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 Q4 2019 Earnings Call. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, February 4, 2020. I'd now like to introduce Eddie Capel, CEO; Dennis Story, CFO; and Matt Humphries, Senior Director of Investor Relations. Mr. Humphries, you may begin your conference.

Thank you, Jessie, and good afternoon, everyone. Welcome to Manhattan Associates 2019 Fourth 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 and 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 filed 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 year 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 Web site at manh.com. Now I'll turn the call over to Eddie.

Terrific. Thanks, Matt. Well, good afternoon everybody, and thank you for joining us as we review Manhattan Associates’ 2019 fourth quarter and full year results. So, Manhattan reported another strong quarter to wrap up what has been a record year, kind of a year of firsts, if you will. We reported all-time record revenue as expected, record cloud revenue; all-time record software revenue, cloud plus license; and all-time record services revenue. Additionally, since our IPO in 1998, 2019 marked our fifth best year for adjusted operating profit and second highest year for operating cash flow. And furthermore, we’ve continued the disciplined management by our share buyback program by investing $116 million to repurchase 1.64 million shares in calendar year 2019. We’re pleased with this performance when you consider that we’re about 2.5 years into a major five-year business transformation, investing in advance of growth and growing headcount rapidly to meet market demand. And as Dennis will detail later, our 2020 guidance calls for another record revenue year. Turning back to the fourth quarter for a moment, we reported total revenue of $153 million, adjusted operating margins of 21.8%, and adjusted EPS of $0.40. Year-over-year, fourth quarter 2019 total revenue grew 6% with adjusted operating margin and adjusted EPS exceeding our expectations by 280 basis points and $0.09 respectively. Cloud, maintenance, and services revenue all exceeded their Q4 targets, giving us the positive momentum as we exit 2019 and focus on delivering in 2020 and beyond. So just going a little further into the financial details of the quarter, we recognized 9 million in license revenue in the quarter. And going forward, we expect our license revenue to continue to decline as customer demand for true cloud is increasing more rapidly than we anticipated when we announced our transition to becoming…

Thanks Eddie. Fourth quarter total revenue was $152.9 million with 6% organic growth over the prior year. Full year total revenue was $617.9 million, 11% organic growth over 2018. Excluding the impacts of FX, total revenue was up 12% on the year. Adjusted earnings per share was $0.40, GAAP earnings per share was $0.26 with stock-based compensation accounting for the difference between adjusted and GAAP EPS. License revenue was $9.2 million in the quarter, which is down year-over-year and sequentially as we've discussed previously. From 2017 to 2019, our license is attributed 32% on increasing demand for WMS in the cloud. We expect attrition to continue as market demand for WNS and the cloud continues to grow, with a full year 2020 estimated license range of $26 million to $30 million, down about 43% at the midpoint. For the first quarter of 2020, we are targeting approximately $7 million to $8 million in license revenue. For cloud revenue, cloud revenue was up $15.7 million, up 131% year-over-year, driven by robust customer demand for our cloud solutions. For full year 2020, we estimate cloud revenue range of $77 million to $80 million growing about 68% at the midpoint. Just for some context, it took us 18 years to grow our license revenue to $70 million run rate versus our cloud business, which is on pace to generate nearly $80 million in only 3.5 years. For the first quarter of 2020, we are estimating cloud revenue to be approximately $16 million to $16.5 million roughly double the prior year. For full year 2020, we estimate our total software performance to be $103 million to $110 million, which will be another record year while absorbing $21 million decline in license revenue over 2019. Our cloud to license software mix in 2019 was 49%…

Well, thank you, Dennis. Overall, we're very pleased with our performance in the past year, and we continue to focus on driving operational and financial results as we progress further on our cloud journey. With a strong business foundation, we expect to further extend our market-leading position within supply chain and omnichannel commerce solutions. And as we do so, we're continuing to innovate in advance of the market demand, leveraging our technical and domain expertise in order to provide our customers solutions which position them for success in a dynamic and rapidly changing world. We see no shortage of opportunities to expand our addressable market while further strengthening our competitive positioning. Ongoing engagement with our customers, combined with a very strong competitive win rates, further validates our strategy and provides real-time feedback on the decisions we make each and every day. To wrap up, I wanted to, this time, thank all of our employees globally. Your relentless dedication and commitment to our customers and our customers' ongoing success is a key differentiator in driving long-term sustainable growth for our company and for all of our shareholders. So, thank you. Jessie, we're open to taking questions now.

Thank you. [Operator instructions] Your first question comes from Yun Kim with Rosenblatt. Your line is open.

So first, it seems like there's a lot of components in your cloud subscription revenue line. Can you just kind of update us on like what's driving most of the number there beyond -- I'm assuming it's Active Omni, but how big is the transportation or even WMS contributing to that number?

So, Manhattan Active Omni is driving roughly about 60% of the number, Yun.

Yes.

Okay. And then WMS is about 30%, and the balance is other solutions.

And then, Eddie, it seems like the transportation management system business, TMS, is gaining a lot of momentum. You mentioned it in your prepared remarks. How should we view that business from a go-to-market perspective? Are you selling TMS primarily to your existing customers? Is there something specific verticals you're targeting with your TMS product? Can TMS be sold directly to Active Omni customers, for instance? Thanks.

Certainly, you do not have to own any other Manhattan products to be able to benefit from our TMS solution. The primary verticals, certainly, retail, CPG, and automotive, for sure. We've got great expansion opportunities internationally. We generally focus our TMS solution on North America from a go-to-market perspective. And starting last year, we started to begin to open up and market our TMS solution internationally, and we're pleased to see some reflected growth there. Now the interesting thing is that, if you look at all of the industry analyst reports and so forth, what you'll see is the TMS market, roughly speaking is about the same size as the WMS market. However, our market share is much smaller. So, we see a real opportunity there as there is obviously great symbiosis between WMS and TMS for additional operational efficiencies. So, we're pretty bullish on this solution. And then finally, I would say, I think we all know, and frankly, we've talked all of us ad nauseam a little bit about driver shortage, capacity shortages, and those kinds of things that are driving the need for sophisticated optimization.

Real quick, just last question on Dennis, just housekeeping stuff. Question you'll get every quarter, the contract length of new subscription deals that show up in the RPO, has that changed much in the quarter? Thanks.

No, it has not.

Your next question comes from Terry Tillman with Suntrust Robinson. Your line is open.

Nice job with the results. I guess the first question is, it is interesting to hear an RPO kind of bogey for, I guess, the end of 2020. So, I'm kind of curious because that is the first time, I think, I recall any guidance. And I know historically, this idea of under promising over delivering, but I'm just curious, the confidence level and kind of visibility you have considering these are still emerging parts of your business on that target for RPO and then I had a follow-up.

We wouldn't put it out there if we didn't feel confident.

Well, I think the thing that gives us confidence, Terry, is the pipeline for sure. We've indicated that our cloud pipeline is growing considerably faster than our license pipeline, the inertia and the momentum of cloud, particularly in the back half of 2019 when we, again, start to see cloud revenue surpass license revenue for the first time. And then, of course, while anecdotal, if you want to call it that, we're close to our customers. And the conversations that we're having with our customers lead us to believe that that is a solid number, and including the momentum that we're seeing for WMS in the cloud.

And maybe a follow-up and just speaking for myself here, I had some pretty miserable experiences in the store in terms of point-of-sale like not working, having to go to another register, etc. And so, I know there's lot of old technology in the market for POS, and you've had some early launch customers now, but as we look into 2020 and some of the targets here for RPO and just the cloud subscription, how do we think about the ramp in POS? And then I had a follow-up for Dennis.

So, there's not a big ramp expectation for point-of-sale from an RPO perspective in 2020. However, I would say that we're definitely feeling the flywheel begin to gain momentum. All of the things that you said about aging technology, poor customer experiences, the need for a real omnichannel strategic selling platform is clearly out there. As we're driving brand awareness, having more conversations with customers and prospects, it really feels like that, what we're bringing to market first of all is differentiated, and secondly, is what the market is looking for. Now this is enterprise class selling and customer adoption here. So, the consequence of that is, I don't expect to see a big RPO impact in 2020, but I would say that it definitely feels good and the flywheel, again, is beginning to build solid momentum.

And then Dennis, just the last question is just related to -- you commented about potentially starting to see some conversion of maintenance to cloud deals. Anything to think about how that ratio looks and just how much we might see of that in '20? Thank you.

Not a lot of intel there to share at this point in time, Terry. What I would think is, when we look at the back half of 2019, that's a lot of what we're basing our go-forward guidance and estimates, whether it's the revenue side or the bookings side of the business.

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

So Dennis, I wanted to hear on your comments about some of the longer-term margin objectives. It's pretty clear from the call that you guys are in investment mode. Is it fair to think about continued growth investments in R&D, sales and marketing, etc.? Should that continue into 2022? And I'm just curious how we should be thinking about that going forward?

I think if our point of view is, one, investing significantly in innovation to drive top-line leverage, as you can imagine, as we get that leverage, it's going to drive greater demand for sales and marketing talent in the organization. So we're looking to continue to invest in the organization and create some incremental margin going forward.

And maybe just a clarification, Dennis, I think that the services guidance for 2020 went down a little bit versus your prior expectation? I didn't catch the reason there. I just want to make sure I understand the moving parts. Thank you.

Part of it is the FEMA impact coming out of services and being a little bit conservative there, Brian.

[Operator instructions] Your next question comes from Mark Schappel with Benchmark. Your line is open.

Eddie, I was just wondering if you could just address the outlook for quota carriers you have in the coming year?

You mean in terms of the number of quota carriers, Mark?

That's right, yes.

So as we've said before, we've got a highly tenured sales organization that are very effective, very efficient and world-class from that perspective. However, we do expect to increase quota-carrying reps somewhere in the 10 to 12 -- kind of 10% to 12% range would be the objective for 2020. We're currently at about 70. So look to see us at the high 70s or maybe touching 80 by the end of the year.

And then in addition to that, given the growing aspect of your sales force over the last year or so, any significant changes to the sales force or sales organization like big major territory realignments coming on?

No, but we have the one adjustment. I wouldn't say it was a change, it's just sort of a modest adjustment. We have been bringing onboard domain experts in the retail store system order. So we've already -- we brought on some TMS experts. We're pretty deep on the WMS side, as you know. We're pretty deep on the omnichannel side. But we're also bringing on particularly the store system side, and then continuing with international growth.

And then product-wise, in your prepared remarks, you mentioned your relatively new WMS auto streaming capabilities. I was wondering if you could just give us a real-world example or two of how your customers are using that feature?

It's a tough one, but the real simple example is, for several decades now, generally the process has been, take a big, big chunk of orders, drop those down to the warehouse and then optimize the fulfillment process. And the theory generally has been, frankly, the bigger the chunk of work, the more optimization you can do and the more efficiency you can drive. And that's still true. It works great except for the fact that when you're particularly in a direct-to-consumer world where you've got to get an individual order out, I mean, going through extremes here of course, you've got to get an individual order out of the building very quickly for same-day delivery, it can't be batched up behind a huge amount of work. So what we've been able to do is develop a system that is essentially batch-less or waveless and allows a continuous stream of work optimizing the human capital inside of the warehouse and the ever-growing amount of automation and robotics. The result is a much shorter click-to-ship times for our ad customers and ultimately, the consumer, which is sort of required, but also we're driving much greater productivity and picking efficiency, replenishment efficiency inside the distribution center, a little longer than I thought, but that's the short version.

Greater throughput through the facility, Mark and a lot of strong demand for that innovation capability…

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

Well, thank you, everybody, for joining us for full-year 2019 and Q4 results. We're very proud of the results. We were very pleased and we're particularly pleased with the momentum that we're carrying into 2020. So thanks, again, for your support, and we'll look forward to speaking to you about three months from now.

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