Good afternoon. My name is Jessie and I will be your conference facilitator today. At this time, I’d like to welcome everyone to the Manhattan Associates Q2 2017 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 Instruction] As a reminder, ladies and gentlemen, this call is being recorded today, Thursday, July 20, 2017. I’d now like to introduce Eddie Capel, CEO; and Dennis Story, CFO of Manhattan Associates. Mr. Story, you may begin your conference.

Okay. Thank you, Jessie, and good afternoon, everyone. Welcome to Manhattan Associates 2017 second quarter earnings call. I will review our cautionary language and then turn the call over to Eddie. 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 2016 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 the Form 8-K we submitted to the SEC earlier today and on our Web site at manh.com. Now, I will turn the call over to Eddie.

Good afternoon, everyone. Q2 has been an important quarter for Manhattan Associates. We’ve accelerated our transition to the cloud and had the biggest and most innovative product release in the Company's history, Manhattan Active Solutions. While still early days, the reception has been strong and we’re seeing positive encouraging impact. In fact, we're ready in several meaningful discussions with customers and prospects globally about these new solutions. While highly encouraging, we do continue to manage our business strategically with a rigorous operational and financial focus. And I’m pleased to say that our Q2 results were solid, improving sequentially, although year-over-year growth continues to be muted by macro retail challenges. And while we remain cautious, we are starting to see some stabilization in the services revenue as retailers invest in enterprise transformation. All of our other financial metrics remained solid, and we delivered record first half license revenue with promising pipeline activity for both license and services. License revenue for the quarter was $22.4 million, up 9% over the prior year. EMEA operations had another terrific quarter delivering $5.7 million in license revenue on the heels of a strong Q1. Nonetheless, our Q2 services revenue was down 3% from prior year. And in May, we made the difficult decision to eliminate about 100 positions from the Manhattan Associates Services business to align capacity with customer demand. Importantly though, this action did not impair nor alter our strategic investment plans in innovation or in sales and marketing to increase market share and extend our competitive advantage. In summary, we delivered Q2 total revenue of $154 million, flat year-over-year and $0.50 of adjusted EPS, up 2% over the prior year. At competitive win rates, in head-to-head sales cycles against major competitors remain healthy at 75% plus for the quarter and we're off to…

Okay. Thanks, Eddie. We posted Q2 total revenue of $154.1 million, about flat with Q2 of 2016. Consulting services revenue was down 7%, muting solid license maintenance and hardware growth of 9% in each category. On a geographic basis, the Americas total revenue declined 6%, Europe grew 21%, and Asia grew 49% sequentially from Q1 total revenue grew 7% with operating profit and EPS growing 19%. And our consulting revenue also showed modest improvement on a sequential basis. Adjusted earnings per share for the quarter was $0.50, up 2% over prior year. Our GAAP diluted earnings per share was $0.45, decreasing 2% on a charge of approximately $3 million in the quarter associated with the improved alignment of U.S services capacity with customer demand. 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 $22.4 million growing 9% over prior year. From a regional perspective, Americas posted license revenue of $15.2 million, Europe $5.7 million, and Asia $1.5 million. As always our license performance depends heavily on the number and relative value of large deals we close in any quarter, given the pipeline activity associated with Manhattan Active Omni in the second half, we are adjusting our perpetual license growth goal of 4% to 6% or 2 to 4 -- to 4% to 6% for the full-year 2017 our estimate change is based on our omni cloud pipeline activity factoring in the potential transition impact from on-premise software to cloud-based subscription revenue. While the metrics are not material at this stage, customer interest is certainly increasing and expected to continue on this manner through the remainder of 2017. Also included in our forecast is 1% of year-over-year FX headwinds. Shifting to services, Q2 services revenue totaled…

Thanks, Dennis. Well I will close our prepared remarks with a brief conclusion. As success continues to be driven by the focus we apply to delivering innovation in a rapid and ever-changing market, focusing on customer success and leveraging our deep domain expertise. While the global and retail macroeconomic condition certainly give us reason to be cautious, we’re very bullish on the market opportunity ahead of us and investing significant energy and capital into innovation and advancing the world's leading suite of supply-chain commerce solutions so as to extent our market leadership in 2017 and beyond. Omni-channel retail commerce and supply chain complexity in our target markets continue to increase, driven by digitalization and e-commerce which continue fueling multiyear investment cycles for customers and for Manhattan Associates. Our competitive position continues to be very strong and we continue to invest in innovation to extend our addressable market, market leadership, and differentiation. With the world's most talented supply-chain employees, the best software solutions and market dynamics that require customers to adapt and invest in supply-chain innovation, we believe we are well positioned for 2017 and beyond. Jessie, we'd now be happy to take any questions.

[Operator Instructions] Your first question comes from the line of Terry Tillman with SunTrust. Please go ahead Mr. Tillman. Your line is open.

Hey, good afternoon, gentlemen.

Hi, Terry.

Thanks for all the color on the call and it's good to hear about Active Omni seeing some strong new interest. I guess, Eddie, I have a question for you, and then I’ve two follow-ups for Dennis. First Eddie for you in terms of Active Omni, just maybe a little bit more narrative in terms of -- and I know it's still early, but do you sense it’s all by all the capabilities or would it be more bits and pieces? And I guess related to that, what kind of deal sizes would you see versus your other traditional products, and just how do you see it playing out in terms of deal sizes and how they consume it?

Let's see. So, I think, first of all, it's -- as I think it's a modular suite of solutions with great potential for upsell in the out months, our quarters, and out years, I think that our prospects will buy -- will not buy typically the entire suite of solutions, all at once. Certainly it will happen from time to time, but don't expect that to happen all at once. In terms of the deal size, I think that -- the deal size will continue to be as it has been and not really changed materially. We will obviously see some upside from the infrastructure that -- infrastructure cost that will be in control of in, in the new world, but I think the deal size will be consistent with what we are seeing, the way that our customers and prospects consume obviously will be different and expect that, as Dennis said, to largely be ratable over the term of the deal.

Okay. And I guess, well actually just as a follow-up to that, Eddie, do you see anything in terms of Active Omni changing kind of the mix of business of attracting net new customers versus what's been typically the balance we've seen of new versus existing?

I don't think so, Terry. Sure. Again, it’s early, but given the response that we’ve seen in the marketplace both from existing customers and new, I think the mix will be consistent.

Okay. And Dennis, maybe the question, it’s actually on the combined services line. So, first, maintenance revenue we get calls from clients wondering with the retail exposure, if you would see any kind of impact to, both maintenance renewal rates, collections, etcetera, but the firm is actually quite strong and the growth was solid in maintenance revenue. Are you forecasting anything in the back half of the year or any changing patterns still in terms of retailers balking at maintenance or price increases, etcetera?

Not at all.

Okay. That was clear. And then just the second part of the services line in terms of confidence in services stabilizing, I mean, the rate of decline definitely improved from the first quarter. You’ve mentioned something about advancers versus decliners, can you maybe walk through what you mean and/or the visibility or confidence in further stabilization in the second half. And thanks for taking my questions.

Yes, so advance or decline is really a momentum view that we take on the services and on a trailing 12-month basis in any -- at any given time you can have anywhere from 5 to 700 customer -- unique customers and Active engagement. So our view is that looking at from an advance or decliner point of view and the spread between advancers and decliners on dollars gives a --give us -- gives us a perspective of how is the business firming up or not. So -- and we've seen -- we’ve seen that spread narrowing which is a positive sign. Looking forward, the services teams’ been working very diligent -- very diligently around selling services and expanding their services buying, we’re seeing some nice traction on the pipeline itself, it’s growing but unfortunately since we're getting into the back half of the year, some of that will -- we may realize in 2017, but most of it will manifest itself in 2018. Does that help, Terry?

Yes, it does. Thanks.

Your next question comes from Monika Garg with Keybanc Market Capital. Your line is open.

Hi. Thanks for taking my question. First question what I’m trying to understand, if I look the license growth first half about 9%-ish whereas professional services is down 8% to 9%. So what I’m trying to understand is why this disconnect between the growth of license and the decline in surveys. And going forward, how do you think these two trend?

Yes. So, Monika this is Dennis. Typically the services attach, okay. It all depends on when the customer drives the implementation cycle and generally start out with the design elements, so there's always a lag typically on the front end from services attach and when you look at the past trailing 12 months, license has been very strong and we're seeing better services attach with respect to the last four quarters, but we also have had bleed out of some larger engagements that we had signed in 2016, 2015 multiyear engagements, so basically that trailing 12-month advancer decliner that I mentioned, what we're working hard to do diligently is fill the bucket back up and narrow that spread between engagements that are going live and generating positive ROI in the new business that we are bringing in the door.

Got it. Then as you talked about seeing interest in Active Omni solutions. So as that business -- that line ramps, how do you think it could impact the service revenue for next couple of years?

We will talk more. It's certainly days we will talk more about that in Q3 and how it's going to shape the P&L. Keep in mind for the most of part we’ve been going to market with the product, I’m going to market with the product, I’m going to over exaggerate here little bit, but since June and I think the feedback from prospects has been pretty exciting and I’m gauging that by the activity in the pipeline and Eddie can talk about that. But what we know is for the Active Omni implementations. We will have to basically defer services revenue until go live and then we can recognize that revenue over the balance of the remaining contract term with the customer. So we will have some impact initially as we transition to cloud on the services growth line in the P&L and we'll talk more about that in Q3 and as we go along./

Okay. And last one for me, do you think you'll have to invest more in sales and marketing as you ramp Active Omni Solutions. Thank you.

I don’t think so. Monika, we certainly allowed as we’ve talked about before some additional strategic investment and awareness in marketing as we bring our new solutions to the segments. But nothing above and beyond the investments we’ve already highlighted from a marketing perspective from a sales -- quarter carrying sales rep prospective, we feel pretty comfortable about where we’re. We will continue to look opportunistically to add heads to our organization, but nothing -- not an order of magnitude to increase or anything like that.

Thank you.

Certainly.

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

Hi, good evening. Thanks for taking my question. Maybe starting with you in your prepared remarks, you noted that you’re transitioned to the cloud was accelerating in the quarter and just wondering is it fair to assume that that transition took place mostly on the transportation side of your business.

Historically, yes, Mark. But -- so that was -- that’s really what I meant by the acceleration. So as you know we’ve had a transportation cloud business for a number of years now. But pretty much all of our other solutions, order management, point-of-sale, WM and so on down the line. We’ve been delivering exclusively as a perpetual license model. As we launch our Active suite of solutions, we certainly expect to see and are seeing more of products over and above TMS being consumed on a subscription basis.

So that the two new solutions, your Active solutions and Active Omni. There are being offered only on a subscription basis or is that more of a hybrid model?

Both. So to be clear, our Active Omni solution is a true native, pure play, whatever adjective you want to use, cloud -- cloud solution. The interesting thing I think about our offering is we will deliver it as a perpetual license model as well. So there have been Active at customer type model if you -- if it that makes sense. So either subscription or perpetual.

Great. Thank you. And then, Dennis, cash flow from operations was down meaningfully this quarter year-over-year. Where there any one-time items that won't appear or what we appear that drove that number or and do you expect cash flow from ops to bounce back next quarter.

Yes. So, Mark, we’ve always looked at cash flow on a year-to-date basis throughout the year. The only meaningful impact in the quarter was we paid $36 million in income taxes, which was up significantly over the last year. Last year was about $24 million of the income tax payments. That’s the primary difference, but if you like at year-over-year, year-to-date, cash flow, we generated roughly $73 million, up 22% year-to-date. So, yes, I would expect that -- will have a nice cash flow profile in the back of the year as well.

Great. Thanks.

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

Hey, guys. Thanks for taking my questions. But first, I wanted to dig in a little bit more into the guidance change for revenue. I guess what changed in terms of your expectations versus when you reported your last quarter, whether deals or engagements that were delayed, that you were expecting to come back and now they're going to be pushed out further or is it something in the pipeline in terms of anticipated deals that hasn't been building as expected?

Yes, I will take that Matt. First off, in our guidance in last quarter we didn’t factor anything for Active Omni. So number one, we weren't baking any assumptions into our guidance from the beginning of the year through last quarter relative to Active Omni, Secondly, the services, revenue line, while its improving sequentially in the back half its better than the first half. It didn’t improve. It's not an accelerating or improving as fast as we would like. So the good news is we aren't seeing a meaningful work stoppage on services engagement. We are just -- we are seeing more of a timing on restarts, some restarts.

Got it. And then, I guess, in terms of Eddie, some comments on the press release about how you expect some of the retail headwinds going on right now, to eventually produce some nice growth opportunities for Manhattan. I guess, what does it take to sort of put that switchgear, we stop seeing some of these delayed services engagement and it starts potential actually maybe driving a bit of an investment cycle in Manhattan's products.

Yes, I think what we’ve -- we still got this essentially the polls in the retail industry going on, whilst the landscape, their portfolio in the landscape gets reconstituted and rebalanced between digital and bricks and mortar and retailers still -- are frankly redesigning to some extent their networks, their bricks and mortar portfolios and again the balance between digital and BNM. And when we see that, those strategic decisions being completed, I think that the reinvestment and reinvigoration in either and or in both in supply-chain transformation and in the technology enablement of the stores is what is -- what will drive some nice upside for us there.

Got it. And then, on the Active Omni solution and the interest you're seeing, I think, correct me if I'm wrong, but there's kind of four different ways that you could combinations of how you could purchase and deploy the solution between subscription license and then on-premise or cloud. So what areas you sort of been seeing these most interest in there and, I guess, is there a certain type of customer that fits in better with the certain type of combination?

Yes. So, a pretty good mix inside of all of those permutations. Almost all of them have a flavor of cloud, whether public or private. If you push , may I probably tell you that the larger tier 1 customers are running in either public or private clouds, but would like to consumer the license as perpetual and then slightly smaller customers,. Bear in mind, we deal in T1, T2 or so. That’s still precise of the customers, but are more interested in consuming the solution on a subscription basis.

Got it. And then last one for me. Just in terms of traction with the point-of-sale solution, what are you seeing there? And then, does the Active Omni solution help potential accelerate adoption of that product?

Yes. So good progress there, just went live actually with one of their early adopter customers just days ago frankly. So pleased with that. That seems to be going well in, in the early days. Our pipeline is pretty solid. A good bit of activity in that space for sure. I think that the Active platform and the native cloud platform certainly has garnered a more interest. And I want to be cautious using the word accelerate. I don’t think it's going to create a hockey stick acceleration. But I do think it is going to make a solution more and more attractive to enter the marketplace, because frankly it is the first and only of it s kind.

Great. Thanks, guys for taking my questions.

Pleasure Matt.

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

Good evening, gentlemen. Thanks for taking the questions. So, maybe a high-level question. If we look at your Active solution portfolio, then how should we think about the dollar opportunity of services versus some of your current products. In the reduction in service capacity is that solely related to the retail spending environment or is that any reflection of what services could look like with the new product portfolio?

[Indiscernible] I will take that Brian. So the services -- the services engagement whether it would be kind of the older, if you want to call it that ,on-premise solution or Active cloud based solutions really look very, very, similar. Clearly there are some very idiosyncratic differences between the technology deployment and so forth. But the services engagement looks very, very similar. Now if the client, our client is signed up for cloud based solution at Dennis pointed at. The revenue recognition rules say that we cannot begin to recognize services revenue until that customer goes live. In the old world we would recognize services revenue from day one on the time of material basis. So there will be a lag in terms of picking up that revenue. And then the balance of the services revenue is recognized over the term of the contract. So that is definitely different for sure. And then with regard to the your Part b of the question, which was the reduction in services, capacity related to retail headwinds and the answer to that is yes. So most exclusively a not representative as I pointed out in part A: of a transition to the cloud.

Got it. Makes sense. And I’m sorry for the background noise here. And maybe one more for you Eddie, just on the back line, there is a lot of news and what’s going on in retail. I’m just curious, is there any way to bifurcate what the sales pipeline looks like, if we look at retail and non-retail? Thanks, guys.

Well there is, we don’t disclose that. But obviously we’ve got a view of that. I would tell you though the -- and we talk about retail being pretty strong for us and so forth. Retail pipeline looks good. It's really the big transformational services projects that have been going for 12, 18, 24 months where we’ve seem a bit of a slow down and created the headwind in services. The retail pipeline is really quite active, both here in the united states and internationally.

Thanks [indiscernible].

Certainly, Brian.

There are no further questions at this time. I turn the call back to presenters.

Very good. Thank you, Jesse, and thank you everybody for taking the time to join us this afternoon and your continued support to Manhattan Associates that we look forward to updating you on -- particularly our Active suite of solutions, but of course the business in general in about 90 days. Thank you and good evening.

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