Manhattan Associates Inc (MANH) 2013 Q3 法說會逐字稿

Good afternoon. My name is Kyle and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates third quarter 2013 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 instructions) As a reminder, ladies and gentlemen, this call is being recorded today, October 22, 2013.

I would now like to introduce Dennis Story of Manhattan Associates. Mr. Story, you may begin your conference.

Thank you, Kyle, and good afternoon, everyone. Welcome to Manhattan Associates' 2013 third-quarter earnings call. I will review our cautionary language and then turn the call over to Eddie Capel, our Chief Executive Officer.

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 risk 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 2012 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.

Good afternoon, everyone. Our third-quarter performance was solid in the Americas and in our international theaters. We posted strong results across essentially all financial metrics. As we reported previously, our competitive position continues to strengthen and customer satisfaction remains strong across the globe.

We set a new all-time revenue record and earnings per share record this quarter. Q3 total revenue of $107.8 million increased 12% and adjusted earnings per share of $1.05 increased 40% over Q3 2012. The combination of strong revenue growth and sensible expense discipline led to the best quarter in our Company's history.

As we had in the first half of 2013, we continue to execute well and I'm very pleased with our operational and financial performance in a macroeconomic environment where subdued global growth continues to create some headwinds for enterprise software buying cycles. License revenue for the quarter is $14.8 million, down against a pretty solid comp of $16.2 million in Q3 2012.

Compounding the fact Q3 could traditionally is a seasonally lower license revenue quarter, especially in Europe, we saw a number of software license deals we expected to close in the quarter push into the fourth quarter and possibly later. We recognized two $1 million-plus deals in the quarter, both of which were in the Americas and led by our Warehouse Management product. In both deals, we were successful head to head against very strong competition, continuing to validate our distribution management and omni-channel market leadership.

Our sales teams across the globe executed well and our competitive win rates remain strong. In the quarter and for all of 2013 in head-to-head sales cycles against our major competitors, we are winning about 75% of the time. For the quarter, about 50% of our license revenue was from net new customers and year-to-date, that number is tracking at about 35% of total license revenue. While our ratio of net new customers can fluctuate somewhat from quarter to quarter, we are quite pleased with our new customer acquisition performance.

Our ability to win net new global brands continues to be a validation of our organic investment growth strategy, particularly in this tough macroeconomic environment. Whilst legacy supply chain technology has been consolidated in our space with very little investment in innovation, digital commerce has forever changed our market. Today's back-office supply chain technology will no longer meet the needs of industry leaders as consumers are dictating how the game is played. The intersection between consumer and supply chain has evolved and Manhattan has continued to focus on being the leading pure-play supply chain commerce technology provider, leveraging our platform strategy and investments in research and development to enable supply chain commerce for our customers and industry leaders in this new omni-channel world.

Our consulting services business continues to post great results with revenue up 23% in Q3 over Q3 last year. During the quarter, we added about 50 people to our staff and we continue to search for about 100 more professional services people to meet the needs of our customers.

As we look forward, we are well-positioned for 2013 and beyond, although we are not expecting the global economy to improve a great deal during the remainder of 2013, or in 2014.

While we are certainly not immune to this ongoing sluggishness, we continue to be optimistic but cautious about our future. Our pipeline is solid. Our services business is strong. Customer satisfaction is good. Implementations of our solutions continue to go well and we are excited about the innovation in our next releases of our software solutions. Overall, we are performing very well, and I will provide more color in my business update following Dennis's review of our financial results.

Thanks, Eddie. I will review our Q3 2013 non-GAAP results and GAAP EPS performance, provide a review of our 2013 full-year guidance and finish with some initial comments on 2014.

For the Company, total revenue for Q3 2013 was $107.8 million, up 12% from last year. Against tough Q3 comps last year, Americas grew total revenue 10%, EMEA grew 20% and APAC grew 28%.

Adjusted earnings per share for the quarter was $1.05, up 40% over the prior year, fueled by strong services revenue growth, expense management and our buyback program. Our earnings per share performance does include $0.07 of benefit from revenue timing and currency. $0.04 was timing on maintenance revenue collections originally forecast for Q4, and the remaining $0.03 was currency benefit from Indian rupee depreciation.

License revenue for the quarter totaled $14.8 million. From a regional perspective, Americas posted license revenue of $11.7 million, EMEA $1.8 million and APAC $1.3 million. In the backdrop of ongoing global macro sluggishness, our license performance continues to depend heavily on the number and relative value of large deals we close in a given quarter.

Shifting to services, demand remain solid. Q3 services revenue totaled $85 million, increasing 18% year over year. Our services revenue is comprised of two revenue streams, consulting and maintenance. Our consulting revenue for the quarter totaled $57.7 million, growing 23% over Q3 last year.

With solid demand, we hired another 50 associates across the globe in the quarter. Year-over-year, we have grown our services practice by about 100 associates, up 9%, and currently are looking to add about 100 additional new associates to support growth and focus on customer satisfaction.

Maintenance revenue for the quarter totaled $27.3 million, increasing 10% over last year. While fairly consistent license revenue performance and retention rates of 90%-plus accounted for year-over-year growth, our Q3 maintenance revenue and EPS also benefited from timing on renewal collections from a few large customers of approximately $1.2 million in revenue and earnings per share impact of $0.04. On our previous Q2 call, our guidance forecast assumed the timing of collections from these accounts would be in Q4.

As a reminder, we recognize maintenance renewal revenue on a cash basis, so the timing of cash collections can cause inter-period lumpiness from quarter to quarter.

On consolidated services margins for the quarter, they were up 58.2%, exceeding our expectations, while the previously mentioned timing of maintenance revenue positively impacted our Q3 services margin by about 50 basis points. With the recent hires I mentioned earlier combined with lower utilization in Q4 due to seasonal holidays, we are now expecting our full-year 2013 services margins to come in between 55.3% and 55.8%. Said again, our full-year 2013 services margins to come in between 55.3% and 55.8%.

Turning to operating income and margins, we delivered record Q3 adjusted operating income of $32 million with an operating margin of 29.7%. Excluding the $2 million impact of pull-through on maintenance collections and the currency impact of rupee on adjusted operating income, operating margins were 28.1% for the quarter.

For the full year, including the $1.6 million sales tax reversal we recorded in Q2 of last quarter, we are now forecasting operating margin to be in the 26.2% to 26.5% range, representing a 270- to 300-basis-point improvement over 2012. Excluding the sales tax benefit and rupee currency benefit, our run rate operating margin range would be in the 25.6% to 25.9% range. We expect our Q4 operating margin to be about 26% adjusted for quarterly license and services revenue mix due to seasonality.

Below the line, we posted other income of $500,000 in Q3, which included FX gains of about $300,000 in the quarter or a $0.01 benefit to Q3 results and $0.03 of incremental impact over Q3 2012. As I mentioned earlier, FX gains and losses reported in other income result from quarterly intercompany settlements with our international units. This quarter's gain was driven by the Indian rupee. Given the volatile nature of foreign currency fluctuations, we do not attempt to forecast the impacts of FX gains or losses to other income.

Regarding taxes, our adjusted effective income tax rate for Q3 was 37.1%, a bit higher than the 36% we expected, due primarily to higher foreign tax expense due to the current mix of taxable income by country. We are projecting a full-year effective tax rate of 36%, which now assumes a Q4 effective rate of 36.5%.

Transitioning to diluted shares for the quarter, diluted shares totaled 19.4 million shares, down from Q2 2013 shares of 19.5 million. We repurchased 152,000 shares of Manhattan common stock in the quarter, totaling $13.5 million against option exercises of 57,000 shares. For Q4 2013, we estimate diluted shares to be about 19.4 million and full-year diluted shares to be about 19.475 million. Our estimate does not assume additional common stock repurchases.

Also, last week our Board approved raising our share repurchase authority limit to a total of $50 million.

That covers the adjusted results. Our Q3 2013 GAAP diluted earnings per share was a record $1.02, increasing 48% over the $0.69 we posted in Q3 2012. Our GAAP performance was driven by the strength, obviously, of adjusted operating results. A detailed reconciliation of GAAP to non-GAAP adjustments is included in our earnings release today.

Now turning to cash flow, for the quarter we generated record cash flow from operations totaling $32.7 million, and year-to-date cash flow from operations of $66.4 million increased 29% compared to $51.4 million last year. Our DSOs were 58 days versus 61 days last quarter. Capital expenditures were $1.6 million in Q3 and we now estimate full-year 2013 CapEx to be about $5 million to $6 million.

Our balance sheet continues to support long-term strategic flexibility and stability with cash and investments totaling $126 million and zero debt at September 30, 2013, compared to $107 million at June 2013 and $103 million at the end of Q4 2012.

That covers my Q3 remarks. Let's move on to our updated 2013 guidance and some early comments on 2014. For 2013 adjusted earnings per share, with our better-than-expected Q3 earnings per share performance, we are raising our guidance estimate to $3.61 to $3.66 from our previous range of $3.37 to $3.45. This new range represents 28% to 30% growth over our 2012 adjusted earnings per share of $2.82. Excluding the Q2 $1.6 million sales tax reversal and $2.5 million of year-to-date currency benefit to income before taxes, apples to apples, our 2013 earnings per share growth is in the 23% to 25% range.

For Q4, we expect earnings per share to be lower than Q3, given the combined impact of seasonally lower Q4 services revenue, the full quarter impact of our professional services hiring activity in Q3 and the positive Q3 impact of maintenance cash collection timing versus Q4.

Full-year GAAP EPS guidance estimates also increased to $3.37 to $3.42 from our previous estimate of $3.07 to $3.15, representing 32% to 34% growth over prior year. For reference, a guidance table is provided in today's earnings release.

For 2013 revenue, with one remaining quarter in 2013 we are modestly tightening our full-year revenue range estimate from $407 million to $415 million, to $407 million to $412 million, still representing 8% to 10% growth over 2012. Given our Q3 actual revenue of $107.8 million, we expect our total revenue first half versus second half percentage split to be about 49% to 51% for 2013.

With Q4 holiday seasonality and many retail clients idling back implementations in preparation for peak season, we expect our revenue profile and percentage mix to be similar to our Q2 2013 result. While our license pipeline and potential transactions for Q4 look solid, we continue to remain cautious on timing of deal closings, given the macro backdrop.

For services due to the seasonality and the accelerated Q3 pull-forward on maintenance collections, we expect Q4 services revenue to be down sequentially from Q3, about 6% to 7%. Finally, hardware and other revenue should be about flat sequentially.

In summary, achieving the midpoint of our 2013 guidance, we will post another strong year in a lingering tough macro environment, achieving total revenue growth of about 9%, operating profit growth of about 23% and adjusted earnings per share growth of 28% to 30%. Our earnings per share growth is higher than our operating profit growth, primarily due to year-to-date foreign-exchange gains and other income, and earnings leverage from our buyback program. Again, since we do not forecast FX gains and losses, a material shift in FX rates in Q4 would impact our estimates.

So that covers 2013. Shifting focus to 2014, similar to prior years, we are just starting our 2014 budget cycle. But here are a few early comments for adjusted EPS modeling purposes. Overall, we expect the competitive environment to be about the same and continue to remain very cautious on the global macro environment.

Not much really has changed from 2010 through 2014. We are committed to driving shareholder return through steady revenue growth, consistent earnings growth and efficient management of our capital structure. Despite a tough macro, with our growth strategy and competitive position, we are quite positive on our outlook and still believe there is ample opportunity for potential earnings leverage.

For revenue, we plan to grow total revenue at about 1.5 times the expected market growth rate, pegged at 5% to 7%, so year-over-year growth of about 8% to 10%.

Adjusted operating margins, given our strong operating margin performance in 2013, we are targeting operating margin expansion of about 50 basis points over 2013 with potential upside which we will address on a quarter-to-quarter basis starting next quarter. This improvement depends in part on the relative stability of forecasted FX rates for 2014, you all know for the rupee in particular.

For effective tax rate, our best estimate is about 36%, subject to US federal, state and foreign tax legislation changes. So, we will keep an eye on that and report back to you in our Q4 earnings call.

And diluted shares -- we are currently projecting about 19,350,000 diluted shares per quarter, which assumes no buyback activity in Q4 2013 or the full year 2014.

Now, that covers our 2013 guidance and some preliminary thoughts for modeling 2014. Now I will turn the call back to Eddie for the business update.

Well, first, let me provide a little more detail on the deals that we closed in Q3.

As I discussed at the beginning of the call, we recognized two large deals in the quarter, one in retail and one with the new large 3PL customer. Both deals were driven by strategic technology modernization programs and the desire to be able to capitalize on the growing demand in e-commerce. The new large retailer needed to augment their ERP strategy with a sophisticated supply chain solution and the 3PL customer required a strategic growth platform for the future.

For Q3, about 70% of our license fees were associated with warehouse management solutions and 30% representing our other solutions. As is customary for us, retail, consumer goods and logistics service provider verticals were our strongest license fee contributors and made up more than half of our license revenue for Q3.

As I mentioned on our last call, we continue to see solid momentum in our core verticals led by the retail industry being fueled by the digital commerce revolution and the way in which consumers are engaging with retailers, wholesalers and manufacturers. Consumers have been empowered with tremendous access to information on hand any time via smart phones and tablets. The cost of retaining their loyalty is a significant challenge for our clients and prospectability to offer flexible shopping choices and timely service.

We believe supply chain commerce is the emerging model for growth and profit in today's omni-channel customer-centered landscape. For companies to deliver this balance, they need a wealth of new capabilities. Leading companies see our solutions, such as enterprise order management, store order fulfillment, inventory management and distributed selling as key to their supply chain commerce infrastructures of the future. They are critical elements in enabling seamless customer experiences and increasing revenue, and we are helping companies put their customers at the center of their enterprise and our efforts are bearing fruit in our win rate and our loyal customer base.

Additionally, the efforts many retailers are making to integrate stores into their fulfillment network use the web more than ever before to bring these experiences to their customers on their mobile devices plays well into both our heritage and future. Manhattan has developed the world's leading solutions for managing and optimizing inventory, ensuring products are in the right place at the right time and to enable fulfillment of customer demand.

Now we are seeing our customers and prospects driving to expand our execution capabilities from the traditional distribution center across the supply chain and ultimately into their stores. You will see us continuing to invest in innovation across our solutions in order to provide the best tools available to support businesses in the modern age of commerce.

A meaningful portion of our 2013 WMS and non-WMS license and services revenue activity is being driven by existing and new customer omni-channel initiatives and the reinventing of their supply chains in the new world in which we all live. We are certainly pleased with the successes we have achieved over the past year or so, given it clearly validates our strategy.

On the customer front, we had a successful quarter, adding new clients and expanding our relationship with existing clients. Software license wins with new customers permitting us to share their names included Alimerka, CORT Business Services, CMPC Tissue, Guangzhou Trendiano, Just Group, Lululemon Athletica and National Distribution Centers. And we expanded relationships with our existing customers, such as Alliance Healthcare, ASICS, BCBG Max Azaria Group, Bulova, Coach, Federal-Mogul, Cengage Learning, GENCO, Genesco, Gopher Sport, Harlequin, Hunter Gray's, Leroy Merlin, France LeSaint Logistics, Leslie's Poolmart, Mary Meyer, Matalan Retail, Northern Safety, Rain Bird, Redmart, Rotary, Southern Wines & Spirits of America, Stella & Dot, Unipart Logistics and World of Jeans & Tops.

Our professional services business around the world continues to perform very well and received high marks for customer satisfaction. During the past quarter, we have been particularly busy in the retail vertical, implementing solutions that will help our customers capitalize across all of their selling channels during the upcoming holiday season. There has been particular focus on store execution solutions and multi-product platform-based implementations.

Year to date, our global services team has helped customers go live with our solutions in more than 230 operational locations plus hundreds of retail stores. As mentioned earlier, we have solid demand for our services and are looking to add additional staff to account for growth and driving customer satisfaction.

We continue to be the leading innovator in supply chain commerce technology with a global team of about 650 individuals dedicated to R&D. At the core of our success is our strategy to grow through investment in forward-thinking innovation. Developing a Supply Chain Process Platform-based suite of solutions distinguishes us from all other competitors. Our R&D team continues to do an excellent job of driving innovation in all product areas as we continue to deliver more robust and more efficient solutions to the markets we serve.

On September 30 we announced the release of our omni-channel customer service software solution, which we actually demo'd at the shop.org annual summit in Chicago. With this solution of retail's customer service representatives can see customer transactions, orders, across all selling channels -- store, e-commerce, call center catalog -- allowing them to swiftly search any piece of customer or order information, service inquiries across all touch points, and convert a sale with products to any channel.

These omni-channel capabilities are a rich addition to our robust enterprise order management solution that intelligently sources inventory across a retailer's network of distribution centers, suppliers and stores and makes it available to sell through any channel.

This solution also serves as a central repository for orders from all sales channels, providing an enterprise-wide 360-degree view of customer interactions, equipping the customer service representative with the information they need to quickly respond to an inquiry without repeat calls or channel shuffling. We believe our customer CSRs are central to winning their customers, the consumers' loyalty, and that is why they need tools to give a single common holistic view of their customers' service -- customer and service control across all sales and fulfillment channels.

Manhattan is uniquely positioned to drive the evolution of the call center because our solutions sit at the center of the selling and fulfillment components of the retail enterprise and this is certainly an example of where supply chain meets commerce.

Now, regarding our global associates, we ended the quarter with 2510 employees around the globe, up nearly 150 over Q3 2012 and 100 heads year to date. Essentially all of our headcount growth in the past year is in our professional services group on strong demand to support top-line growth and customer satisfaction. We finished the quarter with 67 people in sales and sales management, with 55 quota-carrying reps -- really, no change from last quarter. But we do continue to look at adding about half a dozen additional sales professionals with the majority of those in the Americas.

In early October, we completed three European customer conferences, one in the UK, one in central Europe and one in France. Attendance was good at all the conferences and the mood was certainly positive, especially given the state of local economies. While we expect the economies across Europe to continue to struggle somewhat, particularly in the UK, we are encouraged by our customers' enthusiasms for our solutions and our partnerships with them. The focus and interest level, particularly in omni-channel, was also quite encouraging from industry leaders.

We will close our international customer conferences for 2013 in late October with a conference in Mexico and one in Australia where we expect similar enthusiasm given the registration levels of both of these events.

So let me close my prepared remarks with a brief summary. We are very pleased with our third quarter and year-to-date operating performance and financial results. Our relative competitive position continues to be strong and improving. We are investing such that we can continue to be the leading innovator in supply chain commerce, delivering solutions to extend our market leadership. We have the world's most talented supply chain employees, the best software solutions with good market momentum, and look forward to a solid finish to 2013 and a very positive 2014.

So, Kyle, with that we would now be happy to take any questions.

(Operator instructions) Terry Tillman, Raymond James.

Thanks for taking my questions and nice job on the earnings. Just a couple questions, I guess. The first one is on the services revenue or the total services line, I understand part of it, Dennis, you talked about the maintenance, timing on maintenance there and collections. But still, the pro-services side was strong and well above my number.

We've just seen this trend now for a number of quarters where the services is strong even as the license has been somewhat sluggish, at least compared to my numbers. Is there anything, though, to be said about services where maybe it's starting to represent the leading indicator on future license or lagging or incidental, or anything at all to glean from the services strength in terms of maybe what it portends in the next year on the license side?

This is Eddie here, thanks for your comments. I don't think so, frankly. We certainly are seeing strong services demand, as you can see. We are seeing some particularly strong demand with our global clients rolling out our solutions internationally. We are seeing the deployment of our solutions across the enterprise inside of our existing customers. Frankly, demand is just strong across the board, but I don't think that you should necessarily correlate the services business directly with future license opportunity.

Terry, we are also just seeing, while license has been a challenge from 2009 coming forward, we have been signing some very nice global brands on the platform. So you are starting -- we are seeing some of that compounding effect globally, as Eddie mentioned, some of the global brands that we have, which is nice to see.

Dennis, some of those logos, the bigger ones, transformative deals over the last couple of years --does some of that services work go on a couple years?

Absolutely.

And Dennis, on maintenance, so should we think about 4Q -- I know you don't really break out guidance by each line item, but is there the potential where we shouldn't be surprised if maybe maintenance is down Q over Q? Did you address that in your prepared remarks, or how we think about that 4Q, given what happened in 3Q?

I didn't address it in my prepared remarks, but I would expect it to be down sequentially with that pull-through.

Okay, and just my last question and I will turn it over, relates to just curious in terms of -- for Eddie or Dennis -- in terms of 4Q what you are thinking at a high level and/or what you've heard from your field sales force in terms of the psyche of the customer from a budget flush standpoint, how you think about budget flush for new license deals. In the updated revenue range, is that delta just basically a license assumption there?

So still a bit early in the quarter, frankly, Terry, to think about and to have any great feel on a Q4 budget flush. We are encouraged by our pipeline and the activity in the field, for sure. But frankly, it will be a little bit later in the quarter, I believe, before we start to see any enthusiasm around our budgets being consumed in the latter part of 2013.

To answer your question on the delta with respect to the revenue guidance, I talked about in the script, I think the profile is going to look very similar to Q2 right now, through my eyes. So it's a combination of license, services and maintenance, just because of the pull-through -- on the maintenance side, the pull-through that we talked about.

Okay, thank you.

Mark Schappel, The Benchmark Company.

Dennis, starting with you, on the R&D line I was wondering if you could help us think about the modeling purposes there. It looks like it has been trending down over the last several quarters, and I was wondering if you could just give us your thoughts on what you're thinking R&D wise going into next year.

We are going to continue to invest substantially in R&D, Mark. Too early to make a call on next year as we are starting the budget cycle. But as long as we can continue to outpace the market, what you are seeing is the leverage on the platform. You are also -- that line is also being impacted by FX with respect to the rupee. As you know, we have a substantial R&D operation so we have to see what FX rates do, etc. But we have about 650 employees across the globe that are in R&D and we continue to focus on bringing new innovation to the market.

Okay, great, thanks. Eddie, for a few quarters now, you have been talking about the macro headwinds you are seeing in your end markets. I was wondering if you could go into a little bit more detail about how these headwinds are manifesting themselves in your sales process.

Yes, sure, Mark. There's really one way that we are seeing these headwinds, and that's the duration of the sales cycles and the final decision-making process. So you can see from our win rates, they continue to be very strong, arguably getting stronger. So we are not losing many deals. We feel very, very good about our competitive position. But I think you are still seeing a lot of companies out there holding onto relatively substantial amounts of cash and spending or investing in capital and so forth only at the very last moment.

So that's really the impact that we are seeing and that's why we feel like we are seeing deals move out but not go away. It's just becoming just a little bit more tricky quarter over quarter to forecast exactly when those particularly bigger deals are going to close.

Great, thanks. Then I haven't heard too much lately on the transportation side of your business. I was wondering if you could just give us a quick update on your TMS business, such as any new exciting product introductions there.

Yes. So we continue to invest heavily in transportation. Actually, just since you brought it up, in Q3 we did -- as we do in each Q3, we did a major upgrade of our cloud-based transportation solution, and our existing customers were very happy with that upgrade, bringing some new innovation to that particular implementation, but continue to innovate.

A healthy amount of the innovation that we are doing is around international transportation. We continue to see more and more requirements coming from both the international markets and the import requirements. There are those ever-changing compliance requirements, hours of service and so forth, that we have to keep up with. It's, frankly, hard to describe those as real strong components of innovation because they are dictated to us. But still very, very solid investment in that space, and particularly as we see deployments of WMS and TMS integrated together to provide that one plus one equals greater than two benefit for our customers.

Okay, thank you.

(Operator instructions) Yun Kim, Janney Capital Markets.

Thank you, congratulations on a solid quarter, Eddie and Dennis. So with omni-channel e-commerce being basically a key competitive driver in your target market, I am assuming some large system integrators are involved in many of these larger scale omni-channel initiatives. Are you beginning see large system integrators beginning to approach you guys? If yes, is this making you somewhat rethink about your current professional services strategy? Maybe this is the right time to start creating a better ecosystem.

Yes. So we have a pretty big services ecosystem as it stands today. In almost every implementation we do, there is a component of services other than Manhattan's involved.

Now, when it comes to actually, as they say, screwing in our software, we think we are pretty good at it. Right? We don't think there's anybody that can really surpass our capability when it comes to actually screwing in our software. But all of the business change components around the implementation, all the work on the customer side, we have a very nice ecosystem of partners that are focused on providing those capabilities.

As we move into this -- more deeply into this omni-channel space and into this retail revolution, certainly we are seeing both large and specialized third-party integrators coming into this space, and we certainly welcome them. We've got an authorized and certified set of partners and they are doing a terrific job, both on our behalf, to some extent, but mostly for their customers and our joint customers.

Okay, great, thanks. Then, obviously, we heard a lot about omni-channel driving retailers and whatnot. But can you just talk about how CPG, consumer packaged goods companies, are thinking about omni-channel of what are you seeing there?

Yes. So I think you have heard me use this expression before, but you know how it is. When the wings of the retail butterfly flap, everybody feels that wind, and you see a couple of different impacts down the line. One is we ultimately, but retailers are driven to provide orders in smaller quantities, package-based to deliveries and so forth. That trickles down the supply chain and their suppliers, wholesalers, manufacturers alike need to be able to meet the agile needs that the retailer is projecting to the consumer.

But secondarily, I think we are starting to see the branded guys want to get a little closer to the consumer as well to make sure that they protect their brand. Oftentimes, we are seeing those branded guys want to sell direct to us for consumer, and historically they haven't had systems that have enabled them to interact with the consumer terribly well or fulfill orders directly for the consumer. So we are certainly seeing a little bit of that forward momentum as well.

Okay, great, and then as the services margin came in a lot better than expected, even if you account for -- I think you said 50 basis points positive impacts on the early maintenance renewals. Can you just talk about what drove that incremental margin improvement there on the services side? Is this -- obviously, you have got it for the year, but is there something other than what happened within the quarter that could potentially play out again sometime in the next year or so?

Well, what I am hoping is playing out is the continued strong momentum. The reality is, we have got great domain leadership in the organization. There is no quality of earnings issues, it's just the organization performed at a very high level. We added about 50 resources close to the end of the quarter, so we haven't yet gotten them up to a level bill ability rate and we are looking to add 100 additional resources here in the near future.

So there's no greater indicator of health of an organization and demand than when you are hiring people. So in the concern -- we are a little bit back into that stage of pretty strong demand and just making sure that we don't burn people out and sacrifice customer referenceability and satisfaction. So just a great performance from the organization, Yun.

Okay, that's great. Then lastly, very strong cash flow in the quarter, I think that was mostly driven by strong collection. I am assuming a lot of that was driven by early maintenance renewals. So should we expect the DSO to spite back up next quarter and maybe even have somewhat of a below cash flow quarter than your typical Q4s?

Yes, it's possible. We are paying a lot of taxes to the US and foreign governments these days that in the past we haven't paid as much. So that could -- taxes, income taxes will probably put a little bit more of a drag with our estimated payments in Q4 on our results. But look, I don't lay awake at night on DSO, to be quite frank with you. We've got a pretty damn good track record as a Company over the 33 quarters I've been here.

So we are going to continue to -- the leading indicator of quality of earnings is great cash flow and customer satisfaction as well. So we are going to continue to serve our customers, invest our cash wisely and hopefully continue to take great market share.

Okay, great, thank you so much.

There are no further questions at this time.

Thank you, Kyle. Well, thanks, everybody, for joining us at our Q3 2013 earnings call. We appreciate you taking the time. We appreciate your support. And I suppose I will close by saying we look forward to speaking with you again early next year. Thank you.

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