Prepared remarks
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 speakers' remarks, there will be a question-and-answer period. As a reminder, ladies and gentlemen, this call is being recorded. I would like to now introduce you to your host, Mr. Michael Bauer, Head of Investor Relations of Manhattan Associates. Mr. Bauer, you may begin your conference.
Thank you, Cleo, and 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 risks and uncertainties and are not guarantees of future performance; actual results may differ materially from the projections contained in our forward-looking statements. I refer you to Manhattan's SEC reports for important factors that could cause actual results to differ materially from those in our projections, particularly our annual report on Form 10-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 will find reconciliation schedules in the Form 8-K we filed with the SEC earlier today on our website at manh.com. Now I will turn the call over to Eric.
Thank you, Mike. Good afternoon, everyone, and thank you for joining us as we review our 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. And second, the strategic investments in sales and marketing that we announced a year ago are unlocking untapped opportunities within our large addressable market. You will recall that these investments are focused on increasing deal volume and total bookings across our product portfolio. Some examples of these investments include building out product-focused sales specialist teams across all of our products, building dedicated conversion teams to focus on moving on-prem to the cloud, building dedicated renewals teams to focus on expansion at the time of renewal, maturing our partner ecosystem to create additional pipeline channels, and finally building seamless agentic AI capabilities driven by Manhattan Forward deployed engineers. Three consecutive quarters of record bookings give us confidence that our go-to-market approach is working. So regarding some of the specifics on our Q2 bookings, sales to existing customers have accelerated and in Q2 conversions from on-prem to Manhattan Active represented greater than 40% of our new cloud bookings. Renewals continue to be in line with our full-year plan and net new logos represented greater than 25% of new cloud bookings in Q2 while our win rate metric remained consistently 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 subsectors, which include retail, grocery, food distribution, life sciences, industrial, technology, airlines, third-party logistics, and more. For example, Q2 deals included a global specialty retailer that is converting from on-prem to Active Warehouse and expanding to become an Active Transportation customer. A multinational conglomerate became a new logo Active Warehouse and Active AI customer. One of America's largest distributors is converting from on-prem to Active Warehouse. A large equipment retailer that was an existing Active Omni customer expanded to become an Active Warehouse and Active Transportation customer. A large food distributor became a new logo Active Warehouse, Active Transportation, and Active AI customer. And one of the world's largest international retailers began the conversion from on-prem to Active Warehouse. In addition to several other impressive deals in Q2, we made solid progress monetizing our AI opportunity. As a reminder, the Active platform enables our customers to access the perfect blend of deterministic workflows with probabilistic AI execution, enabling simplicity and resiliency while optimizing cost to drive optimal ROI for our customers. Our Active Agent offering consists of two primary elements. A set of base agents ready to be activated immediately, our Agent Foundry offering, which enables our customers to quickly build and deploy their own agents supported by our dedicated team of forward-deployed engineers. And because we build all these agents directly into the Active platform, our customers do not need to implement costly and complex external data lakes. Our unified cloud-native API-first architecture enables us to add agents with almost no configuration or additional upfront effort, embedding AI agents directly into the workflow. No data lakes, no latency, deployed in minutes not months, and maximizing value and ROI in real time. As you might expect, Active Agents featured prominently at our Momentum user conference in Las Vegas in May. We launched several new base agents, debuted some cutting-edge design and configuration capabilities, and had hundreds of our attendees get hands-on experience building agents for themselves at our very first Agent Boot Camp. Our customers continue to tell us that both the power and ease of use provided by our Agent Foundry is a real differentiator for Manhattan. One of the conference's highlights was a panel featuring three of our earliest adopters of Active Agents. What came through loud and clear from these customers were the real operational benefits they are seeing in production every day with Active Agent technology. The good news is these three customers are not outliers. One customer saw an 87% reduction in short picks every day. At a regional grocer, they are seeing a 49% reduction in late shipments 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 are committed to delivering agentic technology that provides material operational value every day. We believe that many customers are already feeling burned out by the AI hype that is in the market. They are pressing their teams to make sure that any AI investment can show material value. With each new customer engagement, we feel increasingly confident that the combination of our base agents and Agent Foundry makes it a straightforward endeavor to demonstrate real value for each customer. Since our launch in Q1, Active Agents have progressed from an early adopter program to now touching greater than 10% of our Active install base either through a pilot or a subscription. And while it is still early, so far we have experienced 100% conversion success from AI pilot to AI subscription. So that brings us to the product update. I am excited to announce a significant update that expands our addressable market. In order to better commercialize our growing opportunity and provide the benefits of the Active platform to more of the market, we are introducing Editions for our Manhattan solutions. Editions is a packaging motion, not a new product line. For years Manhattan has powered the most complex highest-volume supply chains in the world. Editions allows us to bring that same platform to all customers. It takes the solutions we already sell and makes them available in three tiers. The same cloud-native platform, the same native AI, same continuous innovation, unified versionless, built for where you are. We are changing how it is packaged and priced, not what it is. So rather than our historical one-size-fits-all approach we are 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 have been highly effective at selling and implementing our applications to the most complex supply chain and commerce organizations worldwide. And until now we have not devoted much energy to making that same technology available to the wider market. We have a significant opportunity to bring the power of our best-in-class capabilities, market-leading architecture, and embedded AI agents to a much larger pool of customers. So allow me to spend just a moment describing each of these 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 who differentiate their business in part through world-class supply chain execution. Premier is our vehicle for continuing to invest in the market-leading innovation which has received accolades from analysts and customers over the past several decades. Our largest and most sophisticated customers will choose Premier given the value they historically ascribed to market-leading supply chain innovation. Next is our Enterprise Edition, which provides us with a couple of important new tools. Number one, Enterprise allows us to funnel all demand for WMS into a single application, Active Warehouse. Historically, we have driven demand from lower volume, lower complexity customers to our Scale product. Using Enterprise Edition, we are confident we can now serve this market using the same application that we use for our largest and most complex 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 journey on the right platform and potentially grow into a larger feature set over time. And finally, let me tell you about the Essentials Edition. The beauty of 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, which helps in both the short and long term. While the short-term subscription and services revenue advantage is obvious, I think the real opportunity is over the longer term. Since launching our Active platform, we have been highly effective at cross-selling our applications. Customers love the increased simplicity and added operational benefits of being on a unified platform. By increasing the number of new Active platform customers using Essentials and Enterprise Editions, we give ourselves many more opportunities to land and expand our footprint with these customers over time. Another advantage of having all of our customers on the Active platform is that these customers have full access to our rapidly expanding set of AI capabilities built right into the platform, because Active Agents 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 the Essentials Edition as a great partner activation vehicle. For Manhattan, it is an efficient way to add more feet on the street to source demand and expand the pool of Manhattan customers. In summary, the three Editions are a ladder, not a menu of different products. Essentials is the right-sized platform for fast time to value. Enterprise adds depth with more configuration, more optimization, and broader workflows as operations scale. And Enterprise Premier is the full power that the most complex operations depend upon today. We now allow customers to start their journey where they are and grow into a larger feature set without ever replatforming. No longer will small and mid-sized 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. Now, I will hand over to Linda C. Pinne to report on our financial performance and outlook and then I will close our prepared remarks before we open it up to Q&A. Linda C. Pinne, over to you.
Thanks, Eric. Our Manhattan global teams continue to execute well in a challenging macro environment. For the quarter, we delivered better-than-expected financial performance on the top and bottom lines. This includes strong results across RPO, bookings, cloud revenue growth, and operating margin expansion, as well as free cash flow generation. On an as-reported basis, our Q2 and first-half results exceeded the rule of 40. FX remains volatile and in Q2, it was a 70 basis point tailwind to year-over-year total revenue growth. However, it was an approximate $3 million headwind to sequential RPO growth and about a $9 million headwind to year-over-year RPO growth. Now to our results. Our growth rates are reported on a year-over-year basis unless otherwise stated. For the quarter, total revenue was $298 million, up 9%. Excluding license and maintenance revenue, which removes the compression driven by our cloud transition, our total revenue was up 13%. Cloud revenue increased 26% to $127 million. Our better-than-expected performance was driven by strong execution and the number of upsells we closed in the quarter, as these types of transactions can generate more near-term revenue. Service revenue increased 3% to $133 million and was better than expected as about $1 million of implementation work shifted from Q3 to Q2. We ended Q2 with RPO of $2.47 billion, up 23% compared to the prior year and 5% sequentially. Our strong Q2 and year-to-date performance was driven by a good mix of sales from both new and existing customers. This includes renewals, which were in line with our 2026 annual plan. Please remember when you are doing your RPO bookings analysis that FX is masking some of Q2's relative strength, as FX was a $29 million sequential tailwind to RPO in the year-ago period compared to this quarter's $3 million headwind. Contract duration remains at about 5.5 to 6 years. At the end of Q2, we expect 39% of RPO to be recognized as revenue over the next 24 months, which is up from 38% at the end of Q1 and reflects strong deal volume and faster deployments. Q2 adjusted operating profit was $104 million with an operating margin of 34.9%. Our better-than-expected performance was driven by strong cloud revenue growth which offset the increased go-to-market investments that we have previously highlighted and an uptick in bonus accruals to account for our strong Q2 and first-half results. Turning to EPS, we delivered better-than-expected adjusted earnings per share of $1.39, up 6%. GAAP EPS of $0.85 was down 9%. As announced on June 1, this decline resulted from approximately $8 million, or $0.11 per share, of restructuring expense associated with our strategic decision to reduce investment in legacy areas of the business and reinvest in strategic areas to help drive future subscription growth. Moving to cash, Q2 operating cash flow increased 22% to $91 million resulting in a 30.1% free cash flow margin and 35.4% adjusted EBITDA margin. Regarding the balance sheet, deferred revenue increased 14% year over year to $343 million. We ended the quarter with $186 million in cash and 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 non-linear bookings throughout the year. And finally, our long-term and long-standing financial objective is to deliver sustainable double-digit top-line growth and top quartile operating margins benchmarked against enterprise software comps. These are drivers to our best-in-class return on invested capital as we maintain a balanced investment approach to growth and profitability. With all that said, acknowledging the volatile macro environment, given our strong first-half performance and solid pipeline, we are confident that RPO will be towards the high end of our target of $2.62 billion to $2.68 billion, which represents a range of 18% to 20% growth. Moving to the P&L, we are raising our full-year total revenue, operating margin, and EPS outlook. This guidance is also provided in today's earnings release. For total revenue, we expect $1.160 billion to $1.166 billion with $1.163 billion midpoint comparing favorably to our prior outlook and representing 11% growth excluding license and maintenance attrition and 8% all-in. We now expect FX to be neutral compared to the prior year versus our prior expectation of a 1-point tailwind. As expected, FX was a 1-point tailwind in the first half; however, our guidance now reflects a 1-point headwind in the second half as compared to our prior guidance. Despite the adverse FX moves, our second-half total revenue expectations remain unchanged. For Q3, we continue to target total revenue of $294 million to $298 million and, accounting for retail peak seasonality, about $287 million for Q4. For adjusted operating margin, our full-year estimate nudges up to about 35.1% and now includes a higher level of bonus expense to reflect our strong first-half results. We expect these higher accruals will offset some of the expected favorable revenue mix of more subscription revenue in the second half of the year. As such, at the midpoint, we continue to expect adjusted operating margin to be about 36.9% in Q3 and, accounting for retail peak seasonality, about 36.1% in Q4. Our full-year adjusted EPS range is increasing to $5.44 to $5.50. On a quarterly basis, we are targeting $1.45 in Q3 and $1.37 in Q4. Despite the 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 $1.00. Here are some additional details on our 2026 outlook. We are increasing our cloud revenue midpoint to $505.5 million representing 24% growth. We are increasing our Q3 target to about $130 million and Q4 target to $132 million. We now expect our service revenue to increase 2% to $513.5 million which assumes about $133 million in Q3 and, accounting for retail peak seasonality, $122 million in Q4. The $4.5 million reduction in service revenue from our prior forecast is due to roughly equal parts of adverse FX movements and the timing of European implementations. As such, we expect our EMEA services revenue to trough in Q3 and for growth to improve in Q4. On attrition to cloud, we expect maintenance to decline 12% to about $114 million and are targeting about $27 million in Q3 and $26 million in Q4. We expect license to be about $1 million per quarter and hardware to range between $5 million and $6 million per quarter. Finally, we expect our tax rate to be about 22% and our diluted share count to be about 59 million shares, which assumes no buyback activity. In summary, strong Q2 and year-to-date results. Thank you and back to Eric for some closing remarks.
Great. Thank you, Linda. We are very pleased with our strong year-to-date results and our continued business momentum. Manhattan's business fundamentals are very solid and our teams are doing a great job delivering value to our customers. As evidenced by our 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. And that concludes our prepared remarks and we would be happy to take any questions. Thank you.
Questions and answers
We will now be conducting a question-and-answer session. Our first question is from Terry Tillman with Truist Securities. Please proceed with your question.
Eric, Linda and Mike, first, congrats on the RPO in the quarter and the cloud revenue growth acceleration. My two questions: I'll start with Agents. We increasingly are getting a lot of questions and curiosity around your agentic business. Eric, appreciate the update. I think you said around 10% or so of customers are either in 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. It sounded like you even had some new enterprise wins that included it with the deals. How are you framing the potential materiality and just the shape of this subscription revenue unfolding in the second half or into 2027? And then I had a follow-up.
Yes. Thank you, Terry. So first of all, the numbers you quoted are all correct. About 10% of our installed base is either on pilot or subscription and we did have some customers start directly with subscription, so we are seeing a lot of confidence from the customer base on what we have to offer. I will say, however, that we have had this commercially available in the market for two quarters now. If you think about it, Q1 was really just the pilot, so 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 half. And of course, we are not giving guidance on 2027 yet. I think you can tell from the excitement that we have around this that this is material, and our customers are seeing great value in it.
That is good to hear. Thanks, Eric. My follow-up question: This seems very interesting in terms of Editions. You guys don't do a lot of regular pricing and packaging evolution or changes, so you clearly were doing some studying. What I am curious about is with Editions, how is this going to work with enabling your sales teams — how quickly can they understand how to sell this and discern which Edition it should be? And related to this, how would you forecast this and minimize potential distraction or disruption from sellers starting to sell this kind of way versus the prior way?
Good question. We started the process of rolling this out to our sales team in our mid-year sales meeting, which is a standard meeting we do every year. There was a lot of excitement from the team because truthfully what this really does is open new markets. Enterprise Premier, the top Edition, is what we have been selling for years — that is the full product. When it came to the next tier of customer, we often would sell them Scale, which is not our Active platform and does not give them access to unification and AI. In fact, many of those customers have often said they would rather be on the Active platform but do not want to pay the extra. Now we have created an Edition that puts them in a great place. They get access to all of those things and later, if they need some of the complexity that comes in Enterprise Premier, they don't have to replatform — they can simply change their subscription level. Essentials opens up yet another market opportunity. We have often talked about going to market in Tier 1 and Tier 2, which represents 87% of supply chain spend; this opens up the rest of the market. Even in the biggest of Tier 1 players, many have sites they deemed not complex enough to use Active Warehouse and have used a lesser product. Now they can use Essentials in those areas and take advantage of the unified platform across their entire business, including leveraging AI in those sites. There is a lot of excitement in our sales force and in the limited number of customers we've started to talk to, and there is momentum on that side as well.
Our next question is from Joe Vruwink with Baird. Please proceed with your question.
Hi, thanks very much. I think this will dovetail on Terry's question. When investors hear about go-to-market changes, they normally associate risks and worry about disruption in selling. But I think what you have been doing over the last year has already been quite a bit of change inside Manhattan, and yet it really has not shown up in cloud bookings negatively. In fact, this quarter's cloud bookings relative to our model was the best in some time. How would you compare and contrast what you are now doing around the new packaging and any risk or near-term friction that might create, versus more just slotting into something you might have been moving towards organically, so it is not going to have the type of friction one might think about?
Thank you, Joe. I think you are correct. I remember a year ago when we announced some 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, but then we had three consecutive quarters of record bookings. This new change is even easier, and the reason is we are already selling Scale and to this segment of the market. Now we get to sell our Premier product in that segment. So immediately we are selling the same types of deals to the same types of customers, but with our product. Over time, it will expand the addressable market because it will allow us to sell more sites within existing customers and go lower into Tier 2 and 3 customer bases. There really is not any friction in the sales team today.
Okay, that is great. And then just on the RPO bookings, how did it compare to your internal expectations? Were there any timing factors at play that maybe pulled deals ahead into the second quarter? And since you talked about progress with AI monetization, is it possible at all to maybe frame the early contribution that's starting to show up — I am not sure if the way it gets booked that it would be in RPO right away — but maybe between either revenue or RPO, how that is manifesting in your financials?
No on pulling anything early. I think what we've seen over the past couple of quarters is an increase in deal volume, and that continues to be a benefit of the investments we made a year ago focusing on all the elements of what we have to sell in the market. That's the major driver of our success over the past few quarters. When it comes to AI, it has contributed some amount to revenue and to RPO, but because it is so early, we are not breaking that out. We will 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 the upside we talked about in cloud revenue.
Our next question is from Brian Peterson with Raymond James. Please proceed with your question.
Thanks and congrats on the really strong quarter. Eric, with the new packaging, how are you thinking about customers converting between the plans? Would you expect them to start on Essentials and then potentially migrate up? And as we think about that base, how many do you ultimately think end up on Premier at the end of the day when they are fully transitioned?
Good question. One thing Editions does in the short term is change some of the Scale conversations to be Active Warehouse conversations on the Enterprise Edition. It also creates more opportunities for conversions. Our dedicated conversion team has been in place for the past year and we've learned a lot about what it takes to convert customers. It's very clear that some on-prem customers may never go to Enterprise Premier; that may not be a fit for them. We think the vast majority will probably go to the Enterprise Edition, and some could start on Essentials. This gives a lot more optionality and more paths to make that conversion happen faster.
Got it. Maybe a follow-up: I hear you on the strong conversions this quarter, but there was also a notable decline in maintenance. Are customers renewing their maintenance agreements while they go through cloud conversion? I'm trying to understand how to think about the relationship between maintenance and the pace of cloud conversion.
They do renew their maintenance until they are no longer using that product. The other thing to think about is we had a really strong bookings quarter on conversions — conversions were more than 40% of our bookings — but that came from less than 2% of our conversion base. Last quarter we talked about 23% of our base had started conversion; today it's still under 25%. So there was a big boost from a small portion of the base. There is massive opportunity to continue having this conversation, and now with Editions, we think it will help accelerate that further.
Our next question is from Dylan Becker with William Blair. Please proceed with your question.
Hi, everyone. Maybe Eric, sticking with that point as well: Historically, we've talked about aggregate bookings mix being a third, a third, a third, and it had skewed more heavily weighted towards new logos. Good to see the uptick in migrations and expansions. How is that driving conviction with these go-to-market changes in long-term viability and acceleration in the subscription business, as maybe the other two components lift up to equilibrium versus the new logo component trending down?
That's exactly right and has been our focus. If one of those three components is going to be the largest, you would want it to be new logo. Over time we expect it to get back to thirds and our focus was to get back to thirds without new logo declining, but to bring migrations and expansions up. In the first half, bookings across the first half show 40% is still new logo, but you're seeing the other two get stronger. The more new logos we sell, the more opportunities we have to cross-sell and upsell, and to add-ons and renewals. Increasing our install base gives us more opportunities to do cross-sell and upsell. Ultimately, having those components closer to third/third/third is a position of strength.
Very helpful, thank you. And then maybe for Linda or Eric: you called out 100% conversion from AI pilot to subscription. I know you're not disclosing what agentic monetization could look like, but some of these upsells are immediately recognizable in subscription revenue. How should we think about subscription upside in the quarter and going forward given the ease of integration and accessibility of agents — when/how those are turned on and go live and immediately recognizable in subscription revenue?
In the quarter, we did see some upside from the agents, but for the remainder of 2026, it's still a pretty small contribution because we are early in the endeavor; we just started this at the beginning of the year. But you are right that as soon as these conversions happen, that's an immediate uplift to revenue.
And as we've said before, unlike many other products where they have to ramp as we deploy them, AI agents can turn on day one and be fully deployed. So as we see that become more prevalent across our customer base, it will have a bigger impact.
Our next question is from George Michael Kurosawa with Citi. Please proceed with your question.
Thanks 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 full-time employees have been involved in all or virtually all of the deployments. With some of the leading-edge customers, are they getting to a point where they can start to run on their own and build new custom agents without as much involvement from your forward-deployed engineers?
Yes. You are correct that for pilots we include forward-deployed engineers with everyone. The reason we do that is we want to make sure people understand how to use all of the base agents and teach their teams how to modify base agents and create custom agents. The goal of our FDEs is to make sure customers find value and can be self-sufficient. Some customers are already really good at building their own agents, while others may never have that bench or depth and will continue to count on us to do it. We are happy either way.
Okay, great. And then on the restructuring activities, could you put a finer point on that? You talked about some reinvestment. Is there any component you expect to flow to the bottom line, and how are you thinking about that?
In the second half of the year at this point, we are expecting to continue to invest in sales and marketing as we have been in the first half of the year. We will also have some increase in bonus accruals as mentioned. While we will have some savings from the headcount reduction, we are not expecting to see a margin benefit from that in 2026. We are still early in planning for 2027 and do plan on reinvesting some of that savings, but we are still working through the details. One of our goals, as always, is margin expansion, and once we have more information we will provide color on 2027 as well.
Our next question is from Guy Drummond Hardwick with Barclays Capital. Please proceed with your question.
Hi, good evening. For those of us who cover industrial technology companies, I personally found the most compelling momentum from Eaton Corporation where they showed a 30% increase in shipment value, 27% improvement in warehouse cycle time at one particular facility, and $110 thousand of labor savings I believe, if memory serves; they were using Labor Agent, Wave Agent, and Doc Agent. Just wondering, Eric, for the benefit of investors on the call, how these agents are able to drive such dramatic improvements in such a short space of time for this particular large customer.
What we are seeing is that in complex warehouse sites, a high percent of what is supposed to happen every day goes right. Where customers find value is in the single-digit percent of the things that do not go right — inventory that hasn't arrived yet and is still in the yard, damaged inventory, inventory in the wrong location. These issues can wreak havoc and can back up a dock or an entire warehouse. AI agents work in the background resolving these exceptions and suggesting real-time fixes to operators, and then executing the changes necessary to fix the issue. Over time, operators can instruct the system to act autonomously for recurring decision types. These are the cumulative effects that drive the types of savings and value customers report.
It wasn't clear from the presentations, but what are customers telling you in terms of reduction in labor? Labor is the highest operating expense in a warehouse; what have you heard about labor cost reductions or overtime reduction?
We have had customers that reported labor cost reductions and reduction in overtime, and those are easy to measure. One of the bigger values customers report are improvements in exception handling — reductions in short picks, fewer late shipments, and faster cycle times — which often lead to larger overall dollar impacts across multiple warehouses, sometimes even bigger than the pure labor savings but not always as easy to calculate.
Our next question is from Parker Lane with Stifel. Please proceed with your question.
Eric and Linda, you both called out macro volatility in your prepared remarks. We've seen new tariff policies and ongoing conflicts. How is that impacting supply chain resiliency inside your customers and based on your conversations, what impact do you expect in the second half on investments from a net-new perspective or the decision to migrate to cloud or roll out new distribution centers? Is there any material impact you expect from this macro volatility, or is it just something to monitor?
We have made similar comments about macro volatility over the past several quarters. It's still volatile, but that volatility hasn't materially changed. Customers remain willing to invest in things that create value, and with three record bookings quarters in a row we have seen continued willingness to spend on areas that change outcomes and create value. We continue to monitor market volatility but customers are generally anticipating it and not getting distracted by it.
Understood. Linda, you mentioned renewals in line with the full-year plan. Can you characterize that on a dollars basis? And how do you expect seasonality to trend over the balance of the year?
Yes, that's based on dollars. Bookings for both new and renewals were solid in the quarter and we are on target to meet what we communicated for the year, which is 18% to 20% RPO growth, and we expect to be toward the high end of that range.
Our next question is from Christopher Quintero with Morgan Stanley. Please proceed with your question.
Hey, Eric and Linda, thanks for taking the question and congrats on the cloud acceleration. I want to ask about the 100% conversion from agentic pilots to deployment. What do you think is driving that success and how are you making those transitions even faster and shorter?
What is driving the success is clear, measurable value. We make it easy for customers to use and measure value with dashboards that show agent usage and the value created. That makes pilot-to-subscription conversations very short. We sell pilots with forward-deployed engineers to ensure customers find value quickly. Our architecture allows agents to be turned on the same day. We spend time identifying agents that make the biggest impact in each facility and help build custom agents for unique customer needs. Our FDEs are getting better at running through this process faster, and having our own services team gives us scale and control over deployment velocity. AI does not deploy itself — FDEs are critical.
Super helpful. On the infrastructure and technical side of the agents, how are you designing and building them to be an advantage? Are you building your own models, using deterministic and probabilistic elements, and at a high level what is the infrastructure you have built around the solution to make them an early success so far?
Great question. We use our deterministic spine wherever possible and only use probabilistic AI when it makes sense and provides value. Deterministic logic is cheaper and predictable, while probabilistic handling improves exception resolution. Our AI agents are smart enough to know when to use deterministic versus probabilistic approaches, which reduces AI cost and preserves value. This combination also means it's difficult for someone to build an effective competitor's AI on top of our platform because they wouldn't have access to that deterministic/probabilistic integration.
Our next question is from Mark Schappel with Loop Capital Markets. Please proceed with your question.
Thanks for taking my question. Eric, building on earlier comments around renewals, can you address what you are seeing in the WMS renewal cycle specifically in terms of retention, expansion, pricing, and competitive intensity?
Competitive intensity on renewals has been effectively zero; we have yet to have a customer leave us for another vendor at renewal. Renewal conversations focus on price increases and cross-sell/upsell opportunities. Our dedicated renewals team starts conversations early so we can have healthy cross-sell and upsell discussions, which was a big boost for us in the first half and leads to faster revenue growth when successful.
Great, thank you. And with respect to the Editions initiative, what do you expect as far as how it may affect your services business over time?
Editions will expand deal volume, which creates more services opportunity. Immediately, instead of putting customers in Scale which is not part of Active, we are putting them onto the Active platform, which gives them more ROI and us more ability to cross-sell and upsell. Over time, Editions will expand addressable market across geographies and company sizes and will allow easier deployment of Essentials into smaller sites within larger enterprises, creating more deals and services opportunities.
Our next question is from Clark Wright with D.A. Davidson. Please proceed with your question.
During the Momentum main keynote there were multiple references to Manhattan positioning itself as an open platform for AI capabilities. How does this impact what offerings you are building internally versus who you are partnering with to provide value to customers?
From a platform perspective, our primary cloud partner is Google Cloud and we use many Google tools including Google AI. But our AI architecture is not locked to Google — we can use other models. Our CTO evaluates the most cost-effective models and we can choose different models for different agents or parts of agents. The openness gives us flexibility. From the customer's standpoint, we work in the background to maximize value by leveraging deterministic logic and only using probabilistic models when necessary, and when we use probabilistic models we select the most economic option that achieves the needed value.
Appreciate that. You are already a leader in WMS and TMS. Can you talk about growth you are seeing in supply chain management and point-of-sale?
We are rated a leader by Gartner and Forrester in WMS, TMS, order management and point of sale. In supply chain planning, we have not yet participated heavily because we launched that product in the cloud only a year and a half ago, but we are seeing growth across all product sets. New customers are coming in and becoming new logos across all five product areas, so there isn't just one land-and-expand pattern; customers can land anywhere and expand across the platform.
Our next question is from Lachlan Brown with Rothschild and Co. Please proceed with your question.
Hi, Eric, Linda. 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 the opportunity is to repeat this success into the second half?
Sure. Upsells can include customers already subscribed increasing volumes and moving up to the next tier, which can happen if the customer is growing or if we deploy faster than the schedule agreed at contracting. We've seen both in recent quarters and those dynamics help accelerate cloud revenue growth.
Yes, that's right. Volume was up this quarter including upsells, which is helping to accelerate revenue growth.
This 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 and for the questions. We are 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.