Manhattan Associates, Inc. Q2 FY2026 earnings call

• Overall Business Performance

  • Manhattan delivered record Q2 2026 and first half 2026 results, marking the third consecutive quarter of record bookings, against a volatile global macro backdrop.
  • Strategic sales and marketing investments initiated one year prior are driving momentum, with investments focused on product-focused sales specialist teams, on-prem to cloud conversion teams, dedicated renewal teams, partner ecosystem expansion, and forward-deployed engineering for agentic AI capabilities.
  • In Q2, on-prem to cloud conversions represented over 40% of new cloud bookings, net new logos represented over 25% of new cloud bookings, and win rate remained consistently above 70%.

• AI/Active Agent Progress

  • Active agentic AI has moved from early adopter program to covering over 10% of the company's active install base (either via pilot or subscription), with a 100% conversion rate from pilot to paid subscription.
  • The active AI offering combines ready-to-use base agents with the Agent Foundry custom development tool, embedded directly into the unified active platform with no external data lakes required, enabling deployment in minutes rather than months.
  • Early customers have reported material operational improvements, including an 87% reduction in short picks for a large healthcare distributor, a 49% reduction in late shipment departures and 21% reduction in order cycle times for a regional grocer.

• New Product Packaging: Manhattan Active Editions

  • The company introduced three tiered Editions for all Manhattan Active Solutions, a packaging change (not a new product line) designed to expand the company's addressable market by bringing the unified cloud native active platform to a broader range of customer segments.
  • The three tiers (a growth ladder, not separate products) are: 1) Enterprise Premier Edition: Full advanced capabilities for large customers with complex supply chains, the company's existing core offering; 2) Enterprise Edition: Prescribed capabilities and approachable pricing for mid-volume customers, allowing customers to start on the active platform and scale up over time; 3) Essentials Edition: Core capabilities at a lower price point, opening the market to smaller companies, smaller sites within large enterprises, and new geographies, and enabling partner-led distribution.
  • All editions provide access to the native AI platform, with active agents addable to any tier, and support a land-and-expand growth model without requiring future replatforming.

• Go-to-market and Operational Updates

  • The company has completed a small restructuring, reducing investment in legacy business areas to reinvest in growth-focused strategic areas, with an $8 million restructuring charge recorded in Q2.
  • Partner ecosystem development has progressed rapidly: partner-sourced deals in the first half of 2026 are up 4x year-over-year, and new partner consultant certifications doubled year-over-year, supporting the rollout of the Essentials Edition to the mid-market.

Manhattan Associates reports consolidated financial results for Q2 2026, with total revenue of $298 million, representing a 9% year-over-year increase. Excluding license and maintenance revenue compression from the ongoing cloud transition, total revenue grew 13% year-over-year. Cloud revenue was $127 million, up 26% year-over-year, accounting for 42.6% of total Q2 revenue. Service revenue was $133 million, up 3% year-over-year, representing 44.6% of total Q2 revenue. Adjusted operating profit was $104 million with an operating margin of 34.9%. Operating cash flow increased 22% year-over-year to $91 million, with a 30.1% free cash flow margin and 35.4% adjusted EBITDA margin. Deferred revenue grew 14% year-over-year to $343 million. Remaining Performance Obligation (RPO) reached $2.47 billion, up 23% year-over-year, with 39% of RPO expected to be recognized as revenue over the next 24 months. No separate segment-level financial results with contribution percentages were provided for individual product lines in this call.

• Full year 2026 RPO is expected to come in towards the high end of the existing target range of $2.62 billion to $2.68 billion, representing 18% to 20% year-over-year growth, maintained from prior guidance with an improved outlook due to strong first half performance.
• Full year 2026 total revenue guidance is raised to a range of $1.16 billion to $1.166 billion, representing 8% total growth and 11% growth excluding legacy license and maintenance attrition, with FX now expected to be neutral for the full year (a 1pp tailwind in H1 offset by a 1pp headwind in H2).
• Q3 2026 total revenue is targeted at $294 million to $298 million, and Q4 2026 total revenue is targeted at approximately $287 million, accounting for retail peak seasonality.
• Full year 2026 adjusted operating margin guidance is nudged upward to approximately 35.1%, despite higher expected bonus accruals to reflect strong first half results that offset favorable subscription revenue mix in H2. Adjusted operating margin is expected to be ~36.9% in Q3 and ~36.1% in Q4.
• Full year 2026 adjusted EPS guidance is increased to a range of $5.44 to $5.50, with GAAP EPS midpoint raised to $3.62 even after accounting for the Q2 restructuring charge. Q3 adjusted EPS is targeted at $1.45, and Q4 adjusted EPS is targeted at $1.37.
• Full year 2026 cloud revenue guidance midpoint is raised to $505.5 million, representing 24% year-over-year growth, with Q3 cloud revenue targeted at ~$130 million and Q4 cloud revenue targeted at ~$132 million.
• Full year 2026 service revenue is expected to grow 2% to $513.5 million, a $4.5 million reduction from prior guidance due to adverse FX and European implementation timing, with growth expected to trough in Q3 and improve in Q4.

• Turbulent global macroeconomic conditions and geopolitical volatility could impact customer investment decisions and cause actual results to differ materially from management projections.
• Foreign exchange volatility creates ongoing headwinds: FX was a $9 million year-over-year headwind to RPO growth and a $3 million sequential headwind to RPO in Q2 2026, and is expected to create a 1 percentage point headwind to revenue growth in the second half of 2026.
• Go-to-market changes, including the rollout of the new tiered Editions packaging, carry potential risk of near-term sales disruption and seller distraction, though management expects minimal friction.
• Agentic AI is still an early-stage business, so there is limited historical data to forecast future revenue contribution and growth trajectory.

Q: What is the expected revenue materiality of agentic AI subscriptions in the second half of 2026 and 2027, given 10% of the install base is already in pilot or subscription? / A: Active AI subscriptions have only been commercially available for one full quarter, so there are not enough data points to provide specific revenue guidance at this time. Management confirms that the opportunity is material, customer adoption is progressing well, and many new deals already include AI as a component.

Q: What sales adoption risk exists for the new Editions packaging, and how do you minimize seller disruption from this go-to-market change? / A: There is minimal near-term friction because the change simply allows the company to sell the existing active platform to customers that were previously directed to the older, non-unified scale product. The new packaging creates new market opportunities (including smaller sites within existing large customers) that the sales team is already excited about, with no fundamental change to how top-tier Enterprise Premier deals are sold, so there is little expected disruption.

Q: What drives the 100% conversion rate from AI pilot to subscription, and how is management working to speed up these conversions? / A: The high conversion rate is driven by clear, measurable value delivered quickly: customers can see usage and impact via built-in dashboards, making the purchase decision straightforward. Forward-deployed engineers support fast value realization, and the embedded platform architecture allows agents to be activated the same day. The FDE team is gaining process experience to accelerate conversions even further, and over 50 base agents are already available to fit varying customer needs.

Q: How does the new Editions packaging impact cloud conversion of existing on-prem customers, and what conversion opportunity remains? / A: Editions adds more conversion paths for on-prem customers, as most existing on-prem customers are a good fit for the mid-tier Enterprise Edition rather than the full Enterprise Premier tier, which will accelerate conversion. More than 40% of Q2 cloud bookings were conversions, but this represented less than 2% of the total addressable on-prem base; 25% of the total base has started conversion, so there remains massive untapped conversion opportunity.

Q: What progress has been made to prepare the partner ecosystem for the mid-market Essentials Edition, which relies more on channel distribution? / A: Over the past year, management has prioritized maturing the partner ecosystem as part of its strategic sales investments. Partner-sourced deals in the first half of 2026 are up 4x year-over-year, and the number of new certified partner consultants has doubled over the same period. Partners are already leaning into the opportunity, which positions the company well to scale Essentials distribution to the mid-market.