Good afternoon. My name is Emily, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates Q1 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, April 24, 2018. I would now like to introduce Eddie Capel, CEO; and Dennis Story, CFO of Manhattan Associates. Mr. Story, you may begin your conference.

Thank you, Emily, and good afternoon, everyone. Welcome to Manhattan Associates 2018 first quarter earnings call. I’ll 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 risks 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 2017 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 related GAAP measures in accordance with SEC rules. You’ll find reconciliation schedules in the Form 8-K we submitted to the SEC earlier today and on our website at manh.com. Finally, with the adoption of ASC 606 revenue accounting rules and the new P&L line item format discussed in our Q4 earnings call, we have included a supplemental schedule in our earnings release which discloses nine quarters of history in the new format with a pro forma presentation of hardware revenue for 2016 and 2017 for the year-over-year apples-to-apples comps for hardware and total revenue growth. Our year-over-year revenue percentage growth comments will be based on an apples-to-apples comparison, normalizing 2017 revenue for the hardware revenue impact. Now, I’ll turn the call over to Eddie.

Good afternoon, everyone, and thank you for joining us to review Manhattan Associates 2018 first quarter results. We delivered Q1 total revenue of $131 million and $0.37 of adjusted EPS, and these were down 5% and 12%, respectively over prior year. But overall, these metrics were in line with our objectives. In fact, we exceeded our Q1 targets across all revenue lines, except license revenue and that was isolated to the Americas, related to deal timing. Based upon our outlook for the remainder of the year, we’re maintaining our 2018 full-year guidance. We are upbeat regarding our transition to cloud and building very positive momentum on multiple parallel fronts in our business, highlighted specifically by the following four areas. Market leading product innovation. We create industry leading transformative supply chain innovation. Our development cycles are faster than ever and our releases are bringing meaningful, differentiated new solutions to the market, resulting in pipeline growth. Our R&D investment was up 19% over prior year and will accelerate throughout 2018. Number two, strengthening pipelines. Our global pipeline is solid and we’re seeing upward trends for both cloud and license deals. We’re especially encouraged by the concentration of potential net new customers with more than half of the deal opportunities representing net new logos that would be accretive to our already world-class customer base. Thirdly, consulting services improving. We’re very encouraged with the demand forecast for the balance of 2018, driven by product sales and system upgrade activity. Our services team across the globe are operating at full capacity and forward demand is strong. Global consulting services revenue was down 1% over prior year; Americas was down 2% over prior year, but up 3% sequentially from Q4 2017. And Europe is particularly busy with 20% plus growth. And with the solid pipeline, we’re…

Sounds good, Eddie. Thank you. So, please note, unless otherwise specified, I’ll be discussing non-GAAP results, which we term adjusted results and additional revenue growth percentages are on an apples-to-apples basis for equivalent year-over-year comparisons, adjusted for the ASC 606 impact to hardware revenue and the 2017 results. Please refer to our supplemental schedules in today’s earnings release for full details of our 606 adoption, including year-over-year comps. So, we reported Q1 total revenue of $131 million, down $8 million or 5% over prior year on lower license revenue. License revenue was $7.6 million, down $6 million against our target objective for the quarter and down 64% versus $21.3 million posted in Q1 2017. The lower than expected performance was driven by Americas large deal pushes in Q2 that Eddie mentioned, our cloud subscription transition, and a record Q1 2017 Europe license comp of $9.4 million. Cloud revenue was $4.5 million, up 200% over 2017 and up 40% sequentially. Recurring software revenue that’s cloud revenue plus maintenance was 31% of total revenue in the quarter. Quarterly maintenance revenue increased 9% or $3 million over prior year. Consulting services revenue was down $1 million and hardware revenue was up $1 million over prior year. Geographically, for Q1, total revenue, Americas was down 3%; Europe was down 18% off a tough 2017 license comp; and APAC was down slightly at 3% on lower services revenue. Adjusted earnings per share for the quarter was $0.37 versus $0.42, down $0.05 or 12% over prior year. The impacts of lower license and investments in our cloud transition were partially offset by $0.08 of EPS, driven by our lower effective tax rate, other income, and share buyback program. Our GAAP earnings per share was $0.33 in the quarter compared to $0.40 in Q1 2017 with the…

Yes. Well, thanks, Dennis. Well, clearly, our success continues to be driven by delivering innovation that anticipates the needs of an evolving market, focusing on customer success and leveraging our deep domain expertise. And while some global and retail macroeconomic conditions give us reason to be cautious, we’re bullish on the market opportunity ahead of us. Supply chain complexity and retail evolution in our target markets, in fact, brings continued need for our solutions among our customers and will continue fueling multiyear investment cycles for us at Manhattan Associates. The move from subscription and cloud-based models is positive and is outpacing our expectations. Customer feedback on our exciting market-leading innovation demonstrates that we’re delivering true differentiation, and we’re investing significant energy and capital into advancing the world’s leading suite of supply chain commerce solutions, so as to extend our market leadership in 2018 and beyond. Our competitive position is strong, and we continue to invest in innovation to extend our addressable market, market leadership and our differentiation. With the world’s most talented supply chain commerce employees, the best software solutions, and market dynamics that require customers to adapt and invest in supply chain innovation, we believe that we’re very well-positioned for 2018 and beyond. And with that, Emily, we’re ready to take any questions.

[Operator Instructions] Your first question comes from the line of Matt Pfau with William Blair. Your line is open.

Hey, guys. Thanks for taking my questions. First, I wanted you to touch on the delayed deals and the Americas a little bit. So, based on your commentary, Eddie, you made it sound like these were -- or there were just a few deals that created this impact. So, if that were true, it would sort of imply that you have fairly large, perhaps multimillion dollar deal. So, I guess is that true? And then, you also made it sound like these are the same deals that were perhaps delayed in the fourth quarter. And so, if that’s true, then, I guess, what’s been the issue causing them to be delayed? And why is that sort of expected to be rectified and these deals are finally going to get across the goal line in the second quarter?

Yes, sure. Well, kind of couple questions there, Matt, and all good ones, of course. First of all, there certainly were some large deals embedded in the ones that’s pushed for sure. No question about that. I think, the whys, we’re not in entire control of that. But, there’s no question that we’re still seeing a reconstitution of the retail space from bricks and motor to digital to omni-channel and so forth. And I think whilst that reconstitution happens, then we see slower buying cycles, a little bit more pragmatic due diligence and so forth. And then, thirdly, the reason that we are bullish and optimistic about Q2 and the rest of 2018, we are close to these customers. Some of them our existing customers of ours. And the ones that are not, these are long very consultative to sales cycle. So we’re close to them. We feel like we understand the situations on a case-by-case basis, and that’s what gives us reason to be optimistic.

Got it. And then, I want to touch on the professional services organization and fairly robust plan in terms of hiring there for this year, which is a bit counterintuitive. I would have thought, as you got more and more interest in cloud deals that perhaps the number of professional service employees wouldn’t be as numerous as historically that it has been. So, I guess, where are these -- how should we think about the advantage [ph] that’s driving the need for these professional services employees? And then, are they also performing task perhaps for your cloud business as well?

Let’s see. So, I think in reverse order of those questions, Matt. No, in answer to the first question. So, those professional services folks, we don’t include those in the DevOps, what we consider the DevOps kinds of those that are operating the cloud solutions day in, day out, number one. Number two, and we’ve talked about this a little bit before. The transition to the cloud and the deployment of our solutions in the cloud has not much certainly near-term effect on our professional services associates. The systems that we deploy in the cloud, still need to be designed, they need to be configured, they need to be implemented, they need to be tested, customers need to be trained, regardless of whether the software is being deployed on-promise or in the cloud. Now, as we get down the road and we think about those upgrades that would have happened, maybe five years from now, right, for the perpetual deals, those things are now happening in small bites over that five-year period on a much more frequent basis. So, we will start to see lesser, large upgrades kind of in those five-year cycles. But the initial implementations and rollout of the cloud-based solutions, professional services component is very similar to on-premise.

Great. And then, last one for me, just in terms of you mentioned on your deal opportunities more than half are net new logos, which would be more than you typically receive as a percentage of license revenue from new customers. So, I guess, what’s driving this and is a cloud product any impact in terms of the number or the type of potential customers that you can address?

Yes. I wouldn’t say the cloud solutions has -- really changes the profile of the customer that -- and the prospect that is interesting and so forth. But I believe that, first of all, you’re right, 50% would be higher in terms of net new logos than we typically see that would be sort of 35% to 40%. But, what I believe the situation is that we are driving so much new innovation into the field that the takeaways from old legacy solutions and so forth is higher than we have seen, maybe over the last decade or so.

Hey, Matt, I’ll just piggyback on top of that. Pretty impressive for 27-year old company that one, we are maintaining 35% to 40% of accumulation of new logos and new logo -- new logos within the pipeline are growing.

Your next question comes from the line of Monika Garg with KeyBanc. Your line is open.

Hi. Thanks for taking my question. Eddie, maybe could you talk, about among the three main products, WMS, TMS, OMS, how do you see progression to the cloud from on-premise business over the next couple of years? Is that people are only buying cloud-based OMS active, omni and TMS right now and you think WMS is on-prem really now and eventually move to cloud? Any details you cloud provide will be helpful.

Yes, sure. So, let’s see, Monika. Transportation -- to take them one at a time. Transportation has been running the cloud for us for 16 years, something like -- 15 or 16 years. And over the last 15 or 16 years, we’ve seen a greater progression, a greater percentage of deals go toward cloud. And we’re generally in the -- probably 85% of transportation deals that we now do are in the cloud. If you look back 10 years ago, it might have been somewhere in the 50-50 split. So that’s the TMS is progression; I think it will continue to go that general direction. OMS today for us is a 100% cloud. Since we announced Manhattan Active Omni, coming up to a year ago now, the trajectory is being -- demand from the customer and prospect base is being 100% cloud. From a WMS perspective, for the last 27, 28 years, we’ve been 100% on-premise. We are just starting to see a little bit of interest in WMS, running in the cloud, maybe even under a subscription-based model. And I expect that to be a pretty slow burn frankly in terms of its -- the balance going to cloud over the next two to four years.

Thank you, very helpful. Maybe -- I don’t know if I missed it, but did you provide split revenue -- license revenue between WMS and non-WMS?

Well, now that we have the cloud line broken out, Monika, we’re not going to be disclosing that metric anymore because WMS is the dominant perpetual license product. There are other products in there, but it’d probably be a pretty consistent 80-20 kind of disclosure on the perpetual license side.

Yes. That makes sense. Then, the last one here, maybe could you talk about given the pushout we’ve seen the license revenue in the quarter. Maybe talk about the visibility you have for the license and services side of the business through the end of the year. Thank you.

Yes. So, let’s see. So, generally speaking, we have a better visibility into the services business than license because that -- it has more variability, license has more variability to it, particularly on the timing side, particularly on the timing side. But, as I mentioned before, we are very close, of course, to our existing customers. And we have a long consultative sales cycles for our software. So, we feel like we’ve got a pretty good handle on the pipeline for, I’ll just call it, software revenues, regardless of whether it’s cloud or on-premise. And then, from a services perspective as Dennis talked about in detail, we are seeing -- that definitely would resist calling it a recovery, but some strengthening of that business, and our services teams are certainly very busy around the world.

Your next question comes from the line of Terry Tillman Jr. with SunTrust Robinson Company. Your line is open.

Good afternoon, gentlemen. And looking forward to seeing both of you all in the Hollywood soon.

Yes.

Yes. So, just a couple of quick questions. And I don’t know, who this will be for. So, I’ll just throw it out there and I’ll let you decide. But in terms of the license softness, the concept of reconstitution or recalibrating in retail with the retailers and what they’re grappling with, could you foresee in the future where maybe there will just be more consistent small purchases on the license side or could you actually see the move to where they want to do more like a term license? I know that’s more of a forward-looking kind of guess there, but I’d love your view to see how this shakes out.

Yes. The view Terry and that’s what it is. I don’t think we’ll see our customers go into term licenses. I do think that we’ll see the expression go smaller bites and more consistent smaller bites. But, I don’t think our customers will go to term licenses. As you know, our systems have a great deal of longevity to them. They are, again as the expression goes, sticky systems. So, the notion that we’ll see a move to term license, I don’t and think is something that is in the foreseeable future.

Okay. And I guess on the deferred revenue side. Last quarter, it seemed to see acceleration and maybe some of the currency, so maybe you could help with that. But this quarter, it also seemed to be well above our assumption. So, I’m just curious, is that all maintenance or are you starting to see any benefit in deferred revenue from invoicing for some of these cloud deals, just maybe talk about the deferred revenue stream?

Yes. It’s predominantly the maintenance, but we are starting to see benefit from the cloud revenue streams as well. So, we had a really strong maintenance collections quarter in Q1. But, cloud deferred is starting to contribute as well.

Okay. And Eddie, maybe just the final question just relates to the idea of -- the target of adding 15 or 20 additional folks to the team on sales and marketing. What I’m curious about is maybe an update on people that can sell into some of these areas that are frankly still new for you all and that’s more in the store. So, where do you stand in terms of hiring good talent that can talk CRM, that can talk point-of-sale, that can talk to retail store as opposed to highly successful sales reps that will like clockwork were close WMS deals? Thank you.

Well, I like clockwork, yes. So that’s -- as we’ve talked about before, Terry, that’s an initiatives that’s kind of in progress. We’re still looking for first of all world-class sales professionals. Again, we are in a very consultative world. So, we’re looking for domain-rich sales people. And sales executives are very, very important to our sales organization as well. But, equally important are the what we call, solution consultants. So, these are the experts in the products that we sell that can help position them and architect them for our customers and prospects going forward. So, we’ve got kind of two angles of attack there on domain expertise for solutions that maybe we’re not so popular for. And we are -- and that is definitely work in progress and part of the 15 to 20 associates that we’re in the process of recruiting worldwide.

[Operator Instructions] Your next question comes from the line of Brian Peterson with Raymond James. Your line is open.

Eddie, you mentioned that the interest in the subscription model was a partial driver of the license dynamic this quarter. I’m curious, how often is that mentioned. Is it instance for maybe delaying a purchasing decision on the license side? And is that a dynamic where the customer might want to different payment model, i.e., this could be hosted at a private cloud solution or is it a true multi-tenant cloud solution that they’re asking for, i.e., potentially a different product?

Let’s see. So, one pack there, Brian. In terms of the multi-tenancy, it really depends I think on what product we’re talking about. Transportation for example, we serviced very well by multi-tenancy because of the network ecosystem of connectivity and so forth. Tier 1 WMS doesn’t lend itself well to multi-tenant environment. In terms of some of the impact on the license deals and my talking about the bigger deals tending to decline a little bit as people -- as customers, excuse me, and prospects to look at more flexible buying options. What we’re -- that is partly driven by subscription-based model. And as we talked about in the call, but to be more specific we saw in the quarter, a labor management deal that is operating in the cloud. That’s the first one, frankly for Manhattan Associates. We also saw a WMS deal in Australasia go to the cloud. So, we’re definitely seeing a little bit of movement in that general direction. And a buying pattern moving toward buy what I need now and what I don’t need, I’ll buy later. And so, smaller license deals, but more frequent, not necessarily a pure subscription.

Got it. That makes sense. And maybe just one more. If we think about the cadence of investments in 2018, I think maybe a quarter ago we were surprised by the magnitude of the OpEx investments, but if I look at your margin performance this quarter and the guidance for the second quarter, it’s a lot better than we expected. So, I’m just curious, have the investments in the first half of the year, have those come in as quickly as you originally anticipated or are those going to be a little bit more back-end loaded than you originally planned? Thanks.

Yes, maybe a little more back end loaded, Brian. The R&D is up I think 19% year-over-year; sales and marketing up 11% year-over-year. So, we’re definitely making those investments that we talked about. If I could hire talented R&D professionals a little faster, I probably would. No question about that. And then, from a sales and marketing perspective, we do have this little push that always happens at this time of the year as we build up to our annual customer conference in May. So, you’ll see a little lumpiness there and then it’s then continue over the back half of the year.

Yes. The other, let me piggyback on that, Brain. The other is with such a large percentage of our revenue being in services that Americas engine starts to fire like with -- just the smaller decline year-over-year, it will move that margin profile as well, just in terms of incremental revenue.

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

Eddie, starting with you. With respect to your Manhattan Active Omni Solution, I was wondering, if you’re seeing a different set of competitors there in those deals or is it the same usual suspects?

Let’s see. Same usual suspects that we’ve seen in order management. So, different competitors than we see in WMS and TMS, Mark. But, no change in the OMS competitive landscape really over the past couple of three years frankly.

And then, on the theme of your Active Omni Solution, could you just address some of the changes that you’re making or continue to make in your sales force, given that that solution is really sold into a different buying center, the retail store front which is much different you’re your traditional WMS or TMS sale?

Yes, certainly. Well, we’ve been in the OMS business now for almost a decade, frankly. So, we’ve built some really terrific domain expertise inside of the sales -- actually across the organization, but question was specifically about sales, inside the sales organization. As we move from order management closer and into the retail store with point-of-sale, with customer engagement and so forth. There are some different buying personalities and buying profiles there. So, we continue to recruit domain expertise that is focused in that particular area. And as I mentioned, we are up a couple of quota carrying reps this quarter over last. And we’ve got about 15 or 20 spots open in sales and marketing. And they are not exclusively, but predominantly leaning toward the retail store solution area.

We have no further questions at this time. I’m turning the call back to our presenters.

Okay. Terrific. Well, thank you, Emily, and thank you everybody for joining the Q1 2018 call. We’ll look forward to updating you in about 90 days. Just by coincidence maybe, yesterday was the 20th Anniversary of Manhattan Associates going public. And I know some of you on the call were covering us on that very day 20 years ago. So, thank you very much for all of your support over the last two decades. And look forward to speaking to you again in about 90 days from now. Bye, bye.

This concludes today’s conference. You may now disconnect. Have a great day.