Manhattan Associates, Inc. (MANH) Q2 2012 Earnings Report, Transcript and Summary

Good afternoon. My name is Adam, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, July 24, 2012. I would now like to introduce, Dennis Story, Manhattan Associates' CFO. You may begin your conference.

Thank you, Adam, and good afternoon, everyone. Welcome to Manhattan Associates 2012 Second Quarter Earnings Call. I will review our cautionary language and then turn the call over to Pete Sinisgalli, our CEO. During this call, including the question-and-answer session, we may make forward-looking statements regarding future events or 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 those 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 2011 and the risk factor discussion in that report. We are under no obligation to update these statements. In addition, our comments will cover certain non-GAAP financial measures. These measures are not in accordance with, or an alternative for GAAP, and may be different from non-GAAP measures used by other companies. We believe that this presentation of certain non-GAAP measures facilitates investors' understanding of our historical operating trends with useful insight into our profitability, exclusive of unusual adjustments. Our Form 8-K filed today with the SEC and available from our website, manh.com, contains important disclosure about our use of non-GAAP measures. In addition, our earnings release filed with the Form 8-K reconciles our non-GAAP measures to the most directly comparable GAAP measures. Now, I'll turn the call over to Pete.

Thanks, and welcome to our second quarter 2012 earnings call. I'll start the call by taking you through an overview of the quarter. Dennis will follow with details of our financial results. I'll return for a general business update and then, we'll be happy to answer your questions. We're quite pleased with our second quarter financial results and continue to be encouraged about the near-term and long-term prospects. Dennis will provide financial details shortly. But essentially, all of our Q2 financial metrics were good. License revenue in Q2 was a little below our expectations as a few large deals slipped into Q3. But offsetting the large deal slippage was a strong showing of mid-sized deals, allowing us to post license revenue of $15.3 million. We had $2-million-plus deals close in the quarter, both with new customers and led by our Warehouse Management systems. And of the large deals that slipped, none were lost to competitors and we hope to see them all closed over the next few quarters. Our license revenue pipelines and activity levels for Q3, Q4 and 2013 are all encouraging. Our Professional Services businesses posted another very strong quarter, and our maintenance revenue continues to compound, contributing to our best revenue quarter in history. Strong revenue, combined with tight expense management, allowed us to deliver record earnings as well. Adjusted EPS was $0.76, $0.09 better than our previous record set in Q3 of last year. Other important long-term strategic indicators were also quite positive. Our investments in research and development over the past few years are paying off as indicated by our continued strength versus our competitors. Our win-loss rate continues to be strong and in the first half of 2012, it was about 67%, meaning we won 2 out of every 3 deals we competed in. Importantly, we won the big strategic deals and if you measure our win rate as a percent of dollars that we competed for, our win rate was about 80%. And to further support our sales momentum, implementations of our scope, supply chain process platform solutions continued to be quite successful. Due to our strong first half results and a positive outlook for the balance of 2012, we are raising our EPS guidance for the year by about $0.10 a share. In a separate announcement also released today, our board of directors set in motion a succession plan for Eddie Capel who will succeed me as Manhattan's CEO on January 1, 2013. The board and I have worked together over a number of years, developing a plan for a smooth transition of the CEO role. Eddie joined Manhattan 12 years ago and has deep experience in all areas of our business. To help them prepare for the CEO role, he was appointed chief operating officer in January of 2011. In the COO role, most of the company reports to him. Eddie is very well prepared for this next step in his career. He and I will work closely together over the balance of the year to ensure a smooth handoff of responsibilities, and I'll remain on Manhattan Associates Board of Directors at least until next year's shareholder meeting. From my perspective, this is an ideal time for a CEO transition. The company is in very good shape strategically, competitively, operationally and financially. The management team at Manhattan Associates is second to none and ready to capitalize on the many market opportunities ahead. I have great confidence in Eddie and his ability to lead Manhattan to the next level of success. He's surrounded by a very strong group of talented people at all levels of the organization. And after 8 years as CEO, the company has absorbed what I have to offer and can benefit from a new CEO's strength. Eddie has joined Dennis and I for this call. So let me ask him to introduce himself to you. Eddie?

Thanks, Pete. Well, good afternoon, everybody. So Eddie Capel here, and I'm pleased to have the opportunity to introduce myself to you here for a few moments. Now, as some of you know, I've held a number of roles here at Manhattan Associates over the last 12-plus years most recently and currently acting as our chief operating officer. And I've had the pleasure of working very closely with Pete and his management team for over 8 years and have enjoyed the opportunity to partner with him and the other 2,300 or so world class Manhattan Associates team members in the past and what will surely be our ongoing successes. And I look forward to working very closely with Pete to finish out 2012 in a strong fashion. And of course, I'm very excited about leading Manhattan Associates forward in 2013 and on into the future, continuing to deliver the same outstanding value to our customers, shareholders and associates alike. So, Pete, I'll hand it back to you, but look forward to getting to know the folks in the investment community that I don't already know over the coming weeks and months. Thanks.

Thanks, Eddie. Dennis, please take us through the numbers.

Thanks, Pete and Eddie. I'm going to cover our Q2 2012 non-GAAP results and GAAP EPS performance and then review our updated 2012 full year guidance. Q2 total revenue performance of $93.6 million increased 6% over Q2 2011. Apples-to-apples, total revenue increased 10%, excluding the impact of last year's Q2 2011 recognition of $3 million in deferred services revenue. By region, Americas grew 6% and EMEA grew 12% while APAC was down 12%. Adjusted earnings per share for the second quarter of 2012 was $0.76, increasing 17% over prior year, fueled by strong Services revenue growth, solid expense management and a $0.04 overall favorable currency impact driven by rupee depreciation. Excluding the overall currency impact and last year's deferred services revenue recognition of $3 million in Q2 2011, our underlying year-over-year EPS growth was 29%. Overall foreign exchange rate variances including the rupee positively impacted adjusted and GAAP earnings per share by about $0.04 in Q2 and $0.05 year-to-date. As you know, we have a large R&D center in Bangalore, India with no natural revenue hedge. So operating and non-operating earnings can fluctuate in a significant rupee appreciation or depreciation environment. In Q2, the rupee depreciated 21% over last year's Q2 and nearly 10% sequentially from Q1 2012, generating a favorable $0.06 benefit to EPS. About $0.035 is favorable to operating earnings and margin on lower India operating expense and $0.025 is non-operating FX gains recognized below the line in other income. Year-to-date growth of 16%, revenue growth of 16% and adjusted earnings per share growth of 29% normalizes out the Q1 2011 and Q2 2012 apples-to-apples growth comparisons associated with deferred services revenue recognition. So excluding currency impact, year-to-date revenue growth is 16% and adjusted earnings per share growth is 24%. Total license revenue for the quarter was $15.3 million, down 6% compared to $16.3 million posted in Q2 last year and was slightly lower than our Q1 2012 license revenue of $15.6 million. We closed 2 $1-million-plus deals in the quarter versus 4 $1-million-plus deals closed last year in Q2. As Pete mentioned, of the several large deals pushed in the quarter, our mid-sized deal volume closed was quite healthy. From a regional perspective, Americas' license revenue growth was flat versus Q2 2011 and Europe posted 12% growth in the quarter against a tough macroeconomic backdrop. APAC's Q2 license growth year-over-year was -- year-over-year and sequentially was down with neither comp being meaningful to Q2 results. As stated previously, our license and earnings performance continues to depend heavily on the number and relative value of large deals we close in the quarter. While our pipeline remained solid, we continued to be cautious as sales cycles on large deals remain less predictable than in prior years given the continued global macroeconomic uncertainty. We posted Q2 Services revenue of $69.3 million, increasing 9% over last year's Q2. Sequentially, Services revenue was down from Q1 this year as our Q1 2012 results included the previously discussed recognition of $2 million of deferred consulting revenue from a large contract. Our consulting services business continues to experience solid demand with Q2 revenues of $45.5 million, increasing 8% over Q2 2011. Apples-to-apples, consulting services revenue increased 14% year-over-year, excluding the impact of last year's deferred consulting revenues. Second quarter maintenance revenue of $23.8 million reflects growth of 10% over Q2 2011, driven by license revenue, customer maintenance renewals and cash collections. Our customer retention rates continue to run strong at 90-plus percent. Recall that we recognize maintenance revenue on a cash basis so the timing of cash collection -- collections can cause some inter-period lumpiness from quarter-to-quarter. Consolidated Services margins for quarter were 56.7% compared to last year's 57.5% in Q2. The cost -- the full cost of 60-plus net new Services associates hired in Q2 will be absorbed in Q3. Further, with continued solid Services demand, we expect to bring on additional Services resources in the second half of the year, including a group of recent college graduates. Given the training time required for these new resources, combined with our typical lower Q4 consulting revenue due to seasonal holidays, we are estimating our full year 2012 Services margin to come in the range of 54.2% to 54.5%. Operating expenses, which include sales and marketing, R&D, G&A and depreciation, were $31.2 million for Q2 2012, a sequential decrease of about 8% compared to Q1 2012 and a year-over-year decrease of about 2% compared to Q2 2011. Our lower operating expense run rate was driven by lower employee payroll taxes and benefit costs, lower marketing expenses and favorable FX benefit from the weakened rupee against the U.S. dollar. Turning to operating profit, our Q2 adjusted operating income totaled $23.3 million with an operating margin of 24.9%, benefiting from revenue growth, high services utilization, expense control and FX benefit from the weakened rupee. Excluding the overall impact of foreign exchange rate variances, Q2 operating margin was 23.7% and year-to-date operating margin was 22.2%. Below the line, we posted other income of $802,000 in the quarter, which includes nearly $600,000 of FX gains compared to a Q1 2012 FX loss of nearly $400,000. As FX gains and losses are unpredictable, we do not include them in our forecast for the remainder of the year nor do we annualize our quarterly or year-to-date FX gains or losses as part of our updated guidance. Our effective income tax rate for the quarter was 36%, as expected. As we noted last quarter, we expect our effective tax rate to be about 34.5% for Q3 and 36% for Q4, resulting in a full year 2012 effective tax rate of about 35.7%. The 34.5% Q3 rate is lower due to the expected release of expiring FIN 48 tax reserves associated with the filing of our 2011 U.S. Federal tax return. Transitioning to diluted shares for the quarter. Diluted shares totaled 20,351,000 shares, down from 20,637,000 shares in Q1 2012. In Q2, we repurchased about 347,000 shares of Manhattan common stock at an average share price of $47.95, totaling $16.6 million and option exercises in the quarter totaled 67,000 shares. So for the remainder of 2012, we are estimating Q3 and Q4 diluted shares of about $20.4 million shares and our full year diluted shares to be about 20,475,000 shares. Our estimates do not assume any Q3 or Q4 common stock repurchases and depends on a number of variables including stock price, option exercises, forfeitures and share repurchases, which can significantly impact the estimates. Also last week, our board approved raising our share repurchase authority limit to a total of $50 million. That covers the adjusted earnings results. Our Q2 2012 GAAP diluted earnings per share was $0.70, increasing 23% over the $0.57 reported in Q2 2011. Our GAAP performance continues to be driven by the strength of adjusted operating results. A detailed reconciliation of our GAAP to non-GAAP results is included in our earnings release today. Turning to cash flow and the balance sheet metrics. For the quarter, we delivered cash flow from operations of $20.9 million, bringing our year-to-date total operating cash flow to $34 million, representing a 41% increase over last year. Capital expenditures were $1.5 million in the quarter and $3.3 million year-to-date. On a full year basis, we continue to estimate capital expenditures to be about $5 million to $6 million. Our cash and investments balance at June 30, 2012 totaled $101 million, compared to $97.5 million at March 31, 2012 and $99 million at December 31, 2011. Our balance sheet clearly remained strong with significant cash and investments and no outstanding debt. That covers my Q2 remarks. Now, I'll move on to updated guidance. So for 2012 revenue, we are maintaining our full year total revenue guidance range of $365 million to $375 million, representing 11% to 14% growth over 2011. Overall, we expect our full year total revenue percentage split to be about 50-50 -- that's 50% versus first half versus second half. We expect the seasonal pattern with Q3 license revenue being lower than Q4 license revenue and our typical Q4 sequential services revenue decline from Q3 of about 4% due to seasonal holidays. For 2012 adjusted earnings per share, given our better-than-expected Q2 earnings per share performance, we are raising our previous full year guidance range by $0.10 to $0.15 over our previous range of $2.55 to $2.60 to a new range of $2.65 to $2.75. This new range now represents 14% to 19% growth over 2011 adjusted EPS of $2.32. We expect Q4 EPS to be a bit lower than Q3 EPS given the combined impact of seasonally lower Q4 services revenue and our planned headcount increases primarily in professional services. Full year GAAP EPS guidance is also raised by the same $0.10 to $0.15 range to $2.37 to $2.47, representing a 13% to 18% growth range over 2011 GAAP EPS of $2.09. For reference, a guidance table is provided in today's earnings release. Regarding adjusted operating margins, we are increasing our full year operating margin profile in the range of 22.8% to 23%, representing 140 to 160 basis point improvement over 2011 and up from our previous objective of 50 to 80 basis points of improvement. Due to the seasonality impacts on Q3 and Q4 license and Services revenues, combined with continuing hiring efforts, we expect our Q3 margin to be about 22.5%, a bit below our year-to-date operating margin of 23.2%. And for Q4, we expect operating margins to be about 50 basis points higher than Q3 2012. That covers our 2012 guidance. Now, I'll turn the call back to Pete for the business update.

Thanks, Dennis. As mentioned earlier, we posted license revenue of $15.3 million in the quarter with 2 large deals, both of the large deals were in the Americas and included our WMS solution. Both are new customers for Manhattan and are large retailers transforming their supply chains. About 60% of this quarter's license revenue came from WMS sales and about 40% from our other solutions. The retail, consumer goods and 3 PL verticals made up more than 1/2 of license revenue for the quarter. About 55% of license revenue in the quarter came from new customers. Some of the new customers that have allowed us to share their names include: Casino Group, Finish Line, Giant Tiger Stores, Gildan Activewear, John Christner Trucking, May Trucking, Pierre Fabre, Pride Transport, Primark Stores and Tango Transport. We expanded relationships with many existing customers such as: CEVA Logistics, Exel, Foot Locker, HVHC, Itochu, Jack Link's Beef Jerky, Langham Logistics, Leroy Merlin, New Balance, Petra Trading & Investment Company, Reser's Fine Foods, Sara Lee, Shurtech Brands, Southern Wine & Spirits, Stella & Dot, Strategic Partners, Tandy Brands, Walgreen and Wirtz Corporation. Our professional services organizations around the globe continued to perform very well. In addition to posting solid financial results, we continued to drive improvements in customer satisfaction. In the second quarter of 2012, our global services team has helped customers to go live with our solutions in more than 80 sites. I'm quite pleased with our overall professional services business. In addition to performing well, another benefit of our services business is our ability to accurately forecast future period financial results for this part of our company. Demand for our services continue to be quite strong, and we expect to post solid results for this area for the foreseeable future. Headcount at the end of the quarter was a little over 2,250, up about 50 since March and about 250 since Q2 of last year. Essentially, all of the headcount growth is in our professional services business. Today, we have 60 people in sales and sales management with 50 of those serving as sales reps. That's down 3 reps since March, 2 in Asia-Pacific and 1 in Europe. Over the balance of 2012, we plan to add about 100 people to our overall staff. The additional staff would largely be in our professional services team. In addition, we'll be looking to add a few folks to our sales and sales support team. In May, we held our annual customer conference, Momentum in Orlando for more than 1,000 attendees, up about 20% over last year. This year's theme Platform Payoff highlighted the financial, operational, competitive and technology benefits to be gained by deploying a complete suite of supply chain solutions on a common supply chain profit platform. Our Platform Payoff message was very well received by the audience. Let me now wrap up our prepared remarks. We're quite pleased with our second quarter financial results and our outlook for the future. I believe our relative competitive position continues to be strong and improving and that our ability to deliver innovative supply chain solutions is second to none. So we are looking forward to a solid second half of 2012 and a smooth transition to our next CEO. Operator, we'll now take questions.

[Operator Instructions] Your first question comes from the line of Yun Kim from ThinkEquity.

First, congrats to both Pete and Eddie on a solid quarter and also again, just a special congratulations to both Pete and Eddie on the changing of the guard, I guess. First, on a solid quarter given the tough environment out there obviously Q2 did slip but can you just talk about whether either one of those 2 7-figure deals that you were able to close were replacement deals or not, or -- and then just the overall -- just how the overall sales pipeline looking for large replacement deals and whether these replacement deals are easier or more difficult to close in a challenging environment out there?

Sure, Yun. Both of the large deals were deals where we are replacing a competitor of WMS solutions. So they are replacement deals. We're excited about that of course. The delay in a couple of deals, the deals that slipped, we feel very good about our position to ultimately win those deals. However, in this environment, sometimes sales cycles have to take a little longer to get to closure then perhaps in different environments. And we feel very good about pipeline for the second half of the year and outlook in 2013 is solid. The unknown for us and I guess everyone is, the rate of which the deals will close. So we feel very good about the size and activity level in the pipeline for Q3, Q4 and 2013.

Okay. Great. And then just on the margin improvement in the Services business, was there a one-time event that drove the margin higher or is there something that we can expect going forward especially in the second half?

No. We -- if you look at our full year guidance, Yun, 54.2% to 54.5%. So as we've been running at this pace for probably 1.5 year, very high utilization with our services rate, okay? So we are continuing the higher demand, continues to outstrip capacity and that's the primary driver. So we expect to normalize those margins when we start our 2013 planning. We'll take a sharp on the pencil on that.

Okay. Was there any like one-time event that happened that caused the margin to show much better number than the last quarter? I thought last quarter there was a benefit from the deferred consulting revenue?

Yes, there was a benefit from last quarter. You're correct on that. And there's some rupee impact there as well, but it's primarily the utilization -- employee utilization.

Okay, great. And then anything out of the normal that drove the higher hardware revenue in the quarter?

More accounting than anything else. The team has been working hard. We had a less than expected quarter in Q1, a little bit of catch-up in Q2, but the hardware team is working hard, but nothing unusual in the quarter.

Okay. Great. And then just lastly, Eddie, I know it's kind of early here, but is there anything that you'll be focusing on more as you take the helm from Pete. I not sure Pete is now listening.

I don't think there's anything particularly more, Yun. We'll be continuing to focus on delivering exceptional value to our customers and our shareholders for sure and certainly, in the near to medium term here, as I said, focusing on closing 2012 very strong and positioning ourselves well for 2013.

Your next question comes from the line of Eric Lemus from Raymond James.

My first question is on -- you guys said the 40-60 split with WMS and non-WMS. Just looking at the non-WMS products, what modules has seemed to have a stronger traction just recently and if you could give us a metric as far as how many modules now on average your customers have at this point?

Sure, Eric, we'd be happy to. In general, in the past couple of quarters, we've seen a solid performance for our Distributed Order Management solution, Order Lifecycle Management solution and the nice little pickup in our transportation management solution. So those 2 areas have been areas that we've concentrated R&D in the last couple of years and believe benefit nicely from our broad investments in our platform. We believe the ability to deliver Warehouse Management, our global leading Warehouse Management solution on the same technology footprint is as our other solutions will make our other solutions more attractive and that we've seen that certainly in the case of Order Management and Transportation Management. Order Management also benefits from retail community to the multichannel, omni-channel environment where retailers are looking to integrate all touch points with customers and have a seamless consumer experience and our solution greatly helps with that. So those are the 2 solutions in particular that are seeing very good success of late, and we're quite optimistic about their performance over the next couple of years.

Great. And any income trades as far as the average number of modules per customer?

Yes, I'm sorry. Great question. In general, we're still selling 1, 2, 3 modules per customer sale, generally led with a base product like a transportation solution or a Warehouse Management solution and then generally one other tag along solution, but we generally don't sell the entire suite to anyone. So I believe there is a lot of opportunity for us for additional cross-selling in subsequent periods.

Great. Got you. And then on the non-retail business, how are things trending there as well? I know in the not so recent past, you all run -- won some sizable business in the high-tech area. How has that vertical or other non-retails verticals been performing?

We're still doing well in retail, of course, as we mentioned. We've made some solid progress in the other retail verticals in the near term. I think our strength in retail will continue. But we continue to make investments across-the-board and try to penetrate whether it's high-tech electronics or the health care area, additional focus on consumer goods and some manufacturing opportunities but we do have a good momentum position built in retail, but continue to make important investments in other areas.

[Operator Instructions] Your next question comes from the line of Mark Schappel from Benchmark.

Just a couple of questions. Pete, starting with you on the topic of slipped deals. Did any of those already close this quarter or are they still out there?

Yes. Mark, we have a company policy that we don't comment on that interquarter, so we wouldn't comment on that at this point. As I said, we're optimistic that the deals that slipped will close in the next couple of quarters, and the team is working hard to do that. But I think generally speaking, that's kind of a slippery slope, so we've got -- taken the position for, oh, years and years not to comment on that in mid quarter.

Okay, that -- that's fair. And one on some more topic, can you talk about whether they were in different industries or whether they were in similar industries in the sales?

Yes. Yes, they're generally speaking in the industries in which we do well.

Okay. Okay. Great. I'll leave it at that. And with respect to Dennis, I was wondering if you could just review your prepared remarks regarding bringing on new services personnel in Q3 and Q4?

Yes, we've got about 75 folks in the second half that we're bringing on, and we got at least an equal, if not slightly larger, kind of open rack in the pipeline as well. So definitely 75, Mark. And if we can capture some more talent, we will bring them on in the second half as well.

Okay, very good. Great. And, Pete, finally finishing up with you, could you just remind us of what we can expect over the course of the next 12 -- maybe next 12 months or so on the new product front, whether upgrades or just new modules?

Yes. We have a very good plan in place. Eddie is responsible for our products and so forth. And I don't want to jinx him on the 2013 commitments since he will own that and I won't. But our plan is to continue to invest heavily in research and development and this year we'll spend something in the neighborhood of $45 million to $50 million in R&D and we expect to continue to do that in 2013. A couple of key focus areas, we talked a few moments ago about the continued investment in our newer or emerging products, Order Lifecycle Management and Transportation management. Eddie has talked often about our Total Cost to Serve products and so forth. And we believe we'll continue to invest in those areas to try to capitalize on the investments we have in our platform and expand our addressable markets and our ability to grow revenue more aggressively. But why don't I ask Eddie to make a comment or 2 on that since he's going to have to live with the commitments I'm about to make.

Yes, thanks, Pete. Yes, Mark, so as Pete said, we continue to invest in every one of our products in our portfolio every year, moving the ball -- certainly, moving the ball forward. In terms of the particular focus areas, Pete has highlighted a number of them. But I do have the say the other area where we are paying particular attention is bringing an optimized suite of solutions together on our platform where our solutions are tightly integrated, delivering the prototypical 1 plus 1 equals greater than 2 for our customers and with particular focus on delivering solution sets by industry. The solutions that we offer, offer great value in multiple industries. But there are differences, certainly, between retail, life sciences, third-party logistics, CPG and so forth. So I think an investment in every single product across-the-board but also bringing them together in an evermore optimized fashion on the platform.

Your next question comes from the line of Alan Weinfeld from Davis Securities.

A question for Eddie. When I met you in 2002 at the user conference, you were doing -- I don't know what your position it was, but you're doing something global and now, 10 years later, you've just made it all the way up through the ranks to CEO. And obviously, in the company, you've had a different role, let's say, from Pete just walking in the door and being CEO and I don't know exactly what you did at the private warehouse companies before, but what do you think from that experience? I don't know what country you're from, maybe it's Britain or Australia, I don't know exactly the accent, but it doesn't exactly sound American, which is totally cool. But do you have any thought there?

Well, so just for the record, I'm from England originally, Alan, but been here in the U.S. for about 20, 25 years. Yes, certainly, it's been a terrific experience for me and a terrific ride over the last -- coming up to 13 years here for me at Manhattan. I held a number of roles along the way and have been afforded the opportunity over particularly the last 8 or 9 years to pick up some greater and greater responsibilities starting out with on some sort of product strategy and product development side of the world and then moving back into operations, picking up operational responsibility for a customer service organization, a professional services organizations and most recently, a European operations and APAC operations. So you're right, it's been absolutely a terrific ride. We've had seen some fabulous success over that decade-plus. And I certainly look forward to continuing to forge the path forward. We have great aspirations here at Manhattan for delivering value, as we say, to our shareholders to our customers and frankly to our associates alike. So I always appreciated your support and I look forward to catching up with you along the way here as we get more closely connected.

And just looking at you guys have diversified, it sounds from the customer list that was already on the call into so many different industries. Does that take a lot more expertise and is that one of the reasons you're hiring more people in the service organization. I guess, than we've seen before obviously, doing more service revenue than we've ever seen before, and does that also mean you have to look for different kinds of talent?

Okay. Great question, Alan. Yes, if you noticed in the press release, we have earned business from verticals outside of the top 3 that we've talked about being 50% or more of our license revenue for quite some time. And as Eddie alluded to in his comments, part of our R&D investment is going to develop greater specialization of our broad supply chain solutions for those particular verticals. It does require little bit of different experience perhaps. But for the most part, the core talents that we need are not dissimilar to what we've been recruiting in the past and believe that which we can't find already in the marketplace, we can develop by hiring and training folks and working in those industries. So certainly, having talent from a new vertical is an advantage for us, and we can try to do where we can. But by and large, we believe we will continue to have good success in recruiting very talented people and adopting them to the Manhattan way and leveraging the knowledge we have announced. I want to thank you, everyone, for joining us on the call this afternoon. I appreciate your support and time, and we look forward to speaking with you again in about 90 days. Good night, everyone. Thanks.

This concludes today's conference call. You may now disconnect.