Good afternoon. My name is Rob and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates’ Third Quarter 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, October, 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, Rob, and good afternoon, everyone. Welcome to The Manhattan Associates 2018 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 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 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 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. Finally, with the adoption of ASC 606 revenue accounting rules and our new P&L line item format, we have included in the supplemental schedules of our earnings release, year-over-year comparisons for apples-to-apples comps. Our year-over-year revenue percentage growth comments and our results are based on apples-to-apples comparison, normalizing 2017 revenue for hardware revenue impact. Now, I will turn the call over to Eddie.

Good afternoon, everyone. And thank you for joining us to review the Manhattan Associates 2018 third quarter results. We delivered Q3 total revenue of $142 million and $0.49 of adjusted EPS. This is in line with our objectives and represents flat revenue growth and the decline of 4% in EPS versus prior year. Now we exceeded our Q3 targets across all revenue lines with the exception of license revenue but based upon our outlook for the remainder of the year we're narrowing a full-year total revenue range and raising our 2018 full-year operating margin and earnings per share guidance. Notably despite the declines in revenue expected from an ongoing Clyde transition our flat revenue performance abated six consecutive quarters of year-over-year declining growth comps as our services business demand is steadily improving. That said we're still very early in the transition to Clyde with aggressive transformational goals and investment earmark for driving at customers success and in turn a long-term future growth and earnings. Our positive business momentum continues to be based on a consistent strategy driven by the following four pillars. First, market leading product innovation. Year-to-date our R&D investment is up over 25% over prior year and we're on pace to invest about $70 million in R&D this year. We're delivering industry-leading transformative supply chain inventory and Omni-channel innovation. Our development cycles are fast faster than ever and our product and technology releases are bringing important differentiated new solutions to the market resulting in some encouraging pipeline growth. Secondly, strengthening pipelines. Our global pipelines are solid and we're seeing upward trends across cloud, license and services. We're especially encouraged by our new customer signings and by the concentration of potential net new customers in the pipeline with more than half of our current deal opportunities representing net new…

Okay. Thanks Eddie. So as mentioned we reported Q3 total revenue of $142 million and $0.49 of adjusted earnings per share which includes about $0.03 from [rupee] FX gains in the quarter. Overall, with our business and early-stage cloud transition we're tracking slightly ahead of our 2018 targeted total revenue and earnings objectives. Our GAAP earnings per share was $0.43 in the quarter compared to $0.47 in Q3, 2017. License revenue was $11.5 million against the $13 million target objective for the quarter. Given the interplay between license and cloud on supply chain management deals extended deal timing and customer purchasing preferences we are now targeting $11.5 million to $13.5 million for Q4 with a full year license revenue estimate at $43.5 million to $45.5 million and a corresponding license gross margin of about 87% to 88%. Cloud revenue was $6.5 million, up 155% over Q3, 2017. Year-to-date we've recognized $16.3 million in cloud revenue, up 154% year-over-year. For Q4 we estimate our recognizable cloud revenue will be about $6.7 million. This assumes all Q4 deals closed or back-end loaded to the quarter. On a sequential basis our growth forecast is adjusted based on our five-year deal signings achieved in Q2 and Q3 combined with lower Q3 deal volume on [fresh] deals. We are maintaining our full-year estimate of $23 million with year-over-year growth at 140% as compared to our $20 million goal entering 2018. As a reminder this line includes all subscription, hosting and infrastructure-as-a-service revenue from our existing and new software as a service and hosted customers. Regarding license and cloud our performance continues to depend on the number and relative value of large deals we closed in any quarter, while large license deals remain important we expect the mix to continue to shift toward subscription models. While…

Thanks Dennis. Well in summary clearly our underlying business fundamentals continue to gain momentum and we remain focused on extending our market leading position supply chain in Omni-channel commerce. We're excited by the significant and expanded business opportunities in that core markets. Our success continues to be driven by delivering innovation that anticipates the needs of evolving markets focusing on our customer success and leveraging a deep domain expertise. Our services business is experiencing healthy demand and we anticipate this trend will continue. There is demand for both upgrade support and cloud implementations. As well as the ongoing management systems for clients in the Clyde they're all feeling very positive trends and while some global and macroeconomic conditions give us reason to be cautious supply chain complexity and retail evolution and target markets in fact brings continued need for our solutions among customers and we will continue fueling multi-year investment cycles in Manhattan Associates. The move to subscription and client based models is positive and is outpacing our expectations. Customer feedback, industry analyst assessments and our win rates continue to validate our investment strategy. Our competitive position is strong and we continue to invest in innovation to extend our adjustable market, market leadership and differentiation. And as always we remain focused on our customer success on driving sustainable long term growth for our shareholders and 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 to end the year strongly. So with that Rob we'd be happy to take any questions.

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

Hey good afternoon gentlemen. Can you hear me okay?

We can Terry.

Okay. All right. Thanks for all the color and also for the initial view on ‘19 that was good to see. I guess my first question for either of you two guys is on professional services it does seem like it's turning the corner and the Americas important milestone returning to growth, could you update us both on what you've seen recently and as it relates to your outlook commentary that also speaks to this continuing in terms of the improvement? How much of it is upgrade so people wanting this newer version of the WMS that has the new innovation or just upgrading other platform technologies versus actually these active Omni deals that might actually include a large component of services? Just trying to understand maybe what's driving the service strength. Thanks.

Yes, well the answer is a bit of yes, a bit of everything Terry frankly there's no, I don't think there's one single dynamic that is changing there. You frankly have laid out a good bit of what's driving the strength there. We do think that the innovation that we're delivering to the marketplace has really inspired a lot of our existing customers do want to be able to adopt this new innovation to help them drive business value for themselves. So there are WMS, some nice, very nice substantial WMS upgrades that we are working on. Some of the Manhattan active Omni implementations that are underway or substantial transformative and they're global, frankly. And then the other element of that is that the services business across the world: so, Americas services is certainly strong. But that business in Europe and the business in Asia is also very strong as well. So, again in conclusion it's the answer is "Yes;" an element of all of those things.

Okay. And maybe another question is it's interesting to see the initial take-on ‘19 SaaS or subscription revenue. Based on Euro's color earlier in the call I thought maybe there could be more pressure on that than maybe what I'd originally had my model but it's pretty close actually. So, what I'm curious about is you mentioned some deals that maybe there was some timing issues and some deals pushed but the initial outlook though for next year looks pretty solid in relationship to where my model was. So, what I'm curious is do you think that some of those deals are pushed it is just literally a matter of timing and you expect them to close those and or just the totality of the pipeline could more than offset any kind of pressure around the deals actually closed.

Again it's both of those Terry. So yes, we did have a couple of deals push and they were larger deals and the negotiations were a little more complex than maybe either party anticipated. So, we do anticipate in closing those deals. And as indicated our Clyde pipeline since the beginning or coming into the year 2018; was doubled. And so, we are certainly very encouraged by the future outlook there.

Okay.

As well as the net new logos that are greater than 50% of the pipeline make out, Terry.

Yes. And then, I forgot which one of you gentlemen, this' been my last question is I think you said 20 or so open racks now that actually quarter carrying sales reps. I guess, some just like for the nomenclature, here is the sales reps or is it sales and an SE's or is it also marketer. Just trying to understand how much of that would be revenue producing sales force. And thank you.

Yes good, Terry. So, the 20 that I referred to was sales and marketing. And if you, I don’t have the exact break down but about a third of those people would be full on quarter carrying racks. So, thanks again for the questions and we'll --.

But all focused on topline growth and demand [indiscernible] as well.

Okay. Thank you.

And your next question comes from the line of Brian Peterson of Raymond James. Your line is open.

Hi gentlemen and thanks for taking my question. So, Eddie I just wanted to clarify comment you made on some of the cloud deals. It sounded like you said that the year kind of 235 revenue would be higher than the initial year revenue. I just want to make sure what's driving that. I thought in 606, it would be more ratable recognition. Is there upsell or is there something driving that or did I just potentially hear that wrong?

No, you didn’t hear wrong. We expect to exceed our going in expectations to 2018 from a cloud revenue perspective. Certainly the revenue is recognized ratably for sure. 606 really doesn’t affect the Clyde revenue particularly. But just really at the end of the day strong demand and great execution, Brian is the -- the driver is there?

Maybe just kind of following-up and I appreciate all that color on ‘19 but you have some sales hiring plans. I'm just curious should we expect most of those to be done by the end of '19. Just trying to think about how much of that investment may bleed into 2020. Thanks, guys.

So, the sales executive and the sales rep hiring is active today Brian. So, whether we can accomplish it or not is an another matter but we would like to try to close those racks side by the end of this year and likely will see additional hiring in 2019.

Thank you.

Sure.

And your next question comes from the line of Matt Pfau from William Blair. Your line is open.

Hey, guys. Thanks for taking my questions. Why don’t you follow-up a bit on the question about the hiring and expenses. So, it is part of the upside in the quarter, came from lower operating expenses, at least relative to what the consensus expectations were but then as we look at the guidance sort of for 2019 implies a fairly substantial ramp up in operating expenses throughout the year. So, maybe just help us where is that hiring targeted towards and is that all related to the cloud business or is there other hiring that's going on?

Yes. Three major pillars and I'll let Eddie chip in as well but continuing the higher R&D resources and drive innovation, global services around the globe where we probably have a 150 racks that were going to be pursuing. We'll tighten that up when we get through Q4 and see how our hiring goes through Q4. And then, sales and marketing kind of then try to focus which Eddie's already discussed there as well.

Yes. Nothing much to add really a matter other than sort of embedded in areas. Is the cloud organization that Dev ops organization that continues to grow both commensurately with the deals that -- the deals from the customers that they were managing to acquire but also general build out of that to make sure that we've got the appropriate scale 24/7 coverage and so forth to support the growth.

And the real challenge Matt is just timing. Getting the timing and getting the resources in the door.

Sure, okay. And then wanted to ask about the pipeline commentary that you guys made I think a comment was about half of the pipeline is made up of new logos. And so, maybe you just give us an idea of what that compares to maybe a year ago. And then it is that driven by the active Omni-solutions and I know last quarter you mentioned that you perhaps have been able to address smaller retailers or smaller customers that you have originally anticipated. So, is that a factor in that net new customer number in the pipeline as well?

So, let's say I think -- in the things that are driving the pipeline really when it comes down to the innovation that we're building Matt, we think we really got some differentiated WMS capability that we put out in the market starting couple of quarters ago and certainly see a big uptick there, obviously Manhattan Active Omni we know is providing great value for our customers. You're right, in some of the net new logos might be some smaller customers that we get slightly smaller customers we can access to because of Clyde capabilities and Clyde deployment models that we are delivering but the 50% net new logo has been pretty steady a frankly over the last 12 months or so. And again really I think it's our ability to garner market share from competitors based upon the innovation that we continue to invest and deliver to the market.

Got it. And then, I just wanted to follow-up Terry on your comments about the point-of-sale solutions. So, I guess one of the comments in there was an anticipated upgrade over replacement cycle with some of the existing deployed point-of-sales system, so maybe you can, discuss what would potentially drive that replacement cycle and then I guess what Manhattan has to do to go in there and replace some of these existing solutions.

Yes sure. The upgrade cycle is largely been driven by the fact that think we all know, the fabric and the context of the retail store is changing. Moving from was for decades and decades a single function facility, retails growth was single function facilities cash and carry and nearly a multi-function facilities, everything from a boutique to a gallery sort of customer service center, a bill-board for the digital business. Many distribution center, there are multi-functioned often smaller footprint but much more technologically enabled locations and the system sort of been at the center of the retail stores for the last century or so really don’t enable either the through associates or provide the service for the customer that is required in today’s world, so that’s what we think driving to be upgrade cycles, it’s important for us and hence we see the uptick in sales and marketing spend. It's important for us to drive awareness of these new differentiated solutions with that we've developed. We've got obviously a fantastic customer base in the retail industry but historically we've been known for the more traditional supply chain space, so very important that we make the market aware of these new differentiated solutions so that as this upgrade cycle kicks in, we're part of the conversation narrative.

Great. That's it from me guys. Thanks a lot for taking my questions.

Very good, pleasure, man. Thank you.

[Operator Instructions] Your next question comes from the line of Mark Schappel from Benchmark. Your line is open.

Hi guys, thanks for taking my question. Eddie, first question for you. In your prepared remarks you noted that cloud and or your cloud deals were heavily waited to the end of the quarter signings. I was just wondering if you could just go into a little bit more detail on some of the customer purchasing behaviors that you're seeing that you continue to see.

Yes. To be honest, Mark, when we put ourselves in our original expectations, the original model together and so forth, we took a sort of a straight down the middle position and towards that unlike perpetual license deals that tend to be very heavily waited till end a quarter close, we thought that Clyde deals would close little more evenly across the quarter. Turns out that and of course in early days here but it turns out Clyde deals seem to be in terms of the close timing and so forth into modal the perpetual software license deal that we've seen historically. So towards the end of the quarter. And that's just a reasonably minor adjustment. It has some impact but reasonably minor adjustment so I thinking, forecasting and the mould go forward.

Okay, great, thank you. And then, as your cloud services business builds as new customers continue to make up a greater percentage of your pipeline. I was just wondering if you just comment a little bit on the makeup of your sales force and how that's evolving just to meet these changes?

Yes. Look we can our sales force is fuelled by domain rich confidence. We've thrived on that for years. We'll continue to invest in individuals that have deep domain expertise. I think the only thing that has really changed for us tends to be a little stronger technology component of the sales process. But obviously with the fantastic technology expertise that we have inside the organization we’ve, we’ve got terrific coverage here. So, not a lot of change but a little more technology weighted.

Great, thank you. That's all for me.

Thank you, Mark.

And there are no further questions at this time. I will turn back over to our presenters. Okay, terrific work thank you Rob and thank you everybody for joining us to get an update on the Q3 results where we are clearly encouraged by a momentum, the business fundamentals and early transition to the Clyde, so we will look forward in early 2019 to reporting eye on full year results and our continued progress to towards our long term aspirations and in the meantime, everybody have a wonderful holiday season, thank you. Bye, bye.

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