Manhattan Associates (MANH) Q1 2020 Earnings Call Transcript

Manhattan Associates (MANH 3.14%)
Q1 2020 Earnings Call
Apr 21, 2020, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Jesse, and I'll be your conference facilitator. [Operator instructions] As a reminder, ladies and gentlemen, this call is being recorded today, April 21st, 2020. I'd now like to turn -- I would now like to introduce Eddie Capel, CEO; Dennis Story, CFO; and Matt Humphries, senior director of investor relations.

Mr. Humphries, you may begin your conference.

Matt Humphries -- Senior Director of Investor Relations

Thank you, Jesse, and good afternoon, everyone. Welcome to Manhattan Associates' first-quarter 2020 earnings call. I will review our cautionary language and then turn the call over to Eddie Capel, our CEO. During this call, including the question-and-answer session, we may make forward-looking statements regarding future events or the future financial performance of Manhattan Associates.

You are cautioned that these forward-looking statements involve risks and uncertainties and are not guarantees of future performance, and that actual results may differ materially from the projections contained in our forward-looking statements. I refer you to the reports Manhattan Associates files with the SEC for important factors that could cause actual results to differ materially from those in our projections, particularly our annual report on Form 10-K for fiscal year 2019 and the risk factor discussion in that report, as well as any risk factor updates we provide in our subsequent Form 10-Qs. We note in particular that uncertainty regarding the impact of COVID-19 pandemic on our performance could cause actual results to differ materially from our projections. We are under no obligation to update these statements.

In addition, our comments include certain non-GAAP financial measures in an effort to provide additional information to investors. All non-GAAP measures have been reconciled to the related GAAP measures in accordance with SEC rules. You'll find reconciliation schedules in the Form 8-K we submitted to the SEC earlier today and on our website at manh.com. I'd like to turn the call now over to Eddie.

Eddie Capel -- Chief Executive Officer

All right. Thank you, Matt. Well, good afternoon, everyone. And before I begin my comments related to Manhattan Associates, I want to take this opportunity to recognize and thank some of the heroes of our COVID-19 world.

The healthcare workers, first responders are appropriately receiving great commendations, respect and thanks from every corner of the world. And we at Manhattan Associates join in thanking them for their amazing dedication and the personal sacrifices that they're making to keep us healthy and also care for those that are unwell. So thank you. But I can tell you from firsthand experience, both personally and professionally, there are hundreds of thousands, maybe millions of supply chain heroes working every day all around the globe to maintain the flow of life-sustaining products, food, beverages, pharmaceuticals and yes, toilet paper, into the communities that they serve and we live in.

These heroes are putting themselves at risk every single day to keep critical supply chains moving. So thank you, thank you to the truck drivers, the warehouse operators, the retail associates and all of the supply chain professionals around the world. We're humbled and proud to be working alongside you. So thanks again for everything that you do.

So back to Manhattan Associates. And thank you again for joining us as we review our first-quarter 2020 results and cover in some detail the actions that we've taken and the innovative approaches that we've employed to adapt to today's circumstances. Additionally, we're going to be providing updates to our financial guidance, bearing in mind the impact that COVID-19 is having on our business globally. Manhattan reported another record revenue quarter despite business activity slowing in the last few weeks of March.

Specifically, we reported total revenue of $154 million that's up 4% year over year and adjusted earnings per diluted share of $0.40. Our cloud and license businesses, combined with expense management, drove our outperformance in the period. Now we've typically cautioned investors about the impacts of global macro volatility and the impacts that they may have on our business. And that is certainly a fitting disclaimer in the light of events occurring as a result of COVID-19.

And as such, we've reflected our expectations in this most uncertain time into our full-year guidance. And Dennis will go into that in much more detail in a moment. But we're taking what we feel is an appropriate level of conservatism into our forecast for the remainder of the year, reflecting what we know today, as well as the visibility we have into our business for the remainder of the year. Although it has to be said, recovery timing certainly remains the wildcard.

As we outlined a few weeks ago, we've taken proactive steps to position our business in the face of today's uncertainty. These steps are precautionary in nature, enabling us to shoulder any near-term disruptions while further investing in our business as we continue to pivot to becoming a cloud-first company. We view the actions we've taken as prudent, and we're approaching each and every day with a long-term perspective in mind. Furthermore, we've also taken swift steps to ensure the health and safety of our employees globally, while considering the needs and demands for our customers, especially those on the front lines of delivering such needed supplies to local communities.

Our daily execution has evolved into a largely virtual model, and we continue to find innovative ways to engage with customers and prospects, ensuring that they are fully supported as they navigate their way through this period, while we're still ensuring to continue our focus on cash flow generation and profitable execution. Now I would like to review some of the specific actions that will allow us to manage through this volatile period, while we're ensuring we're positioned to capitalize on market opportunities when we return to a normal -- more normal operating environment. Specifically, we've reduced our board of directors fees and the chief executive officer salaries by 25%; our chief financial officer salary by 15% and the salaries of our other named executive officers, certain global leaders and all U.S. employees by 10%.

We suspended our 401K match program here in the U.S. And for the time being, we've suspended our share repurchase program. We have instituted a hiring freeze, but only for noncritical roles across the organization. We've reduced planned outlays for discretionary spend across the organization.

And as a natural extension, we've reduced travel and marketing spend as appropriate. And these actions should allow us the flexibility in the near-term to remain focused on the long-term opportunities ahead. The steps we're taking enable us to preserve our global workforce in order to remain agile while meeting customer demands as it returns. Importantly, our market-leading product innovation also remains a priority.

And despite global economic headwinds, we're still expecting to invest 72 to $74 million in research and development this year. Now our global pipeline for customer opportunities remains healthy across both cloud and license, with notable trends in our cloud pipeline specifically. And this is due to organic demand and a continued shift from our legacy license business and the appetite for WMS in the cloud continuing to build. Given current market volatility though, we are seeing some shifts in pipeline opportunities from Q2 into Q3 and Q4.

This, I have to say, though, is different from past challenging environments where demand for software simply disappeared. The challenge now is one of timing. In fact, the rest of our year pipeline is over 20% higher than it was when we spoke last quarter, which, of course, is notably positive, specifically for our cloud business. And in terms of opportunities, we continue to see over 50% of our deal opportunities represented by net new logos.

Now turning to our services business. We're active with our customers, and we conducted about 100-customer go-lives in Q1. That's about typical of our run rate. But we've taken proactive steps to ensure large amount of services work continues virtually from project kickoffs and design, including initial build and implementation preparation.

And the go-live aspects of our services work has been shifted to a remote strategy for the most part, although we are performing limited on-site work in certain controlled situations. And we've seen project delays due to customers who are either so consumed by their high levels of business activities, such as grocers and distributors, or those who are focused on managing their own business through this difficult time period. Now with regard specifically to our retail end markets, approximately 20% of our near-term to medium-term services revenue has been impacted, and we've updated our financial guidance to reflect this. And we haven't seen any notable project cancellations.

However, we would expect to see demand pushed out for some of these impacted projects. And the proactive steps we've taken thus far will allow us to continue moving forward with the majority of our services engagement, and we'll continue to improvise and adapt to our changing environment in order to meet customer needs and market demand. And finally, on the sales and marketing front, our competitive win rates remain strong at 70-plus percent against head-to-head competition, with nearly 30% of our licensing cloud deals from either net new customers or net new products into the existing customer base. Verticals driving more than 50% of our cloud and license revenue for the quarter were pretty diverse across retail, consumer goods, government, food, beverage, grocery and life sciences.

Now turning to some of our long-term opportunities. I mentioned earlier, what these recent events have brought to light, not in an environment that we would have wished to have seen, but nonetheless, it is something that we felt and worked toward for years. And that is the supply chain is a more strategic part of our customers' business than ever before. And the software that we offer is absolutely mission-critical to their success, whether in the normal course of business or in a highly volatile period such as we see today.

And we've got countless examples of our customers who were able to quickly adapt their sales, service and fulfillment approaches in response to the changing landscape that we're all living in. These solutions go beyond streamlining and optimizing the supply chain, but are actively generating revenue and saving order volume through modern, adaptive concepts. So, let's walk through a few of those. Firstly, let's start with demand forecasting and inventory optimization.

Our application in this area deployed across a wide variety of industries, from pharmaceutical distribution to grocery to specialty retail. And our customers can model the types of demand shocks that they're seeing from COVID-19 quickly and easily. That way their inventory planning process responds immediately to these new forecast models and does so without damaging their underlying base forecasts. And it's been exceptionally important for many of our pharmaceutical and grocery distributors as they're seeing surging demand for certain product categories.

And this type of AI and ML-driven forecasting and ordering solutions will certainly pay dividends as we move through this uncertain period and trend back toward normal forecast and ordering patterns. And as we turn to our supply chain solution. When it comes to WMS, for example, the two areas we're hearing our customers take particular advantage of are adaptability and scalability. As you already know, our WMS is the best in the industry.

It's scaling up to support the exceptionally high fulfillment volumes that typically come along with e-commerce flash sales and peak holiday seasons. And what we've seen in the last month or so is that scalability being employed by businesses that typically never experience these type of demand spikes, whether it'd be pharmaceutical companies, grocers, medical equipment companies, the Manhattan WMS has been helping these customers ship two, three and four times their daily average volumes. And as you can imagine, channel shift has been very prevalent. We actually saw one customer, well-known retailer, transform their entire DC operation from retail replenishment to direct-to-consumer all within a space of six days.

And it saved 80% of their order volume that they otherwise would have lost. And while we typically see our customers use retail replenishment and direct-to-consumer capabilities in tandem, this is the first time that we've seen this type of channel flip to direct-to-consumer in such a short time frame. And further on the supply chain front, we're hearing interesting stories about the adaptability and power of our transportation management solution as well. Many of our customers are rapidly reconfiguring their supply network and store hours.

And our transportation optimization engine is helping many of our customers increase their shipment volumes to their stores by between 50% and 250%, while also incorporating changes to the operating environment, like hours of service and axle weight limitation changes that have been relaxed by the Department of Transportation. Now timing is a long way from perfect. But Gartner recently published its Magic Quadrant for transportation management system providers, and we were thrilled both again to be a leader and to notably improve our position within the leaders' quadrant. And we believe our ongoing investment in the solution has success in expanding its adoption globally.

And most of all, the terrific customer satisfaction scores we received have helped us improve our position this year. Next, closing my product remarks, there will be some anecdotes about how we're seeing our omnichannel solutions leverage in innovative ways to put forth entirely new fulfillment methods and processes all in a matter of days. A particular note is the expanded use of our store fulfillment solutions. Whilst most brick-and-mortar stores remain closed at the moment, many of those same stores are fulfilling 10x their normal volume of e-commerce orders.

The desire to monetize the inventory that's in those stores, the need to bleed workload off the distribution center and the ambition to improve speed of delivery to customers and driving expanded use of our store fulfillment solution. We even saw one customer activate and roll out the entire solution to all of their stores in less than a week. Now with that, I did want to remind you that next month we'll be hosting our annual user conference, Momentum. This year, it's going to be in a digital format.

And certainly, while we miss seeing all of our customers, our partners and our analysts in person, we still plan some significant product enhancements that will continue advancing our vision of unified commerce. So that covers the broader business update. Dennis is going to provide you with an update of our financial performance and discuss our 2020 full-year guidance in further detail. And then I'll close our prepared remarks with a brief summary.

Dennis Story -- Chief Financial Officer

Thanks, Eddie. First quarter total revenue was $153.9 million, up 4% organically over prior year, driven by our cloud and license revenue performance. Our total revenue estimate for the second quarter is a range of 122.5 to $132.5 million. Adjusted earnings per share for Q1 was $0.40.

GAAP earnings per share was $0.35, with stock-based compensation accounting for the difference between adjusted and GAAP EPS. Our adjusted earnings per share estimate for the second quarter is a range of $0.33 to $0.37. License revenue for Q1 was 9.7 million, above our expectations, but down year over year as anticipated. We signed three $1 million-plus deals in the quarter, with roughly one third of all license deals coming from new customers.

For the second quarter, we are expecting approximately 4 million in license revenue as license revenue mix continues to transition to cloud subscriptions. For the full year, we estimate license revenue will be between 23 million to $25 million. Cloud revenue was a record 17.3 million in the quarter, up 120% year over year and 10% sequentially, driven by continued customer demand for our cloud solutions across all of the verticals we serve. Of note, we closed our largest Manhattan Active Omni order volume deal in the quarter.

Additionally, we continue to see strong demand for WMS in the cloud solutions, with over 70% of our deals in the quarter coming from WMS and nearly 30% of our bookings coming from either net new customers or net new product sales into our existing installed base. For the second quarter, we are estimating our cloud revenue to be 18 to $18.5 million. And for the full year, we estimate our cloud revenue to be in the range of 74 to $78 million. We estimate our cloud and license software mix to be approximately 75% cloud to 25% license for the full year, with software performance totaling 97 million to $103 million, a record for total software despite a 51% decline in license revenue versus 2019.

Turning to bookings. As we have discussed, remaining performance obligation, or RPO, is the leading proxy of our cloud bookings performance and represents the value of contractual obligations required to be performed, otherwise referred to as unearned revenue or bookings. Our RPO for the quarter totaled $203 million, up 102% over the prior year and 18% sequentially. We continue to estimate that our year-end RPO will fall within the range of 265 million to $275 million.

For Manhattan, this disclosed value represents our cloud bookings value of unearned revenue under noncancelable contracts greater than one year. Contracts with a noncancelable term of one year or less are excluded from this reported amount. And one last point on license and cloud. As you know, our performance continues to depend on the number and relative value of large deals we close in any quarter, while large license deals historically have been important, our markets continue to shift toward subscription models.

While this is positive, deal sizes may be slightly smaller as subscription revenue is recognized over time. Further, some customers have longer implementation cycles associated with large distribution footprints, requiring a ramp subscription model, which can impact sequential and year-over-year revenue growth. We also retain appropriate caution around slow decision-making by some clients and prospects, particularly retailers in light of ongoing macro events related to COVID-19. Shifting to maintenance.

Revenue for the quarter totaled $35.7 million, roughly flat versus prior year. And as you would expect in this environment, we are purposely focused on ensuring our clients have the support they need to navigate current market uncertainty. Our customer retention rates remained strong at greater than 95-plus percent. And for the second quarter, we estimate our maintenance revenue to be between 34 million and $35 million.

Our full-year maintenance revenue is estimated to be 143 million to 144 million, nice broad range there. Turning to services. Consulting revenue for the quarter totaled $87.4 million, down 1% year over year. Services revenue trends in the near term will be dictated by the pace and degree of the normalization of business activities impacted by COVID-19.

Our estimate for second quarter services revenue is between 65 million to 72 million. At the midpoint of 68 million, this represents a sequential decline of 22% over Q1 2020. We estimate our full-year services revenue to be 289 million to $306 million. Our consolidated subscription, maintenance and services margin for the quarter was 48.7%, largely driven by continued investment in cloud and consulting services, as well as slightly lower services revenue.

Our second-quarter estimate is for a range of 51.6% to 52.4%, approximately 80 basis points higher than 2019. Our full-year estimate is approximately 51.3%, up around 40 basis points versus 2019. Turning to operating income and margin. Q1 adjusted operating income totaled $31.9 million with an adjusted operating margin of 20.7%.

For the second quarter, we estimate our adjusted operating margin to fall within a range of 22.2% to 23.2%, another tight range. Our Q4 adjusted effective income tax rate was 23.1%. We estimate our second- quarter and full-year tax rate to be approximately 24%. Regarding our capital structure.

In Q1 2020, we repurchased approximately 337,000 shares worth $25 million. While we've suspended our share repurchase activity for the time being, last week, our board of directors did approve replenishing our repurchase authority limit to $50 million. As such, we will assess ongoing market conditions and internal financial performance in determining when to reinstate our share repurchase program. This program remains a core part of our capital allocation strategy.

And for the second quarter and full year, we estimate our diluted shares outstanding to be approximately 64 million shares. Turning to cash. We closed the quarter with cash and investments of $75.3 million and zero debt. Our current deferred revenue balance totaled $105.5 million, up 12% sequentially on maintenance and cloud billings.

Q1 cash flow from operations totaled $12 million, primarily due to performance-based compensation stemming from our 2019 financial performance. Finally, capital expenditures totaled 1.2 million in Q1. We estimate full year capex to be about $5 million. So that closes the book on Q1 2020.

Turning to our updated annual guidance. We've run multiple scenarios in order to build out the appropriate framework for giving investors the best possible forward-looking view of the business as we know it today. However, as a caveat, we acknowledge that the assumptions we are making are subject to future actions taken by local, state, federal and international governments, as well as the broader impacts of COVID-19 may or may not have on the global economy. We've revised our 2020 full-year revenue outlook, lowering our total revenue forecast from a mid -- to a midpoint of 553 million, down 10.5% over 2019, driven by a 17% decline in our services revenue forecast.

We feel our services revenue forecast has an appropriate and prudent amount of conservatism built into our outlook. Considering all these exogenous factors, as Eddie mentioned earlier, we've taken aggressive expense reduction measures to protect earnings without materially impairing our ability to make key investments in R&D to further extend our competitive positioning. With our strong track record of managing expenses, from the midpoint of our annual guidance, we've reduced total expenses by about $45 million for the balance of 2020. In terms of quarterly progression, we view Q2 as likely being our weakest quarter of the year, which sequentially from Q1 2020 reflects a $24 million or 20% reduction in total expense run rate, with Q3 and Q4 showing some incremental revenue improvement as we move into a more normal business environment.

Now specifically for annual guidance. Our full-year revenue range is now expected to be within the range of $541 million to 565 million. Our full-year adjusted operating margin is expected to fall within a range of 22.9% to 23.1%, up about 300 basis points from our previous guidance of 20% to 20.5%. Our full-year adjusted earnings polluted, diluted, not polluted, share range is expected to be between $1.50 to $1.58, with a midpoint of $1.54 compared to our previous guidance midpoint of $1.57.

And our full year GAAP earnings per diluted share range is expected to be $1.16 to $1.24, with a midpoint of $1.20 versus our $1.16 previous guidance. Thank you. That covers the financial update. Back to Eddie for some closing comments.

Eddie Capel -- Chief Executive Officer

OK. Thanks, Dennis. Now to close out today's call, I want to step back just for a moment and let everybody know that despite the global uncertainty that we're all experiencing, we are acutely focused on the things that we can control. We're taking innovative and proactive approaches to customer engagements, while we're continuing to invest significantly in innovation so that we can expand our total addressable market and drive long-term sustainable growth.

Our sales and services team remain engaged in the all kinds of stages of business and project development and as we look forward to returning to the normal course of business in the future. These actions that we've taken will set us off for continued success as we move through this choppy period. And as we exit, we would expect to see solid demand for our mission-critical supply chain and omnichannel commerce products all around the globe. And we're ensuring that we're positioned to capitalize on these opportunities.

While the world moves rapidly around us, I can tell you, we're not sitting still. We continue to push possible as we move our vision of unified commerce forward. So thank you. Thank you to all of our employees, our customers, our partners and our shareholders globally.

We realize this is an extraordinary difficult time for many, and we want to continue to emphasize that we're doing our part to rise to the occasion and meet these challenges head on. Jesse, we're now ready to take any questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from Terry Tillman with SunTrust. Your line is open.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Hey, good afternoon gentlemen. Can you hear me OK?

Eddie Capel -- Chief Executive Officer

Yes, not bad. Terry, not bad, a little bit choppy, but we can hear you.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

OK. Well, it's been still, yes. So I'll start-up with my preamble. There's a lot of insight and color.

So I appreciate all that. It's great to see how you guys are helping drive some of these critical supply chains, and I will miss seeing you all day at the conference. OK, that's out of the way. So my first question just relates to conservatism.

As we think about services projects kind of pushing out, like what happened here in terms of timing of based projects going before we get into this critical window of holiday season? And you've already seen some holiday season activity from this transaction volume. But you're assuming that actually the window is so narrow that there's a fair amount of that retail-oriented kind of holiday stuff you've got to get up and running actually just moves into next year because we just won't have enough time to install. That's the first question.

Eddie Capel -- Chief Executive Officer

Yes. It's a mix of both, Terry. So we're still moving a lot of projects forward. I talked about 100 go-lives in Q1, which is round about our typical run rate.

We've got about the same number of go-lives planned for Q2. They moved to a lot of remote support and so forth. So there's a lot of go-live still moving forward. Again, a lot of the strategic projects still moving forward.

There are some -- the nonessentials is the popular term, the nonessentials and the noncriticals that I think are likely to push post peak. But we're still planning and our customers are still telling us that there is criticality around getting our systems live before the retail peak.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

OK. And it's interesting because if we look back in like global financial crisis in '09, you all have like $4 million license quarter. You had a couple of them in a row. And I know you don't want to really remember that, but you did end of 2Q, you're all talking about over $20 million worth of total software revenue, including subscription.

So I just wanted to point that out. But what's interesting is you're talking about 20% increase in pipeline. You also talked about the business feels a lot different than in past cycles. I'm just curious on that pipeline build.

What is driving that other than like the digital kind of transformation stuff, the omnichannel or just the more diverse customer activity than maybe in the last crisis, which was in '08/'09?

Eddie Capel -- Chief Executive Officer

Yes. I think it's a mixture of all of those things. Obviously, we feel like it's the innovation that we're driving into the field. There's a lot of interest in WMS in the cloud.

Manhattan Active Omni is a large portion of that. Our continued kind of global expansion and vertical expansion. As I mentioned, the challenge here, I think, is one of timing and when we see those things come to fruition. But from a overall outlook and a strategic perspective, obviously, we're encouraged by pipeline build such as that.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

And maybe just last question for Dennis. I think from a cash flow perspective, I don't know if you said anything for the full year, but is there any kind of guidepost to think about cash flow maybe in relationship to net income or operating profit? Or just any kind of puts and takes to think about as we look at our cash flows?

Dennis Story -- Chief Financial Officer

Nothing different than we put out there before, Terry, probably a ratio of about 1.1 to 1.2 of net income.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Thanks.

Dennis Story -- Chief Financial Officer

Thank you, Terry.

Operator

Matt Pfau with William Blair, your line is open.

Matt Pfau -- William Blair and Company -- Analyst

Hey guys, thanks for taking my questions. First, Eddie, why don't you extrapolate a little bit more on those comments about the current situation that you're seeing being different than what you've seen during past slowdowns when demand dissipated? And maybe just expand on what factors you believe are driving this situation to be different than past slowdowns? And then is it possible or just in a situation where it's too early to tell if demand will drop off?

Eddie Capel -- Chief Executive Officer

Well, I think there is uncertainty. There's no question about that. And the depth and the size of the crystal ball is it's certainly in everybody's hands, yours, as well as mine. I think that the commentary just from the conversations we're having and the field that we have is that we've got a shorter runway to recovery or attempt to become back to normal course of business.

So the -- so investments that are being made or planned to being made, we can still see the finish line for those, both us and our customers. We can see the finish line of when those things get finished, when they get -- and when they get executed versus in prior situations, whether it be 2001 or '08/'09, I don't think the finish line could be seen there. Now the other thing that I think is a little different for us is we've done a lot of groundwork building demand for our cloud solutions, and that is continuing to pay off. The other factor, kind of, mentioned this, about 50% of that pipeline is coming from net new logos.

So that is, I think, representative of the type of innovation that we're bringing to the marketplace and the type of innovation that the, kind of, the new operating models are going to going to need. And then finally, compared with certainly 2001, but even 2008 and 2009, we have both a broader product footprint and a greater global reach. So that -- those are the things -- major things that I think are different kind of this time around.

Matt Pfau -- William Blair and Company -- Analyst

Got it. And then just longer term coming out of this. I mean it seems like your product portfolio is pretty well aligned to the direction that the market needs to go or adapt to at least. So any changes in terms of how you guys are thinking about future investment priorities within your product portfolio? Or what areas do you expect to be robust coming out of this?

Eddie Capel -- Chief Executive Officer

Yes, that's a great question, Matt. Look, I think I mentioned in my comments, I do think that a little bit selfishly, we've wondered for a couple of decades, maybe why supply chain wasn't as a popular of a conversation in the C-suite in the boardroom as we always thought it should have been. Boy, I think it is front and center of all conversations today. So the strategic nature of supply chain when we come out of this, I think, will be front and center for sure.

I think it is recognized that supply chain and supply chain systems are absolutely mission-critical. We're right at the middle of that. I think aside for -- from sort of getting back to businesses as usual, No. 1, driving innovation into the marketplace, I think we're going to see a good deal more focus on supply chain resilience that is needed to be put in and additional supply chain contingencies that people -- our customers in the market is going to want to build, whether that would be geographically or locally.

Now as we think about sort of the shift, clearly, we're seeing during this time a shift, even greater shift toward kind of direct-to-consumer. So we think our products are on point, whether it'd be WMS, TMS, Manhattan Active Omni and our demand forecasting inventory optimization solutions. In terms of product strategy, not much change. There are some sort of adjustments that we will be making absolutely in the near term.

These are super near-term adjustments that we're making, so that things like particularly curbside, right? Curbside pickup has become very, very helpful, very popular. You lose some of the -- or a lot of the opportunity to cross-sell and up-sell if you're a retailer when you're doing curbside. So we're going to introduce, in a matter of days, some interesting and innovative solutions that will at least give our retail customers the opportunity to execute on some cross-sell, up-sell even in a curbside environment. So we will bring some new creativity to bear.

Obviously, we can do that because we've got a sort of version-less cloud-native solutions. But the overall product strategy remains intact.

Matt Pfau -- William Blair and Company -- Analyst

Great, that's all I had. Thanks a lot guys.

Eddie Capel -- Chief Executive Officer

Very good. Thank you, Matt.

Operator

Next question comes from Brian Peterson with Raymond James. Your line is open.

Brian Peterson -- Raymond James -- Analyst

Hi darling, thanks for taking the question. So, Dennis, I think the recurring gross margins, you had that up a bit for the full year. Given what we're seeing on the services side, I'm a little surprised that margins wouldn't come down a bit as well. I know there's some other moving parts there.

But any color that you can add on what's helping the margins? And I'm also curious, the shift toward virtual services deployments, how does that impact the overall margin structure?

Dennis Story -- Chief Financial Officer

Yes. So I'll let Eddie answer the shift to virtual. But on the overall margin profile, the reason it's going up, Brian is, one, denominator, significant haircut on revenue and the aggressive expense management actions that we took. So we've taken about $45 million over the last three quarters of expense across the organization out of the business.

And obviously, services is a large component of that.

Eddie Capel -- Chief Executive Officer

Yes. From a virtual perspective, I mean we're -- I think that I got to say the teams are executing very well. The customer organizations are adapting incredibly well, like, it was all kinds of creative solutions that are being employed. And honestly, there's very little fall off.

There is some, but there's very little fall off in productivity and efficiency.

Brian Peterson -- Raymond James -- Analyst

Understood. And maybe I think I heard this right that you were able to kind of pivot with one customer in terms of their e-commerce functionality in six days, as we think about customers really adjusting in real-time to the supply chain needs. Are you able to really move that services capacity around and kind of help them within days and months as they kind of struggle with this dynamic?

Eddie Capel -- Chief Executive Officer

Yes, we are. We are. Yes. Actually a couple -- that six-day week situation are two of them.

One of them was a distribution center that was moved from being a retail replenishment, so ship to store DC to a direct-to-consumer facility on a space of a week. And we had one other customer that was sort of interesting, names -- I'll leave the name off the charter here. But their distribution center was closed by the local government. They only had one distribution center, and it was closed.

And I said, my goodness, what did we do? We said, why don't you start shipping from store? You got inventory there, the stores are closed, you can put -- they were able to put staff in the store. So they pivoted from using WMS to distribute product through actually using our Manhattan Active Omni solution to ship product out of the store, all in a space of six days. Pretty amazing.

Brian Peterson -- Raymond James -- Analyst

That's great to hear. Thanks Eddie.

Eddie Capel -- Chief Executive Officer

My pleasure Brian, thank you.

Operator

Your next question comes from Yun Kim with Rosenblatt. Your line is open.

Yun Kim -- Rosenblatt Securities -- Analyst

Thank you. Hi, Eddie and Dennis, I have a quick question in reference to your comment about 20% improvement in your sales pipeline. Just curious, how much of that pipeline improvement did you see, let's say, after the first week of March?

Eddie Capel -- Chief Executive Officer

It was pretty consistent across the quarter, Yun, actually. I know it might be surprising, but I think that -- I can't fully explain why, but it was pretty balanced across the quarter. I suppose one hypothesis could be, as some businesses are sort of idling, they're taking the opportunity to focus on strategic projects, that could be one reason. But it was spread pretty equally across the quarter.

Yun Kim -- Rosenblatt Securities -- Analyst

OK. Great. That's good to hear. And then also, can you just talk about some of the trends that you are seeing out there in the midst of COVID-19? I know you mentioned it in your prepared remarks.

But isn't there a greater motivation for customers to move to the cloud sooner than later? And I know you said that the cloud deployments tend to be more gradual. But are you seeing customers or hope -- maybe seeing customers perhaps thinking about having a faster deployment cycle once the environment -- the spending environment returns to normal?

Eddie Capel -- Chief Executive Officer

I would say that that is true independent of anything else that's going on with COVID. In the last, shall we call it, 75 days or so, I wouldn't say that we've seen any types of shifts or trends of that type. There hasn't been time, frankly. And businesses have been focused on either dealing with the incredibly high volumes and velocities they've got, coming at them, or creative solutions to be able to keep their businesses moving forward, such as the ones that we've talked about a little bit are adapting their strategies.

And we haven't really got to any particular trends around infrastructure deployment. But I would tell you that has been the trend, again, regardless, particularly for us over the last 12 to 24 months.

Yun Kim -- Rosenblatt Securities -- Analyst

OK. Great. And then for Dennis, how should we think about the margin for the services business? And then also, is that -- is the services business, could that potentially see an immediate uplift once the current travel restrictions get lifted?

Dennis Story -- Chief Financial Officer

I don't -- one, we're not splitting out the services margin profile, Yun. So could we get an uplift if demand just snaps back, sure, probably. From a revenue perspective, for sure.

Eddie Capel -- Chief Executive Officer

I would say, though, Yun, from -- I mean like we're all seeing this. This is not unique to us. It appears that business is going to open and the economy is going to open gradually. It's going to be regional, if not state specific.

So I'm not sure that we're going to see a real fast snapback in any size sort of immediacy. I think we'll see it be gradual. Now, as I said, though, we're being pretty effective operating in a virtual environment, which also, in a way, would sort of dull that snapback a lot -- a bit because we're already operating reasonably effectively.

Yun Kim -- Rosenblatt Securities -- Analyst

OK, great. Thank you so much.

Eddie Capel -- Chief Executive Officer

My pleasure and thank you.

Operator

Your next question comes from Mark Schappel with Benchmark. Your line is open.

Mark Schappel -- Benchmark- Analyst

Hi, thank you for taking my question. And let me first say a good job bringing in the quarter. Eddie, starting with you, in your prepared remarks, you mentioned that you're seeing, I think, what you call a tail shift becoming more important to some of your customers. And I was wondering if you could just go into a little deeper with respect to your comments, maybe as an example or two.

Eddie Capel -- Chief Executive Officer

Yes, sure. I mean simply put, Mark, it's a move away from any bricks and motors selling to direct-to-consumer. Now that's with the exception, of course, of the central businesses, the home improvement and the grocery and the pharmacy folks that are open and are seeing surging volumes. But just about everybody else has to through necessity ship to -- shift to direct-to-consumer.

The other factor there is that some of our customers with seasonal products are moving to some pretty aggressive sales strategies, online sales strategies, because they don't want to get stuck with seasonal inventory that they can't move. And that's actually driving some pretty high volumes of direct-to-consumer business. So that really is the type of shift that I'm referring to.

Mark Schappel -- Benchmark- Analyst

Great. And then one additional question here. As you're aware, supply chain solutions require very significant commitments in terms of higher money from customers. And it often takes a face-to-face meeting to push a deal over the goal line.

I was just wondering if you could just give us an idea, a little bit more details on how the company is managing through the current disruptions without conducting, say, on-site pilots or holding face-to-face meetings?

Eddie Capel -- Chief Executive Officer

Yes. Well, I mean, look, suffice to say, now there are no face-to-face sales meetings, product demonstrations and so forth, they're all being conducted virtually. I mean one of the things that we've been very pleased with is, frankly, our tech infrastructure for our 3,500 people up around the world is not just held up, has performed flawlessly. And that's for all of our 900 people or so in research and development, as well as professional services and customer support organization.

We've actually put in a -- I'm not all track here, but we put in a special customer support program for those that are shipping important and essential commodities into communities to make sure that we're giving them 24/7 support for all these very high volumes they're seeing of essential products. But then as we shift to sales and marketing, all those meetings are happening virtually. I think the world is getting more comfortable, frankly, with virtual meetings, with video meetings and Webex, Teams, Zoom and everything else. And so far, the market has been pretty receptive to those types of meetings.

Now there's no question that we would, in more ways than one, we prefer to be back in front of our customers and prospects. But in the meantime, we've got some great technology that really gets us pretty close.

Mark Schappel -- Benchmark- Analyst

Great. Thank you. That's all for me.

Eddie Capel -- Chief Executive Officer

Thank you, Mark.

Operator

[Operator instructions] Your next question [Inaudible]

Unknown speaker

Hi, can you hear me?

Eddie Capel -- Chief Executive Officer

Yes, sir. Hi, Joe.

Unknown speaker

I wanted to go back to this idea of Manhattan as a net beneficiary coming out of this. And the thing that came to mind, the 20% sequential increase in the pipeline. Is that a result that's actually better than seasonally it might be the case for this point in the year? Are you already starting to see kind of a lead gen uplift, if you will, given the current environment?

Eddie Capel -- Chief Executive Officer

No, not really, Joe, to be perfectly honest with you, because the first couple of months of the year, we were honestly seeing really no impact from the COVID situation. Let's call it, the last month, even a little bit less than that of the quarter, we started to see some impact. So I don't think it's seeing a surge because of that. We are seeing, as I mentioned before, a positively disproportionate level of interest in our cloud solutions and supply chain solutions move into the cloud.

So that, I think, is part of it. Again, our broader product footprint, I think, is driving some of the pipeline growth. And our geo expansion, to a lesser extent, but our geographic expansion as well.

Dennis Story -- Chief Financial Officer

Joe, WMS is -- demand for WMS in the cloud pipeline has been a bit of an accelerant as well. So we continue to see the pipeline strengthen on the WMS side.

Unknown speaker

OK. That's great. And then I just wanted to clarify or, I guess, make sure I heard something correctly. Eddie, in your prepared remarks, I think you said that 20% of near-term to mid-term service revenue is impacted by, if I heard this right, the retail vertical.

And I just want to check that because you're bringing the service full year guide down by about 20%. I don't know if it's a coincidence. Those are the same numbers. But it would actually imply that maybe outside of the retail vertical a lot of project activity is still humming.

And I would imagine, be it grocery, food and beverage, life science, maybe you've actually gotten a little bit of uplift. So just any thoughts there.

Eddie Capel -- Chief Executive Officer

Yes, that's about the right analysis that you put into that, Joe. There's no question that kind of specialty retail, department stores and so forth there being or seem to have been impacted disproportionately. That's why we're seeing that that shift. But we are seeing, certainly, the life sciences space, grocery, 3PL move up a little bit.

Unknown speaker

OK, great. I'll leave it there. Thanks everyone.

Eddie Capel -- Chief Executive Officer

Very good. Thank you, Joe.

Operator

And there are no further questions at this time.

Eddie Capel -- Chief Executive Officer

OK. Very good. Thank you, Jesse, and thank you, everybody, for joining the call. Thank you, as always, for your support of Manhattan Associates.

We'll look forward to speaking with you again in about 90 days. And we certainly hope that everybody out there is safe, remains safe. And is -- we are all in a better spot 90 days from now. Good afternoon.

Operator

[Operator signoff]

Duration: 58 minutes

Call participants:

Matt Humphries -- Senior Director of Investor Relations

Eddie Capel -- Chief Executive Officer

Dennis Story -- Chief Financial Officer

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Matt Pfau -- William Blair and Company -- Analyst

Brian Peterson -- Raymond James -- Analyst

Yun Kim -- Rosenblatt Securities -- Analyst

Mark Schappel -- Benchmark- Analyst

Unknown speaker

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