Good afternoon. My name is Skinner, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates first quarter 2016 earnings conference call. [Operator Instructions] I would now like to introduce Dennis Story, CFO of Manhattan Associates. Mr. Story, you may begin your conference.

Thanks, Skinner, and good afternoon, everyone. Welcome to Manhattan Associates 2016 first quarter 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 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 2015 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 investors. All non-GAAP measures have been reconciled to the related GAAP measures in accordance with SEC rules. And you can find a reconciliation schedule in 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.

Well, good afternoon, everybody. We're off to a great start in 2016, posting record results as our customers and prospects continue to invest in core supply chain and omni-channel commerce initiatives. Our competitive position in the marketplace continues to be strong and customer satisfaction is solid across the globe. We delivered record total revenue in Q1 of $149.9 million, increasing 12%, and record adjusted earnings per share of $0.42, increasing 24% over Q1 2015. Software license revenue for the quarter was $20.6 million, up 7%. We closed three $1 million-plus license deals in the quarter, two with existing customers and one with a net new customer. Two of the large deals were in the U.S. and one in Latin America. All three of the deals were led by omni-channel transformation initiatives. And in one of the three large deals, we were successful head-to-head against very strong competition. Clearly our sales teams are executing very well, and their competitive win rates in head-to-head sales cycles against their major competitors remain strong, at over 75% for the quarter. Overall for the quarter, 50% of our license revenue was from net new customers, adding new large global brands to our customer portfolio. Our success is driven by the focus we apply to delivering innovation in an ever-changing commerce market, focusing on our customer success and leveraging at deep demand expertise. While we remain cautious regarding the global economic growth risks with a strong start to 2016, we are raising both our revenue and earnings per share guidance for the year. Dennis will share the specifics with you in a moment. Our pipeline is solid, services business demand is strong, customer satisfaction is good and we continue to be the leading innovator in the supply chain commerce market. And I'm going to look forward to providing more color in my business update, following Dennis' review of our financial results and our revised guidance details.

Thanks, Eddie. I'll cover our Q1 2016 results, and then review our updated 2016 full year guidance. We posted Q1 total revenue of $149.9 million, representing organic growth of 12%. Excluding FX impact, total revenue grew 13%. For the quarter, Americas grew total revenue of 17%, EMEA was down 14% on weak license performance and APAC was up 2%. Adjusted earnings per share for the quarter was $0.42, up 24% over prior year and our GAAP diluted earnings per share was $0.38, increasing 23%. For your reference, a detailed reconciliation of GAAP to non-GAAP adjustments is included in our earnings release today. License revenue for the quarter totaled $20.6 million. From a regional perspective, Americas posted license revenue of $19 million, EMEA $0.7 million and APAC $0.8 million. Consistent with previous quarter's comments, our license performance depends heavily on the number and relative value of large deals we close in any quarter. Consistent with last quarter, we continue to target license growth goal of 6% to 8% for the remainder of 2016. Shifting to services. Demand continues to be solid. Q1 services revenue totaled $116.3 million, increasing 15% over prior year. Our services revenue is comprised of two revenue streams, consulting and maintenance. Consulting revenue for the quarter totaled a record $84.5 million, growing 16% over Q1 2015. With solid visibility into our global services demand, we hired 135 consulting associates in Q1 and continue to focus on hiring additional resources to meet our customer's needs. Maintenance revenue for the quarter totaled $31.8 million, increasing 11% over last year. Strong cash collections, license revenue growth and retention rates of 90%-plus contributed to year-over-year growth. And as a reminder, we recognized maintenance renewal revenue on a cash basis. So timing of cash collections can cause in a period lumpiness from quarter-to-quarter,…

Thanks, Dennis. Well, as Dennis has mentioned, we're off to a very good start in 2016, despite a challenging global environment, particularly in Europe and in Asia. We continue to see solid progress in our core verticals, led by retail, with a meaningful portion of our WMS and non-WMS license and services revenue activity, driven by digital commerce and technology modernization programs. Our competitive position continues to be quite strong and we are aggressively investing in innovation and market awareness to take market share and to position Manhattan for the next wave of retail multi-channel selling, entering 2017. As I discussed at the beginning of the call, we recognized three large deals in the quarter, two in retail and one in food and beverage. All deals were driven by strategic supply chain modernization programs. In Q1, our license fee mix was weighted at about 65%-35% between our warehouse management and other solutions. A meaningful portion of our WMS and non-WMS license and service revenue incomes continues to be driven by existing and new customer omni-channel initiatives and legacy supply chain modernization. The retail, consumer goods and food and beverage verticals were our strongest license fee contributors, making up more than half of our Q1 license revenue. Q1 software license win with new customers that have permitted us to share their names include aCommerce, Amrod, Bedrosians Tile & Stone, Central Garden & Pet Company, Levi Strauss & Co., Tokyo Chemical Industry and Van Marcke Group. Q1 expanding relationships with existing customers included Ascena Retail Group, Batory Foods, Carhartt, Country Road Group, Express, Floor and Decor Outlets of America, Genesco, Hy-Vee, Itochu Logistics, lululemon athletica, Mercury Marine, Michael Kors Europe, Mothercare, REI, Sketchers USA, The Hillman Group, Under Armour, VF Services, Wineworks and Winning Appliances. Our professional services business around the world…

[Operator Instructions] Our first question comes from Terry Tillman from Raymond James.

I guess I just had two questions. First question related to Tablet Retailing. And first, I would like just a little bit more commentary on where your sales force is in terms of being more adept at now being able to talk Tablet Retailing? And where are you in terms of any early pipeline activity? And how we should think about that as potentially starting to kind of show up in the license revenue?

So we've got a number of people, so all of our sales organizations are versed in a mobile point-of-sale, and as you're referring to a Tablet Retailing, Terry, we have a number of individual who specialized in that particular area. Frankly, they came over to us as part of our Global Bay acquisition well over a year ago now and are still with us. They are experts in the field with many decades actually of industry experience. So we've got a great team focused on that space in the sales organization. With regard to interest momentum in pipeline, the solutions are being very well received. We're getting a ton of interest. As we've said before though, these sales cycles are not short, they are not Y2K-like, frankly. So we expect to see real license revenue contribution only starting in 2017. We do expect that we will secure some additional early adopter customers here in 2016. But I think you should really expect to see license momentum in '17, '18 and '19.

And in terms of the percentage of software that came from new customers, I've never seen that number before. I think it was 5-0, if I'm not mistaken.

It was.

Is there anything you tweaked in terms of just to go-to-market or is it more to do with maybe you've just got a broader portfolio of solutions. So some of the folks that wouldn't have started with WMS they're now looking at you. I just like a little bit more color on just what seems like a big pick up there.

Yes. I don't think there's any -- I think as we've seen quarter-over-quarter, Terry, those numbers can vary a little bit. We are very pleased with a 50-50 split in this particular quarter. But I do believe that our focus on bringing brand new innovation to the marketplace is what has enabled us to be able to secure these new global brands and bring them into our portfolio. But I wouldn't attribute it to any particular marketing strategies or sales strategies, but merely the continued focus on research and development and innovation that we're delivering into the space.

And I guess, the question, Dennis, for you is in terms of -- I won't try to pin you down for '17 guidance yet, I mean, that's maybe a little too early. But people have come to expect margin expansion, but your margins are starting to get to quite high-levels, at least in relationship to any other company I cover. Eddie talked about the R&D and the requirements for innovation around some of these newer technology areas you're focused on. But as we get into '17 and beyond, are there still areas for margin expansion and could you elaborate on any of those areas where there's still leverage in the model?

Yes, there is still areas for expansion, Terry. We'll talk more about 2017 in Q4. But bottomline is as we've always said there's leverage in every line item of the P&L. So starts with the revenue lines and the margin that we drive off of the revenue lines, as well as gaining leverage off of our operating expenses.

Our next question comes from Mark Schappel from Benchmark.

Eddie, starting with you in your prepared remarks, I believe you discussed some of the enhancements that you're making to your transportation management solutions. And maybe I missed it, but I don't recall much of a discussion about cloud there. And if I'm not mistaken, your customers have been gravitating to your cloud TMS solution over the past few quarters, so I was just wondering if its fair to assume that you're still seeing that kind of a move?

Yes. It is fair to assume that, Mark. It banters around just a little bit quarter-by-quarter, but certainly in full year 2015, we saw in the range of 70% to 75% of our transportation deals to be in the cloud. 2016 is started off that way. And I think we'll continue to see that phenomenon.

And then switching gears a little bit here, on the M&A front, the company really doesn't have a history being active on the M&A front. I granted you did do Global Bay, and there was one, I think about four or five years ago as well. But maybe you could just update us on where the company's at or maybe your view of where the Board is at with respect to M&A specifically moving into or acquiring new technologies or into adjacent markets?

We'd love to be more acquisitive, but we have some guidelines under which we operate. First of all, we will not buy more of what we already have. So we'll only buy strategic footprint expanding capabilities. Obviously, we're looking for terrific technology alignment, with our current strategy. It has to be modern technologies. We're now looking to reinvent old architectures and so forth. Of course, we're looking for fair value. Now, so that narrows the space -- that narrows the universe of opportunity quite a bit. Now, when you think about --- the other thing is when you think about the areas in which we are moving into, particularly customer platforms and consumer platforms and so forth, being that customer platform of the future, I think frankly one of the great pieces of news for us, our shareholders is that it's pretty hard to acquire yourself into that space. The only way really to get into that space is to innovate into it. And that's why one of the reasons that we think we're very well-positioned here with our, of course, domain expertise, trusted advisor relationship in the retail space and our ability to invest in research and development.

So Mark, let me jump on piggy back on Eddie's comments as well. So nothing has really changed with respect to the company's priorities for cash. So number one priority is to continue to invest in innovation, and as long as we can continue to take market share and expand our addressable market, we think that's a good bet. Second is, as we'll look at M&A opportunities. Eddie explained kind of the filter that we go through there. And in the absence of that, third is, is we'll look to put excess cash to work through the share buyback program. It's been a model of consistency.

And I think Evant was the other acquisition I was thinking of. I couldn't think of it at that time.

Yes, that was back in 2005

Just a brief, 11 years ago, yes.

Anyways, finally, here let me just wrap up with one last question to you, Dennis. Cash flow from operations was exceptionally strong in the quarter. And I was just wondering if you could just go through what main driver of that cash flow upside was in the quarter? And also two, if you could just remind us if there was anything last year that maybe artificially lowered last year's number?

No, really strong global collections. We have pretty good pull through on the maintenance, Mark. But if you look our global collections on an annual basis over the 10 years has exceeded our revenue in every year that we post. And so we're a company that just has a really strong discipline towards cash management.

And our next question comes from Yun Kim from Brean Capital.

So have you guys entered the early stage of the retail POS launch? Are you seeing the same buyers of your core products or are you finding different set of buyers? And how much of your near-term opportunity in that market or that product is focused on your existing WMS and OMS customers versus potentially brand new customers?

So typically, we're going to see a slightly different buying community. Now, obviously things intersected the CIO, the COO and the CEO, but clearly the buying community for mobile point-of-sale and store execution systems is slightly different from kind of the core WMS and TMS products, but again, intersecting with those in the C-suite there, number one. Number two, with regard to, are we targeting existing customers or new customers for these solutions, hey, we're an equal opportunity seller in that regard. We'll sell those solutions to either existing or new customers, but given that we have such a strong customer base in retail already, no question there, the bridge there is not quite as far to cross. We tend to be a trusted advisor and are a trusted supplier in those spaces, which I cannot deny makes the journey a little bit easier.

I just want to understand the selling dynamic for your new product. Are you trying to leverage as much as you can in terms of the relationship that you have with your WMS and OMS users and that particular line of executives to get into the retail POS or are you really trying to get in there as a standalone, maybe use some other relationship to get into those market opportunity?

We'll certainly continue to leverage our existing relationships. Now, our relationships inside of the organization is frankly a pretty senior, so we get to leverage them quite nicely, number one. Particularly, where we have order management customers and implementations, given that our strategy is and our hypothesis is the next generation of point-of-sale or mobile point-of-sale will be an extension of order management. So there is sort of a natural progression of conversation there.

And any update in terms of partnership opportunity or strategy that you're pursuing to better penetrate that market?

Nothing massive. We have a couple of new partners signed up and they'll be at momentum with us. Few guys that have spent many, many decades in the point-of-sale in retail store space have joined our Manhattan value partner program. So we're pleased about that.

Great. Looking forward to that. And then it looks like your European business was down double digits year-over-year, is that something that you guys are concerned about or it's just simply a quarterly volatility that we see once in a while from that region? And just pointing out that, it looks like the European business was a pretty big drag on the margin in the quarter. Just kind of wondering what your thinking in terms of running that European business more on a profitable basis?

Certainly. Well, we weren't thrilled with the performance in EMEA this particular quarter, but not concerned about it particularly. As I mentioned in some of my early comments, our win rates against our competitors was very high across the globe. So this wasn't a situation where we were losing deals, but just a question of if deals pushing and so forth. So whilst again we're disappointed by the performance in Q1, we continue to remain bullish about the region and are seeing solid pipelines there in EMEA. So more of a timing issue than anything that intrinsically that we are concerned about.

Maintenance?

Yun, we delivered a 200 basis operating margin improvement, managing through a tough Europe theater. So I mean that's a trademark of how we manage the business every quarter. Not all theaters are going to be blowing and going. And when you look at our track record, we performed quite well over the last five years from a margin leverage and expansion point of view.

Understood, and definitely see that track record over the years. Dennis, what drove the cost of license revenue to be up a little bit in the quarter?

Just third-party software license.

The last question we currently have in queue, it comes from Matt Pfau from William Blair.

So first, I wanted to hit on some of the non-WMS products. Can you give us some detail on what you are seeing in terms of demand in the quarter and also in your pipeline? What are you seeing the most interest in that's of the non-WMS side of your product set?

Matt, I would say that the second to WMS, the two products that are sort of flourishing the most at this particular point, would be our order management system and the adjacent components to that and our transportation management system. And OMS being driven by kind of digitalization, e-commerce, omni-channel; and TMS is I think largely driven by the innovation and differentiation that we are driving into the marketplace, frankly.

And then with the new customers that you're bringing on, is there a trend there in terms of what you see they initially adopt as their first product with Manhattan? Would it typically start out with WMS?

It's a great question. And in years gone by, if you had asked that question five or 10 years ago, it likely would have been WMS was the lead product. Today, it is not so much the case. It could be either WMS, TMS or order management. Relatively evenly split across those three.

Matt, we're also seeing just the phenomena of omni-channel customers as part of their omni-channel initiatives focused on execution capabilities. So it's pulling through WM sales under the umbrella of an overall omni-channel transformation within the enterprise.

Last one for me. There has been quite a few headlines in the retail environment of company's having poor results or just volatility in general. But your results and it sounds like your pipeline being strong too certainly isn't reflective of that. So when we read negative headlines in the retail industry, especially from specific retailers, how do we sort of think about that in terms of certain retailers' investments decisions in purchasing supply chain management software?

I mean, certainly, there is no question that we would love to have a hugely buoyant environment everywhere in retail. But when you see retailers having a challenge, whether it be by market segment or by channel in which they're operating, in many, many cases what we're seeing is what is required there is investment to transform that segment of the business. And quite candidly those that don't invest can end up in a pretty dark place frankly. Now, this is all under the backdrop of, as you all know, Matt, our solutions deliver excellent ROI to the retail space and all the industries in which we operate. So even in a tough environment, we're delivering greater ROI for our customers.

And at this time, we have no further questions from the phone lines. End of Q&A

Thank you, Skinner. And thank you everybody for joining us in our Q1 earnings call here. As I said, we're very pleased with the start to 2016 and we'll look forward to reporting our progress about 90 days or so from now. Thanks again. Bye-bye.

This does conclude today's call. You may now disconnect. Thank you for your participation.