Manhattan Associates, Inc. (MANH) Q2 2019 Earnings Report, Transcript and Summary

Good afternoon. My name is Josh, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Q2 2019 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, July 23. 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, Josh, and good afternoon, everyone. Welcome to Manhattan Associates 2019 second 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 the future financial performance of Manhattan Associates. You are cautioned that these forward-looking statements involve risks and uncertainties, are not guarantees of future performance and that actual results may differ materially from the projections contained in our forward-looking statements. I refer you to the reports Manhattan Associates files with the SEC for important factors that could cause actual results to differ materially from those in our projections, particularly our Annual Report on Form 10-K for fiscal 2018 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. You'll find reconciliation schedules in the Form 8-K we submitted to the SEC earlier today and on our website at manh.com. Now I'll turn the call over to Eddie.

Well, good afternoon, everyone. And thank you for joining us to review the Manhattan Associates 2019 second quarter results. We delivered record Q2 revenue of $154 million applying ASC 606 retrospectively and $0.42 of adjusted EPS. In a pretty turbulent global macro, Q2 revenue grew 9%, it's a pretty solid 2018 comp and EPS exceeded our expectations by $0.07. License, cloud, maintenance and services revenues all exceeded Q2 targets. In fact services delivered a record revenue quarter posting double-digit growth across all three geos on strong demand from new license and cloud sales. Our operating margin exceeded our expectations on revenue performance, while we continue to invest significantly in the business to deliver long-term growth and earnings objectives. We're still early in that transition to cloud with aggressive transformative goals and investments earmarked for driving customer success. That said, despite appropriate cautions regarding global macro volatility, we remain bullish on our outlook for 2019 and we are again raising our 2019 full-year total revenue and earnings per share guidance, while maintaining our operating margin guidance. The positive business momentum we are seeing is driven via cloud transition progress to-date, as well as our focus on our four main growth areas: Firstly, our market-leading product innovation. We continue to invest aggressively in innovation with year-to-date R&D investment totaling about $40 million, that's up 21% over 2018 and we're on pace to achieve $80 million full-year 2019 R&D spend. Our development agility is enabling us to deliver new and competitively differentiated product and technology solutions to the market faster than we ever have before, resulting in encouraging pipeline growth and competitive wins. Secondly, our pipeline strength continues to be solid across the globe for license, cloud and services with upward trends across cloud and services. We do expect license revenues to continue to decline year-over-year as we are experiencing increased demand for our cloud offerings. Overall, we continue to be very encouraged by our new customer signings and by the concentration of potential new customers in our global pipeline with about 50% of our deal opportunities representing net new logos. Thirdly, our consulting services delivered a record $94 million in revenue, growing 14% over 2018 on strong demand for our market-leading Manhattan Active omnichannel, inventory and supply chain solutions. And as global demand continues to strengthen for new product sales and system upgrade activities, we've increased our capacity about 10% year-to-date and we're actively recruiting global services consultants around the world to meet both demand and drive customer satisfaction. And then finally, sales and marketing. Competitive wins remained strong at about 70% against head-to-head competition and with approximately 45% of license in cloud sales in the quarter coming from new customers. Verticals, driving more than 50% of our license in cloud revenues in the quarter were retail, consumer goods and food and beverage. Sales and marketing investments were up about 7% year-to-date as we continue to focus on driving market awareness and expansion of our marketing, sales and account management coverage, that's predominantly in the Americas and Europe. And we're aggressively recruiting across our sales and marketing teams, exiting the quarter with 68 people in sales and sales management with 60 quota-carrying sales reps. At Q2 total software revenue came in at $20.7 million, that's up 13% versus 2018 with the breakdown reflected in our revenue mix shift from a perpetual license to a cloud first company. At Q2 2019 performance marks our third consecutive quarter of year-over-year combined software revenue growth, which will continue with total cloud revenue likely surpassing license in the second half and on a full-year basis. We recognized $11.7 million in license revenue this quarter significant deals included two $1 million plus transactions, one closed in the Americas in industrial equipment and one in EMEA in grocery retail. Both deals are with large Tier 1 net new customers. And although deal activity is quite healthy license performance does continue to be impacted by timing, primarily related to the retail reconstitution and by customers and prospects weighing more flexible purchase options. Now turning to cloud. Our Q2 revenue totaled $9 million growing 68% over prior year. And Manhattan Active Omni drove over 50% of our Q2 cloud bookings. And from a geo perspective, the Americas delivered about 70% of our bookings. We continue to experience early interest in subscription models for our traditional supply chain management solutions including WMS, scale, transportation and inventory with our cloud pipeline, nearly doubling from a year-ago. Also our point-of-sale pipeline is beginning to gradually build momentum and we've seen a nice increase in the prospect count in the last six months and we're gaining positive market traction head-to-head in competitive deals. And while early cloud adopters are impacting our license results, we view this is a positive for long-term subscription revenue growth. Now, I'll provide a few updates on progress we've made across a variety of our products this quarter. In late May, we hosted our Annual Customer Conference Momentum and as usual it was a terrific event with high attendance and strong levels of customer enthusiasm. What was particularly notable this year was the breadth of the presentations given by our customers, really reflective of our growing product portfolio. During any given time slot, we had customers giving presentations on everything from rolling out a cloud native point-of-sale system, implementing a store inventory management and fulfillment solution across three brands and well over 1,000 stores, multi-modal implementation of our transportation management solution, best practices for managing and changing workforce profile in the distribution center and a number of others. And as we've communicated in the past, we've expanded our total addressable market through innovation, expanding the breadth and depth of our portfolio by designing and developing applications in adjacent areas where we believe we have something different and better to offer the market. And positive comments and alignments we received while momentum were strong reinforcement that this path of organic investment in our application portfolio is really paying off and we are poised for the next phase of growth across a number of strategic areas. At the same time, we've continued to invest in warehouse management solutions in order to advance our already strong category leadership in the digital age. Our investments in WMS innovation, which are continuing in a record level this year by the way is creating profoundly better outcomes for our customers fulfillment processes. And the momentum, customer shared how order streaming capability for example has helped them dramatically improve the number of units pick-per-hour, while simultaneously and substantially reducing order cycle times, a key metric for digital age distribution. Another key trend in distribution has been the increasing amount and variety of automation and robotics in distribution centers. The amount of investment capital pouring into warehouse robotics providers is at unprecedented levels and in part because of the labor shortage impacting so many high volume distributors. And while we always have a keen focus on making the human capital in the distribution center more engaged and more productive. We also fully embrace the gradual transition this sector is making to automating more and more tasks. In fact, we've recently announced a program called the Manhattan Automation Network, that enables our customers to more quickly and easily navigate next generation robotics and automation into their distribution centers. We see the next generation of WMS as being the master orchestrator, a machine learning powered piece of software that brings together human capital, all forms of automation and robotics and best-in-class tools for supply chain management organizations to succeed in the digital age. And we continue to see strong momentum with the Manhattan Active Omni solutions as well, particularly interesting in the number of customers rolling out our solution globally. Often beginning their rollouts outside the U.S. and with our solution fully localized for multiple countries in Europe, they're beginning that theater. Customers will then go live with the exact same solution in APAC and maybe in the Americas, helping them realize the vision of rolling out this omni-channel innovation to unify operations in dozens of markets across the globe. And we believe that only our truly version-less cloud native solutions can provide both the agility and the ability to scale for customers with a truly global footprint. Finally on the retail store side, our first two point-of-sale customers went live last quarter. One in the U.S., where the rollout continues to progress very well with the customer continuing to bring up new stores each and every week. The other in Europe, this luxury apparel and accessory provider is using Manhattan Active point-of-sale to capture orders in the stores and then is using our OMS to writer orders across the globe for fulfillment. And encouragingly, we're continuing to add additional point-of-sale customers globally, closing another large store count customer in Europe in Q2. Well that covers the business update. So Dennis, why don't you provide the financial update on our 2019 full-year guidance, and then I'll close our prepared remarks with a brief summary.

Thanks Eddie. Overall Manhattan's growth, profitability, cash flow and balance sheet metrics continue to be solid in our business transition. Q2 total revenue was $154.3 million, up 9% over prior year, excluding FX, total revenue was up 10%. Adjusted earnings per share was $0.42 and our GAAP earnings per share was $0.32 with stock-based compensation accounting for the difference between adjusted EPS and GAAP. License revenue was $11.7 million, exceeding the $9 million target discussed in our Q1 call. For Q3 and Q4 2019, we are targeting about $8 million in each quarter's revenue mix transitions to cloud subscriptions. Our target reflects the expected impact of our cloud transition. For full-year 2019, we are raising our license estimate range to $38 million to $42 million, with license gross margin of about 93%. Our previous range estimate was $36 million to $40 million. Q2 cloud revenue was $9 million up 68% over Q2 2018. For Q3 2019, we are estimating our cloud revenue to be about $12.8 million, up 98% over prior year and 42% sequentially on solid demand for cloud solutions. For full-year 2019, we are raising our cloud revenue recognized range from our previous estimate of $36 million to $40 million, up to $42 million to $44 million, representing 82% to 90% growth over 2018. For total software representing cloud and license revenue combined, we are raising our 2019 full-year estimate to $83 million versus our previous estimate of $76 million. We are pegging the midpoint of our cloud and license range estimates, resulting in a 21% year-over-year increase versus our previous estimate of 11%. Regarding bookings, as we have discussed remaining performance obligation or RPO is the leading proxy for our cloud bookings performance and represents the value of contractual obligations required to be performed, otherwise referred to as unearned revenue or bookings. Our RPO for this quarter totaled $120 million, up 106% over prior year and 20% sequentially over Q1 2019. For Manhattan, this disclosed value represents our cloud bookings value of unearned revenue under non-cancelable contracts greater than one-year. Contracts with a non-cancelable term of one-year or less are excluded from the reported amount. One last point on license and cloud, our performance continues to depend on the number and relative value of large deals we close in any quarter, as large license deals remain important, our markets are continuing to shift towards subscription models in 2019 and beyond. While this is positive, deal sizes maybe a bit smaller as subscription revenue is recognized over time. We also retain some caution around slow decision making by some clients and prospects, particularly retailers and potential global macro and geopolitical events that could impact business investment cycles. So shifting to maintenance, revenue for the quarter totaled $37 million, up 1% over prior year. Retention rates remained strong at greater than 95% plus. For 2019, we are estimating maintenance revenue to be about $145 million, down about 1% over 2018 impacted by our cloud transition. We estimate Q3 2019 maintenance to be about $36 million and overall our maintenance results will be influenced by perpetual license deals closed during the year, existing customer conversions to cloud, retention rates and timing of cash collection. Turning to services, consulting revenue for the quarter totaled $94 million, up 14% over Q1 2019 on strong global demand. We are targeting Q3 revenue growth of 8% to 10% over prior year with a midpoint target of $92 million. For Q4 with more active customer implementations entering the second half of 2019 versus 2018, we expect Q4 services revenue to decline sequentially from Q3 about 5% to 6% as customers idle implementations for the peak season holiday period. Overall, with strong services demand in Americas, Europe, and APAC, we are raising our full-year services growth estimate to 8.5% to 10.5% over prior year with a midpoint value of about $361.5 million. Our previous services growth estimate was 5.5% to 8%. Our consolidated subscription maintenance and services margin for the quarter was 51.2% driven by increased headcount investment in cloud and consulting services. For 2019, we expect Q3 subscription maintenance and services margin to be about 50% and Q4 margin to be about 48% due to the on-boarding of new hires and customers idling implementations during retail holiday peak season. We are targeting full-year services margins to be about 50%. Our 2019 services gross margin reflects our investment in cloud operations, performance-based compensation and increased services capacity to meet demand. Turning to our operating income and margin, Q2 operating income totaled $36.2 million with an operating margin of 23.4%. For Q3 2019, we are estimating operating income of $30 million to $31.5 million with a $30.7 million midpoint and an operating margin of 20% to 20.5% with a midpoint of 20.2%. Our license to cloud revenue mix shift combined with continued hiring across the organization, customers idling implementations for Q4 retail peak season and seasonal impact of cloud compute cost for Manhattan Active Omni customers is included in our operating margin estimates. Factoring these key elements in, we are targeting a Q4 operating margin of about 17% with a 2019 full-year operating margin of approximately 21.1%. For full-year operating income, our range estimate is $125 million to $129 million, up from our previous estimate of $122 million and $126 million. For full-year operating margin, we are estimating 21% to 21.2%, with operating income of nearly $127 million at the midpoint. That covers the operating results. Our Q2 adjusted effective income tax rate was 24.5% and we are estimating a 24.5% effective tax rate for both Q3 and full-year. Regarding capital structure, we invested $20 million in Q2 2019, share buybacks. Last week, our Board approved replenishing our repurchase authority limit to a total of $50 million. For Q3, Q4 and full-year, we are estimating about $65.3 million diluted shares full-year, which assumes no buyback activity. Turning to cash, we closed the quarter with cash and investments, totaling $119 million and zero debt. Our current deferred revenue balance totaled $98 million, up 20% from December 31, 2018 driven by maintenance and cloud billings. Q2 cash flow from operations totaled $37 million more than double 2018. And year-to-date operating cash flow was $72 million, up 6% over prior year. Year-to-date CapEx totaled $3.3 million for 2019 with the assumption of incremental facilities investments in both India and the U.S. We estimate capital expenditures to be approximately $12 million to $15 million. So I'll wrap up with our updated 2019 guidance and then turn it back to Eddie. As you know we provide annual guidance on total revenue operating margin and EPS. As we transition to a cloud first company, our view is the more success we have with subscription adoption, the impact of the revenue mix shift from license to cloud on our near-term income statement results will be effectively masking a significant level of underlying value creation. So for revenue, we are raising our 2019 total revenue guidance from our previous range of $582 million to $592 million to a new range of $598 million to $604 million, targeting 2019 revenue growth of 7% to 8% over prior year with a midpoint estimate of $601 million. Our previous guidance pegged year-over-year growth at 4% to 6%. We expect Q3 2019 total revenue growth in the range of 5% to 8% with a midpoint estimate of $152 million. For EPS, we're raising our adjusted EPS guidance to $1.46 to $1.50 with a midpoint estimate of $1.48. Our previous range was $1.42 to $1.46. And our GAAP EPS guidance is $1.08 to $1.12. Additionally, we estimate our Q3 2019, adjusted EPS to be about $0.36. For operating margin, we are targeting a full-year adjusted operating margin range of 21% to 21.2%, again with a midpoint of 21.1% and a GAAP operating margin range of 15.6% to 15.9%. Our margin objectives reflect our business transition to cloud continuing to ramp in 2019 including related incremental investments with the objective of driving long-term sustainable growth. That covers the financial update. Thank you very much. And back to Eddie for some closing comments.

Okay. Well, thanks Dennis. So in summary, we're very pleased with the quarter and our continued cloud transition progress. Our underlying business fundamentals are certainly solid and we remain focused on extending our market leading position in supply chain and omnichannel commerce solutions. Our momentum of success continues to be underpinned by delivering innovation that anticipates the needs of an evolving market, focusing on our customer success and leveraging our deep domain expertise. Our first half performance continues to boost our confidence in the significant and expanded business opportunity in our core markets, driven by the ongoing retail evolution, this is also driving the need for supply chain modernization. Our competitive position is strong and we continue to invest in innovation to extend our addressable market, market leadership and differentiation. Customers' feedback and win rates continue to invalidate our investment strategy, and as always, we remain focused on our customer success and on driving sustainable long-term growth for our shareholders, with the world's most talented supply chain commerce employees, the best software solutions and market dynamics that require customer investment in supply chain innovation. We do believe that we are quite well positioned for the future. So with that, Josh, we'd be happy to take any questions.

[Operator Instructions] And your first question comes from Terry Tillman with SunTrust Robinson. Your line is open.

Hey. Good afternoon, gentlemen. Can you hear me okay?

We can hear you, just fine. Terry.

Hey, Terry. How are you doing?

Well, I'm doing well and looks like you are all doing well too. Congrats on the results and nice to see that the low DSO and cash flow there Dennis. Couple of questions I had. I guess first, like as you all have been building out this cloud business, we've been listening to you all and your vision, and you've talked about data points and some guideposts on success, but like we saw a couple of quarters in a row here where we see the change that RPO of $20 million plus each quarter. In fact, I think, 2Q is up sequentially. And then Dennis, we're looking at this pretty material ramp sequentially in the actual subscription revenue for 3Q. What I'm curious about is, are we hitting an inflection point as it relates to just your sales team kind of finding their footing and learning how to sell this and they're starting to be some continuity and just consistency in terms of close rates or is it maybe some of the newer products like the POS or the CRM product? I'm just trying to get a sense on, if we've kind of hit an inflection point here, where not saying there will still be volatility, but maybe we've kind of hit the next inning or the next kind of milestone in the cloud business?

Yes. I mean I think it is multifaceted Terry as you point out. There's no question that our sales organization are getting a little more comfortable. As you know, the domain experts, domain rich and this is not a long bridge for them to cross, but I think there is a little more comfort there. I think some of the innovation clearly that we are delivering is inspiring our customers to move forward number one, number two their desire to essentially get their hands on the innovation that we're delivering to the marketplace is providing somewhat of an accelerant, and then the overall market dynamics like – and the leaning toward cloud in general is certainly helping the momentum as well.

Okay. And then just a follow-up question for either of you two is just related to the services. We get lots of questions on the services over time and it seems like there has been a real kind of strengthening of the services business. I think in the prepared remarks you talked about cloud deals and recent license activity, and then at some point you did add an upgrade. We had come across a lot of pent-up demand for upgrades, how much is that playing out in the services demand and just maybe kind of handicapping the visibility you have into that strength continuing as we move into 2020? Thank you.

Yes. So good visibility. There is no question that there is some pent-up demand for upgrades. Again, we do feel like the innovation that we're delivering to the marketplace is sort of unshackling that demand and really sort of driving the need inside of the upgrade process, but the uptick in services is really across the board. It is across the three theaters in which we operate. It's across all products and across the dimensions of initial implementation, upgrades and continued rollout of solutions across brands, stores and distribution centers. So yes, it's a pretty well balanced uptick frankly.

Okay. Thank you.

Our pleasure, Terry. Thank you.

Your next question comes from Brian Peterson with Raymond James. Your line is open.

Hi, gentlemen. Thanks for taking the question and congrats on the quarter. So first one, maybe for Eddie, just on customer deployment references. As we think about the WMS market longer term, I'm curious, what do you think about in terms of your customers potentially sticking with on-premise deployments given their desire to potentially customize in the investments that they've already made? Or do you feel like this will follow OMS in Active Omni, where there will be a kind of a massive shift towards the cloud over time?

Yes. Good question, Brian. So I think – frankly, I think there is an inevitability that everything that we do is moving to the cloud number one. The thing that you – the matter that you point out is a potential inhibitor, which is the customization of the – generally the heavy customization and integration of WMS. Frankly, we've cracked that nut. So any how, if look at the Manhattan Active Omni world, where there is a pretty healthy amount of customization there, we have a full version-less elastic product there, that is extensible. So every time a customer does an update to the software, let's say every 90 days, any customization they may have done will remain in place, will remain intact. There is no reporting or any of those kinds of things. So we expect those patterns to continue for all of our products as we transition into the cloud.

Got it. And Dennis maybe one for you. Just on the timing of expenses. It looks like you had a nice beat this quarter. Just trying to understand how the investments came in versus your expectation in the second quarter and if any of that shift into the back half of the year? Thanks guys.

None of that shifted to the back half of the year. It's the margin profile. Brian, it was really driven by solid revenue growth – topline growth.

Pretty good. Thank you, Brian.

Your next question comes from Matt Pfau with William Blair. Your line is open.

Hey guys, thanks for taking my questions. And first one is start-up on the services business and maybe you could just comment now that you've been doing these cloud deals specifically Active Omni for some time now? How does the attach rate or revenue generated for professional services relate to a cloud deal relative to license?

Yes, very little impact. I mean, each project and so forth is always a little bit different, particularly on the order management side. So from deal-to-deal, the attach rate is a little bit different. But if you look across the body of work around the old or on-premise order management software and of course the new Manhattan Active Omni solutions, you'll find that the services attach rate is negligibly different.

Got it. And on the revenue raise for license and cloud, it was a nice raise, but you also gave some comments related to the macro that they were a bit cautious. So maybe you can just talk about raising the guidance and what sort of macro factors are in there? And is there anything from potential impact with your customer base from additional tariffs?

Well yes. So I'll take the first part and Dennis can take the second. The cautionary language really Matt is just around the things that you've alluded to, that we all know about the tariff issues, the Brexit issues and the trickle-on and trickle-down effects of those. Look, some could argue that the tariff issues could be advantageous to us as manufacturers bring manufacturing either near shore or onshore and have to retool for those things. But there are so many moving parts there that we just feel like it's prudent to offer cautionary language.

Yes, Matt. I don't really have much more to offer to that than what Eddie covered. It's just that if there is an extreme amount of volatility in the back half of the year, whether it's geo-political or trade tariffs, et cetera. It could pause buying cycle. So as Eddie said, it's just prudent for us to put that caution out there.

Yes. Got it. And seen more and more new customers in the pipeline and accounting for a larger percentage of your business has been a theme over the past several quarters and it sort of coincided with the move to Cloud and Active Omni. So maybe you can just comment on specifically why you think that is? And then those customers that you are seeing, is it a different industry, a different type of customer, what's specific about these new customers that’s may be different to your existing base?

Yes, I think there are sort of three things that spring to mind, Matt, that are really driving that in no particular sequence. There are some geographies that we traditionally haven't played in. They're really contributing for us number one. Number two, the innovation and of course that we're delivering to the marketplace is inspiring customers, but prospects that hadn't done business for this before, to take a look and invest in our solutions. And then thirdly, is sort of that changing – little bit change in business model where you're seeing manufacturers and wholesalers go direct to consumer and having to deliver to customer expectations, increases the complexity of the supply chain, and so forth. And then just my final comment there would be, around the innovation that we're delivering, when you are able to go into a geography, where frankly you have no or very little presence, you don't have much of a reputation, but we're able to win net new customers, I think it does speak to the level of innovation that we're delivering compared to the rest of the market.

Got it. That's all I had for you guys. Thanks for taking my questions.

Very good. Our pleasure, Matt. Thank you.

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

Hi guys. Thanks for taking my question and very nice job in the quarter.

Thank you, Mark.

Eddie, starting with you, in your prepared remarks, you mentioned that automation and warehouse robotics are some of the big driving trends in the warehouse these days and you also noted that next-generation WMS is what you say exactly like a master orchestration layer. I thought that was kind of interesting comment, I was just wondering if you could maybe build a little bit upon that?

Well, I think the short answer really Mark would be, machine learning can be applied very, very well, very, very effectively, especially when you've got lots of data available and frankly a lot of repetitive tasks. So you look at what's going on inside the distribution center and of course you've got those two attributes, right. You've got tons of data being created and you've got a healthy amount of repetitive tasks. So you can apply some really clever frankly and sophisticated machine learning techniques into that building. So whereas in decades gone by, yes software was driving tasks to individuals and so forth, but now you've got this much broader view of what used to happen and is likely what is going to happen inside the distribution center. So to use that expression, we can be the master orchestrator and the conductor in a much more elegant way than we've ever done and been able to before.

Great, thank you. And then I was wondering if you could just provide us an update with respect to the Company's recent push into the contact center. There has been some commentary around that over the last couple of quarters and I bring this up because historically the contact center hasn't necessarily been a Manhattan stronghold?

Right. Yes, we are making pretty good progress there. And it's all part of our effort to provide this very seamless, holistic view of the consumer across every channel that they shop and every channel that they interact with the retailer. So when you've got an order management system, a point-of-sale system, a set of store execution system, BOPUS and fulfill from store and so forth, along with sophisticated contact center solution that is looking across everything and every aspect of what the consumer is doing. The retailer can provide of course that single view, can provide great customer service, can provide great personalization in the way that I believe that we as individuals actually want to receive it because it improves customer service and so forth. And of course at the same time, being able to provide targeted marketing and effective cross-sell and up sell for the retailer.

Great and then finally, Dennis. With respect to your services demand, I was wondering if you could just give us a rough idea of what percent of that business is actually being driven by systems upgrades versus say new business?

I would go with about a third of it is system upgrades and the balance is being driven by new innovation, Mark.

Great, thank you. That's helpful. That's all from me. Thanks.

Okay. Thank you, Mark.

[Operator Instructions] There are no further questions at this time. I will turn the call back to the presenters.

Okay, well thank you, Josh, and thank you everybody for listening in to our Q2 earnings call. We thank you for your ongoing support. Hope you have a great continued summer and we'll look forward to speaking to you about 90 days from now with our Q3 results. Thanks again. Bye-bye.

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