then also teach their team how to modify base agents and create custom agents. So the goal of our FTEs is to make sure they find value and make sure that they can be self sufficient. So again, when you think about what customers are looking for in the AI space these days, it is you know, as we all saw things go from token maxing to token shaming, people are looking for value and how quickly can they find value and how quickly can they do it themselves. So we definitely have customers that are already, you know, really good at building their own agents, but we also have customers that just the way they set up their team and the way they operate, they are probably never going to have that kind of bench and that kind of depth to do that, and they will continue to count on us to do it. And we are happy either way.
George Michael Kurosawa: Okay. that is great color. And then on some of the restructuring activities, maybe if you could just put a finer point. You talked about some level of reinvestment. If you could talk to if there is any component of that you expect to flow to the bottom line, just how you are thinking about that piece? Thank you.
Linda C. Pinne: Yes. So in the second half of the year at this point, we are expecting to continue to invest in sales and marketing as we have been doing at the first half of the year. We also will have some increase on our bonus accruals that I mentioned. So while we will have some savings from the headcount reduction, we are not expecting to see a margin benefit from that in 2026. We are still early of course, in looking at 2027. So we do plan on reinvesting some of that savings but we are still working through that. And, of course, 1 of our goals, as always, is also margin expansion. So once we have some more information, we will be providing color on 2027 as well.
George Michael Kurosawa: Great. Thanks for taking the questions.
Operator: Thank you. Thank you. Our next question is from Guy Drummond Hardwick with Barclays Capital. Please proceed with your question.
Guy Drummond Hardwick: Hi, good evening guys. Yep. Good evening. The question I hi, good evening. So for those of us who cover industrial technology companies, I personally found the most compelling momentum was 1 from Eaton Corporation. Where they showed, I think, a 30% increase in shipment value 27% improvement in warehouse cycle time at 1 particular facility, I think it was Spartanburg, and 110 thousand of labor savings I believe, if memory serves, they were using labor agent, wave agent, and DocAgent. Just wondering if Eric, for the benefit of not just me, but investors on the call, just how these agents are able to drive such dramatic improvements in such a short space of time for this particular large customer.
Eric Clark: Yes. So I think what we are seeing is that in all of these complex warehouses sites, some high percent, 90 plus percent of what is supposed to happen every day goes right. Where they are finding value is the single digit percent of the things that do not go right. You know, there is the inventory has not arrived yet, it is still sitting in the yard, the inventory is damaged, it is in the wrong location. These things can wreak all kinds of havoc on a 1 million other things they are doing and they do not always have time to do it efficiently. And these things can back up a dock and back up an entire warehouse. Now there are AI agents working in the background resolving these for them and suggesting to them how they resolve these in real time. Giving the operators the ability to say, yes. Do that. And then, you know, the AI will go execute all the changes that have to happen to fix that issue. And then over time, if an operator gets comfortable and says, every time you ask me, about this, I say yes. So in the future, stop asking me. Just do it for me. Right? They can decide when this needs to become autonomous function by function. And these are all the things that add up, you know, throughout a day and a week and a month to get to the types of savings and value that they are talking about.
Guy Drummond Hardwick: And was not kind of apparent, and I could not quite to work it out from the presentations I saw. But what are your customers telling you in terms of reduction in labor? Because labor is obviously the most highest operating expense in a warehouse. In terms of what have you heard from a customer in terms of labor cost reductions or reduction in overtime?
Eric Clark: Yeah, we have certainly had customers that have seen labor cost reductions absolutely reduction in overtime. And those are easy to measure. that is 1 of the things I think 1 of the reasons that people talk about them, because they are easy to measure. But what we have clearly heard from our customers is the bigger value that they are seeing is, you know, some of these big percent changes. Right? Short picks and, you know, changes, exceptions, etcetera. Because those are things that really add up when you are talking about a across multiple warehouses, you know, around the country, around the world. there is real major dollar value impact in those that are that are most often even bigger savings than the labor savings they see just sometimes not as easy to calculate.
Operator: Thank you. Our next question is from Parker Lane with Stifel. Please proceed with your question.
Parker Lane: Eric and Linda C. Pinne, you both called out macro volatility in your prepared remarks. We have seen the new tariff policies recently. war in the Middle East. Just wondering if you could talk a little bit more about the impact that is having on supply chain resiliency inside of your customers and based on your conversations, what impact do you expect there to be in the second half on either investments from a net new perspective or the decision to migrate to cloud or roll out new data centers or distribution centers, excuse me, is there any material impact that you expect from some of this macro volatility, or is it just something to monitor?
Eric Clark: Well, the comments that we made about macro volatility, I think we have made the same comments for the past 3 or 4 quarters, right. And truthfully it continues to be volatile, but that volatility has not changed a whole lot over the past several quarters. What we have seen is customers are still very willing to invest in the things that matter to them, things that are actually creating value. So we have not seen any slowdown in interest Obviously, with the 3 record bookings quarters in a row, we have kind of seen the opposite. People are willing to spend money on areas that can really change outcomes and create value. I think we always continue to monitor that market volatility because there is a lot changing out there. But, again, I think our customers are anticipating the volatility. They acknowledge it, but they are not getting distracted by it.
Parker Lane: Understood. And then, Linda, you mentioned renewals in line with the full year plan. I was wondering if you could just characterize this on a logo basis or dollars of renewals. And how do you expect seasonality to trend here over the balance of the year?
Linda C. Pinne: Yes, that is based on dollars. Yes. And again, like we said, the bookings for both new and renewals was solid in the quarter and we are still on target to meet what we communicated our expectations were for the year, which was the 18% to 20% RPO growth towards the high end of that now with 18% to 20% of that coming from renewals.
Operator: Thank you. Our next question is from Christopher Quintero with Morgan Stanley. Please proceed with your question.
Christopher Quintero: Hey, Eric. Hey, Linda C. Pinne. Thank you so much for taking the question, and congrats on the cloud acceleration here. I want to ask about the 100% conversion success you are seeing from the agentic pilots over to deployment. Curious what you think is really driving that success and, you know, how are you kind of making those transitions even faster and shorter?
Eric Clark: Yeah. So I think what is driving the success is clear measurable value. 1 of the things that we have talked about since we launched these AI agents is that we want to make it easy for customers to use and easy for them to measure value. So they have got dashboards that they can see how much an agent is being used and what value it is creating. So, again, it makes it a very short conversation when it comes to moving from pilot to subscription because they can see what it is worth.
Christopher Quintero: Yes. So, what was the second part of the question? Just like how you all are trying to make those conversions again.
Eric Clark: Even faster. Yes. So, and that is why we sell it with forward deployed engineers just to make sure that they are finding that value as quickly as possible. Our architecture allows us to turn on these agents and use them the same day. So we wanna make sure they are doing that. And we wanna make sure that they are really finding the value in every 1 of those agents and finding the value in you know, modifying the base agents. We have got now more than 50 base agents available for them to use. So, we spend time with them to really find the ones that make the biggest impact in their facilities. And then helping them build custom agents as well because just about every customer has some amount of uniqueness that if you can really tap into what they are doing unique and create an agent that helps with that, that adds additional value as well. So I think our FDEs are getting smarter and better at running through that process even faster. And again, I have talked about it before. Of the advantages that we have since we have a you know, large services team is we get to build that scale up the pace that we want with our own team, and we are not dependent on a third party to go drive that FTE motion for us. And I think everybody has recognized by now that AI does not deploy itself, and you have got to have an FTE motion to really find that value, and I think our team's doing a great job of doing that quickly.
Christopher Quintero: Got it. Super helpful. And then clearly, the go to market side with your FTEs is working really well. I am curious, like, like, on the infrastructure and technical side of the agents that you are building. How you kind of design those and built those to make those an advantage for you. is, you know, are you building your own models, using deterministic and probabilistic elements, you know, high level kind of what is the infrastructure you all have built around the solution to make them an early success so far?
Eric Clark: Yeah. it is a great question. And this is something that we spend quite a bit of time in our Momentum conference to make sure people really our customers really understood The big value on what we are doing here with our AI agents is that we are using the deterministic spine of our platform wherever possible. We only use probabilistic AI, A, when it makes sense for it to be probabilistic and B, when it is for value. Deterministic is always better because it is it is cheaper and it is going to be the same, you know, every time. But exception handling gets better with probabilistic. So all of our AI agents are smart enough to know when to use deterministic and when to use probabilistic, which reduces the cost of the AI that they are using as well. And adds, you know, additional value. And it is also the reason as we have talked about before that it gets really difficult for somebody to use somebody else's AI sitting on top of our platform because they miss out on that deterministic and probabilistic combination.
Operator: Thank you. Our next question is Mark Schappel with Loop Capital Markets. Please proceed with your question.
Mark Schappel: Thank you for taking my question. Eric, just building on our earlier comments around renewals. Can you address what you are seeing in the WMS renewal cycle, specifically in terms of like retention, expansion pricing and maybe even competitive intensity?
Eric Clark: Yes. So I mean, with the competitive intensity, I would say it is zero. We have yet to have a customer come to us and recompete. When it comes up for renewal, it is more of a discussion of what is the price increase going to be and what are we going to cross sell up sell and expand. We have not had a customer leave us to another customer. You know, so we have had a very high success rate there. And, you know, what we have done with dedicated renewals team is really build the motion around starting the conversation early enough so that we can have a healthy conversation around cross-selling and upsell and adding to the value that they are already getting out of the platform. So that was a big, you know, in the first half, a big boost for us. In the progress that we have made with that renewal team as well. And anytime that you are adding cross sell and upsell at the time of renewal, that is also going to lead to faster revenue growth.
Mark Schappel: Great. Thank you. And then with respect to your additions initiative, could you just talk a little bit about what you expect as far as you think it may affect your services business over time?
Eric Clark: Yeah. So it is going to be another 1 of those things just like what we did last year with all of the strategy focuses on the different deal types and that expanded deal volume. This will also expand deal volume, which creates more services opportunity. But I think the biggest thing that additions does for us is, again, the reason it is not friction or a risk as we roll this out is, immediately, we are really going after a lot of the same deals we were already going after. But instead of putting them in scale, which basically, it is a great product, but it is not part of the active platform, so they do not have that unified. They do not have the versionless, they do not have the ability to use AI. We are putting them into the real platform, which gives them a whole lot more ROI and gives us a whole lot more ability to cross sell and upsell. So that is the biggest immediate day 1 impact. Over time, it is going to continue to expand that addressable market to different geos, different customer sizes, and probably the fastest expansion of addressable market is getting the smaller sites within those large enterprise customers that we already have that maybe the past they thought were too simple and did not need the full enterprise premier active warehouse. Now they can look at putting Essentials active warehouse into those sites. So ultimately it is creating more deals, more volume, more services opportunity.
Operator: Thank you. Our next question is from Clark Wright with D. A. Davidson. Please proceed with your question.
Clark Wright: Hi, thank you. During the Momentum Main Keynote, there were multiple references To Manhattan positioning itself as an open platform for AI capabilities. How does this impact what offerings you were looking to build internally versus who you are partnering with to provide value to customers?
Eric Clark: Yeah. So when it comes to the platform, our primary partner is Google. We run on the Google Cloud. And we use a lot of Google tools including Google AI tools. However, the way that we have built our AI solutions we are not locked into Google. We could use any models. And our CTO continues to look at the most cost effective models to use and we can make model choices based on different agents and places within an agent as well. So, the openness is what allows us to have flexibility And again, from a customer and a user standpoint, we are working in the background to maximize the value by maximizing the use of deterministic and only using probabilistic when and if necessary. And then when we do use probabilistic, using the most economic model because it does not always require the best, most expensive model for every question.
Clark Wright: Awesome. Appreciate that. And you know, you are already a leader in warehouse management and transportation management. Can you talk about the growth you are seeing in supply chain management and point of sale?
Eric Clark: Yeah. So we are rated a leader by Gartner and Forrester in warehouse management, transportation management, order management and point of sale. Today in supply chain planning, we have not participated in those because we have just launched this product in the cloud a year and a half ago. But we are seeing growth across all of those product sets. And in fact, we continue to see new customers come into Manhattan and become new logo customers across all 5 of those products. So there is not just 1 pattern for land and expand. They can land anywhere and expand across this platform and we are seeing success in all of those cases.
Operator: Thank you. Our next question is from Lachlan Brown with Rothschild and Co. Please proceed with your question.
Lachlan Brown: Hi, Eric, Linda C. Pinne. Thanks for the questions. On the cloud subscription growth acceleration of 26% year on year, you mentioned this was driven, by strong execution and a number of upsells. Could you elaborate further on these upsells? And what is the opportunity for you to repeat this success into the second half?
Eric Clark: Yes, give me a second. I will start maybe just start by defining upsells. So upsells for example could be they are already subscribed but their volumes increase so they go up to the next tier. This could happen for a couple of reasons. 1, it could be the customer is growing, or 2, it could be we are deploying faster than the schedule that we agreed to when we contracted. And we have seen both of those things happening over the past couple of quarters you know, helping us grow cloud revenue even faster.
Linda C. Pinne: Yes, that is right. And then as far as just volume in general, our volume was up this quarter including upsell which is definitely helping to accelerate that revenue growth.
Lachlan Brown: that is very clear. Thanks. And on the essentials opportunity, appreciate you historically been in the market with scale, but given mid market SMB deals often rely on channel partners and system integrators, what changes have you made over with your partner ecosystem, over the last 12 months to set yourself up for this mid market distribution.
Eric Clark: Yes, great question. So a year ago when we made several changes in our sales community, 1 of the changes we made was a bigger commitment to our partners and really maturing our partner ecosystem. And we have seen that seen a lot of success there and some of that was evident our Momentum conference in the number of partners and how our partners participated. I think a couple of the data points that I find very compelling. If you look at first half of 26, and look at the partner sourced deals that they brought us in the first half of 26 and compare that to the first half of last year, it was up 4x. So our partners are really leaning in and bringing us pipeline and bringing us deals. And then another data point, kind of same thing. If you look at the first half of this year, the new certification. So consult partner consultants that became certified on our platform doubled in the first half of this year. So we are really seeing partners get excited and lean in about what we are doing with this partner program.
Operator: And that is a big piece of what will enable particularly the Essentials edition of the products. that kind of lowest tier. This concludes our question and answer session. I would like to turn the floor back over to Eric for closing comments.
Eric Clark: Yes. Once again, thank you to everyone for joining. Appreciate the questions. We are very pleased with our first half and Q2 results and excited about performing for the rest of this year.
Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.