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Manhattan Associates Inc (MANH -1.78%)
Q2Â 2020 Earnings Call
Jul 23, 2020, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon, my name is Jason and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates Q2 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, July 23rd, 2020. 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 call.
Matt Humphries -- Senior Director of Investor Relations
Thank you, Jason, and good afternoon everyone. Welcome to Manhattan Associates second 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, 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 the reconciliation schedules in the Form 8-K we submitted to the SEC earlier today and on our website at manh.com. Now, I'll turn the call over to Eddie.
Eddie Capel -- President and Chief Executive Officer
Hey, thanks, Matt. Well, good afternoon, everyone and thank you for joining us as we review our second quarter 2020 results and we discuss our outlook for the balance of the year. Before we go into detail about how the business performed in the quarter, I wanted to take a step back for a moment and just make a couple of high-level comments.
Now at Manhattan Associates, we're committed each and every day to serving our customers. Frankly, our customers depend on us to execute every single day and deliver on our promises so that they can deliver on their promises. Their customers, consumers depend on them to deliver the goods and services that they need to live and never has this been more critical than during this global pandemic. And it's more apparent than ever that there is a growing market need for modern, adaptable supply chain inventory and omnichannel solutions, and the criticality of that need is not lost on us, and we believe that we're very well positioned at the intersection of this changing world.
So now back to the discussion of our results. Manhattan reported a solid quarter despite the visible effects that COVID-19 is having across the global economy. Specifically, we reported total revenue of $136 million and adjusted earnings per diluted share of $0.40, both of which exceeded our expectations. Cloud, license, and services revenue combined with disciplined expense management drove solid earnings leverage, delivering an adjusted operating margin of 25.3%. That's about 200 basis points higher than the same period last year. And while we've seen better than expected demand for our supply chain and omnichannel products and services, the near-term timing and continued pace of economic recovery is somewhat unclear. But in our world there are signs that seem to be encouraging and as such, we're raising our full-year total revenue and adjusted EPS guidance to reflect our views for the balance of the year.
Now we continue to invest in the business to drive long-term sustainable growth while focusing on profitable execution and diligent capital allocation in order to capitalize on the evolving market trends. And furthermore, our dedication to innovation remains and we expect to invest nearly $80 million in R&D this year even with this macro backdrop.
Now looking at our current pipeline, we see a pretty healthy set of global opportunities with our cloud pipeline trending favorably giving us confidence and reinforcing our belief that the mission-critical products that we offer are needed now more than ever. Specifically, over 60% of our pipeline at the end of the quarter is comprised of cloud opportunities and that's compared with 40% a year ago and while we've seen some delays in closing pipeline opportunities, we haven't experienced any notable cancellations and our second half pipeline is trending somewhat favorably relative to our first half.
And additionally, we're seeing a broader and more diverse set of opportunities in our pipeline as interest grows from non-retail verticals such as automotive, third-party logistics, life sciences, automotive and then all the way to manufacturing and wholesale. And finally, about 50% of our deal opportunities continue to be represented by net new logos globally.
Now turning to our services business. Despite having the restriction of limited face-to-face engagements with our customers, we remained active providing real-time support and delivering a variety of project work while executing system go-lives remotely. In the second quarter, we conducted nearly 130 system go-lives reflecting solid execution in the current environment. And by the way, billed travel, which is margin neutral, but does contribute to the overall services revenue is down significantly versus last year for obvious reasons and this represents about a 4% headwind to year-over-year services revenue growth.
And while the lack of travel and face-to-face engagement is challenging, the ability of our professional services team to continue to deliver high-quality, complex work remotely really underscores our ability to adapt and to deliver in this dynamic and difficult time. Now on the sales and marketing front, our competitive win rates remained strong at about 70% plus against our head-to-head competition with about 30% of our license and cloud deals representing net new customers.
And here we are at the halfway point really of our five-year cloud transition and we're experiencing a significant shift in market demand for our cloud solutions across all of our verticals. And verticals that collectively drove more than 50% of our cloud and license revenue in the quarter were retail and consumer goods, government and food, beverage, and grocery. And within these verticals, we saw robust demand for specific capabilities within our Active Omni suite such as buy online pickup in store, curbside pickup, and store inventory fulfillment.
With so many physical stores closed during Q2, the ability of retail and consumer-facing brands to fulfill orders in creative ways was really in great demand and we were able to stand up these solutions really in a very short amount of time. And the ability for these brands have flexible distribution and selling channels is really more critical than ever and the solutions that we offer have become a key enabler to these activities.
I'd like to just for a minute pivot a bit and give you some updates on recent advancements across our product portfolio. So let's start with maybe one of the most significant enhancements in our company's history. During our online user conference in May, Momentum Connect, we unveiled Manhattan Active Warehouse Management, the next generation of warehouse management, rearchitected from the ground floor up as cloud native, micro services based, and a versionless application. Manhattan Active WM is a step change in agility and speed of innovation within the supply chain execution landscape. With Manhattan Active WM, we're able to deliver new feature functionality every single quarter while still offering full extensibility of the core application.
While our customers continue to be extremely satisfied using our base capability inside of warehouse management, we see that customer driven extensibility as a solution imperative with the ability for our customers to add their secret sauce and innovation on top of our platform all while taking advantage of new capabilities that we deliver every single quarter. And we believe this is a really winning combination as well as a first of its kind in the supply chain execution industry. And the underlying technology, which makes this all possible, is our Manhattan Active Application Architecture that made its debut in 2017 when we launched Manhattan Active Omni.
Now relative to live customers, we had an early adopter customer live on Manhattan Active WM prior to our release announcement at Manhattan Connect. Pet Supplies Plus, they went live in April and actually due to unforeseen events associated with the pandemic, they've been shipping record volumes with Manhattan Active WM ever since and they are now planning to roll out the remaining DCs in their network. And additionally, we've also signed several other customer implementations of Manhattan Active WM. They are under way. They were large Tier 1 global brands and we closed them inside the quarter.
Now in addition to its groundbreaking technology, Manhattan Active WM delivers a number of next generation feature function enhancements, including consumer grade configurable mobile applications for the associates inside the distribution center, a suite of in-line analytical user interfaces built right into Manhattan Active WM, which we call our Unified Control screens and the next generation of algorithm focused on taking operational optimization simply to the next level. And finally, we've got a brand new set of capabilities that we call employee engagement, a whole new way for distribution center managers and associates to interact with one another throughout the day.
So in brief, that's Manhattan Active WM, and as you would imagine, we are very excited about this particular release and it's really been the largest product investment in the history of Manhattan Associates. And while the time frame and expense of the undertaking were certainly significant, we felt that it was undoubtedly the right path to position both Manhattan and our customers to deliver best-in-class performance for the next decade. And while Manhattan Active WM was admittedly our focal point of our attention in recent times, I am excited that we've been able to make significant strides in parallel across other applications within our portfolio. So I'll touch on just a couple of those.
First, staying with our supply chain suite, we recently shipped an exciting new version of our transportation management solution that included an all-new major update to our dispatch capability and a significant update of our transportation modeling solution. For our customers who operate their own delivery fleets, dispatch management is really an integral part of their transportation management operation and a number of our fleet operating customers were already signed up to move to this completely redesigned and rebuilt solution and we're excited to help them power the ever-growing last mile delivery network of today and tomorrow.
And next, a quick update on Manhattan Active Omni, as I mentioned in Q1, our Manhattan Active Omni customers are really innovating at record pace to adapt their order fulfillment delivery and pickup methods in light of the changing regulations associated with the pandemic. The volumes we're seeing so far for BOPUS orders and buy online pickup in store are really off the charts, frankly, with some of our customers' experiencing tenfold increases in volume. And additionally, in Q2, we accelerated the release for curbside pickup into both our digital self-service and store fulfillment modules. As consumer research indicates that curbside pickup is one of those fulfillment methods likely to persist even after the pandemic and having an industrial strength process and technology in place is really a must-have for omnichannel retailers. Now because of the Manhattan Active architecture, we were able to make curbside pickup support available to all of our Manhattan Active Omni customers in really record time.
And last but not least on the product side, we launched a completely new application within our inventory suite, Momentum Connect, this quarter. It's called Manhattan Active Allocation and its purpose-built for our fashion and apparel retail customers because while we've had best-in-class forecasting and replenishment applications for our customers who manage relatively static product assortment, Manhattan Active Allocation is the first time we'll have a sophisticated inventory optimization offering for our fashion customers who manage their inventory using a completely different process.
And Manhattan Active Allocation launches with really two major differentiating features. Omnichannel is built right into the core of its design and it also resides on the Manhattan Active application architecture, which we talked about before and we think this is really a game changer for the soft lines allocation space. And we plan to make it generally available a little bit later in the year.
So hopefully, you'll agree, it was a pretty big quarter for the evolution of our product portfolio and we're excited to work with our customers to light up all of these new capabilities. So that covers my broader business update and Dennis is going to provide you with an update on our financial performance, discuss our 2020 full-year guidance, and then I'll close with a few prepared remarks and a brief summary. So, Dennis?
Dennis Story -- Executive Vice President and Chief Financial Officer
Thanks, Eddie. So for second quarter, total revenue was up [Phonetic] $135.6 million, down 12% over the prior year solely related to COVID-19 impacts. Our total revenue estimate for the third quarter is a range of $136 million to $140 million. Adjusted earnings per share was $0.40; GAAP earnings per share was $0.30 with stock-based compensation accounting for the difference between adjusted and GAAP EPS. Our adjusted earnings per share target for third quarter is $0.39 within a range of $0.38 to $0.40.
License revenue was $5.7 million in the quarter, above our expectations, but down year-over-year as demand for our solutions continues to shift to cloud. We signed two $1 million plus deals in the quarter with roughly 20% of all license deals coming from new customers. For the third quarter, we expect between $5 million to $7 million in license revenue. For the full-year, we now estimate license revenue will be approximately $28 million to $31 million. Of course, as we pointed out in our release and earlier in the call, uncertainty about the COVID-19 pandemic could affect our performance against our estimates.
Cloud revenue was a record $18.5 million, up 105% year-over-year and 7% sequentially driven by continued customer demand for our cloud solutions across all of the verticals we serve. Of note, we signed two new Manhattan Active Warehouse Management deals in the quarter, both global Tier 1 customers. No question, WMS and the cloud momentum continues to build. Over 70% of our deals in the quarter came from WMS and approximately 45% of our bookings were from either net new customers or net new product sales to existing customers within our installed base with a diverse set of opportunities to continue to sell into our existing customer base.
For Q3, we estimate our cloud revenue will be $19.5 million to $20 million, which represents about 40% growth year-over-year against a very strong comp driven by our FEMA deal we signed last year. Ex FEMA, the year-over-year growth rate is about 50% and for the full-year, we estimate our cloud revenue will be $76 million to $78 million, up about 65% at the midpoint. We estimate our cloud and license software mix will be approximately 70% cloud to 30% license for the full-year with total software revenue in the range of $104 million to $109 million. At the midpoint of $106.5 million, total software revenue revenue is up 11% representing a record software year while staring down a pandemic and absorbing a 40% decline in license revenue versus 2019.
Turning to bookings, as we have discussed, remaining performance obligation or RPO is the leading proxy for our cloud bookings performance and represents the value of contractual obligations required to be performed, otherwise referred to as unearned revenue or bookings. Our RPO for the quarter totaled $225 million, up 87% over prior year and 11% sequentially. We continue to estimate that our year-end RPO will fall within a range of $265 million to $275 million. For Manhattan, this disclosed value represents our cloud bookings value of unearned revenue under non-cancelable contracts greater than one year. Contracts with a non-cancelable term of one year or less are excluded from the reported amount.
And one last point on license and cloud, our performance does continue to depend on the number and relative value of large deals we close in any quarter. 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 COVID-19. So moving on to maintenance, revenue for the quarter totaled $35.9 million, down 4% versus the prior year. Our customer retention rates remained strong at greater than 95% plus. For the third quarter, we estimate our maintenance revenue for Q3 will be approximately $36.5 million to $37 million and for full-year 2020, our estimate is $145 million.
Turning to services, consulting revenue for the quarter totaled $71.8 million, down 24% year-over-year as expected and solely driven by COVID. Again, I'd like to point out that excluding billed travel, we're down about 20% year-over-year. We expect near-term services revenue trends will continue to be governed by the pace and degree of the normalization of economic activity impacted by COVID-19. We estimate our services revenue for Q3 will be approximately $72 million to $73 million and our full-year 2020 services revenue will be in a range of $292 million to $303 million.
At the midpoint of $297.5 million, services will be down about 17% versus 2019. Excluding billed travel, services revenue is down 14% and includes our expected seasonal fourth quarter decline due to retail peak season. Our consolidated subscription maintenance and services margin for the quarter was 52.4% driven by operating leverage as our cloud revenue begins to scale. Our third quarter estimate is approximately 52.4%, approximately 270 basis points higher than 2019. Our full-year estimate is approximately 51.2%.
Moving to operating income and margin. Q2 adjusted operating income totaled $34.3 million with an adjusted operating margin of 25.3%. For the third quarter, we estimate our adjusted operating margin to be within a range of 24% to 24.2%, nice tight range there. Our Q2 adjusted effective income tax rate was 24% and guess what, our third quarter and full-year tax rate will be approximately 24% as well.
Regarding our capital structure, we suspended our share repurchase program effective April 1, 2020 as previously discussed. Our repurchase authority limit remains at $50 million and this program continues to be an important part of our long-term capital allocation strategy. We will continue to evaluate the appropriate time for a resumption of our buyback program. For the third quarter and full-year, we estimate our diluted shares outstanding will be approximately 64.5 million.
Turning to cash, we closed the quarter with cash and investments of $124 million and zero debt. Our current deferred revenue balance totaled $119 million, up 13% sequentially on maintenance and cloud billings. Q2 cash flow from operations totaled $49 million. Capex for the quarter totaled $0.5 million. We estimate full-year capital expenditures to be in the range of $5 million to $7 million.
Now I'll turn to our updated annual guidance. We continue to model and review multiple scenarios in order to provide the investment community with our best estimate of financial performance for the remainder of the year. While these estimates have been rigorously vetted, there are certain external factors that are out of our control and may produce results that are different from what we've modeled.
Specifically for annual guidance, our full-year total revenue range is now expected to be between $554 million to $570 million. Our target objective is to achieve $562 million in total revenue. Our full-year adjusted earnings per share -- diluted per share range is expected to be between $1.53 to $1.59. Our target objective is $1.56 compared to our previous guidance midpoint of $1.54. And our full-year GAAP earnings per diluted share range is expected to be $1.17 to $1.23 with a midpoint of $1.20. And our full-year adjusted operating margin is expected to fall within a range of 22.9% to 23.1%. So that covers my financial update. I'll turn the call back over to Eddie.
Eddie Capel -- President and Chief Executive Officer
Okay, thank you, Dennis. Well, as we close out today's call, we recognize that the world is evolving fast from changing cultural norms to diverging consumer tastes and behaviors. There's never been a more crucial time to have a modern, adaptive, and flexible supply chain and omnichannel commerce set of solutions. To win today means investing in the future and we recognize this and we continue to see our customers adapt to this paradigm and as a leader in the digital commerce space, our goal is to enable our customers to succeed and to be resilient through continued innovation and by investing in a talented global workforce. We believe that we're well positioned to capitalize on these trends and see no shortage of opportunities as we progress on our path of long-term sustainable growth for our stakeholders.
At Manhattan, we never settle. Even in these difficult times, we remain focused on delivering on our commitments, advancing our product portfolio through market leading innovation and ensuring our customers are equipped to succeed in this challenging macro dynamic. We've experienced challenges like this before, although this one is a bit different, admittedly and we've consistently emerged stronger and better positioned and we see no reason as to why this time is any different. Our people, our innovation, and our culture are the heart and soul of our organization and that's why I'm just so excited about what the future holds for all of us here at Manhattan Associates. So, Jason, I'm ready now to take any questions.
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from the line of Terry Tillman from SunTrust Robinson. Your line is open.
Terry Tillman -- SunTrust Robinson -- Analyst
Yeah, hey gentlemen, good afternoon. Eddie, it's nice to see the early traction with the cloud WMS product and calling out two Tier 1 wins. What I'm curious about, it's a two-part question, then I'll have a follow-up or two, but on the Tier 1 wins, are they going enterprise wide with the roll out of the cloud native WMS or is it more kind of isolated sites? And how do you see this kind of rate of adoption of the cloud WMS versus other cloud products in the past? And then I have a couple of follow-ups.
Eddie Capel -- President and Chief Executive Officer
Yeah, so both of the deals are definitely with Tier 1 global customers. They are very nice substantial deals, but there is still a lot of upside behind them for the global roll out for sure. And with regard to kind of adoption -- well it's enthusiasm, adoption, and momentum. I would say, it's early, of course, given that we just announced in mid-May, but it feels very strong, great enthusiasm from really across the board, customers, prospects, industry analysts and so forth are pretty excited about the solution and as we mentioned, pipeline seems pretty strong. Engagement with both prospects and customers is high. So the prospects look pretty good.
Terry Tillman -- SunTrust Robinson -- Analyst
That's good to hear. Two follow-ups. The first one on the non-retail strength. What we see a lot is new business models from wholesalers and manufacturers really starting to do direct-to-consumers at their end customers. So they're building websites, they sell [Phonetic]. I'm assuming that has big implications on the fulfillment side and supply chain side, but what are you seeing in non-retail segments going forward? Do you see a growing kind of TAM around that heretofore you weren't really serving?
Eddie Capel -- President and Chief Executive Officer
Well, so there's two pieces. You've made the point about the branded guys who are going kind of direct-to-consumer. There are also industries that are starting to go direct-to-consumer that we maybe would have not sort of expected to before and haven't maybe seen as retailers. Just one example, automotive spare parts, for example, typically captive to the dealer network and so forth. You're starting to see those secondary markets look like direct-to-consumer, which is a great opportunity for us, number one. As we release our new solutions particularly WM, cloud native innovation that we're delivering on a quarterly basis, we certainly do see the opportunity for penetrating in verticals that we may not have been the strongest in the past. CPE is one that sort of springs to mind where we're seeing some good early interest. So opening up some additional TAM certainly.
Terry Tillman -- SunTrust Robinson -- Analyst
Yeah, just my last question, thanks Eddie so far for the answers, is on the services side. I thought I had my notes that you'll were looking for about 100 or maybe a little under 100 go-lives. I think Dennis said 130. So it seems like you beat expectations. You did raise services for the year. I guess what's driving that to be ahead of expectations just given the pandemic. Are people -- are you more efficient in the services doing it virtually than you thought or are there just more projects moving forward than you thought. That's it for me. Thank you.
Eddie Capel -- President and Chief Executive Officer
Yeah, a few more projects than we thought, Terry. I mean, look, honestly, we were unsure coming into the quarter as to exactly how things would pan out and frankly, they firmed up. They firmed up a little bit as the quarter went on and I think all of us personally and professionally were a little unsure and there's still a great deal of uncertainty going -- moving forward, there's no question about that, but things firmed up for us. Yeah, so we're pleased about that and very pleased with the ability of the team here to be able to execute in pretty unusual circumstances, but thanks for your questions.
Terry Tillman -- SunTrust Robinson -- Analyst
Thank you.
Operator
Your next question comes from the line of Matt Pfau from William Blair. Your line is open.
Matt Pfau -- William Blair -- Analyst
Hey guys, thanks for taking my questions. I wanted to first start off with a follow-up on the Active WM product. And maybe you can just talk about the interest you're seeing there in the pipeline, is that more weighted toward new customers? Or is it existing WM customers that are looking to move their on-premise deployment to a cloud one?
Eddie Capel -- President and Chief Executive Officer
Yeah, that's an interesting question, Matt. It is just about smack down the middle 50-50 existing customers and in new logos. I mean to give you some other sort of commentary around that, it is surprising maybe that it is smack down the middle, but 50-50. So we're very encouraged by that.
Matt Pfau -- William Blair -- Analyst
Got it. And you talked about the higher volumes in Active Omni from some of your retailer customers. Can you just remind us, are you able to monetize those from a revenue perspective or how do those contracts work when you see customers that are doing sort of 10x the either store fulfillment or other activities that they were previously doing?
Eddie Capel -- President and Chief Executive Officer
Yes, there's definitely upside for us there. Most of our contracts are annual volumes. So when you see a short-term pickup in volume, there is no immediate impact for us. It really gets reconciled kind of at the end of the year, but certainly a positive for sure.
Matt Pfau -- William Blair -- Analyst
Got it. And last one from me and I'll pass it on. So you talked about some of the changes that we're seeing by COVID-19 and obviously, there's a few -- tough to tell how everything will play out, but there is a few sort of long-term trends that seem obvious. So one is the much faster shift to e-commerce than we were previously seeing and others probably a smaller physical footprint or some of these stores that are multi-purpose. When you think about your positioning and your product road map, how do you think that, that aligns with some of these long-term changes. So I guess, long-term are these changes driven by COVID-19 headwinds or tailwinds to Manhattan?
Eddie Capel -- President and Chief Executive Officer
Well, so I think the simple headline answer is it's very positive for us. Now, obviously, the impact of COVID on the global macro and so forth, if we put that aside and to your point, talk about the shift in the dynamics of retail and so forth, we've been on the front end of course of servicing direct-to-consumer omnichannel customers really for more than a decade. It's a strength of ours. We've always predicted continued shift from bricks and mortar to digital and this acceleration is really just very, very helpful for us.
I mean I think there's going to be some kind of pull back of today's numbers when we get back into a situation where bricks and mortar are fully open, but I do think that clearly some of these initiatives, curbside particularly, buy online pickup in store, that they are going to remain just simply because of the convenience that people have now really realized is there. So right in the sweet spot of where we've been operating and where we're going.
Matt Pfau -- William Blair -- Analyst
Yeah. All right, great, thanks for taking my questions guys.
Eddie Capel -- President and Chief Executive Officer
Our pleasure, Matt. Thank you.
Operator
Your next question comes from the line of Joe Vruwink from Baird. Your line is open.
Joe Vruwink -- Baird -- Analyst
Great. Good afternoon, everyone. I wanted to go back, Eddie to the interest Active WM has been seeing from new logos and just thinking out loud, some of your peers in the WMS space that have had a cloud offering, the way they have talked about it is that the interest originally came from smaller customers maybe more SMB and more recently, they've started to see the interest from the enterprise segment.
You are kind of the gold standard in the enterprise segment and so, are the new logos still similar to your traditional customers or is this actually broadening your audience and you're starting to get in front of maybe the type of organization that hasn't been a target of Manhattan in the past, but just given the virtues of cloud and some of the difference in economics, maybe it suddenly makes sense?
Eddie Capel -- President and Chief Executive Officer
Yeah, good question, Joe. So I would say that the early interest has certainly been with what we would consider Tier 1 customers. I think that there has been a sort of -- not a shift, but a little bit of change. Some of the cloud solutions that have been out there for a while are really candidly on-premise solutions that are hosted in the cloud, which is great if you're trying to not be in the data center business and so forth, you can kind of move yourself off to the cloud and that's been attractive to kind of the lower tier customers, but when you build a true native cloud application, have the ability to be able to deliver real first class and world-class innovation every 90 days, that sure becomes appealing to Tier 1 customers around the world.
So I think that's really the difference and why we've seen Tier 1 customers now truly embracing cloud WM versus it just being sort of a simple lift and shift. Hey, I don't have a big IT organization, so I'll pop it up in the cloud. So that would be sort of answer number one. In terms of our ability to be able to now have a broader geographic reach, a broader reach into all tiers, that is certainly something that is an objective of ours. It is well aligned with a true cloud strategy, but the early interest is largely being with Tier 1.
Joe Vruwink -- Baird -- Analyst
Okay, great. And then the other half of where the interest is coming from, thinking about your existing installed base, do you have a way of thinking about -- I think there is north of 1,200 Manhattan customers at this point, not all WMS, probably, but there is a lot out there of what's kind of the migration timeline might looks like? Typically, five years has been a normal upgrade cycle. Is maybe 20% of the installed base thinking about an upgrade every year. Just how would you kind of conceptualize within your existing base?
Eddie Capel -- President and Chief Executive Officer
Yeah, I mean I think it's a fair way to look at it. There are those natural upgrade cycles that we're going to be able to kind of latch on to, to use that expression. I think that there is the opportunity for some folks that will accelerate those upgrade discussions because they can get their hands on brand new innovation that delivers real ROI faster and we're going to certainly help them with those business cases. We're going to see -- clearly, we're going to see some customers as we always do with technology transitions have a pretty long tail on the migration, but the great news is they can do it at their own pace, they can migrate at their own pace. There is no particular acceleration required. They get to do it at their own pace and frankly, we'll be there for them when they're ready.
Joe Vruwink -- Baird -- Analyst
And then just one more quick one for me. It looks like you brought I think $7 million worth of R&D back into the 2020 forecast. Is that dedicated to any particular area or is it kind of broadly indicative of the different products that you've been talking about so far on the call?
Eddie Capel -- President and Chief Executive Officer
Yeah, really, really across the board, Joe. There's always based upon product lifecycle and so forth, the R&D investment moves a little bit from product to product, but there is no specific focus of bringing that back in, it's across the portfolio.
Joe Vruwink -- Baird -- Analyst
Okay, very good. Thank you.
Eddie Capel -- President and Chief Executive Officer
Terrific, thank you, Joe.
Operator
Your next question comes from the line of Brian Peterson from Raymond James. Your line is open.
Brian Peterson -- Raymond James -- Analyst
Thanks everyone. So, Eddie, I'll also start with the Active WM, but just to try to gauge the results there versus your expectations, frankly, I think two Tier 1 wins are pretty impressive in the first quarter. That's faster than I would have expected, but I'm also seeing the license number be and kind of move higher for the year. So I'm just trying to understand, maybe where you saw the upside this quarter versus your expectations on the WMS side?
Eddie Capel -- President and Chief Executive Officer
Yeah, what are we, we're six weeks in essentially from release date. We had one early adopter that went live pre-release and so forth and two Tier 1 wins in the six week period, that bounced [Phonetic]. So we're pretty darn excited about that I got to say and the activity continues to be pretty solid for sure. The license activity was a little stronger than we anticipated, not by orders of magnitude, but a little stronger. We're pleased about that. Frankly, it wasn't one big deal or anything, just an aggregation of smaller deals that brought us a nice license quarter.
Brian Peterson -- Raymond James -- Analyst
Understood. And maybe pivoting to Active Omni or omnichannel, we've been talking about this for a while and I think a lot of us think that omnichannel and a lot of the things that you offer are table stakes, but we -- obviously with COVID, we're seeing that a lot of these retailers or various others don't have these systems in place. So I'm curious versus where we stand now, if we use the baseball analogy, what inning are we in, in terms of this omnichannel adoption? Are we still early innings or late innings? Like how would you help us think about that?
Eddie Capel -- President and Chief Executive Officer
Yeah, I think there is still plenty of runway. We are past batting practice, that's for sure. I think I would say we're probably in the second or third inning. I really do think there is a lot of runway to go here. We are going to -- I think we've been seeing store dislocation and transformation going on for a couple of years now. I think we are going to see that accelerate through this pandemic, which is going to drive yet more omnichannel strategies, the need for omnichannel strategies, the need for selling ubiquitously across those channels, and so we're excited about the opportunity given the investments we've made over the last decade plus.
Brian Peterson -- Raymond James -- Analyst
Understood, thanks, Eddie.
Eddie Capel -- President and Chief Executive Officer
Yeah. Thank you, Brian. See you.
Operator
Your next question comes from the line of Yun Kim from Rosenblatt Securities. Your line is open.
Yun Kim -- Rosenblatt Securities -- Analyst
All right, thank you. Hey Eddie, in regard to that migration of on-prem WMS to Active WM within your installed base. Do you expect a faster adoption of active WM among your Active Omni installed base or is that really not a factor?
Eddie Capel -- President and Chief Executive Officer
I don't think it's much of a factor, Yun, frankly. I mean I think we will see Active Omni customers adopt Active WM, it sort of makes sense for them. Frankly, they are already running the platform. It is the exact same technology underpinnings and so forth. So there is a combination of confidence, familiarity, and common sense to consolidate on a common platform. So I think we'll see some of that. What is great about where we are in terms of our Manhattan Active WM release is we have a three-year plus highly proven technology platform that we released on.
So while it is a newer solution, we've been running Manhattan Active Omni on this technology platform for three plus years now, Tier 1, super high volumes and so forth. So I think we're in a good spot there and as we've talked about the enthusiasm for Manhattan Active WM across our customer base and the prospect base too, but particularly in our customer base, has been very encouraging in the six or seven weeks since the announcement.
Yun Kim -- Rosenblatt Securities -- Analyst
Okay, great. Obviously, a lot of focus on Active WMS, but sometimes we forget about your main cloud business that's driving your RPO, that's Active Omni. I believe Active Omni business maybe a little bit more driven by the retail vertical than the WMS, but your RPO growth remains pretty solid. Any particular trend that you are seeing such as between new and existing or any kind of changes that you made in terms of go-to-market around Active Omni since the emergence of COVID. Any particular vertical that's adopting the Active Omni product -- who are planning to adopt the Active Omni product because of the COVID.
Eddie Capel -- President and Chief Executive Officer
Yeah, so I would say no major shifts. If I were to think about a little bit of a sort of a phenomenon, we are seeing whether it be existing customers or new customers, frankly look for those quick wins, right. Those customers and prospects, excuse me, that simply did not have a buy online pickup from store strategy or a curbside pickup strategy are picking up the red phone, right? And we need something quickly. So we are seeing -- and we'll take them all day long, sort of a little bit smaller, little bit faster, quick hit high value initiatives that the market is asking for and that is inside of retail since the onset of COVID.
Yun Kim -- Rosenblatt Securities -- Analyst
Okay and then just stepping back, obviously, lot has happened to your target markets since the COVID. Can you update us on your latest thoughts on maybe on the strategic acquisitions especially given like I said how fundamentals of your target market have really evolved rather quickly here due to COVID. Do you feel that you may need to like beef up on certain capabilities like, I don't know, more traditional forecasting kind of side of the business to better target to manufacturers, maybe more grocery oriented solutions out there or even more traditional supply chain stuff.
Eddie Capel -- President and Chief Executive Officer
Yeah, so always interested in M&A and acquisitions that fit strategically within the footprint, number one. Number two, as you point out could it increase our total addressable market, but as we've always said and you know this, we're not going to buy more of what we've already got. We're not going to buy aging technology, it's got to be a solid hurdle rate and those kinds of things, but maybe the most important I think is that, I mean we are right in the middle of what's going on from a supply chain transformation perspective. Supply chain never been more important than it is today.
I think we would all agree with that kind of personally and professionally, the need for contingencies being built into the supply chain strategically, strategic resilience being built into the supply chain and the continued shift from traditional bricks and mortar to digital commerce and we've been right in the middle of that. We've got a lot of work still to be done. We've got a long road map in front of us and I think our opportunity going forward is significant. And what that leads us to is we have -- our vision is to deliver brand new innovation to the market because the market is changing and it needs new capabilities, not old capabilities repackaged, brand new capabilities.
So the opportunity for us is to continue to invest in brand new innovation and deliver to the marketplace and it's the great thing about this Active platform that we've got. We can develop brand new innovation and we can deliver it every 90 days, every 90 days. In summary, always looking for great acquisition targets, but principally focused on investing in brand new white space innovation.
Yun Kim -- Rosenblatt Securities -- Analyst
Okay, great. Thanks so much for that Eddie.
Eddie Capel -- President and Chief Executive Officer
My pleasure, Yun. Thank you.
Operator
[Operator Instructions] Your next question comes from the line of Mark Schappel from Benchmark. Your line is open.
Mark Schappel -- Benchmark -- Analyst
Hi, good afternoon and nice job on the quarter. Most of my questions have been answered, just a couple. Eddie, with respect to Active WMS, with respect to the pipeline for that solution, are you seeing any customer interest from a particular industry. I know it's early, but at this point in the game, are you seeing any particular industry that's latching on to that?
Eddie Capel -- President and Chief Executive Officer
Actually, the great thing, Mark, is really it is across the industry, from retail to wholesale, 3PL, life sciences, pharma. It's really widespread. So on one hand, concentration of interest would be great, but even better, of course, is broad interest and by the way, the interest is also global as well as across verticals. So that's created again that extra little bit of enthusiasm for us.
Mark Schappel -- Benchmark -- Analyst
Great. That's good to hear and then just a follow-up here. Last quarter, you noted that some of your customers such as like grocers or distributors were delaying some projects just because they were just too swamped and they were focusing on managing their own business. I assume that this has subsided somewhat. Could you just comment on that a little bit?
Eddie Capel -- President and Chief Executive Officer
Yeah, well, it subsided a little. They are still pretty busy, but it's a -- you're right, there is a combination of some of that, frankly, panic buying and so forth has eased a little, number one. And then number two, of course, the grocers, pet supply retailers and so forth have adapted to these higher volumes and are managing and not being sort of surprised on a day-by-day basis anymore. So, now we're certainly starting to see those guys refocus, look at some of the strategic initiatives and think about opening up those programs again.
Mark Schappel -- Benchmark -- Analyst
Great. That's good to hear. Thank you. That's all for me.
Eddie Capel -- President and Chief Executive Officer
Okay, good. Thank you, Mark. Appreciate it.
Operator
There are no further questions at this time. I turn the call back to the presenters.
Eddie Capel -- President and Chief Executive Officer
Okay. Very good, Jason. Thank you. Well, thank you everybody for joining us on our Q2 call. As always, we appreciate your support and interest in Manhattan Associates. I will look forward to updating you again in about 90 days or so and in the meantime, please everybody, make sure that you stay healthy, stay safe and again, we'll look forward to speaking to you again in about 90 days. Thank you.
Operator
[Operator Closing Remarks]
Duration: 55 minutes
Call participants:
Matt Humphries -- Senior Director of Investor Relations
Eddie Capel -- President and Chief Executive Officer
Dennis Story -- Executive Vice President and Chief Financial Officer
Terry Tillman -- SunTrust Robinson -- Analyst
Matt Pfau -- William Blair -- Analyst
Joe Vruwink -- Baird -- Analyst
Brian Peterson -- Raymond James -- Analyst
Yun Kim -- Rosenblatt Securities -- Analyst
Mark Schappel -- Benchmark -- Analyst
