Manhattan Associates Inc (MANH) 2014 Q1 法說會逐字稿

Good afternoon. My name is Rachel and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates first-quarter 2014 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, April 22, 2014 at 4:30 p.m. Eastern time.

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

Thank you, Rachel, and good afternoon, everyone. Welcome to Manhattan Associates 2014 first-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 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 2013 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 our 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 website at MANH.com.

Now I'll turn the call over to Eddie.

Good afternoon, everyone. We are off to a solid start in 2014, extending the progress we made exiting 2013, with customers continuing to move forward with their investments in supply chain commerce initiatives. We posted record results across essentially all financial metrics in the first quarter. Our competitive position continues to improve, and our customer satisfaction continues to increase across the globe.

Overall, we posted record Q1 total revenues of $113.6 million, increasing 18%, all of which is organic, and record adjusted earnings per share of $0.26, increasing 37% over Q1 2013. With a strong start to 2014, we are optimistic about our prospects for the full year, and we are raising our revenue and earnings-per-share guidance for 2014. And Dennis will take you through those details in a moment.

We posted our second consecutive $17 million-plus software license quarter, recording $17.1 million in Q1, up 20% versus Q1 2013. We closed four $1 million-plus license deals in the quarter, all with existing customers. One of the large deals was in Europe, two in the US, and one in Latin America. All four deals were led by omni-channel initiatives, and three of the four deals included our platform-based warehouse management system. Even though all four large deals were in our existing customer base, in two of the four deals, we were successful head-to-head against very strong competition.

Our sales team across the globe executed well and our competitive win rates and head-to-head sales cycles against our major competitors remained strong at about 75% for the quarter. Overall for the quarter, 30% of our license revenue was from net new customers. And while the ratio of net new customers can fluctuate somewhat from quarter to quarter, we are quite pleased with our new customer acquisition performance.

We continue to expand our product footprint within our large retail customer base, leading with investments we have made in organic product innovation. Q1's license mix of new to existing customers was directly influenced by the $1 million-plus deals closed with our existing customer base, all led by a commerce-ready suite of omni-channel solutions. Our consulting services business posted record revenue results in Q1 with revenue up 21%. Demand and visibility continues to be quite strong as we added about 75 people to our staff in Q1 and we continue to search for approximately 100 more professional services people to meet the needs of our customers.

As we look forward, we are well-positioned for 2014 and beyond. Overall, with a strong start, we are optimistic, but we do remain a little cautious as we are not expecting the global economy to improve significantly in 2014. Our pipeline is solid, services business demand is strong, customer satisfaction is good, implementations of our solutions continue to go well, and we continue to focus on being the leading pure-play technology innovator in the supply chain commerce market, leveraging our platform strategy and investments in research and development to activate supply chain commerce for our customers and industry leaders in the new omni-channel world. And I'll provide more color in my business update following Dennis' review of our financial results.

Thanks Eddie. I'm going to cover our Q1 2014 results and then review our updated 2014 full-year guidance. As Eddie noted, we had a solid start to 2014, posting $113.6 million in total revenue, the highest quarterly result in our company's history, besting our previous record of $107.8 million recorded in Q3 2013.

Total revenue increased 18% over the prior-year quarter with strong license and services growth. For the quarter, Americas grew total revenue 14%, EMEA grew 37%, and APAC grew 22% compared to Q1 of last year.

Adjusted earnings per share for the quarter was $0.26, up 37% over prior year on strong revenue growth and productivity. Apples to apples, adjusted earnings per share was $0.24, growing 26%, excluding about $0.02 of favorable FX currency impact driven by rupee depreciation and a Georgia R&D payroll tax credit election lowering Q1 2014 payroll tax expense.

The bottom line is we dusted the carbon off the pistons with some strong organic revenue growth combined with solid operating expense management, which drove quality earnings leverage in the quarter.

Our Q1 2014 GAAP diluted earnings per share was a record $0.24, growing 41% over the $0.17 we posted in Q1 2013. Our GAAP performance was driven by the strength of adjusted operating results that I'm about to cover. For your reference, a detailed reconciliation of GAAP to non-GAAP adjustments is included in our earnings release today.

The license revenue for the quarter totaled $17.1 million, benefiting from the acceleration of a few deals we had forecast to close in Q2. From a regional perspective, Americas posted license revenue of $11.5 million, EMEA $4.4 million, and APAC $1.2 million. Consistent with previous quarters' comments, our license performance continues to depend heavily on the number and relative value of large deals we close in any quarter.

We mentioned on last quarter's call with license revenue essentially flat the past two years and estimating sales cycles for large deals remaining challenged, our goal for 2014 was to achieve about a 6% to 7% license growth rate. While we remain cautious regarding the lackluster macro environment, with two consecutive quarters of $17 million in license revenue, we are modestly raising our full-year license growth goal now to 7% to 8%.

Shifting to services, demand continues to be solid. Q1 services revenue totaled $86.9 million, increasing 16% over prior year. As you may recall, our services revenue is comprised of two revenue streams, consulting and maintenance.

Our consulting revenue for the quarter totaled a record $59.4 million, growing 21% over Q1 2013 on strong demand. With solid visibility into our services global demand outlook, we continue to focus on hiring additional resources to meet our customers' needs.

Maintenance revenue for the quarter totaled $27.5 million, increasing 7% over last year. Solid license revenue growth over the last several quarters, cash collections and retention rates of 90-plus% contributed to year-over-year growth. And as a reminder, we recognized maintenance renewal revenue on a cash basis. So, the timing of cash collections can cause intra-period lumpiness from quarter to quarter.

Consolidated services margins for the quarter were 56.2%, benefiting from very strong productivity and lower attrition than we have historically experienced this early in the year. Additionally, about 160 basis points of our margin performance in the quarter was driven by favorable rupee currency impact and the Georgia R&D payroll tax credit previously mentioned. We expect our first-half 2014 services margin will likely be in the range of 55.8% to 56%, and our full-year 2014 services margins to normalize into the 56.2% to 56.4% range, world-class.

Turning to operating income and margins, with solid revenue growth and expense management, we delivered record Q1 adjusted operating income of $32.3 million with an operating margin of 28.5%, up from 22.3% in Q1 2013. Apples to apples, Q1 2014 adjusted operating margin was 26.8%, up 450 basis points excluding the favorable rupee currency impact and the Georgia R&D payroll tax credit.

With strong Q1 operating results, our goal for 2014 full-year margin expansion over 2013 is 180 to 200 basis points, representing an 80 basis point increase over our previous estimate. We expect our Q2 and Q3 operating margin profile to be similar to Q1 2014's 28.5%, adjusted for quarterly license seasonality, and Q4 operating margin to range between 26.5% and 27%, adjusted for the impact of lower Q4 services revenue due to the traditional retail season holiday impact.

Below the line, other income was a loss of $233,000 in Q1, driven by FX losses of $516,000 in the quarter, partially offset by interest income.

Regarding taxes, our adjusted effective income tax rate for Q1 was 37.2%, about where we expected, and higher than our Q1 effective rate of 32.8% in 2013, due primarily to the expiration of US R&D tax credit legislation in January of 2014. As you may recall, in January of 2013, Congress approved both the 2012 and 2013 R&D credit, and as a result, our Q1 2013 rate included essentially five quarters of R&D credit significantly impacting the year-over-year comps. For the balance of the year, we are projecting an effective tax rate of 37.1%.

Transitioning to diluted shares, for the quarter, diluted shares totaled 76.8 million shares, down from Q4 2013 shares of 77.3 million. We repurchased 695,000 shares of Manhattan common stock in the quarter totaling $25.5 million against option exercises of 130,000 shares. For the balance of 2014, we estimate Q2 through Q4 2014 diluted shares to be 76.6 million and the full-year weighted average diluted shares to be about 76.8 million shares. Our estimate does not assume additional common stock repurchases and depends on a number of variables, including stock price, option exercises, forfeitures and share repurchases, which can significantly impact estimates. So lastly on shares, last week, our board approved raising our share repurchase authority limit back to a total of $50 million. That covers the P&L results.

Turning to cash flow, for the quarter, cash flow from operations was $19.1 million versus Q1 2013 of $20.1 million as cash global income taxes paid in Q1 2014 effectively doubled over prior year. DSOs improved to 53 days versus 61 days in Q4 2013 and capital expenditures were $1.2 million in the quarter, and we estimate full-year 2014 CapEx to be about $6 million to $8 million.

Our balance sheet of course continues to support long-term strategic flexibility and stability with zero debt and cash and investments totaling $126 million at March 31, 2014, compared to $133 million at the end of Q4 2013.

Now I will update our 2014 guidance and then hand off to Eddie for the business update. As Eddie mentioned, while we remain cautious given the global macro, with the solid start to the year, we are raising total revenue and EPS guidance. For 2014 revenue, we have increased our guidance for full-year from our original range of $450 million to $455 million to a new range of $460 million to $465 million, representing 11% to 12% growth over 2013 versus previous guidance of 9% to 10% growth. We expect our full-year total revenue percentage split first half versus second half to be about 49% to 51%. With our full-year license growth goal of 7% to 8%, consistent with 2013, we expect Q3 2014 to be our peak total revenue quarter, driven by strong services revenue performance. For Q4, with the holiday season, as in prior years, we are modeling a sequential decline in services revenue, thus lowering total revenue about 2.5% to 3% from Q3 2014 to Q4 2014. So that covers revenue.

For 2014 adjusted diluted earnings per share, we are raising our range $0.05 to $1.06 to $1.08, representing 15% to 17% growth over 2013 adjusted EPS of $0.92. Our previous guidance was 10% to 12% growth. We expect our full-year EPS split to be roughly a 50-50 percentage split between the first half and the second half. For 2014 GAAP diluted earnings per share, we expect to deliver $0.99 to $1.01, representing 15% to 17% growth over 2013 EPS, GAAP EPS, of $0.86. The $0.07 full-year EPS difference between GAAP and non-GAAP adjusted EPS represents the impact of stock-based compensation. We expect the EPS impact to be spread relatively evenly throughout the year.

That's a wrap on the financial update, including guidance. Now, I'll turn the call back to Eddie for the business update.

Thanks Dennis. First, let me provide a little more detail on the deals we closed in Q4. As I discussed at the beginning of the call, we recognized four large deals in the quarter, three in retail, and one in grocery. All four deals were driven by strategic technology and organization programs with three of the deals specifically driven by omni-channel initiatives. The other large deal was driven by a distribution management legacy system replacement program, leveraging our platform-based warehouse management system. As I mentioned on our last earnings call and not surprisingly, we've seen some additional omni-channel interest in the grocery vertical following Amazon's move into that market.

We continue to see solid progress in our core verticals led by retail fueled by the digital commerce revolution in the way in which retails wish to engage and service their customers. A meaningful portion of our WMS and non-WMS license and services revenue activity continues to be driven by existing and new customer omni-channel initiatives and reinventing their supply chains for the new world that we all live in. We are certainly very pleased with the success we've had over the past 12 months in this particular arena.

Our Q1 license fee mix was consistent with Q4 of 2013 with warehouse management solutions making up 60% and 40% representing our other solutions. The retail, consumer goods, and grocery verticals were our strongest license fee contributors, making up more than half of our license revenue in Q1 2014 as software, platform technology, and experience helped our customers adapt to the challenges of the omni-channel marketplace and our efforts are bearing fruit in our net new customer win rate, and the loyalty rewarded to us by our customer base.

Software license wins with new customers that permitted us to share their names included DCG Fulfillment, Dunham's Sports, Floor and Decor Outlets of America, Hastings Deering, ICA Sweden, LifeShield, Norix, Ulta, Vente-Privee, and West Coast Distribution. Expanding relationships with existing customers included the Apparel Group, C&J Clark International, Cabela's, Donaldson Europe, Federal-Mogul, GENCO holdings, the Harvard Drug Group, Knight Transportation, Movianto, Nassau Candy, Nordstrom, Northern Tool and Equipment, Samsung India Electronics, Sodimac Colombia, Speed Global Services, Stella & Dot, and Thai Beverage Logistics.

Our professional services business around the globe continues to perform very well and receives high marks for customer satisfaction. As you might expect, our global services team are in full swing with retail omni-channel supply chain commerce enablement initiatives with about 80 system go-lives in the quarter and a very busy Q2 on deck. As an example, in Q1, one of our large home-improvement retail customers went live in its first of its three new direct fulfillment centers. Each facility is expected to have a capacity to hold as many as 1000 SKUs for direct ship to their customers while expanding our customers' capability to ship most orders the same day that they are received. There continues to be a strong focus on store execution solutions and multiproduct platform-based implementations over the last few quarters, and we expect this trend to continue.

On the innovation front, we continue to be the leading innovator in supply chain technology. For the quarter, we invested $12 million in research and development with about 650 people dedicated to R&D. Our innovation team has been very busy with new product releases. Most of our products release on an annual cycle and many of them typically do so in the spring. In the last two months, we've had 10 major product releases. These range from our flagship WMS to transportation and inventory optimization. And here are just a few of the selected highlights.

Mobile technology and its application for supply chain commerce has been a focus for us in the latest set of product releases. And accordingly, our 2014 supply chain process platform includes a new mobile framework that we call TouchTop. This framework can be used by all of our applications, and it includes all of the major components needed for mobile applications such as security, configurable user interface, and device conductivity.

Late last year, we released our first true mobile app focused on store inventory fulfillment. And this spring, we released two additional mobile capabilities for labor-management and proof of delivery. Our latest version of labor-management includes a purpose-built tablet application designed to help supervisors change the way that they manage their teams. No longer confined behind a desk 3/4 of the day, managers now have all of the personnel productivity information and actions they need on a tablet device. This enables supervisors to spend the day on the floor with their workforce completely untethered.

Likewise, Spring 2014 marked the very first release of our mobile proof of delivery application. In the age of same day delivery, retailers and wholesalers alike are leveraging couriers and private fleets more than ever to do their own -- to own the entire customer interaction and ensure complete satisfaction. And our proof of delivery app helps guide drivers through the delivery process all the way to signature capture, providing end-to-end visibility to the entire transaction for any customer service rep who is engaged with the client.

On the transportation lifecycle management front, connectivity is always a vital, and with limited freight capacity creating challenges, the pendulum of control has swung toward the carriers. And more and more shippers are looking for ways to more effectively manage volatile transportation networks. Our latest release of PLM delivers new, innovative tools to help shippers thrive, ranging from new transportation network modeling capabilities to factoring in real-time traffic information into planning, fleet dispatch, and monitoring.

As you can tell, at the core of our success continues to be our strategy to grow through investment and innovation. Our supply chain process platform-based suite of solutions, including our omni-channel solutions, distinguishes us from all other competitors. Our R&D team continues to do an excellent job of driving innovation in all product areas, and we continue to deliver more robust and more efficient solutions to the markets we serve.

Regarding our global associates, we ended Q1 with about 2570 employees, up nearly 160 over Q1 2013, and more than 95% of our headcount growth is in professional services on strong demand to support topline growth and customer satisfaction. We finished the quarter with 69 people in sales and sales management, with 61 quota-carrying reps, up 2 heads from last quarter. We continue to look to add about half a dozen additional sales professionals, the majority of which would be in the Americas.

And next month, we will host our annual user conference, Momentum 2014, in Hollywood, Florida. Every May, about 1000 of the best and brightest supply chain professionals come together, and I am fortunate enough to have the opportunity to share with them Manhattan's go-forward strategy and progress. We will be showcasing our new flexible fulfillment capabilities at Momentum. Consumers now expect unlimited choices of selection of location and of convenience, hence the market need for flexible fulfillment, and focuses on helping retailers enable every point of inventory, a distribution center, a store, a supplier or a fulfillment hub, become a point of direct customer order fulfillment working to maximize supply chain and inventory investments to deliver exceptional service to the customer.

We will also be presenting our four-phase framework that helps our customers establish a roadmap for success in the commerce revolution. And during the event, we will be debuting all our new product releases, and we hope that they will generate the kind of excitement deserving of these new innovations. And in addition to our main stage content and presentations, we will also be having roughly 60 breakout sessions featuring more than 30 customer speakers, including Sysco Foods, Staples, Cardinal Healthcare, and the Home Depot.

So let me close my prepared remarks with a brief summary. We are certainly very pleased with our solid start to 2014. We remain focused on our customers, seizing every opportunity, and never settling. We work hard to make today better than yesterday and tomorrow better than today. Our relative competitive position continues to be strong and improving what we continue to invest in innovation to extend our market leadership and differentiation in supply chain commerce enablement. With the world's most talented supply chain employees, the best software solutions, and with great market momentum, we are well-positioned for 2014 and beyond.

So Rachel, we would now be happy to take any questions.

Certainly. (Operator Instructions). Terry Tillman, Raymond James.

Can you all hear me okay? First, the obligatory great job on the quarter. This is one of the strongest first quarters I've seen in a long time, so nice job. I guess the first question just relates, you're used the company complaining about deals delaying or extending into another quarter, and hopefully they will close then. But could you repeat what you had said, or maybe it was what you said, Dennis, in terms there were a couple of deals that maybe you had assumed would close in 2Q but they ended up closing in 1Q? I'd love to hear a little bit more color on that.

I'll take that question. I don't know that we complained. It's just an observation that we share with our investors and the community. But regardless, we did see a couple of deals that we had originally forecast to be Q2 deals actually close in Q1. I can't say for sure, but it does seem that, first of all, there is certainly some momentum around omni-channel initiatives, and of course, not in every case, but most retail end of year fits right in the middle of our Q1. So whether there was a little bit of a budget flush in retail, can't really tell, but we certainly saw some things pull forward. And then as noted by Dennis, we had some very strong momentum in both of our international theaters, APAC and EMEA as well.

Okay. And I guess as a follow-up too on the license business, it's good to see increasing the range of growth expected for license for the year. If you had to think about what would be the most important driver of the increase, is it just more pipeline, is it better close rate assumptions, or is it something at the margin that feels like it's a little bit of kind of a wave occurring around the omni-channel or something else that I just didn't say?

No, I think it would just be a little bit of a strengthening -- easy for me to say -- of our pipeline, to be perfectly honest with you. I don't think there are any particular -- other particular momentum movers. We've talked about the things that are driving general growth for us, but a little bit of a strengthening of the pipeline.

Plus a little tailwind on the macro, Terry.

Okay. And on the idea that maybe the activity levels were a little bit better, is it -- where does omni-channel fit in the actual kind of go-forward pipeline? You articulated well on how helpful it was in some of the larger deals in the quarter but that was stuff that had been percolating for some time. So as you look out to some of that maybe longer data pipeline, is there a notable difference in terms of how much has exposure to that theme of omni-channel versus just hey, we've got an old WMS we need to upgrade it or we have a old TMS, we need to upgrade it?

Yes, it's a little bit of both. We talked about omni-channel now for, frankly, for a couple of years, as you know, and we've always indicated that it's not a hockey stick. But we are continuing to see forward momentum in that area. There is certainly a little bit of a blurring of the lines, I would say, between is this a legacy WMS replacement or is this an omni-channel initiative. That is certainly a little bit of a gray area. But I think we are certainly seeing some pipeline, nice pipeline, in both areas.

Okay. And then just my last question, and I don't know if this would be for you, Dennis or Eddie or whoever. But in terms of the service revenue, if we just carve out just the services which is really strong, and I think it was over 20% growth, if we look at the headcount growth, it's not near that kind of growth. And I think you all talked about maybe hiring about 100 heads, and you came up a little short there, and you had about 75. I would be curious on the strength of your revenue in comparison to not hiring at the same clip. Is it capacity utilization, or what about pricing? Could you maybe talk about both capacity utilization and the strength there, or what you're seeing there as opposed to a pricing lever for your pro-services business? And again, nice job on the quarter. Thanks.

Pricing hasn't changed a great deal. We aim to be very competitive and provide great value to our customers, Terry. So we haven't seen -- we haven't made any major pricing moves or anything there.

In terms of the efficiency and the effectiveness of the team, which has just been really outstanding, I would attribute most of that to, frankly, the team's effort level, number one, and number two, the terrific training programs that we've put in place for our staff. We hired quite a few people, and we have invested a lot in personnel training programs. And that's allowed them to become a good bit more productive a little bit sooner than we had originally anticipated.

Yes, the other thing that we believe gives us a competitive advantage there is really the stability of the leadership team and their domain expertise that they bring to the table. We've got great continuity at the leadership level, and great talent. Obviously, we are probably biased, but we think the best in the space, in the industry. And I think the margins bore that out.

Okay, thanks a lot.

Mark Schappel, Benchmark.

Good evening and also nice job on the quarter, especially on the license line. Just a couple of questions. Just diving down a little bit deeper in the omni-channel initiatives that are out there, I was just wondering if you could go through with us in a little bit more detail about how the complexity of omni-channel retailing is really becoming a demand driver for the supply chain execution space?

Yes, sure. I think -- I'll try and be as brief as I can. But the summary would be if we cast our minds to shall we say 10 years ago when eCommerce had really got off the ground, two things. One, it tended to be a very small part of a retailer's business, so they tended to operate it independently, sometimes even outsourced. And as we look today, eCommerce and omni-channel initiatives could range anywhere from 4% to even as much as 15% of total revenues in some particular -- in some circumstances. So, it's become a mainstream part of the business, number one.

And number two, it's been recognized online. Omni-channel shoppers tend to be the most profitable shoppers. So integrating them into the mainstream of a retailer's business is very, very important. The upshot of all that is that the need for integrated backend systems, particularly supply chain systems that provide, number one, a single view of the customer across all channels that they are shopping, number one, and number two, a single view of inventory that is available to all of those shoppers across the channel and bringing those consumers together with that inventory in a very profitable way. And what that requires, as I say, is oftentimes an upgrade of IT infrastructure and backend systems. And that tends to be what we are seeing here.

Okay, great. Thanks. And Eddie, it's also been several years since the company has let's just say reengaged the M&A front. I was just wondering if you could just remind us of what the company strategy or corporate strategy is right now with respect to making purchases (multiple speakers).

Sure. So I think Dennis has got some information he'll share with you, but I would say, at a high level, our strategy is, number one, not to buy more of what we already have, okay, number two, to look at companies that have technology alignment with us. And then number three, which is sort of an obvious one based upon number one, to fill strategic white space for our customers. We are anxious to do more M&A, but we will not be goaded into acquiring companies that, again, have more of the same aging technology and don't provide value add for our customers.

If I can just piggyback on that, our stated strategy has been very consistent. We will be a strategic acquirer, not a serial acquirer, of overlapping assets, as Eddie talked about. So when we look at our cash and our priorities of cash, our number one growth objective is to be the leading innovator in this space, and organically invest and deliver innovation into the market -- marketplace. So that's the number one priority of cash.

Number two is we will look at M&A opportunities, and as Eddie said, they have to, one, align with our tech stack and also be a product that we feel we can generate significant ROI as demanded by our customers. And absent any potential M&A opportunities, which we are active in terms of looking, but absent those opportunities, we execute the share buyback program because we think that's an efficient return of capital to shareholders.

Thanks. One final question. Dennis, for you, just to make sure I heard things right. You had a $0.02 benefit for foreign currency and the Georgia R&D payroll tax credit that helped you out in the quarter. Is that correct?

That's correct.

Okay, thanks. That's all for me.

Still a very strong quarter in terms of quality of earnings.

(Operator Instructions). Yun Kim, B. Riley and Company. Your line is open.

Thank you. Congrats on a strong quarter, Eddie and Dennis. So following up on Terry's question regarding the strength in the professional services business, obviously the revenue was up very strong sequentially while the margin improved more than what I was expecting. And then I think Eddie, you mentioned that the new hires are ramping up faster than before, but just wondering. Are there other things kicking in there, maybe also seeing some other consulting work to lower cost areas, or there any other accretive things that you may be doing? And where do you see that particular business, the margin potential over the next two to five years? Do you expect that margin to be able to show any incremental improvement from the current level or do you feel that you're running it at peak margin?

So, I think I'll take some of those and I'll probably be a little sloppy, so Eddie can clean me up. But first, nothing that's impacting the mix. It's good old fashioned domain expertise and sweat equity with our customers in terms of productivity through the services organization.

And then, in terms of margin, we don't give a forecast, and we're still waiting to see the whites of the eyes in terms of a tailwind from a macro point of view. So we will focus our efforts on end-year operating margin, which we talked about 180 to 200 basis point improvement over last year. And obviously, we have multiple levers. Do I think there's room for margin expansion in services? Absolutely. That's one of the levers. License is a lever. Our international growth is a lever. New products on our platform is a lever. Sales and G&A, expense management is a lever. We've got lots of levers to manage here. So we definitely have some runway with respect to margin expansion.

Okay, great. And then --

I'm not going to give you a three to five-year margin expectation on services or operating margin at this stage.

All right.

When the economy is running at about a 5% GDP growth rate, I might be in the mood.

All right. But don't forget that you guys have executed 12 quarters in a row, so I thought you guys have a better visibility to give that out today versus maybe a couple of years ago.

But kidding aside, real quick, the omni-channel -- this question is for you, Eddie. Omni-channel investment is obviously providing a very strong secular growth driver for your business. Shouldn't that translate into higher number of seven-figure deals closing? Obviously, you guys had a pretty strong quarter in terms of seven-figure deals in the quarter, four of them closing. But it seems like, if you look at over the past couple of years, the number of large deals had been almost at about three a quarter. Do you see the number of large deals eventually picking up as more and more omni-channel spending increases out there?

It's possible. I think we've got some growth targets that we've put out there for license revenue this year. We have increased of them, as Dennis indicated in the call, just this quarter in terms of the forecast. So we are optimistic about the opportunity.

But in terms of seeing a real shift to many, many, many more double comma deals in a quarter, I don't see a big shift there. But as we also indicated, there is a blurring of the lines between the traditional transportation and WMS legacy replacement deals and omni-channel initiatives. And so I think we will see a little bit of a shift and we will be identifying more of our double comma deals related to omni-channel. But part of that is because of the blurring of the lines.

Okay, great. And then last question from me, it's been a while, but can we revisit what your growth strategy, investment strategy is regarding Europe? Obviously, we saw a pretty big jump in Europe in the quarter. Just kind of revisit what is your strategy there as of today, thanks.

Yes, sure. We have a direct presence in the most popular markets for us in Europe. And we use a partner network, a very strong partner network, in some of the slightly more far-flung markets, markets for us. We still do not offer every single product in every geography, even in Europe, but as we gain a greater foothold, get more experience and our employee base grows in Europe, we continue to open up the product portfolio. So, as Dennis says, it certainly is one of the growth levers that we continue to dial up and have growth expectations for that market for sure over the coming years.

Keep in mind that almost 80% of packaged supply-chain software is spent in the US and Western Europe. So at this stage, emerging markets will start to grow as they mature more, but Europe probably accounts for about 25% of that overall 80% spend. So, it's pretty simple, steady revenue growth and earnings expansion off of that in those markets.

Okay, great. Thank you so much and, again, congratulations on a strong quarter.

Thank you. With that, we will conclude the question portion for today, thank everybody again for their continued support of Manhattan Associates, and we'll look forward to speaking to you in about 90 days or so. Thanks and good afternoon.

Ladies and gentlemen, this concludes today's conference call, and you may now disconnect.