Terry Tillman - Raymond James Mark Schappel - The Benchmark Company, LLC, Research Division Yun Kim - B. Riley & Company

Good afternoon. My name is Rachel, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates First Quarter 2014 Earnings Conference Call. (Operator Instructions) As a reminder, ladies and gentlemen, this call is being recorded today, April 22, 2014 at 4:30 P.M., Eastern time. I would now like to introduce Mr. Dennis Story, CFO of Manhattan Associates. Mr. Story, you may begin your conference.

Thank you, Rachel, and good afternoon, everyone. Welcome to Manhattan Associates 2014 first quarter earnings call. IU 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 future financial performance of Manhattan Associates. You are cautioned that these forward-looking statements involve risk and uncertainties, are not guarantees of future performance and that actual results may differ materially from 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 2013 and the risk-factor discussion in that report. 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 our investors. All non-GAAP measures have been reconciled to the related GAAP measures in accordance with SEC rules. You will find reconciliation schedules in the Form 8-K we submitted to the SEC earlier today, and on our website manh.com. Now I'll turn the call over to Eddie.

Good afternoon, everyone. We are off to a solid start in 2014, extending the progress we made exiting 2013, with customers continuing to move forward with their investments in supply chain commerce initiatives. We posted record results across essentially all financial metrics in the first quarter. Our competitive position continues to improve and our customer satisfaction continues to increase across the globe. Overall we posted record Q1 total revenues of 113.6 million increasing 18% all of which is organic and record adjusted earnings per share of $0.26, increasing 37% over Q1 2013. With a strong start to 2014, we are optimistic about the prospects for the full-year and we’re raising our revenue and earnings per share guidance for 2014. And Dennis will take you through those details in a moment. We posted our second consecutive $17 million plus software license quarter recording 17.1 million in Q1, up 20% versus Q1 2013. We closed four $1 million plus license deals in the quarter, all with existing customers; one of the large deals was in Europe, two in U.S., and one in Latin America. More four deals were led by omni-Channel initiatives and three of the four deals included our platform based warehouse management system. Even though all four large deals were in our existing customer base, in two of the four deals, we were successful head-to-head against some very strong competition. Our sales team across the globe executed well and our competitive win rates in head-to-head sales cycles against our major competitors remain strong at about 75% for the quarter. But overall for the quarter 30% of our license revenue was from net new customers. And while the ratio of net new customers can fluctuate somewhat from quarter-to-quarter, we’re quite pleased with our new customer acquisition performance. We continue to expand…

Thanks, Eddie. I am going to cover our Q1 2014 results and then review our updated 2014 full year guidance. As Eddie noted, we have a solid start to 2014 posting a $130.6 million in total revenue, the highest quarterly result our company’s history, besting our previous record of $107.8 million recorded in Q3, 2013. Total revenue increased 18% over the prior year quarter with strong license in services growth. For the quarter, Americas grew total revenue 14%, EMEA grew 37% and APAC grew 22% compared to Q1 of last year. Adjusted earnings per share for the quarter was $0.26 up 37% over prior year on strong revenue growth in productivity. Apples-to-apples adjusted earnings per share was $0.24 growing 26%, excluding about $0.02 of favourable FX currency impact driven rupee depreciation and a Georgia R&D payroll tax credit election lower in Q1 2014, payroll tax expense. The bottom line is as we bested the carbon [indiscernible] pistons with some strong organic revenue growth, combined with solid operating expense management, which drove quality earnings leverage in the quarter. Our Q1 2014 GAAP diluted earnings per share was a record $0.24 growing 41% over the $0.17 we posted in Q1 2013. Our GAAP performance was driven by the strength of adjusted operating results that I am about to cover. For your reference a detail reconciliation of GAAP to non-GAAP adjustments is included in our earnings release today. The license revenue for the quarter totalled $17.1 million benefitting from the acceleration of a few deals we had forecasted closing Q2. From a regional perspective, Americas posted license revenue of $11.5 million, EMEA $4.4 million and APAC $1.2 million. Consistent with previous quarters comments, our license performance continues to depend heavily on the number and relative value of large deals we close in any…

Thanks, Dennis. Well, first, let me provide a little more detail in the deals we closed in Q4. As I discussed at the beginning of the call, we recognized four large deals in the quarter, three in retail, and one in grocery. All four deals were driven by strategic technology modernization programs, with three of the deals specifically driven by omni-channel initiatives. The other large deal was driven by distribution management legacy system replacement program leveraging platform-based Warehouse Management system. And as I mentioned on our last earnings call and not surprisingly, we're seeing some additional omni-channel interest in the grocery vertical following Amazon’s moves into that market. We continue to see solid progress in our core verticals led by retail, fuelled by the digital commerce revolution and the way in which retailers wish to engage and service their customers. A meaningful portion of our WMS and non-WMS license and services revenue activity continues to be driven by existing and new customer omni-channel initiatives and reinventing their supply chains for the New World that we all live in. We're certainly very pleased with the successes we have achieved over the past 12 months in this particular arena. Our Q1 license fee mix was consistent with Q4 of 2013, with Warehouse Management solutions making up 60% and 40% representing our other solutions. The retail, consumer goods and grocery verticals were our strongest license fee contributors, making up more than half of our license revenue in Q1 2014. Our software, platform technology and experience help our customers adapt to the challenges of the omni-channel marketplace, and our efforts are bearing fruit and our net new customer win rate and the loyalty rewarded to us by our customer base. Software license wins with new customers that have permitted us to share their names…

(Operator Instructions) Your first question is from the line of Terry Tillman with Raymond James, your line is open.

Hey, first the obligatory great job on the quarter. This is one of the strongest first quarters I’ve seen in a long time, so nice job. I guess my first question just relates to, you're used to the company complaining about deals delaying or extending into another quarter and hopefully they’ll close then, but could you repeat what you had said or maybe it was what you said Dennis in terms of there were a couple deals that maybe you had assumed would close in 2Q, but they ended up closing in 1Q, I’d love to hear a little bit more color on that.

I’ll take that question, Terry. I don’t know that we complained, it’s just an observation that we share with our investors and the community but regardless, we did see a couple of deals that we had originally forecast to be Q2 deals, actually closed in Q1. I can’t say for sure, but it does seem that first of all there’s certainly some momentum around omni-channel initiatives and of course not in every case, but most retail end of year is, fits right in the middle of our Q1, so whether there was a little bit of a budget flesh in retail can’t really tell but we certainly saw some things pull forward and then as noted by Dennis, we had some very strong momentum in our, both of our international theatres, APAC and EMEA as well.

Okay and I guess there’s a follow up too on the license business you all, it’s good to see increasing the range of growth you’re expected to license for the year. You know if you had to think about what would be the most important driver of the increase, is it just more pipeline, is it better close rate assumptions or is it something at the margin that feels like it’s a little bit of a kind of the wave occurring around the omni channel or something else that I just didn’t say.

No, no I think it would just be a little bit of a strengthening [indiscernible] of that pipeline Terry, to be perfectly honest with you I don’t think there are any particular, other particular momentum movers, you know we’ve talked about the things that are driving general growth forward for us but a little bit of the strengthening of the pipeline.

Plus a little tailwind on the macro, Terry.

Yes, okay, okay, and on the idea that maybe the activity levels are a little bit better, you know is it -- where does omni-channel fit in the actual kind of go forward pipeline. I mean you articulated well on how helpful it was on some of the larger deals in the quarter, but that was stuff that had been kind of percolating for some time, so as you look out to some of that maybe longer data pipeline, is there a notable difference in terms of how much has exposure to that theme of omni-channel versus just pay, we’ve got an old WMS we need to upgrade or we got an old t-mux we need to upgrade it.

It’s a little bit of both Terry, as we’ve talked about omni-channel now for frankly for a couple of years as you know and we’ve always indicated that it’s not a hockey stick, but we’re continuing to see forward momentum in that area, there is certainly a little bit of a blurring of the lines I would say between -- is this a legacy WMS replacement or is this an omni-channel initiative, those are -- that’s certainly a little bit of a grey area, but I think we’re certainly seeing some nice pipeline in both areas.

Okay and then just my last question, and I don’t know if it’s for you Dennis or Eddie whoever, but in terms of the service revenue, if we just carve out just the pro-services, which is you know really strong and I think it was over 20% growth, if we look at the headcount growth, it’s not near that kind of growth, and I think you all talked about really hiring about 100 heads, and you know you came up a little short there and you had about 75, I'll be curious on the strength of your revenue in comparison to not hiring at the same clip; is the capacity utilization or what about pricing. Could you maybe talk about both capacity utilization and the strength there or, what you’re seeing there as opposed to a pricing lever for your pro-services business and again, nice job on the quarter, thanks.

Pricing hasn’t changed a great deal. We aimed to be very competitive and provide great value to our customers Terry, so we haven’t seen -- we haven’t made any major pricing moves or anything there. In terms of the efficiency and effectiveness of the team which has just been really outstanding; I would attribute most of that to frankly the team's effort level, number one. And number two the terrific training programs that we put in place for our staff. We hired quite a few people, and we've invested a lot in personnel training programs and that’s allowed them to become a good bit more productive, a little bit sooner than we had originally anticipated.

Yes, Terry, the other thing is, we believe it gives us a competitive advantage there. It’s really the stability of the leadership team and their domain expertise that they bring to the table. We've got great continuity at the leadership level and great talent. Obviously we’re probably biased, but we think the best in the space, in the industry. And I think the margins bore that out.

Your next question is from the line of Mark Schappel with Benchmark, your line is open.

Just a couple of questions, Eddie, just diving down a little bit deeper in the omni-channel initiatives that are out there, I was wondering if you just kind of go through with us in a little bit more detail about how the complexity of omni-channel retailing is really becoming a demand driver for the supply chain execution space.

Yes, sure. I will try and be as brief as I can, Mark. But the summary would be, if we cast their minds back to, shall we say 10 years ago, when e-Commerce really got off the ground; two things, one, it tended to be a very small part of retailers business. So they tended to operate independently, sometimes even outsourced. And as we look today, e-commerce and omni-channel mix shifts could range anywhere from 4% to even as much as 15% of total revenues in some particular, in some circumstances. So it’s become a mainstream part of the business, number one; and number two, it's been recognized that online omni-channel shoppers are tend to be the most profitable shoppers. So integrating them into the mainstream of the retailers business is very-very important. The upshot of all that is that the need for integrated back-end systems, particularly supply chain systems that provide, number one, a single view of the customer across all channels that they are shopping, number one; and number two a single view of inventory that is available for all of those shoppers across the channel and bringing those consumers together with that inventory in a very profitable way. And what that requires, as I say is, often times an upgrade of IT infrastructure and back-end systems that tends to be overseeing here.

Okay, great, thanks. Eddie, it’s also been several years since the company has, let’s just say re-engaged the M&A fund. I was just wondering if you could just remind us of what is the company’s strategy or corporate strategy is right now with respect to making purchases…

Yes, sure so I think Dennis has some information to share with you, but I would say, at the high-level, our strategy is, number one, not to buy more of what we already have. Number two, to provide -- to look at companies that have technology alignment with us; and then number three which is sort of an obvious one based upon number one, to fill strategic white space for our customers. We are anxious to do more M&A but we will not be goaded into acquiring companies that, again have more of the same aged technology and don’t provide value add for our customers.

Mark, so I can just piggy back on that, our stated strategy has been very consistent, will be a strategic acquirer not a serial acquirer of overlapping assets as Eddie talked about. So when we look at our cash, in our priorities for cash, our number one growth objective is to be the leading innovator in this space and organically invest in delivery innovation into the marketplace, so that’s the number one priority of cash, number two we’ll look at M&A opportunities and as Eddie said they have to one, win a line with our tech stack and also be a product that we feel we can generate significant ROI as demanded by our customers and absent any potential M&A opportunities which we’re active in terms of looking but absent those opportunities, we execute the share buyback program because we think that’s an efficient return of capital to shareholders.

Okay, great, thanks and just one final question, Dennis for you, just to make sure I heard things right. You had a $0.02 benefit for foreign currency and the Georgia R&D payroll tax credit that helped you out in the quarter, is that correct?

That’s correct.

Okay thanks, that’s all for me.

Thanks Mark.

Still a very strong quarter in terms of quality of earnings.

(Operator Instructions) Your next question is from the line of Yun Kim B. Riley & Company, your line is open. Yun Kim - B. Riley & Company: So following up on Terry’s question regarding the strength in the professional services business, obviously the revenue was not very strong sequentially while the margin improved more than what I was expecting and then I think Eddie you mentioned that the new hires are ramping up faster than before, but just wondering are there other things start kicking in there maybe outsourcing some other consulting work to lower cost areas or any other creative things that you may be doing or and where do you see that particular business, the margin potential over the next two to five years, do you expect that margin to be able to show an incremental improvement from the current level or do you see that you’re running at a peak margin.

So I’ll, I think I’ll take some of those and I’ll probably be a little sloppy in so Eddie can clam me up but first off, nothing that’s impacting the mix, it’s good old fashioned domain expertise and sweat equity with our customers in terms of productivity through the services organization and then in terms of margin, we don’t give a forecast and we’re still waiting to see the whites of the eyes in terms of the tailwind from a macro point of view, so we’ll focus our efforts on -- in your operating margin which we talked about 180-200 basis point improvement over last year and that’s obviously we have multiple levers. Do I think there’s room for margin expansion in services? Absolutely that’s one of the levers, license is a lever, international growth is a lever, new products on our platform is a lever, sales and G&A, expense management is a lever, we’ve got lots of levers to manage here, so we definitely have some runway with respect to margin expansion. Yun Kim - B. Riley & Company: Okay great and then a...

I’m not going to give you a three to five year margin expectation on services or operating margin at this stage. When the economy is running at about a 5% GDP growth rate, I might be in the mood. Yun Kim - B. Riley & Company: All right, but don’t forget that you guys have executed 12 quarters in a row, so I thought you guys have a better visibility to give that out today, which is maybe couple of years ago, but kidding aside, real quick so with the omni-channel this question is for you Eddie, the omni-channel investment, obviously providing a very strong secular growth driver for your business, shouldn’t that translate into higher number of seven figure deals closing, obviously you had, you guys had a pretty strong quarter in terms of seven figure deals in the quarter for the closing, but it seems like if you look at over the past couple of years the number of large deals have been somewhat stuck at about two year quarter, do you see the number of large deals eventually picking up as more and more omni-channels spending increases out there.

You know it’s possible, Yun. I think we’ve got some growth targets that we put out there for license revenue this year, we’ve increased some as Dennis indicated in the call just this quarter in terms of the forecast so we are optimistic about our -- about the opportunity but in terms of seeing a real shift to many-many-many more double (comma) [ph] deals in a quarter, I don’t see a big shift there but as we also indicated, there is a blurring of the lines between the traditional transportation and WMS legacy replacement deals and omni-channel initiatives and so I think we will see a little bit of a shift and we’ll probably be identifying more of our double (comma) [ph] deals related to omni-channel, but part of that is because there’s a blurring of the lines. Yun Kim - B. Riley & Company: Okay, great and then last question from me, it’s been a while but can we revisit what your growth strategy, investment strategy is regarding Europe, obviously we saw a pretty big jump in Europe in the quarter, I mean just kind of, revisit what's your strategy there, as of today? Thanks.

Yes, sure. We have a direct presence in the most popular markets for us in Europe, and we use a partner network, a very strong partner network in some of the slightly more far flung markets for us. We still do not offer every single product in every geography even in Europe but as we gain greater foothold, get more experience and employee based growth in Europe, we continue to open up product portfolios. So as Dennis says, it’s certainly is one of the growth levers we continue to dial up and have growth expectations for that market for sure over the coming years.

Yes, keep in mind that almost 80% of packaged supply chain software is in the U.S. and Western Europe, so at this stage emerging markets all start to grow as they mature more, but here probably accounts for about 25% of that overall 80% spin. So it’s pretty simple, steady revenue growth and earnings expansion off of that in those markets. Yun Kim - B. Riley & Company: Okay. Great. Thank you so much. And again, congratulations on a strong quarter.

Thanks, Yun.

Thank you, Yun. Well with that we’ll conclude the questions portion for the day. Thanks everybody for their continued support of Manhattan Associates. And we’ll look forward to speaking to you in about 90 days or so. Thanks and good afternoon.

Ladies and gentlemen, that concludes today’s conference call. And you may now disconnect.