MANH

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 2026 Manhattan Associates Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star and then number one on your telephone pad. If you would like to withdraw your question, please press star and then number two. As a reminder, ladies and gentlemen, this call is being recorded today, July 28th, 2026. I would like to now introduce you to host, Mr. Michael Bauer, Head of Investor Relations of Manhattan Associates. Mr. Bauer, you may begin your conference.

Thank you, Cleo. Good afternoon, everyone. Welcome to Manhattan Associates 2026 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 risk and uncertainties, are not guarantees of future performance, and actual results may differ materially from the projections contained in our forward-looking statements. I refer you to Manhattan'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-K for fiscal year 2025 and the risk factor discussion in that report and any risk factor updates we provide in our subsequent Form 10-Qs.

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

Thank you, Mike. Good afternoon, everyone. Thank you for joining us as we review our second quarter results and discuss our increased full year 2026 outlook. Manhattan delivered record Q2 and 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 two 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. 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. Finally, building seamless agentic AI capabilities driven by Manhattan forward-deployed engineers. Three consecutive quarters of record bookings give us confidence that our go-to-market approach is working. 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 over 40% of our new cloud bookings. Renewals continue to be in line with our full year plan, and net new logos represented over 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 2026. 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 sub-sectors, 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 ActiveWarehouse and expanding to become an ActiveTransportation customer. A multinational conglomerate became a new logo ActiveWarehouse and Active AI customer. One of America's largest distributors is converting from on-prem to ActiveWarehouse.

A large equipment retailer that was an existing Active Omni customer expanded to become an ActiveWarehouse and ActiveTransportation customer. A large food distributor became a new logo ActiveWarehouse, ActiveTransportation, and Active AI customer. One of the world's largest international retailers began the conversion from on-prem to ActiveWarehouse. In addition to several other impressive deals in Q2, we made solid progress monetizing our AI opportunity. As a reminder, the ActivePlatform enables our customers to access the perfect blend of deterministic workflows with probabilistic AI execution, enabling simplicity, resiliency, while optimizing costs to drive optimal ROI for our customers. Our ActiveAgents offering consists of two primary elements, a set of base agents ready to be activated immediately, and our Agent Foundry offering, which enables our customers to quickly build and deploy their own agents, supported by our dedicated team of forward-deployed engineers.

Because we build all these agents directly into the ActivePlatform, our customers don't need to implement costly and complex external data lakes. Our unified cloud-native API first architecture enables us to deploy agents with almost no configuration or additional upfront effort. Embedding AI agents directly into the workflow, no data lakes, no latency, deployed in minutes, not months, maximizing value and ROI in real time. As you might expect, ActiveAgents 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.

One of the conference's highlights was a panel featuring three of our earliest adopters of ActiveAgents. What came through loud and clear from these customers were the real operational benefits they're seeing in production every day with ActiveAgents technology. The good news is, these three customers are not outliers. Since Momentum, we've had operational success with a number of additional customers. For example, at a very large healthcare products distributor, they're seeing an 87% reduction in short picks every day. At a regional grocer, they're seeing a 49% reduction in late shipment departures and a 21% reduction in order cycle time. 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're 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's in the market. They're 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 to demonstrate real value for each customer. Since our launch in Q1, ActiveAgents have progressed from an early adopter program to now touching over 10% of our Active install base, either through a pilot or a subscription. While it's still early, so far, we have experienced 100% conversion success from AI pilot to AI subscription. That brings us to the product update. I'm 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 ActivePlatform to more of the market, we're introducing Editions for our Manhattan Active 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 three tiers. The same cloud native platform, the same native AI, same continuous innovation, unified, versionless, built for where you are. We're changing how it's packaged and priced, not what it is. Rather than our historical one size fits all approach, we're now offering three 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've been highly effective at selling and implementing our applications to the most complex supply chain and commerce organizations worldwide. Until now, we haven't 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. Allow me to spend just a moment describing each of these three editions 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've historically ascribed to market leading supply chain innovation. Next is our Enterprise Edition, which provides us with a couple of important new tools. Number one, Enterprise allows us to funnel all demand for WMS into a single application, ActiveWarehouse. Historically, we've driven demand from lower volume, lower complexity customers to our SCALE product. Using Enterprise Edition, we're confident we can now serve this market using the same application that we use for our largest and most complex customers.

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 commerce journey on the right platform and potentially grow into a larger feature set over time. 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 ActivePlatform, we've 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 ActivePlatform 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 ActivePlatform is that these customers have full access to our rapidly expanding set of AI capabilities built right into the platform. Because ActiveAgents, including Agent 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 Essentials Edition as a great partner activation vehicle. For Manhattan, it's an efficient way to add more feet on the street to source demand and expand the pool of Manhattan customers. In summary, the three editions 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.

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 replatforming. No longer will small and mid-size companies, or even smaller sites within larger enterprises, be forced to settle for inferior products. Editions 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. I'll hand over to Linda to report on our financial performance and outlook, and then I'll close our prepared remarks before we open it up to Q&A. Linda, over to you.

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 points 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. 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 five and a half to six 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 1st, 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 zero 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 nonlinear bookings throughout the year. Finally, our long-term and longstanding 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-$2.68 billion, which represents a range of 18%-20% growth. Moving to the P&L. We are raising our full year total revenue, operating margin, and EPS outlooks. This guidance is also provided in today's earnings release. For total revenue, we expect $1.16 billion-$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-$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-$5.50. On a quarterly basis, we are targeting $1.45 in Q3 and $1.37 in Q4. Despite the one-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. 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-$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.

Great. Thank you, Linda. We're 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 three consecutive quarters of record bookings and recent introduction of Active Editions, 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. That concludes our prepared remarks, and we'd be happy to take any questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to two questions. One moment while we pull for questions. Our first question is from Terry Tillman with Truist Securities. Please proceed with your question.

Hey, Eric, Linda, and Mike. First, congrats on the RPO and the quarter and the cloud revenue growth acceleration. My two questions, I am going to start with agents. We increasingly are getting a lot of questions and curiosity around your agentic business. Eric, I 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 for 2027? I had a follow-up.

Thank you, Terry. First of all, the numbers you quoted are all correct. About 10% of our install base is either on pilot or subscription, and we did have some customers just start directly with subscription. 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 had this commercially available in the market for two quarters now, and if you think about it, Q1, it was really just the pilot. We have really had one quarter where we have been selling subscriptions. 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 second half. 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 material and our customers are seeing great value in it.

That is good to hear. Thanks, Eric. 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. You clearly were doing some studying. What I am curious about is with additions, how is this going to work with enabling your sales teams? How quickly they can understand how to sell this and discern what addition it should be? Kind of related to this is, 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.

Good question. We started the process of rolling this out to our sales team last week 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've been selling for years. That's the full product. When it came to kind of the next tier of customer, we often would sell them SCALE, which is not our ActivePlatform, and it doesn't give them access to the unification and the AI and everything else. In fact, a lot of those customers have often said, "I would rather be on the ActivePlatform, but I don't want to pay the extra." Now we've created an addition that puts them in a great place.

They get access to all of those things. At a later date, if they need some more of the complexity that comes in Enterprise Premier, they don't have to re-platform to do it. They can just simply change their subscription level and take advantage of those features. Essentials opens up yet another market opportunity. We've often talked about, we go to market in tier one and tier two, and that represents 87% of the supply chain spend. This opens up the rest. The reality is, even though that we've been addressing the vast majority of the supply chain market, even in the biggest of the big tier one players, many of them have sites that they've just deemed not big enough or complex enough to use ActiveWarehouse. They didn't want to spend the money.

They've 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 a unified platform across their entire business, all the way down to leveraging AI in those sites. There's a lot of excitement in our sales force and in the limited number of customers that we started to talk to. There's a lot of excitement and momentum on that side as well.

Thanks a bunch.

Thank you.

Thank you. Our next question comes from Joe Vruwink with Baird. Please proceed with your question.

Hi. Great. Thanks very much. I think this is gonna dovetail on Terry's question. When investors hear about go-to-market changes, normally start to associate risks and worry about maybe disruptions in selling. I think to what you've been doing over the last year, there already has been quite a bit of change inside Manhattan, yet it really hasn't shown up in cloud bookings. In fact, I think this quarter's cloud bookings relative to our model was the best in some time. Maybe how would you compare or contrast, what you're 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, it's not going to have the type of friction one might think about?

Yeah. Thank you, Joe. First of all, I think, you're correct. I remember a year ago when we announced some of the changes in strategic direction for sales, there was concern about change and what that would do. Q3 last year was a bit of a change for us, we had three consecutive quarters of record bookings. This one is even easier. The reason I say that is we're already selling SCALE. We're already selling to this segment of the market. We get to sell our Premier product in that segment of the market. The immediate change is, we're selling the same types of deals to the same types of customers, we're selling our product. Over time, it's going to expand the addressable market because it's going to allow us to sell more sites within existing customers.

It's going to allow us to go lower down in the tier two and three customer base. There's really not any friction in the sales team today.

Okay. That's great. Then just on the RPO bookings, I guess how did it compare to your internal expectations? Were there any timing factors at play that maybe pulled deals ahead into the second quarter? Since you talked about progress with AI monetization, is it possible at all to maybe frame kind of the early contribution that's starting to show up? I'm not sure if the way it gets booked it would be in RPO right away, but maybe between either revenue or RPO, how that is manifesting in your financials.

Yeah. First of all, no on the question of did we pull anything early? It's not timing. I think what we've seen over the past couple of quarters is an increase of deal volume. 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 on the market. That's really the major driver of the success that we've had over the past few quarters. When it comes to AI, clearly AI has contributed some amount to revenue. It's contributed some amount to RPO. Again, because it's so early, we're not breaking that out. We'll look at when is the right time to break that out and give clear guidance on that in the future.

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 didn't break it out any further than that.

Thank you.

Yep. Thank you, Joe.

Thank you. Our next question is from Brian Peterson with Raymond James. Please proceed with your question.

Thanks. Congrats on the really strong quarter. 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? 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're fully transitioned?

Really good question, and I think the other thing that additions does for us in the short term, number one, it changes some of the SCALE conversations to be ActiveWarehouse conversations on the Enterprise Edition. The other thing it does is it creates more opportunities for conversions. As we've had this dedicated conversion team in place for the past year, and we've had a lot of discussions with those customers, we've learned a lot about what it's going to take to convert them. It's very clear across our on-prem solutions and our on-prem customers that we have, some of them may never go to Enterprise Premier. That may never be a good fit for them. We think the vast majority of them will probably go that middle, the Enterprise Edition. Some could start on Essentials.

This gives a whole lot more optionality and a whole lot more paths to make that conversion path happen even faster.

Got it. Maybe just a follow-up. I hear you on the strong conversions this quarter, there was also a nice beat on the maintenance line. I'm curious, are customers renewing their maintenance agreements while they go through the cloud conversion? I'm just trying to understand how to think about the relationship between maintenance and an indicator of the pace of the cloud conversion. Thanks, guys.

They do renew their maintenance until they are no longer using that product. The other thing to think about here is we had a really strong bookings quarter on conversions. It was more than 40% of our bookings. That was less than 2% of our conversion base. Last quarter, we talked about 23% of our base had started the conversion. Today, it's still less than 25%. We got that big boost from less than 2%. There's massive opportunity to continue to have this conversation. Now with additions, we think it will help us accelerate that even further.

Thank you. Our next question is from Dylan Becker with William Blair. Please proceed with your question.

Hey, everyone, appreciate the questions. Maybe, Eric, sticking with that point as well too. Historically, we've talked about kind of the aggregate bookings mix being a third, a third, a third. It had skewed a bit more recently, heavily weighted towards new logos. Good to see the uptick in migrations and expansions. I guess how that's 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 two components lift up to equilibrium versus maybe the new logo component trending down, if that makes sense. Thank you.

Yeah, that's exactly right. That's been our focus. I've always said, if you're going to have one of those three components be really big and bigger than the rest, you'd want it to be new logo. Over time, we expect it to get back to thirds. Our focus was to make sure that we get back to thirds without new logo declining, to bring the others up to that point. When we look at first half, bookings across first half, 40% is still new logo, you're seeing those other two get stronger and stronger. Ultimately, the more new logo we sell, the more opportunity we have to cross-sell and upsell, and the more opportunity we have for add-ons and renewals.

Just continuing to make this install base bigger and bigger is giving us more and more opportunities to do the cross-sell and upsell. I think ultimately, to the point that you were making, long-term, having those kind of back in that third, a third, a third, I think shows a really position of strength.

Okay. Very helpful. Thank you. Maybe for Linda or Eric, your perspective here as well too. I think you guys called out 100% conversion. I know we're not saying kind of what agentic monetization could look like, some of those upsells being kind of immediately recognizable in subscription revenue as well too. How to think about kind of the subscription upside in the quarter and how you're kind of contemplating that going forward, given the ease of integration or accessibility of agents, if that makes sense too, when how those are kind of turned on and go live or immediately recognizable subscription revenue with no implementation ramp or lag. Kind of as agents proliferate a bit more, that immediate attach contributing subscription revenue. Thanks.

Yeah. In the quarter, we definitely did see some upside from the agents, as you said. At this time, as well as we expect for the remainder of 2026, it's still a pretty small contribution because, like we said, we're pretty early in. We just started this endeavor at the beginning of the year or so. You're right. As soon as these conversions happen, that is an immediate uplift to revenue.

Great. Thank you.

Yeah. As we've talked about before, unlike all of our other products where they have to ramp as we deploy them, AI agents turn on on day one, they are fully deployed. Yeah, as we see that become more and more prevalent across our customer base, it will have a bigger impact.

Thank you. Our next question is from George Kurosawa with Citi. Please proceed with your question.

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, FDEs have been involved in all or virtually all of the deployments. I'm curious with some of the leading edge customers, I'm 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 FDEs from what you've seen so far?

Yeah. First of all, you're correct that as we do pilots, we include FDEs with everyone. 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. The goal of our FDEs is to make sure they find value and make sure that they can be self-sufficient. Again, when you think about what customers are looking for in the AI space these days, 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.

We definitely have customers that are already 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're probably never going to have that kind of bench and that kind of depth to do that, and they'll continue to count on us to do it. We're happy either way.

Okay, that's great color. 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's any component of that that you expect to flow to the bottom line, just how you're thinking about that piece. Thank you.

Yeah. In the second half of the year at this point, we are expecting to continue to invest in sales and marketing as we've been doing it the first half of the year. We also will have some increase on our bonus accruals that I mentioned. While we will have some savings from the headcount reduction, we're not expecting to see a margin benefit from that in 2026. We're still early, of course, in looking at 2027. We do plan on reinvesting some of that savings, but we are still working through that. Of course, one of our goals, as always, is also margin expansion. Once we have some more information, we will be providing color on 2027 as well.

Great. Thanks for taking the questions.

Thank you.

Thank you. Our next question is from Guy Hardwick with Barclays Capital. Please proceed with your question.

Hi. Good evening, guys.

Yep, good evening.

Hi, good evening. For those of us who cover industrial technology companies, I personally found the most compelling presentation on Momentum was one from Eaton Corporation, where they showed, I think, a 30% increase in shipment value, 27% improvement in warehouse cycle times at one particular facility, I think it was Spartanburg, and $110,000 of labor savings. I believe, if memory serves, they were using Labor Agent, Wave Agent, and Dock Agent. Just wondering if, Eric, for the benefit of, well, not just me, but investors on the call, is just how these agents are able to drive such dramatic improvements in such a short space of time for this particular large customer.

I think what we're seeing is that in all of these complex warehouses sites, some high percent, 90%+ of what's supposed to happen every day goes right. Where they're finding value is the single-digit percent of the things that don't go right. The inventory hasn't arrived yet. It's still sitting in the yard. The inventory's damaged. It's in the wrong location. These things can wreak all kinds of havoc on a DC. In the past, our software has given them all the tools to fix these things and address these things, but they've got a million other things they're doing, and they don't always have time to do it efficiently. These things can back up a dock and back up an entire warehouse.

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," then the AI will go execute all the changes that have to happen to fix that issue. Then over time, if an operator gets comfortable and says, "Every time you ask me about this, I say yes. In the future, stop asking me. Just do it for me." They can decide when this needs to become autonomous function by function. These are all the things that add up throughout a day and a week and a month to get to the types of savings and value that they're talking about.

It wasn't kind of apparent from the presentations I saw, what are your customers telling you in terms of reduction in labor? Because labor is obviously the highest operating expense in a warehouse. In terms of what have you heard from your customers in terms of labor cost reductions or reduction in overtime?

Yeah. We've certainly had customers that have seen labor cost reductions, absolutely reduction in overtime. Those are easy to measure. That's one of the reasons that people talk about them, because they're easy to measure. What we've clearly heard from our customers is the bigger value that they're seeing is some of these big percent changes, right? Short picks and changes, exceptions, et cetera, because those are things that really add up when you're talking about across multiple warehouses around the country, around the world. There's real major dollar value impact in those that are most often even bigger savings than the labor savings they see, just sometimes not as easy to calculate.

Thank you. Our next question is from Parker Lane with Stifel. Please proceed with your question.

Yeah. Hi, good afternoon. Thanks for taking the questions. Eric and Linda, you both called out macro volatility in your prepared remarks. We've 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's having on supply chain resiliency inside of your customers. 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?

Well, the comments that we made about macro volatility, I think we've made the same comments for the past three or four quarters, right? Truthfully, it continues to be volatile, but that volatility hasn't changed a whole lot over the past several quarters. What we've seen is customers are still very willing to invest in the things that matter to them, things that are actually creating value. We have not seen any slowdown in interest. Obviously, with the three record bookings quarters in a row, we've 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. Again, I think our customers are anticipating the volatility. They acknowledge it, but they're not getting distracted by it.

Understood. Linda, you mentioned renewals in line with the full-year plan. I was wondering if you could just characterize, is that on a logo basis or dollars of renewals, and how do you expect seasonality to trend here over the balance of the year?

That's based on dollars. Again, like we said, the bookings for both new and renewals was solid in the quarter, and we're still on target to meet what we communicated our expectations were for the year, which was the 18%-20% RPO growth towards the high end of that now, with 18%-20% of that coming from renewals.

Thank you. Our next question is from Chris Quintero with Morgan Stanley. Please proceed with your question.

Hey, Eric. Hey, Linda. Thank you so much for taking the question and congrats on the cloud acceleration here. I wanted to ask about the 100% conversion success you're seeing from the agentic pilots over to deployments. I'm curious what you think is really driving that success and how are you kind of making those transitions even faster and shorter?

Yeah. I think what's driving the success is clearer measurable value. One of the things that we've 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. They've got dashboards that they can see how much an agent is being used and what value it's creating. Again, it makes it a very short conversation when it comes to moving from pilot to subscription because they can see what it's worth. Yeah. Sorry, Chris, what was the second part of the question?

Just like how you all are trying to make those conversions even faster.

Yeah. That's why we sell it with Forward Deployed Engineers, just to make sure that they are finding that value as quickly as possible, that our architecture allows us to turn on these agents and use them the same day. We want to make sure they're doing that, and we want to make sure that they're really finding the value in every one of those agents and finding the value in modifying the base agents. We've got now more than 50 base agents available for them to use. We spend time with them to really find the ones that make the biggest impact in their facilities. 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're doing unique and create an agent that helps with that adds additional value as well.

I think our FDEs are getting smarter and better at running through that process even faster. Again, I've talked about it before. One of the advantages that we have since we have a large services team is we get to build that scale at the pace that we want with our own team, and we're not dependent on a third party to go drive that FDE motion for us. I think everybody has recognized by now that AI doesn't deploy itself, and you've got to have an FDE motion to really find that value, and I think our team's doing a great job of doing that quickly.

Got it. Super helpful. Clearly the go-to-market side with your FDEs is working really well. I'm curious, like on the infrastructure and technical side of the agents that you're building, how you've kind of designed those and built those to make those an advantage for you. Curious, are you building your own models? Using deterministic and probabilistic elements? High level kind of what is the infrastructure you all have built around the solution to make them an early success so far?

Yeah, great question. This is something that we spent quite a bit of time at our Momentum conference to make sure our customers really understood. The big value in what we're 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's of value. Deterministic is always better because it's cheaper, and it's going to be the same every time. Exception handling gets better with probabilistic. 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're using as well, and adds additional value.

It's also the reason, as we've 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.

Thank you. Our next question is Mark Schappel with Loop Capital Markets. Please proceed with your question.

Thank you for taking my question. Eric, just building on an earlier question 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?

Yeah. I mean, start with the competitive intensity. I'd say it's zero. We've yet to have a customer come to us and re-compete. When it comes up for renewal, it's more of a discussion of what is the price increase going to be and what are we going to cross-sell, upsell and expand? We have not had a customer leave us to another customer. We've had a very high success rate there. What we've done with this dedicated renewals team is really build the motion around starting the conversation early enough so that we can have a healthy conversation around cross-sell and upsell and adding to the value that they're already getting out of the platform. That was, in the first half, a big boost for us, in the progress that we've made with that renewals team as well.

Anytime that you're adding cross-sell and upsell at the time of renewal, that's also going to lead to faster revenue growth.

Great. Thank you. Then with respect to your Editions initiative, could you just talk a little about what you expect as far as how you think it may affect your services business over time?

Yeah. It's going to be another one of those things, just like what we did last year with all of the strategy focuses on the different deal types, that expanded deal volume. This will also expand deal volume, which creates more services opportunity. I think the biggest thing that Editions does for us is, again, the reason it's not friction or a risk as we roll this out is immediately, we're really going after a lot of the same deals we were already going after. Instead of putting them in SCALE, which basically, it's a great product, but it's not part of the ActivePlatform, so they don't have that unified, they don't have the version list, they don't have the ability to use AI.

We're 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. That's the biggest immediate day one impact. Over time, it's 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 in the past they thought were too simple and didn't need the full Enterprise Premier ActiveWarehouse. Now they can look at putting Essentials ActiveWarehouse into those sites. Ultimately, it's creating more deals, more volume, more services opportunity.

Thank you. Our next question is from Clark Wright with D.A. Davidson. Please proceed with your question.

Hi. Thank you. During the Momentum main keynote, there was multiple references to Manhattan positioning itself as an open platform for AI capabilities. How does this impact what offerings you are looking to build internally, versus who you are partnering with to provide value to customers?

Yeah. 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've built our AI solutions, we're not locked into Google. We could use any models. Our CTO continues to look at the most cost-effective models to use, and we can make model choices based on different agents and different places within an agent as well. The openness is what allows us to have flexibility. Again, from a customer and a user standpoint, we're working in the background to maximize the value by maximizing the use of deterministic and only using probabilistic when and if necessary. Then when we do use probabilistic, using the most economic model, because it doesn't always require the best, most expensive model for every question.

Awesome. Appreciate that. You're 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?

Yeah. We're rated a leader by Gartner and Forrester in warehouse management, transportation management, order management, and point of sale. Today in supply chain planning, we haven't participated in those because we just launched this product in the cloud a year and a half ago. We're seeing growth across all of those product sets. In fact, we continue to see new customers come into Manhattan and become new logo customers across all five of those products. There's not just one pattern for land and expand. They can land anywhere and expand across this platform, and we're seeing success in all of those cases.

Thank you. Our next question is from Lachlan Brown with Rothschild & Co. Please proceed with your question.

Hi, Eric, Linda. Thanks for the questions. On the cloud subscription growth acceleration of 26% year-over-year, you mentioned this was driven by strong execution and a number of upsells. Could you elaborate further on these upsells, and what's the opportunity for you to repeat this success into the second half?

Yeah. Do you want me to take it?

I'll start.

Okay.

Maybe just start by defining upsells. Upsells, for example, could be they're already subscribed, but their volume's increasing, so they go up to the next tier. This could happen for a couple reasons. One, it could be the customer is growing, or two, it could be we are deploying faster than the schedule that we agreed to when we contracted. We've seen both of those things happening over the past couple of quarters, helping us grow cloud revenue even faster.

Yep, that's right. As far as just volume in general, our volume was up this quarter, including upsells, which is definitely helping to accelerate that revenue growth.

That's very clear. Thanks. On the Essentials opportunity, appreciate you've 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 with your partner ecosystem over the last 12 months to set yourself up for this mid-market distribution?

Yeah. Great question. A year ago, when we made several changes in our sales community, one of the changes that we made was a bigger commitment to our partners and really maturing our partner ecosystem. We've seen a lot of success there. Some of that was evident at 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 2026, and look at the partner-sourced deals that they brought us in the first half of 2026 and compare that to the first half of last year, it was up 4x. Our partners are really leaning in and bringing us pipeline and bringing us deals. Another data point, kind of same thing.

If you look at the first half of this year, the new certifications. Partner consultants that became certified on our platform doubled in the first half of this year. We're really seeing partners get excited and lean in about what we're doing with this partner program, and that's a big piece of what will enable particularly the Essentials Edition of the products, kind of that lowest tier.

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

Once again, thank you to everyone for joining. Appreciate the questions. We're very pleased with our first half and Q2 results and excited about performing for the rest of this year.

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