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Manhattan Associates Inc (NASDAQ:MANH)
Q3 2020 Earnings Call
Oct 22, 2020, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon, my name is Mike and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Q3 2020 Earnings Call. [Operator Instructions] After the speakers’ remarks, there’ll be a question-and-answer period. [Operator Instructions]
I would now like to introduce Eddie Capel, CEO; Dennis Story, CFO; and Matt Humphries, Senior Director of Investor Relations. Mr. Humphries, you may begin your conference.
Matt Humphries — Senior Director of Investor Relations
Thank you, Mike, and good afternoon everyone. Welcome to Manhattan Associates Third Quarter 2020 Earnings Call. I will review our cautionary language and then turn the call over to Eddie Capel, our CEO.
During this call, including the question-and-answer session, we may make forward-looking statements, regarding future events or the future financial performance of Manhattan Associates. We caution that these forward-looking statements involve risks and uncertainties and are not guarantees of future performance, and that actual results may differ materially from the projections contained in our forward-looking statements.
I refer you to the reports Manhattan Associates files with the SEC for important factors that could cause actual results to differ materially from those in our projections, particularly our annual report on Form 10-K for fiscal year 2019 and the risk factor discussion in that report, as well as any risk factor updates we provide in our subsequent Form 10-Qs. We note in particular that uncertainty regarding the impact of COVID-19 pandemic on our performance could cause actual results to differ materially from our projections. We are under no obligation to update these statements.
In addition, our comments include certain non-GAAP financial measures in an effort to provide additional information to investors. We’ve 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 submitted to the SEC earlier today and on our website at manh.com.
Now, I’ll turn the call over to Eddie.
Eddie Capel — President and Chief Executive Officer
Terrific. Thanks, Matt. Well, good afternoon everybody and thank you for joining us as we review our third quarter 2020 results, discuss our outlook for the remainder of the year and provide at least some initial thinking around 2021.
So for the quarter, Manhattan reported total revenue of $150 million and adjusted earnings per diluted share of $0.51. Both of these exceeded our expectations. Broad revenue outperformance across — really all of our business lines, combined with a continued focus on expense management, also drove strong earnings leverage in the quarter.
Now, using our markets and our customer base as reference points. We’re starting to see some modest improvement in the global macro economic situation. Whilst, clearly there is still a very long way to go in terms of reaching back to a normal operating environment, we are encouraged by the level of activity we’re seeing in our pipeline.
Specifically with our new Manhattan Active Warehouse Management solution. In fact we closed a record multi-million dollar Manhattan Active WM deal in Q3 with a large national beverage distributor. And while early, we’re off to a solid start in Q4 as well. And as such, we’re raising our full-year total revenue and adjusted EPS guidance to reflect our views for the balance of the year.
Additionally, despite the turmoil globally, we remain committed to organic growth. We’re on track to invest nearly $80 million into research and development this year, furthering our competitive positioning through new innovation, while growing our addressable market. And through our ongoing engagement with customers and prospects, we continue to see business fundamentally rethinking the future state of their supply chains, distribution footprints and omni-channel commerce strategies. Some of this rethinking is being driven by consumer demand with nine out of 10 consumers wanting our omni-channel experience with seamless service levels between sales channels.
Other reasons are more growth oriented, as average omni-channel customers spend 4% more in-store and 10% more online than single-channel consumers. These changes will now — that require a thoughtful approach to implementing modern, agile and scalable software solutions. The growing demands placed on legacy systems and software and no longer are going to be suited to a multi-channel digital world. And we feel the long-term opportunity set in front of us based on these favorable demand trends is robust. And we’ll continue to provide meaningful opportunity for us to grow and scale our business.
And as a result of these asymmetrical tail of headwinds, coupled with our market leading solutions and applications, we see our global pipeline opportunities trending favorably. Our recently released Manhattan Active Warehouse Management solution is driving very positive market interest, validation for the countless mandates and the many millions of dollars in R&D that we’ve invested in developing the product over the past several years.
And at the end of the third quarter, over 80% of our global bookings pipeline is comprised of cloud opportunities and about 45% of our deal opportunities continue to be represented by net new logos globally. And this is certainly should provide ample opportunity to land new business for us, while we also focus on expanding our relationships with existing customers and speaking of customers. You may recall a few weeks ago, we announced that part of a very rigorous selection process L’Oreal, the world’s leading beauty company chose to implement a Manhattan Active WMS solution across its distribution footprint globally.
L’Oreal was looking for an agile, cloud native solution that could provide the necessary adaptability and scalability to their business demands, as it continues to grow with a positive trajectory. We’re obviously honored and humbled by their choice, and our professional services teams certainly is looking forward to implementing this solution into this — into their distribution network over the next several years.
Now regarding services, despite the challenges that have been closed by the global pandemic, we are delivering on our promises to our customers around the world. In the third quarter, we conducted 161 go lives globally, once again showcasing our flexibility and expertise at delivering technical implementation work through really any delivery channel. Now it is worth maybe reminding you that billed travel, which is margin neutral, but contributes to the overall services revenue was about 5% of a headwind year-over-year to our services revenue growth.
Now turning to sales and marketing, our teams remain very active and engaged, pursuing opportunities across our installed base, while simultaneously moving brand new business opportunities forward across all of our product portfolio. Of note, we’ve recently hosted EMEA Exchange Connect, our virtual customer conference for that particular region. And feedback from the conference participants was overwhelmingly positive and participation from our partners and customers was very well received.
Our competitive win rates remain very strong at 70 plus percent against head-to-head competition, with about 25% of our license and cloud deals representing net new customers in the quarter. Verticals that collectively drove more than 50% of our cloud and license revenues in the quarter were retail, consumer goods, government, food and beverage and grocery.
Now, if I can. I’ll just turn the discussion little toward our product pipeline. Last quarter I do updated you on the launch of arguably the most important product in Manhattan’s history, Manhattan Active Warehouse Management, the next generation of Warehouse Management software. We announced this new cloud native version of WMS at our virtual user conference in May of this year. And today, I’d like to provide an update on Manhattan Active WM along really three key dimensions: customer success, new customer acquisition and ongoing product development.
So, let’s start with firstly with customer success. So you’ll recall, now that at the time of launch Pet Supplies Plus was already live on Manhattan Active WM and since then they’ve reported some really exciting accomplishments, they’re shipping record volumes using our application, the on-boarding times for new associates, who have been cut in half, using our all-new mobile app for the distribution center associates and they have actually already taken the second site live and in the process of planning to turn-on a third site as well.
And I’m happy to report that Q3 was a strong quarter for customer acquisition, we now have several additional projects in flight across a variety of industries and regions. And we are seeing strong activity in the grocery, food and beverage, health and beauty sectors with Manhattan Active Warehouse Management. Our message of a next generation versionless cloud native WMS, certainly seems to be resonating well with the market.
And finally, I’m happy to report that per our plan, we shipped our first quarterly follow-on release of Manhattan Active WM on time. Our 2020.3 release hit our customers environments in August delivering additional innovation and functional capability and we’re on track to deliver our 20.4 release next month in November as well. So in short, we’re off to a great start executing on our vision of providing the industry’s only cloud native fully extensible, versionless warehouse management system. And we continue to compete pretty effectively in the TMS space as well, evidenced by our signing among other deals, a large TMS contract in the quarter with a global distributor, the combination of our best-in-class optimization technology, international capabilities and strong sales and delivery teams, we’re really the keys to this win.
And we continue to make progress outside of supply chain execution as well. This quarter, Q3 we introduced Manhattan Active Allocation as part of our suite of inventory optimization solutions, built on our Manhattan Active Application Architecture. This new Allocation solution is purpose designed and built for the fashion and apparel businesses. Historically speaking, our inventory solutions have been very strong for hardline replenishment based businesses, where sophisticated demand forecast and mathematically optimize replenishment plans are key.
But the world of fast fashion is quite different, it requires a different set of technology for calculating how much inventory to forward position in each store in any given season. And Manhattan Active Allocation solved this inventory positioning problem and it’s — crucially it’s solves it with omni-channel in mind, ensuring both digital and standard footfall demand are particularly well served.
And finally, I’d like to close out my product related marks with a quick update on Manhattan Active Omni, our collection of cloud native order management, customer engagement and store technologies. This quarter we announced interactive inventory, really significant advancement for our order management customers, interactive inventory provides ultra high-speed delivery date projections for digital customers regardless of where they are in the buying journey. And unlike other solutions, which rely — really on historical averages for projected delivery time, interactive inventory factors the customer’s delivery location, other items in their cart, the current position of every unit of inventory into the network and the merchants optimize fulfillment plan for that eventual order. The interactive inventory combines really everything that set us apart historically, a curated view of enterprise inventory, the industry’s best fulfillment optimization algorithm, cutting edge cloud-based technology and access to real-time operational data all while making that delivery promise to the consumer.
And speaking of delivery, I am proud to report that in the quarter, we also took a leading footwear brand live in six weeks on our order management and store fulfillment applications. This particular customer who is looking to enable both standard pickup in-store and curbside pickup with time to spare before the holiday season. And our professional services organization really delivered for them, and neither live with pickup and curbside across the US and Canada and they’re beginning to roll these capabilities are internationally as well.
So that concludes my business update. Dennis is going to provide you with an update on our financial performance, discuss our updated 2020 full-year guidance and provide you with our initial view of 2021, and then I’ll close our prepared remarks today with a brief summary. Before we move into Q&A. So, Dennis?
Dennis Story — Executive Vice President and Chief Financial Officer
Thanks, Eddie. As mentioned, third quarter total revenue was $150 million, down 8% over prior year, due pretty much solely to COVID-19. Our total revenue estimate for the fourth quarter is a range of $135 million to $140 million. Adjusted earnings per share was $0.51 in the quarter. GAAP earnings per share was $0.39 with stock-based compensation accounting for the difference between adjusted and GAAP EPS. Our adjusted earnings per share target for the fourth quarter is $0.32 within a range of $0.30 to $0.34.
Starting with cloud, revenue for the quarter was $21.1 million, up 14% sequentially and up 48% year-over-year, despite a tough comp due to our Q3 2019 FEMA cloud deal. We signed two new Manhattan Active Warehouse Management deals in the third quarter, both global Tier 1 customers and continue to see strong pipeline demand for our cloud solutions with notable strength in Manhattan Active WM, Manhattan Active Omni and TMS solutions. About 50% of our deals in the quarter came from Active DM products and over 20% of our bookings were from new customers.
For Q4, we estimate our cloud revenue will be about $22 million, which represents about 40% growth year-over-year. For the full-year, we estimate our cloud revenue will be $78 million to $79 million, up 68% year-over-year from the midpoint.
License revenue was solid in the quarter at $13.2 million, well above our expectations, as several Q4 pipeline opportunities accelerated into Q3. Overall license is down 28% year-to-date and continues to attrite as strong demand for our solutions continues to shift to cloud. We signed three $1 million plus deals in the quarter with roughly 30% of our license deals coming from new customers.
For the fourth quarter, we expect between $4 million and $5 million in license revenue. And for the full-year, we now estimate license revenue will be approximately $33 million to $34 million. Of course, as we’ve pointed out in our release and earlier in the call, uncertainty about the COVID-19 pandemic could affect our performance against our estimates.
Cloud and license software mix will be approximately 70% cloud to 30% license for the full-year with total software revenue of $111 million to $113 million, up 17% year-over-year at the midpoint. A record number, despite a 31% or $15 million decline in license revenue versus 2019.
Turning to bookings. As we’ve discussed remaining performance obligation or RPO is the leading proxy for our cloud bookings performance and represents the value of contractual obligations required to be performed otherwise referred to as unearned revenue or bookings. Our RPO for the quarter totaled $257 million, up 69% over prior year and at 14% sequentially. We now expect that our year-end RPO will fall within a range of $275 million to $290 million, driven by booking strength in cloud, particularly with Manhattan Active WM. For Manhattan, this disclosed value represents our cloud bookings value of unearned revenue under non-cancelable contracts greater than one-year. Contracts with a non-cancelable term of one year or less are excluded from the reported amount.
One last point on license and cloud. Our performance continues to depend on the number and relative value of large deals we closed in any quarter. Further some customers have longer implementation cycles associated with large projects requiring a multi-year annual subscription, ramp built into the contract term. As an example for a five year contract, the ramp results in year five of contracted revenue being significantly larger than year one. In the near-term as Manhattan scales large ramp deals will impact sequential and year-over-year revenue growth percentages.
Now shifting to maintenance. Revenue for the quarter totaled $37.3 million, down 1% versus the prior year. Our customer retention rates remain strong at greater than 95%-plus. And for the fourth quarter, we estimate our maintenance revenue will be between $36 million and $37 million and for full-year 2020, our estimate is $145.5 million.
Turning to services. Our professional services revenue for the quarter totaled $73.5 million, down 20% year-over-year as expected. Again, I would like to point out that excluding billed travel, were down about 15% year-over-year. We expect near-term services revenue trends will be tied to the pace and degree of global economic improvement. And we estimate our services revenue for Q4 will be approximately $71 million. And our full-year 2020 services revenue will be in the range of $303 million to $305 million.
At the midpoint, this is really difficult math, but $304 million, services will be down about 16% versus 2019. Excluding billed travel, services revenue was down 12%. These estimates include our expected seasonal fourth quarter sequential decline over Q3, due to retail peak season.
Regarding consolidated subscription, maintenance and services margin. For the quarter, we generated 53% margins, driven by continued operating leverage in cloud. Our fourth quarter estimate is approximately 51.9% about 100 basis points higher than 2019. Our full-year estimate is approximately 51.4%.
Turning to operating income and margin. Q3 adjusted operating income totaled $44.1 million with an adjusted operating margin of 29.4%, driven by higher license revenue performance, combined with very strong expense management. For the fourth quarter, we estimate our adjusted operating margin to be within a range of 19.2% to 20.2%. Our Q3 adjusted effective income tax rate was 23.5%, we estimate our fourth quarter rate to be 24% and full-year tax rate will be approximately 23.6%.
Regarding our capital structure, our share repurchase program remains suspended and our repurchase authority limit remains at $50 million. We continue to assess the appropriate timing for a resumption of buyback activities, dictated primarily by broader macroeconomic improvement. For the fourth quarter and full-year, we estimate our diluted shares outstanding will be approximately 64.4 million shares.
Turning to cash, we closed the quarter with cash and investments of $166 million and zero debt, that’s right, $166 million and zero debt. Our current deferred revenue balance totaled $113 million, down 5% sequentially on just timing of revenue recognition. Q3 cash flow from operations totaled $42 million, up 6% over prior year. Year-to-date, operating cash flow totaled $103 million, down just 8%. And finally, capital expenditures totaled $200,000 in Q3, we estimate full-year capital expenditures to be between $3 million and $5 million.
Now turning to our updated annual guidance, we continue to model and review multiple scenarios in order to provide investors with our best estimate of financial performance for the remainder of the year. Of note, there are certain external factors that are out of our control and may produce results that are different from expectations. So specifically for 2020 annual guidance, our full-year total revenue range is now expected to be between $574 million to $579 million. Our target objective is $576.5 million in total revenue versus prior guidance of $562 million.
Our full-year adjusted earnings per diluted share range is expected to be between a $1.62 to $1.66, our target objective midpoint is $1.64, compared to our previous guidance midpoint of $1.56. Our full-year GAAP earnings per diluted share range is expected to be $1.23 to $1.27 with a midpoint of $1.25. And we expect our full-year adjusted operating margin to be in the range of 23.5% to 24%.
That covers the 2020 guidance. Before discussing our preliminary 2021 targets, we want to remind you that the views we have today are subject to a variety of factors that may manifest themselves over the upcoming months. And hence, are subject to change, so appropriately conservative for the environment in which we are operating. We expect to provide formal 2021 guidance on our 4Q, 2020 call next year. One final note before going further, our preliminary 2021 targets reflect year-over-year growth rates that are based on the midpoint of our updated 2020 guidance for the respective metrics.
So at a high level, we view 2021 currently as a tale of two halves. Specifically we expect H2 will be stronger than H1 provided an economic recovery picks up steam in the back half of the year. Our continued business transition is masking our underlying growth and value creation, due to both license are trading to cloud and global Tier 1 customers ramping up their global footprints over multiple periods. We continue to believe RPO is the best go-forward metric in tracking the progress of our transition.
Our 2021 full-year total revenue range is now expected to be between $585 million to $625 million, representing a 1% to 8% year-over-year growth range. Our target objective is to achieve $605 million, representing 5% growth, excluding our declining license impact year-over-year total revenue growth is 8%.
As you know Q1, 2020 was an all-time record Q1 revenue performance pre-COVID creating a tough comp for Q1 2021. We expect Q1, 2021 total revenue to be down 7% to 9% over Q1, 2020. We expect our H1 total revenue split to be about $292 million with 1% year-over-year growth given the Q1 COVID comp and H2 split to be about $313 million, this is the revenue split with a 9% growth rate.
For software revenue, we are estimating $123 million to $130 million with a midpoint growth of 13%. We are targeting a $108 million to $110 million in cloud growth with midpoint growth of about 40%. Importantly, we expect license revenue to decline, almost 50% in 2021, as customers and prospects choose our cloud solutions. License revenue will be in the $15 million to $20 million range with a midpoint of $17.5 million.
Regarding 2021, RPO our preliminary estimate is between $385 million to $390 million, up about 40% over 2020. And as Eddie mentioned we are off to a very good start in Q4 on strong cloud demand. With the backdrop of COVID, government elections and retail peak season in play and a second full selling quarter of Manhattan Active WM under our belt, this will certainly help us calibrate the camshafts on our RPO entering 2021.
For consulting services, we are targeting $306 million to $334 million with a $320 million midpoint, representing about 5% year-over-year growth. We expect H1 revenue to be down about 3% to 5% year-over-year with Q1 being down 15% against 2020’s record services comp. The rate of year-over-year growth in services will be dictated by the pace and cadence of economic recovery for the balance of 2021.
And for maintenance, we are estimating $140 million to $145 million or 4% decline to flat growth year-over-year, as we expect more existing customers to convert to cloud subscriptions. That covers the critical revenue targets.
Our full-year 2021 adjusted earnings per share range is $1.37 to $1.54 with a midpoint of $1.46. H1 to H2 percentage splits will be 45% H1 and 55% H2 for the annual EPS splits. Q1 will be our lowest EPS quarter totaling about 21% of full-year EPS or $0.31. The primary drivers of lower year-over-year earnings per share is related to three major components. First, the continued decline of license revenue. Second, the reversal of prior cost actions we took in April of this year. And third, continued strategic investments in innovation and tooling for cloud ops to execute on the cloud growth we see in front of us.
Adjusted operating margin is expected to decline year-over-year to 20% to 21%, reflecting the operating imperatives covered in our outlook for EPS. You may recall in our Q4, 2019 call, we guided to an adjusted operating margin range of 20% to 20.5% with a trough of 20%.
Unfortunately in our Q1, 2020 call the pandemic required us to downshift a few gears to protect liquidity, customers and our employees without sacrificing investments in R&D. With business conditions improving, we are refocused on the same objective with 2021 now representing our margin trough.
Overall, our objective is to achieve long-term sustainable double-digit top line growth with top quartile operating margins. Manhattan’s effective tax rate is expected to run at approximately 24.5% subject to any changes to federal state or foreign tax legislation. And finally, we expect that our share count will be approximately $65 million, which assumes no buyback activity and either Q4 ’20 or fiscal year 2021.
That covers the financial update, back to Eddie for some closing comments.
Eddie Capel — President and Chief Executive Officer
Alright. Thanks, Dennis. Well, look, we’re overall — we’re very pleased with our performance this quarter and well — clearly we’re operating in challenging times, we continue to focus on driving operational and financial results as we progress further on our cloud journey. With a strong business foundation, we expect to further extend our market leading position with the supply chain and omni-channel commerce solutions.
And we do so, we’ll be continuing to innovate to advance — in advance of market demand, leveraging our technical and domain expertise in order to provide our customer solutions, which position them for success in a dynamically and a rapidly changing world. We certainly see no shortage of opportunities to expand our addressable market, while further strengthening our competitive position.
So, in closing today’s call, I did want to take a brief moment to thank all of our customers, thank our employees and our shareholders around the world for all of your patients, focus and engagement over the past seven months or so. It’s been nothing short of remarkable and for one I’m grateful for it. So again I expect Manhattan will continue to push possible expanding our industry leading product portfolio, while driving revenue growth and profitable execution for years to come as we benefit from the growing tailwinds within supply chain and omni-channel commerce.
So Mike, over to you. And we are now ready to take questions.
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from Terry Tillman from Truist Securities.
Terry Tillman — Truist Securities — Analyst
Yes. Hi, good afternoon and thanks for taking my questions. Congrats on the quarter and the strength of the cloud WMS. Eddie, maybe, the first question just for you is, as we go back and look at historical, kind of, cycles around WMS upgrades, and we look at currently this e-commerce megatrend. Maybe could you talk about are we starting to see a WMS upgrade cycle? And if so, how is that compared to prior upgrade cycle, just would love a little — learn a little bit more about that potential and in relationship to e-commerce?
Eddie Capel — President and Chief Executive Officer
Yes. Well, I mean, there’s a couple of dynamics, Terry, you know, you pointed the e-commerce dynamic, no question that we’ve all seen that accelerate — it’s been accelerating for the last several years. But over the last seven months or so a real acceleration there. I think we would all agree. We don’t see it turning back, you look at there at a distribution center construction, it’s still very, very vibrant for sure, the need for modern facilities to the highly automated, driven with a balance of robotics and human capital, certainly drive the need for a modern flexible agile Warehouse Management System and that’s where we’ve positioned our self.
So, we’ve got, kind of, two dynamics going here, the growth of e-commerce, but also as you pointed out that replacement cycle in — frankly some of the industries that have not seen strong replacement cycles, historically, particularly grocery, food and beverage that have been, you know, pretty static from a technology — distribution technology perspective over a number of years, now starting to see the need and driven by consumer demand to drive, you know, through modern Warehouse Management Systems. And we feel like we’re on the forefront of that. The fact that we’re now delivering our Warehouse Management System versionless and in the cloud is really an added advantage, right? It’s access to open near immediate, that innovation and speed of deployment in a world that certainly requires that. And as we pointed out, certainly the market enthusiasm certainly seems to be strong.
Terry Tillman — Truist Securities — Analyst
Understood. And I guess, Dennis just a follow-up question as it relates to the guidance. When we’re looking at ’21, I guess, I’d like to hear a little bit more perspective, one of the prepared remarks you made was with some of these transactions in the cloud side, you’re five of the relationship to be much larger than year one. So what I’m curious about, your launch cloud WMS, the native WMS cloud product in May. If you’re signing large deals, whether it was in 2Q or 3Q or even 4Q. Is it safe to say there is actually just not a lot of subscription revenue impact into ’21 and it’s really starts to ramp more into ’22. Just trying to understand, kind of, how that would phase-in. Thank you.
Dennis Story — Executive Vice President and Chief Financial Officer
Yes, that’s correct, Terry. It will phase-in, it will actually phase-in into the first, second and third year of the contract as a general rule, but short-term, you know, short-term drag on cloud revenue, but long-term values created for Manhattan on the go forward.
Eddie Capel — President and Chief Executive Officer
And you see that in the RPO.
Dennis Story — Executive Vice President and Chief Financial Officer
Yes.
Terry Tillman — Truist Securities — Analyst
Yes. One, and then just last question is on the RPO. Has there been any duration change just how if the consumption coming along from a contracting standpoint. What is the duration like compared to prior quarters, so we can, kind of, look at that in the RPO? Thank you.
Eddie Capel — President and Chief Executive Officer
Yes, thanks for saying. In the very early days, we’re seeing little bit shorter contract, contract values, but it seems to be stabilizing, kind of, a roundabout five year mark on the average, Terry.
Operator
Your next question comes from Matt Pfau from William Blair.
Matthew Pfau — William Blair — Analyst
Hey guys, thanks for taking my questions. First, I wanted to ask on — I think a lot of retailers are getting geared up for the holiday season earlier than normal this year. Just wondering, if that dynamic had any impact on either your third quarter results or how you’re sort of thinking about the fourth quarter?
Eddie Capel — President and Chief Executive Officer
No, not really Matt, frankly I agree with you. And we’re certainly seeing, folks get geared up little earlier, I think we as consumers, we can expect to see some promotions and so forth earlier in the season indications are that Black Friday will be not quite and Cyber Monday will not be quite the peaks that we’ve seen in prior years, yet the season will start 10 days to 14 days earlier. So agree with all of that, but frankly we’ve really not seen much impact from that, retailer start preparing really in March and April for peak season. So that couple week variability hasn’t really had much effect on us.
Matthew Pfau — William Blair — Analyst
Got it. And then with the accelerated shift to e-commerce. I think, we’re most likely going to see a lot of fulfillment in last mile challenges here in the upcoming holiday season. And one way to relieve that right is through BOPUS and curbside pickup, but I didn’t really hear you talk too much about those in your prepared remarks, but just sort of wondering if that dynamics having any impact on your business either?
Eddie Capel — President and Chief Executive Officer
Yes. No it is, there’s no question. Those capabilities are kind of associated with our omni-channel suite of solutions, their extensions thereof. I did point out there was one particular customer that saw exactly the dynamic, we’re talking about and say, hey, we have got to have particularly curbside in this case, up and running well before the holiday season and we were able to implement order management in that capability in six weeks, which we were pleased about is not the only circumstance, but six weeks from start to finish is pretty impressive, we were pleased with that. But certainly BOPUS and curbside are big parts of what all retailers are looking for, given the capacity constraints that everybody expect to see in parcel and home delivery.
Matthew Pfau — William Blair — Analyst
Got it. Last one for me, you guys are guiding for license to be down significantly next year. But I guess the question would be, why would anybody buy a license for WMS now down that you have the cloud version. Just sort of wondering what the rationale on the customer side would be there?
Eddie Capel — President and Chief Executive Officer
Yes. Well, let’s see, so first of all you’ve got existing customers that certainly have an on-premise solution, they’re frankly want to roll that out to additional facilities, they need to buy more users, because of capacity. Those types of scenarios, look, and they’re all are not many, but there are a few customers that are still have our propensity for on-premise solutions, they are again few and far between there, but there are few. There are some of our other solutions, while we offer, I mean, in the cloud, our demand forecasting and inventory optimization solutions that still have a balance of cloud and on-premise demand to them. So, there is a number of reasons and the kind of the final one I would say that geographically around the world, there are still some spots where on-premise currently makes sense.
Matthew Pfau — William Blair — Analyst
Great, thanks a lot guys. I appreciate it.
Eddie Capel — President and Chief Executive Officer
Thank you, Matt.
Operator
Your next question comes from Joe Vruwink from Baird.
Joe Vruwink — Robert W. Baird — Analyst
Great. Hi, everyone. I wanted to go back to the go-live activity, because I think, I heard a 160 in the quarter there. So that’s the second straight quarter where it’s — in above normal level and I’d imagine that you’re seeing a lot of activity to “get” the easy extension, adding BOPUS and curbside onto order management, things like that. The question is are you seeing follow-on activity come from these engagements? And now that everything is on the cloud. If, let’s say, these engagement are starting out more short-term in nature, can you use this as an opportunity to circle back? And maybe get customers thinking about an upgrade cycle going back to things like Warehouse Management?
Eddie Capel — President and Chief Executive Officer
You know, it’s great question, Joe. It does depend, certainly to kind of the first part of your question. There is and there is opportunity for ongoing deployments. So, just to use the examples that you talked about there with BOPUS and curbside, there is certainly some enthusiasm around those two strategies for the reasons that we’ve already discussed and particularly prior to peak and so forth. There are follow-on activities and capabilities around BOPUS and curbside with digital self service that is a — typically is kind of a fast follower to those capabilities. Customer engagement strategies around those delivery mechanisms tend to be fast followers. So there is quite a bit of ongoing activity and ongoing cross-sell, upsell capability associated with those.
Now as it relates to sort of — if you want to call this going back — backwards down the supply chain to whether it’d be Transportation Management solutions and Warehouse Management solutions. They’re not — it’s not so much, I wouldn’t characterize it as a natural, kind of, extension of BOPUS and curbside at all. But, as noted in some of the previous conversations, the modernization of distribution centers is frankly becoming imperative a combination of the need to be able to execute on smaller orders, e-commerce orders and the level of automation in robotics is being driven into Warehouses to drive both throughput and accommodate for the challenging labor market in that particular segment.
Joe Vruwink — Robert W. Baird — Analyst
Okay, great. And just on the last point Eddie, in terms of some of the early adopters, where you’ve seen interest on Active Warehouse Management. It strikes me as segments that have probably been comparatively resilient this year, thinking about food and beverage grocery, CPG. And so you’re launching new technology into a pretty healthy demand environment. These are also applications where there is a lot of variety on SKUs, very high volume. And so I suppose the question is when you launch the Active Warehouse Management, did you feel like there were certain customer segments where if you got traction early, it would drive maybe better referenceability later on and are you seeing that so far with the early awards?
Eddie Capel — President and Chief Executive Officer
You know, not particularly in terms of focused on early referenceability, you know, and those kinds of things. We’re seeing solid traction and deals, frankly, both from our customer base, who want to get onto a cloud strategy and a cloud platform and new customer logos. But as — and we’ll start obviously to publish this as and when we are able, but you see a nice blend of customers across both verticals and geographies.
Dennis Story — Executive Vice President and Chief Financial Officer
Hey, Joe. This is Dennis just to piggyback on what Eddie was saying, you know, I would tell you, based on the demand and the pace of growth for Manhattan Active WM and our pipeline, I would say we’re in the early stages of a pretty significant replacement cycle. And keep in mind that a large part of that is our installed base, but also about 45%, not all MAWM, but 45% of our cloud pipeline is net new opportunities, net new customers as well.
Joe Vruwink — Robert W. Baird — Analyst
Okay, great. Thanks, Dennis. Thanks, Eddie, I’ll leave it there.
Eddie Capel — President and Chief Executive Officer
Okay. Thank you, Joe, see you.
Operator
Your next question comes from Mark Schappel from Benchmark.
Mark Schappel — Benchmark — Analyst
Hi, thank you for taking my question and nice work on the quarter. Eddie starting with you, one of the benefits of your Active WMS solution and so it gives you an opportunity to really move into verticals where maybe you just weren’t all that penetrated before industrial, manufacturing to the coal mined [Phonetic]. I was wondering, if you could just address or just give an example or so of maybe some of the early customer interest you’re seeing in Active WM from some of these non-traditional Manhattan verticals?
Eddie Capel — President and Chief Executive Officer
Yes. I mean, we’re certainly beginning to see some interest there, Mark, I’m not going to obviously drop names and so forth at this particular juncture. But as you see customers of ours and industries that have typically been, kind of, heavy wholesale, heavy manufacturing and not had any, kind of, consumer contact or direct-to-consumer strategy, but frankly now are, right? So it’s starting to sell direct-to-consumer and require a good bit more sophistication in the distribution strategy. There’s a lot of early interest from those opportunities.
The other dynamic though, is that what we’ve now introduced here is a cloud-based solution that always has immediate access to innovation and is extensible. And that’s a new phenomenon regardless of vertical. So some of those old verticals that are running old solutions that have been highly customized over the years have been difficult to get access to whether it’d be modern innovation or modern underlying technology, they now have easy access to that with Manhattan Active Warehouse Management system, and again, starting to see a good bit of enthusiasm there.
Mark Schappel — Benchmark — Analyst
Great, thank you. And then you mentioned you’re Manhattan Active Allocation solution, which I guess is new this quarter, it sounds intriguing sounds interesting. I wonder, if you just provide a few more details on the solution itself and some of the opportunities you see there?
Eddie Capel — President and Chief Executive Officer
Yes, sure. So I’ll keep it brief and because of that, a bit of an overly simplified description Mark given the time we have. But you know, in the — particularly in the fast fashion in apparel world, you see companies buy for a season and then push product out to the stores. And you don’t see a lot of replenishment and inventory optimization activities. When you’re pushing that product out to the store, there is still a healthy amount of sophistication. Where do I push that product to? Whether it’d be climate based, consumer demand based, size of store, all those kinds of things, and that’s been the sort of the traditional way that one would push and allocate product type.
But in the new world where we’ve got buy online, pickup in store, curbside pickup, buy online return from store, it requires another level of sophistication and calculating how you push that product out of the store. So Manhattan Active Allocation is a brand new rethink of how to go about soft lines in fast fashion, distribution and allocation of inventory and of course we’ve built it on our cloud platform, which offers speed of implementation and access to immediate innovation.
Mark Schappel — Benchmark — Analyst
Great, thank you.
Eddie Capel — President and Chief Executive Officer
My pleasure, Mark. Thank you.
Operator
Your next question comes from Brian Peterson from Raymond James.
Brian Peterson — Raymond James — Analyst
Good evening, gentlemen. Hey thanks for taking the question. So Eddie, it’s come up a couple of times, just the idea of a WMS refresh. I’m curious to what extent does the multi-tenant cloud portfolio you can change that, and I’m a little bit more interested, not on the existing installed base versus the opportunity for some of these legacy competitors. I’m curious how would you think about the pace of this refresh opportunity relative to what we’ve seen in past years?
Eddie Capel — President and Chief Executive Officer
Well, you know, the WMS systems don’t flip in a matter of days or a matter of weeks, Brian, as you know. But look, we’ve all seen this acceleration of customer demand, e-commerce demand, delivery, expectations and so forth. Even over the last seven, eight months or so and it’s real. And it’s real. We do think the companies with — certainly with customer facing requirements, so forth are under an awful lot of pressure to be able to deliver the consumer expectations, consumer demand. And it requires modern technology, old tired Warehouse Management systems that haven’t being modernized for years are not going to really be able to get the job done. So we are — no question, we’re seeing a refresh cycle happening. I don’t know that it’s going to be much, much, much faster than cycles that we’ve seen before. But it’s there and the good news is as we’ve moved to cloud-based technology, there is a speed component in terms of being able to get these solutions rolled out to customers and prospects.
Brian Peterson — Raymond James — Analyst
Got it, thanks Eddie. And maybe one for Dennis, and I appreciate all the components of the guidance. But just in terms of the investments, I know they’re picking up a little bit next year. Is there anything that you call out in terms of products or go-to-market that we should be paying attention to on margins next year. Thanks, guys.
Dennis Story — Executive Vice President and Chief Financial Officer
No, not really. Not really. As we expect to be able to benefit from scale, of course. But no major product-by-product margin impacts. We see a lot of opportunity clearly in front of us and our appetite to be able to invest in innovation is not been quenched at all. That’s for sure, so we expect to continue to invest in innovation that has near-term impact on margins.
Eddie Capel — President and Chief Executive Officer
Yes, Brian, just to piggyback on that. There is also, you know, as the cloud business continues to scale, we’re investing in just tooling with our business to drive the margins up, future margins ups, so requiring investment as the business scales over the next year to two.
Brian Peterson — Raymond James — Analyst
Understood. Thanks guys.
Eddie Capel — President and Chief Executive Officer
Thank you, Brian.
Operator
Your next question comes from Yun Kim from Loop Capital Markets.
Yun Kim — Loop Capital Markets — Analyst
Thanks. Hey, Eddie and Dennis, congrats on a strong quarter, especially in a tough environment for you guys. Just following up on Terry’s question early on. Dennis, I just want to make sure I understand it. So how does the ramp cloud deal effect RPO. Does the whole value of the contract swap in the RPO upfront? Or does it get added when the next ramp starts just like the revenue?
Eddie Capel — President and Chief Executive Officer
No, it shows up when we close the deal. The bookings show up in RPO or reported in RPO.
Yun Kim — Loop Capital Markets — Analyst
Got it. Okay. So that could potentially be choppy as you close on larger deals, right, down the road?
Eddie Capel — President and Chief Executive Officer
I don’t know, if it would be choppy, Yun I think just the reason we put that out there is on the year one ramp the revenue can be much smaller and the exiting annual subscription value can be significantly larger. So, that impact in terms of cloud revenue can squeeze your sequential decline. So it could be a little bit more lumpy on the revenue side, not as much on the booking side.
Yun Kim — Loop Capital Markets — Analyst
Okay. Great, thanks for that. And then Dennis, it’s a very basic question. Can you just give us update on your business around the brick and mortar or the big box retailers. I am assuming that particular part of the business for you guys is still being pressured, any update there on when we can start to see that business coming back? And then also how much of your professional services business is still kind of tied to that retail vertical slow down, I am assuming some of the weakness in professional services or at least a year-over-year decline is driven by the some of the projects that are more or less postponed that was ongoing prior to COVID?
Dennis Story — Executive Vice President and Chief Financial Officer
Yes, certainly, Yun, the — some of the services — most of the services decline is associated with some of the kind of retail slowdown and kind of retail hunkering down, frankly we’ve got a combination of some sub-verticals in retail being very, very busy and focused on meeting customer expectations. Others being impacted by the stores being closed and so forth and putting projects on hold, pausing them and so forth. We’re beginning to see those light back up and so forth. So that’s encouraging.
In terms of the first part of your question, which was are we seeing activity around big box retail and how our big box retail customer is doing? The answer is, well, but generally in the e-commerce channel, right? You see big box e-commerce retail channels growing 200% year-over-year, putting all kinds of stress on the distribution network. So for us, we are still quite busy in that big box space.
Eddie Capel — President and Chief Executive Officer
Yes. And we haven’t had from a retail perspective, it’s a strategic vertical for us and a great growth opportunity. A lot of demand, when you go across sub-verticals within retail itself, Yun. In addition to that, we’ve had very minimal bankruptcy events, no liquidations, chapter 11 and customers are taking that opportunity to restructure their business. And really the challenge for retailers has been the mandated government shutdowns of their retail businesses. So we’ve seen a lot of positive activity, not just in closing deals with retail, but we are also seeing a lot of positive activity from the retail sector in the pipeline as well.
Yun Kim — Loop Capital Markets — Analyst
Okay, great. Just I’m assuming on the last one, just a high-level question for you guys. The omni-channel commerce has been a hot secular trend for the past several years and obviously it has evolved very quickly to be more strategic since COVID. Now that you guys have a cloud-based WMS solution in the market, which should reduce the overall complexity of the implementation and should be less of customization in the deployment. Are you at all kind of maybe open to adopting a larger partner ecosystem that includes large global system integrators and perhaps even giving them access to some of your professional services work to help them ramp?
Eddie Capel — President and Chief Executive Officer
Well, look, it’s probably a reasonably long answer. At the end of the day, we have a large partner ecosystem around the world that ranges from big global companies like Deloitte, all the way down to the smaller supply chain focused boutique companies. And of course, you’ve been in that customer conference and there is no shortage of implementation partners at our customer conference.
In terms of customization and so forth, there is still going to be customization required regardless of whether it’s on-prem or in the cloud. One of the unique features or capabilities of our cloud solution. It is extensible, right? It is extensible. So, we’ll still allow that customization to happen we’ll honor all of the contracts of the customization APIs and so forth, so that as we do these updates every quarter, there is no kind of regression issues or implications have to reimplement customization and so forth. So it’s a, certainly a valuable capability to be able to customize the solution and have access to immediate innovation.
Yun Kim — Loop Capital Markets — Analyst
Okay, great. Thank you so much, guys.
Eddie Capel — President and Chief Executive Officer
Our pleasure, Yun. Thank you.
Operator
Your next question comes from Mark Zgutowicz from Rosenblatt.
Mark Zgutowicz — Rosenblatt Securities — Analyst
Good evening. I was just hoping to get a perspective on the — I’m calling them downstream benefits of your accelerated POS and curbside, pickup adoption. I’m not sure how you characterize it, but I’m just trying to get a sense of where you see that sort of falling into pipeline and whether that might be, if we think about just beyond orders maybe retain business, maybe additional adoption of Active Omni solutions. And then maybe this is a stretch here, but if it’s perhaps giving a slight push to accelerate adoption of your Active Warehouse Management solutions? Thanks.
Eddie Capel — President and Chief Executive Officer
Yes. Thank you, Mark. And I wouldn’t say it will be a push or a nudge to go in reverse order, a nudge to the adoption of Active Warehouse Management. Those two things are reasonably different. But I think it is safe to say frankly as a consumer, we’re all beginning to expect BOPUS and curbside is table stakes and price of admission frankly in the retail space. Now advanced BOPUS and curbside is starting to really come to the surface, where retailers are looking to offer cross-sell and up-sell opportunities even in BOPUS and curbside environment that requires real sophisticated customer engagement and sophisticated technology systems to be able to make that happen. So, while we have seen an acceleration of e-commerce, I think customer expectations continue to grow and that’s why it’s so important that we continue to innovate in that space and maintain our market leading position.
Mark Zgutowicz — Rosenblatt Securities — Analyst
Got it. Thank you, Eddie. Appreciate it.
Eddie Capel — President and Chief Executive Officer
Our pleasure, Mark. Thank you.
Operator
That was our last question. At this time, I will turn the call back over to Eddie Capel for closing comments.
Eddie Capel — President and Chief Executive Officer
Okay, very good Mark. Well, thank you everybody for taking the time to participate in this earnings call. I would look forward to crystallizing our 2021 view, in about 90-days or so. And of course it’s very premature, but they will have a very happy and safe holiday season, and we’ll speak to you again in about 90-days. Thanks.
Operator
[Operator Closing Remarks]
Duration: 65 minutes
Call participants:
Matt Humphries — Senior Director of Investor Relations
Eddie Capel — President and Chief Executive Officer
Dennis Story — Executive Vice President and Chief Financial Officer
Terry Tillman — Truist Securities — Analyst
Matthew Pfau — William Blair — Analyst
Joe Vruwink — Robert W. Baird — Analyst
Mark Schappel — Benchmark — Analyst
Brian Peterson — Raymond James — Analyst
Yun Kim — Loop Capital Markets — Analyst
Mark Zgutowicz — Rosenblatt Securities — Analyst
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