Good afternoon. My name is Stephanie and I will be your conference facilitator today. At this time, I would like to welcome everyone to Manhattan Associates Third Quarter 2016 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, Tuesday, October 18, 2016. I would now like to introduce Dennis Story, CFO of Manhattan Associates. Mr. Story, you may begin your conference.

Thank you, Stephanie and good afternoon everyone. Welcome to Manhattan Associates 2016 third 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 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 on 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. You will find reconciliation schedules in our Form 8-K we submitted to the SEC earlier today and on our website at manh.com. Now, I will turn the call over to Eddie.

Great. Well, good afternoon everybody. We delivered solid financial performance in Q3 and we are certainly upbeat on delivering another record year as we wrap up 2016 and look forward to 2017. We are optimistic about our near-term and long-term growth outlook as customers and prospects continue to invest in core supply chain and omni-channel commerce initiatives. Our customer satisfaction is strong across the globe and our competitive position in the marketplace continues to be strong driven by our pursuit to be the leading innovator in the supply chain commerce markets. We delivered record Q3 total revenue of $152.2 million, up 7% with record adjusted earnings per share of $0.50, increasing 19% over Q3 2015. Software license revenue for the quarter was a record $21.6 million, up 13% as we closed 5 $1 million plus license deals in the quarter, 2 with new customers and 3 with existing customers. 4 of these large deals were in the U.S. and 1 of them was in Latin America. With 2 of the 5 deals, we won against very strong head-to-head competition. And for the quarter, our large and midsized deal activity was driven by a healthy mix of warehouse management solutions, transportation management and omni-channel initiatives. And our sales team continued to execute very well and our competitive win rates against head-to-head – or head-to-head against our major competitors remained strong at about 75%. For the quarter, our license revenue from net new customers was 31%, reinforcing the strength of those midsized deals below the $1 million mark. Our year-to-date percentage stands at about 35% coming from new customers, the key takeaway here. Well, our innovation and strong customer focus is winning net new Tier 1 and Tier 2 customers in our target markets and enabling us to leverage our existing customers…

Thanks, Eddie. I will review our financial performance, our 2016 full year guidance and finish with some initial comments on 2017. So, Manhattan continues to deliver strong organic top line growth and quality earnings leverage. We posted total revenue of $152.2 million, increasing 7% over Q3 2015. Adjusting for negative currency impact mainly in the pound, total revenue grew 8% organic. By region, Americas grew 8%, APAC grew 31% and EMEA declined by 10% compared to Q3 last year. Overall, demand for our solutions continues to be solid in our target markets. Adjusted earnings per share for the quarter, was a record $0.50 increasing 19% over prior year on solid revenue growth, strong expense management and our buyback program. Our GAAP diluted earnings per share also was a record $0.47, increasing 24% over Q3 2015 on our strong operating performance. A detailed reconciliation of GAAP to non-GAAP adjustments is included in our earnings release today. The remainder of my P&L discussion represents our adjusted results. License revenue for the quarter totaled $21.6 million, up 13% over prior year. License revenue exceeded our Q3 expectations slightly as we managed to close a couple of midsized deals we forecasted to close in Q4 as part of our previous guidance. From a regional perspective, Americas posted license of $18.1 million, EMEA $1.8 million and APAC $1.7 million. As always, our license performance depends heavily on the number and relative value of large deals we close in any quarter. With the strength of Q3 license and a sluggish global macro, we expect full year 2016 license growth to come in at about 6%, resulting in about $83 million of total license revenue in 2016. Shifting to services, while overall customer demand remains solid, our services revenue came in below our expectations in the quarter…

Well, thanks Dennis. Well, despite a challenging macro environment, we continue to see solid progress in our core verticals, led by retail and with a meaningful portion of our WMS and non-WMS license and service revenue activity driven by digital commerce and technology modernization programs. Our competitive position continues to be quite strong. We continue to be in growth and investment phase, investing in innovation, marketing and business infrastructure to support our company growth and increase market share positioning Manhattan Associates for the next wave of retail multi-channel selling entering 2017. As I discussed at the beginning of the call, we have recognized 5 large deals in the quarter, 2 with new and 3 with existing customers, 4 in retail and 1 in food and beverage. 3 of the 5 deals were driven by strategic supply chain modernization programs. In Q3, our license fee mix was weighted at about 51% 49% between our warehouse management and other solutions. And 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 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 Q3 license revenue. Q3 software license wins with customers who have committed us to share their names include Arhaus, Brightstar, Custom Goods, Euromaster Tires, LTI Trucking, Raia Drogasil, Saint-Gobain and STR Distribution Services. Q3 expanding relationships with existing customers included Allen Edmonds, Asda, Bally Technologies, Conair, Five Below, Floor & Decor, Hy-Vee, J.Crew, L Brands, National DCP, O’Key, Ozburn-Hessey Logistics, Perfect 10, Precision Planting, Rhee Brothers, Simplehuman, Stella & Dot, Super Retail Group, Thermwell Products, TwinMed, Uline, Uni-Select, UPS Supply Chain, VF Services and West Coast Distribution. Our professional services…

[Operator Instructions] Our first question comes from the line of Terry Tillman with Raymond James.

Hi, good afternoon guys. Hi Eddie and I welcome back Dennis.

Hi Terry. Thanks.

I guess Eddie, the first question for you or Dennis is just a little bit more reconciling what was really good license strength, I mean people were worried about enterprise software in the third quarter and you saw good growth acceleration and if I am not mistaken, I think you said four retail deals over $1 million of license fees compared to one deal last quarter, so that works really good on the surface and I guess I am just curious because we did see that real downtick in pro services, is it as much as retail is just a tough neighborhood or is it just really a perfect storm with a couple specific customers?

Yes. I mean it’s more than a couple of specific customers, Terry. There are a number of customers who, for a various different reasons have slowed down programs. These programs are a very large and very complex, as you know. We have seen general softness in the retail space and some of the programs clearly could not be completed before the busy season, so we saw a bit of a slowdown and the push of some programs. These are as you know very strategic initiatives. They are large initiatives and need to be conducted thoughtfully. And I think frankly, our retail customers are doing that. Now, just to reiterate, we haven’t lost any business. These are programs that have slowed and initiatives that have pushed again, largely due to the advent of the peak season. So we are certainly pleased with the license performance in the quarter. And as we all know, is indicative of long-term services health and health of our company.

And Eddie, in terms of like you said, you saw some bright spots or some positive signals that may be just spending intentions are actually picking up if I am not – maybe I hope I didn’t mischaracterized that, but I am talking about pro services, is it related to like formal backlog or visible financial commitments or is it third-parties you do some work with or is it just your own field professional services force, talk a little bit more, if you don’t mind, about how you see some glimmers of hope or maybe an inflection point there?

Yes. It’s a little bit of all of those things Terry, but mostly what we are seeing frankly, of course we did see solid license revenue here in, well both – Q1, Q2, Q3 from a big global brands with strategic initiatives. And maybe the up-tick might be a slight misnomer. The point is that whilst we have seen programs slowdown, certainly our customers are saying, hey look, we have got to pick these back up pretty soon here. So these are committed programs that we are already engaged in. It just slowed down. We certainly expect them to pick back up as soon as these guys come back up for a breadth of air.

And I would like asking about this because this is the newest part of your business and potentially a big growth engine, the retail store initiatives, I know you have a couple of kind of lighthouse, bellwether accounts that are the early users, but can you give us an update in terms of maybe sales activity with other potential prospects and/or just how to set expectations for that into ‘17?

Yes. So I think you are right, we have got two – a couple of early adopter customers. Activity is good. I would say the activity for retail store systems across our portfolio is very strong. Now there is a little bit of sort of a bright line there between our store execution systems and specifically our next generation of point of sale that we are developing. But of course, the point is as we see more activity inside the retail store period, we think it bodes really well for our next generation POS strategy. It’s – so market momentum is good, conversations are good. But as we have cautioned before, we don’t expect to see a massive hockey stick in 2017. As early adopters in 2016 well, we expect to sign some more strategic clients in ‘17 and POS is really an ‘18, ‘19, ‘20 play for us.

Okay. And I don’t want to hijack this call, I will just stop after this, but I feel compelled to ask this as a question, put this back in the saddle, the 25 basis points, I mean usually if I am not mistaken, it’s 50 or thereabouts, so it’s a little lower, I mean obviously, you have had big out-performance this year, but you mentioned that there will be some sales and marketing as well as kind of innovation R&D focused expenses, could you maybe talk about like is there – how would you stack rank those, is a lot of the expense investment going to be in one or the other? Thank you.

Yes. Number one, innovation, continued to innovate. We have some exciting innovation coming that will be introducing into the market and we will talk about that later in the year in Q1. So number one innovation, continue to create competitive differentiation against our competitors. And then sales and marketing kind of in the same boat, so looking to make some strategic hires there, invest in some great market awareness programs.

Okay, thank you.

Thank you, Terry.

Your next question is from Matt Pfau with William Blair.

Hey guys. Thanks for taking my questions. First, welcome back Dennis and I had a quick one for you on the guidance. So I just want to make sure I understand this correctly, the total growth guidance for the top line is lower by about 3 percentage points and you said, 1 to 2 points of that 3 points is from FX and the rest is from the delayed deals?

Yes.

Okay, great. And then I wanted to just touch on the competitive environment for a minute, there has been some changes with some of your competitors, JDA recently tried to sell themselves and then recapitalize and Oracle bought LogFire, a smaller company out in the market, so any changes that you are seeing out there competitively from either of those transactions or anything else?

Yes. Eddie here. Matt, no, not really, frankly I think that JDA – as you said, JDA put themselves in the market, ended up taking some equity from a couple of private equity firms and so forth to help de-lever. But no real change in that competitive landscape, Oracle acquiring LogFire. They had been – they I think had largely ceased development of their own WMS for some time ago and have been partnering with LogFire. So it seem like a pretty obvious union there, but haven’t seen any competitive changes. And as you know, for the last 1 year or 2 years, frankly maybe even a little more, we have seen competitive win rates in the 75% range and expects to be in that range or better going forward.

Got it. And then obviously, a nice license sale quarter for you guys, but are you seeing any change in tone from customers on the license sales side in terms of potentially sales cycles lengthening or is the push primarily only something that’s related to the services side of the business?

Yes. I mean the services side, as I talked about before, the good news, bad news is that these programs are big, sophisticated and complex. And particularly when you are operating in retail, they get banged by that busy season and sometimes you have to kind of push past those. Push past the busy season and pick them up later. That’s certainly one of the dynamics. With regard to license revenue, several strong quarters, but certainly another strong quarter in Q3. I think we have indicated before that we are seeing just slightly lengthening sales cycles and it does feel like there is one or two or one or two more trims at the crank to get to approval, but nothing that is really changed the market dynamic.

Got it. That’s it for me. Thanks guys.

Okay. Thank you, Matt.

Your next question is from Mark Schappel with Benchmark.

Hi, good evening. Thanks for taking my question and Dennis welcome back.

Thanks Mark.

Eddie, just kind of building on Terry’s question regarding delayed services projects, in your view are these delays just kind of due to this year complexity of these omni-channel initiatives, given that there is typically a significant reengineering effort that kind of accompanies these projects?

Yes. I mean, that’s certainly the primary reason, Mark. I mean, there is a few other things around the edges. I don’t want to say that it’s only big omni-channel programs that are slowing down. There is certainly a few other things around the edges. Look, as we look back in the year to Q1 and Q2, we exceeded professional services revenue in both Q1 and Q2, which closes to raise revenue throughout the year. So, as we reflect back on that, you can see clearly that some of our customers were working diligently and swiftly to be able to get programs implemented successfully delivering ROI earlier in the year. The other thing that I think we all know just – and maybe should have anticipated a little more is with such emphasis on Black Friday, Cyber Monday and the preparation for that. Some of the retail, some of the kind of cold freezes and implementation freezes have moved a little earlier in the year. So, you can put all those things – put all those things together and that’s largely what we are seeing.

Okay, great. Thank you. And then on the sales front, your quota carriers did pickup a couple this quarter but they are still down from where they were in Q1. And I was wondering maybe if you could just give us a little bit of what you are seeing on the hiring front. Are you having just a harder time hiring guys these days than maybe a year or two ago or is there just – or you are just kind of behind the ballgame here a little bit just due to some things going on internally?

No, no. We just – frankly, Mark, we are very selective. So, I am pretty comfortable with the capacity we have got. We are not under capacity, we are able to service the need and so forth, hence, been able to deliver the license revenue and so forth that we have in the past few quarters. We talked about it. Last quarter, we were down three more I think last quarter. I have indicated to you on that call, to the team on that call, that there is a timing issue there. We had actually brought a couple of these guys on in between the end of the last quarter in the earnings call. We continue to be very selective. As you know, we have got a very consultative sales process. So, this is not a question of picking up professional, purely professional sales reps, we need people with demand expertise that can really help develop the value proposition for the customer. So, we will continue to look. We will continue to promote from within as well.

Great, thank you. And then turning it in your prepared remarks, you know it’s a meaningful investment you are planning to make in your TMS solutions. And I was wondering if maybe you could just give us an idea of why that maybe? Are you seeing some opportunities there that maybe didn’t exist a year or two back?

Yes. Well, let’s see. There is a couple of three things there. One is we have been quite selective as to the international markets that we have offered our TMS solution in. So, we plan to begin more aggressively marketing TMS internationally. So that would be number one. Certainly, the popularity, frankly, of our cloud-based TMS solution has picked up markedly over the last 18 to 24 months, which by the way plays into the enablement of TMS in other geographic regions a little bit more effectively. And candidly, the competitive landscape has gotten a little bit better yet again for us over the last 12 months. Certainly, that’s what we have seen and we think we have the opportunity to penetrate some verticals that we have – that have been less successful for us over the years. We have always been very successful in retail and grocery, grocery retail, food wholesale and so forth. But because of the dislocation and the competitive environment, we think there are some opportunities out in with our nontraditional verticals for us.

Great, thanks. And that’s all for me.

Good. Thank you, Mark.

[Operator Instructions] Your next question is from Yun Kim with Brean Capital.

Thank you. Hi, Eddie and welcome back, Dennis. So first, congrats on a solid quarter, but obviously the focus here seems to be on the professional services business today. So, the softness that you are seeing with the delayed implementation work, are you at all seeing that in your license sales pipeline at all? And then do you expect the increasing complexity of your omni-channel – the increasing complexity of the scope of the omni-channel initiatives? Perhaps it drives some volatility in your business, professional services business going forward with many of your customers having a hard stop on the implementation work in Q3? And then also, like could this also impact the timing and seasonality of your license business, especially around large deals as they are trying to time the longer implementation work related to closing a large deal? So, still want to fairly have to stop the project in the middle?

Yes, all good questions, Yun. I think there were three of them in there. One is I haven’t really seen any change in license pipeline. As I have talked about before maybe just modest lengthening of sales cycles, one or two extra approval cycles and so forth, but no real material change to the outlook to the marketplace and to the dynamic there. With regard to change in seasonality of the professional services business, it is something I think that we will certainly have to keep our eye on. Again, we saw very strong and frankly stronger than ever professional services revenue in the first half of 2016, right and obviously saw a little bit of a slowdown in Q3. I do think that the kind of the retail freeze does seem to be moving a little earlier than it once was largely driven by these huge peaks of Black Friday, Cyber Monday that retailers have to prepare for, because they are so much more acute today than they were ever before. But – so we will have to keep our eye on that and work with our customers, obviously, to make sure we smooth out the profiles there and meet their needs. With regard to the license revenue seasonality changing based upon this dynamic, frankly, I don’t think so. These are very strategic purchases. They do have long design cycles and those kinds of things as well. So, I don’t expect the license sequencing and cycles to change materially.

Okay, thanks. And then can we expect the professional services business to show at least temporarily some acceleration over the next several quarters? Some of these delays projects get caught up, you can start again maybe perhaps end of this quarter to – especially in the first half of next year?

Yes. Well, Yun, I will take a shot at that and then Eddie can chime in as well. So traditionally, we are down sequentially Q3 to Q4 and we expect that as clients idle back during the retail busy season. We do expect our services growth year-over-year, growth profile to be better in Q4 than it was in Q3. So, that’s a positive. We will give you more color at the end of Q4 on the first half of 2017. We will see how the pipeline continues to evolve and activity and – this is not – I want to reemphasize, too, in Eddie’s communication during the call, this is not an episodic kind of event. It’s not a wave across our entire customer base or some specific customers that with their business model challenges delayed implementation. So, we will come back to you at the end of Q4 and give you a perspective on first half of 2017.

Okay. And then so for Dennis, so despite the softness in the professional services business in the quarter, you did put up – again, another strong services margin. So, this potential softness and may be some little volatility here and there regarding increasing complexity of the projects that shouldn’t necessarily impact the gross margin?

I like increasing complexity. That’s what we – that’s how we really differentiate. And generally, it’s an opportunity to increase margins in our business, increasing complexity in our space. I would also like to say 22 consecutive quarters of revenue and operating profit growth with margin expansion. So I am looking forward to number 23, Q4.

Alright. So we are coming down here as well. Thanks a lot. That’s it for me.

Alright. Thank you. I appreciate it.

[Operator Instructions] At this time, there are no additional questions in queue.

Okay. Thank you, Stephanie and thank you, everybody for joining us this afternoon. We appreciate your support and your interest in Manhattan Associates. And we look forward to speaking with you again right after the first of the year in about 90 days. Thanks. Bye-bye.

Thank you. This concludes today’s conference. You may now disconnect.