Manhattan Associates Inc (MANH) 2015 Q1 法說會逐字稿

Good afternoon. My name is Mike and I will be your conference facilitator.

At this time, I would like to welcome everyone to the Manhattan Associates' first-quarter 2015 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 session. As a reminder, ladies and gentlemen, this call is being recorded today, Tuesday, April 21, 2015.

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

Thank you, Mike, and good afternoon, everyone. Welcome to Manhattan Associates' 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 risks and uncertainties, are not guarantees of future performance, and that actual results may differ materially from projections contained in our forward-looking statements.

I refer you to the reports Manhattan Associates files with the SEC for important factors that could cause actual results to differ materially from those in our projections, particularly our Annual Report on Form 10-K for fiscal 2014, 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 website at manh.com.

Now I'll turn the call over to Eddie.

Well, good afternoon, everybody. We're off to a solid start in 2015, posting record results as customers and prospects continue to invest in core supply chain and omnichannel commerce initiatives. Our competitive position continues to improve and customer satisfaction continues to increase across the globe.

We delivered record total revenue in Q1 of $133.5 million, increasing 18%, and record adjusted earnings per share of $0.34, increasing 31% over Q1 2014. Software license revenue for the quarter was $19.3 million, up 13%. And we closed seven $1 million-plus license deals in the quarter, three with existing customers and four with net new customers. One of the large deals was in Europe, five in the US, and one in Latin America.

Three of the deals were led by our platform-based warehouse management system, and four of them led by omnichannel. In five of the seven large deals, we were successful head-to-head against very strong competition.

Our sales teams are executing well, and our competitive win rates in head-to-head sales cycles against our major competitors remain strong at about 75% for the quarter. Overall, for the quarter, 40% of our license revenue was from net new customers, and adding large new global brands to our customer portfolio, as success is driven by the focus we apply to delivering innovation in an ever-changing commerce market, focusing on our customer success and leveraging at deep domain expertise.

While we remain somewhat cautious regarding the global economy, with a strong start to 2015, we are raising our revenue and earnings per share guidance for the year. Our pipeline is solid; services business demand is strong; customer satisfaction is good; and we continue to be the leading innovator in the supply chain commerce market.

I will provide more color in my business update following Dennis's review of our financial results and updated guidance.

Thanks, Eddie. I'll cover our Q1 2015 results, and then review our updated 2015 full-year guidance. Q1 total revenue grew 18% to $133.5 million, the highest quarterly revenue in our Company's history. Adjusting for negative currency impact mainly in the euro, pound and Australian dollar, total revenue grew 21%.

For the quarter, Americas grew total revenue 20%; EMEA, 17%; and APAC was down 19%. Adjusted earnings per share for the quarter was $0.34, up 31% over prior-year. Excluding negative currency impact, adjusted EPS grew 35%. We expect significant currency headwinds for the balance of the year, which I'll cover in our raised guidance.

Our Q1 2015 GAAP diluted earnings per share was a record $0.31, growing 29% over Q1 2014's $0.24. For your reference, a detailed reconciliation of GAAP to non-GAAP adjustments is included in our earnings release today.

License revenue for the quarter totaled $19.3 million. From a regional perspective, Americas posted license revenue of $15.5 million; EMEA, $3.5 million; and APAC, $300,000. Consistent with previous quarters' comments, our license performance depends heavily on the number and relative value of large deals we close in any quarter. With a sluggish global macro and FX headwinds, we are targeting a license growth goal of about 8% for the remainder of 2015.

Shifting to services, demand is quite solid. Q1 services revenue totaled $101.2 million, increasing 16% over prior-year. Our services revenue is comprised of two revenue streams, consulting and maintenance. Consulting revenue for the quarter totaled a record $72.7 million, growing 22% over Q1 2014. With solid visibility into our global services demand, we continue to focus on hiring additional resources to meet our customers' needs.

Maintenance revenue for the quarter totaled $28.5 million, increasing 4% over last year. License revenue growth, cash collections and our retention rates of 90-plus-percent contributed to year-over-year growth. As a reminder, we recognize maintenance renewal revenue on a cash basis, so timing of cash collections can cause inter-period lumpiness from quarter-to-quarter.

Consolidated services margins for the quarter were 56.5%, benefiting from solid productivity and currency impact. Excluding currency, services margins were about 56.1%. We expect our first-half 2015 services margin will likely be in the range of 55.8% to 56.0%, and our full-year 2015 services margins to normalize into the 56.2% to 56.4% range.

Turning to operating income in the margins, Q1 adjusted operating income totaled a record $40.0 million, with operating margin of 30%, up from 28.5% in Q1 2014. Our operating leverage is being driven by strong organic revenue growth, work force productivity, and expense discipline.

With strong Q1 results, we are raising our goal for 2015 full-year margin expansion over 2014 to about 140 basis points, representing an 80 basis point increase over our previous estimate. We expect our Q2 operating margin to drop a bit with the incremental net cost of our annual momentum conference, and the addition of a new class of college hires towards the end of the quarter.

We expect Q3 operating margin will be similar to Q1 2014, or Q1 2015. Adjusted for quarterly license seasonality, in Q4, operating margin should range between 28% and 28.3%, adjusted for lower Q4 services revenue, due to the traditional retail holiday season impact.

Below the line, other income was primarily interest income on cash. Regarding taxes, our adjusted effective income tax rate was 37.5% for Q1. We are projecting a full-year effective tax rate of 37.5%, due to higher domestic, to foreign taxable income, and expiration of the US R&D tax credit effective January 1, 2015.

Diluted shares for the quarter totaled 74.6 million shares, down from Q4 2014 shares of $75 million. We repurchased about 524,000 shares of common stock in the quarter totaling $26.3 million. We estimate Q2 through Q4 2015 diluted shares to be $74.4 million, and the full-year weighted average diluted shares to be about $74.5 million. This estimate does not assume additional common stock repurchases. And lastly, on shares, last week, our Board approved raising our share repurchase authority limit to a total of $50 million.

That covers the P&L results. Turning to cash flow, cash flow from operations was $15.2 million, down from Q1 2014's $19.1 million, based on 2014 performance-based compensation payouts in Q1 2015. DSOs improved to 56 days versus 61 days in Q4 2014, and capital expenditures were $3.1 million in the quarter. And we estimate full-year 2015 CapEx to be about $8 million to $10 million.

Our balance sheet continues to support stability and long-term strategic flexibility, with zero debt, and cash and investments totaling $107 million at March 31, 2015 compared to $124 million at the end of Q4 2014. The net decrease was driven by our share buyback program.

So, that covers the results. And now I'll update everyone on the 2015 guidance and then hand the call back to Eddie for the business update.

As Eddie mentioned, while we remain cautious, given the global macro and FX currency headwinds, with the solid start to the year, we are raising our full-year 2015 total revenue and EPS guidance. For revenue, we are raising our guidance for full-year total revenue from our original range of $531 million to $541 million to a new range of $541 million to $550 million, representing 10% to 12% growth over 2014 versus our previous guidance of 8% to 10%.

Our total revenue guidance factors in a 3 percentage point decline from FX headwind totaling about a $14 million impact for the full year. We are forecasting Q2's impact to be about 4 to 5 percentage points. Despite the negative impact, we are raising our revenue guidance with modest growth over our previous guidance. We expect our full-year total revenue percentage split to be about 49% to 51% first-half versus second half.

With the Q4 holiday season, as in prior years, we are modeling a sequential decline in services revenue of about 3% from Q3 2015 to Q4 2015. For adjusted diluted earnings per share, we are raising our guidance range $0.06 to $1.34 to $1.36, representing 16% to 17% growth over 2014, and adjusted EPS of $1.16.

Our previous guidance was 10% to 12% growth. Our full-year forecast includes about $0.03 of negative FX impact. We expect our full-year EPS split to be about the same as revenue, 49% to 51% first-half to second-half.

For GAAP diluted earnings per share, we expect to deliver $1.23 to $1.25, representing 14% to 16% over [Q] 2014 GAAP EPS. The $0.11 full-year difference -- full-year EPS difference between GAAP and non-GAAP adjusted EPS represents the impact of stock-based compensation.

That covers the financial results and 2015 guidance. Now I'll turn the call back to Eddie for the business update.

Thanks, Dennis. Well, as I mentioned at the start of the call, we are off to a great start in 2015. Despite a pretty tepid global macro environment and the FX currency volatility, digital commerce and technology modernization programs continue to drive growth opportunities for Manhattan Associates. We continue to see solid progress in our core verticals led by retail being fueled by the digital commerce revolution, and the way in which retailers which to engage in service to their customers.

As I discussed at the beginning of the call, we recognized seven large deals in the quarter -- four in retail, one in grocery, one in food and beverage, and one in consumer electronics. All deals were driven by strategic technology modernization programs, with four of the deals driven by omnichannel initiatives.

In Q1, our licensed team mix was weighted about 55%/45% between our warehouse management system and our other solutions. A meaningful portion of our WMS and non-WMS license and services revenue activity continues to be driven by existing and new customer omnichannel initiatives, and legacy supply chain modernization. The retail, consumer goods, and third-party logistics verticals were our strongest license fee contributors, making up more than half of our Q1 license revenue.

Q1 software license win with new customers that have permitted us to share their names include Best Buy, Harris Teeter, Keurig Green Mountain, Kramp Groep, Midas Group, Murphy-Hoffman, Paul Smith, Readerlink Distribution Services, Stage Stores, Thomas Cook Airlines, and Uline. Q1 expanding relationships with existing customers included APL Logistics, Asda Stores, Cabela's, Carter's, Central Retail Corporation, Chico's, Coach, David's Bridal, Eileen Fisher, Express, Factory Motor Parts, Genco, Genesco, House of Fraser, Kane Warehousing, Laura Ashley, LeSaint Logistics, Monoprice, MWI Veterinary Supply, Newgistics, Nordstrom, RockTenn, Schurman Fine Papers, Southern Wines and Spirits, TwinMed, Ulta, Wilton Brands, Winning Group, and Wolverine Worldwide.

Our professional services business around the world continues to perform very well, posting record results, with Q1 revenue up 22%. And they continue to receive high marks for customer satisfaction. Our global services team have been very busy with core supply chain and retail omnichannel supply chain commerce enablement initiatives, with more than 320 system go-lives over the past 12 months.

Demand and visibility continues to be quite strong, as we added 20 new associates to our global team in Q1. And plans for the balance of 2015 call for adding about 200 more net new associates to meet the needs of our customers.

As I mentioned, we continue to see strong momentum and interest in our omnichannel solutions, implementations of our call center, enterprise inventory, enterprise order management, and store inventory and fulfillment solutions, were in full swing across the Americas and Europe. Leading retailers continue to choose, implement and roll out our omnichannel solutions across the globe to achieve a single view of the customer and sellable inventory.

The number of our omnichannel customers -- a number of our omnichannel customers have reported significant sales lifts in their direct channel, attributable to making all of their inventory, notably their store inventory, available for sale on the Web. Especially in fashion and apparel, the ability to use order management to match demand on any device and in any location with any shippable unit is proving to be key in selling through a season's assortment in a most profitable manner.

Our patent-pending ATC, or Available To Commerce capability, released in 2014, is becoming highly valued by merchants looking to fine-tune which units to make available to which channels during which time-frames. ATC is the only application on the market which affords this sophisticated level of control around inventory availability.

Our recent 2015 releases reinforce our commitment to providing best-in-class capability to a generally underserved segment of the market -- customer service agents in a call center. As more commerce moves online, it's much more critical that retailers have the right set of tools to service a consumer and an order post-sale. The quality of service when interacting with a service representative over the phone, over chat, or over email, continues to be a large driver in how a consumer perceives a brand.

With each release, Manhattan continues to introduce additional service capabilities into our industry-leading order management application. That commitment to enhancing the service capability is paying off for our customers, and for us.

We're also making great progress with our recently acquired point-of-sale and clienteling applications. In January, we demonstrated what many in the industry refer to as a single swipe transaction. Single swipe allows tender and carry items, and special order items to be transacted in a single credit card swipe. By integrating point-of-sale with order management, we allow store associates to essentially sell the network, rather than just selling what's in their store.

For example, one large fashion retailer closed in Q1, selecting Manhattan as both their point-of-sale system and clienteling system of the future. Combined with an existing implementation of our order management and store inventory and fulfillment solution, this customer saw the advantage of driving all sales, regardless of channel, through a single omnichannel platform.

This approach is resonating well in the market and with store associates, as their role in supporting technology is undergoing a dramatic shift. Going away are the days of anonymous, impersonal, single-store transactions, and replacing them is a retail experience which is highly personalized, efficient and service-oriented. Manhattan Associates is the only application provider who offers a feature-rich point-of-sale, clienteling, order management, store inventory and fulfillment, all on mobile devices with a secure payment structure attached to them.

We continue to innovate in our core supply chain solutions as well, of course. Our commitment to providing industry-leading mobile experiences for our omnichannel customers has been well-received by the market. And in 2014, we extended our mobile focus to our supply chain solutions by introducing Distribution Management Mobile. DM Mobile is a purpose-built tablet application designed to enable DC supervisors -- or distribution center supervisors -- to get out of the back office and still have access to a rich set of labor management tools, will add on the floor where the real work is being executed by their team members.

Early adopters of this solution have quickly seen productivity gains that could have only been realized by improving the real-time connection between the supervisors and their work force. A newly released 2015 version of DM Mobile has been expanded to provide warehouse managers a single, combined view of both people and tasks on a modern mobile device, with an intuitive user interface that requires very little training.

On the transportation side of our business, Manhattan's commitment to science-based optimization has led us to extend our analytical what-if capabilities to improve our customers' ability to develop optimal transportation policies. Transportation modeling leverages the same optimization engines used for transportation planning, both to optimize specific transport policy decisions, as well as be able to simulate the impact of changing those policies.

Manhattan's commitment to industry-leading science, combined with strong application usability, enabled to a rich, highly-visual user experience, has resulted in a significant uptick in our transportation wins in the last 12 months. Clearly, at the core of the success continues to be our investment in innovation.

For the quarter, we invested about $14 million in research and development, with 665 people dedicated to R&D. Our supply chain process platform-based suite of solutions, including our omnichannel and point-of-sale solutions, distinguishes us from our other competitors.

Turning to our global associates. We ended Q1 with about 2,800 employees around the globe, up 9% over prior-year Q1. 95% of our headcount growth is in our professional services group on strong demand to support topline growth and customer satisfaction. We finished the quarter with 67 people in sales management, with 61 quota-carrying reps. That is down one from last quarter. And we intend to continue to be opportunistic, and look to add about a half-a-dozen additional talented sales professionals to the Company.

In about a month from now, we will again have the privilege to welcome our customers, partners, press and analysts, to our annual user conference -- Momentum. We have a solid lineup of customers, speakers and topics for this year's conference, and it will be held at the JW Marriott Desert Springs in Phoenix from May 17 to May 20.

Our focus for Momentum this year is on building a commerce-ready enterprise. Throughout the conference, we plan to illustrate the common connection and impact that every role and capability has in coming a commerce-ready enterprise. In addition to showcasing our latest innovations, including mobile mobility for distribution management and advanced transportation modeling, we'll certainly look forward to formally introducing and demonstrating our mobile point-of-sale, clienteling, and tablet retailing solutions.

Over four days, we will conduct over 100 training and educational and presentation sessions that cover a variety of topics, including business strategy, best practices, customer panel discussions, and deep dive technical immersion. Attendees will have the opportunity to hear directly from thought leaders among our clients such as Cisco, Lilly Pulitzer, Cardinal Health, and Martin Brower. And once again, we are seeing very strong interest in this event.

So let me close my prepared remarks with a brief summary. We are very pleased with our continued momentum of performance entering 2015. And while the global macroeconomic conditions certainly give us -- and I'm sure, everybody -- reason to be cautious, we are very optimistic about the future, and remain focused on our customers and getting them commerce-ready.

Retail, commerce and supply chain complexity in our target markets continues to increase, driven by the digitalization of an eCommerce which is fueling multiyear investment cycles. Our relative competitive position continues to be strong and improving. And we continue to invest in innovation to extend our market leadership and differentiation. With the world's most talented supply chain employees and best software solutions, as well as good market momentum, we believe we are well-positioned for the balance of 2015, and beyond.

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

(Operator Instructions). Terry Tillman, Raymond James.

Hey, good afternoon, guys. Can you all hear me okay? Sorry for my background noise.

Yes. We can hear you, Terry.

Okay. Well, so, I've been following the stock for 15 years, I've never seen seven $1 million deals in a single quarter -- the first quarter, which is usually seasonally slow. What do you attribute the large number of seven-figure deals to in the quarter?

Yes, I don't think there's a single factor, Terry, that we can attribute the deals to. Obviously, great sales execution. We are proud of the innovation that we've put out into the marketplace over -- particularly over the last year or two. As we mentioned, four of the seven deals were driven by omnichannel initiatives. Now I would say I think very soon, we are going to be talking about these just being retail initiatives rather than calling them out as omnichannel.

But we are still seeing a good deal of legacy replacements out there in the marketplace as well. So, on one hand, I would love to tell you there was just one specific reason for the seven $1 million deals, but on the other hand, I think it's a combination of things.

But for my next -- so, okay, I understand that. But, Eddie, from the standpoint of last year, you all signed 15 $1 million deals, and so there was already seven in the first quarter. Was there anything you can say -- and I know you don't want to get into too much details quarter-to-quarter and what slips and what doesn't slip, but was any of the activity in first-quarter transactions that may have otherwise happened in the fourth quarter?

You know, it's always hard to tell, Terry. I mean, we are not entirely in the minds of our customers and what their thinking is around calendar year movement and so forth. I mean, the one piece of commentary that I would make, is that we do know that most, if not all, retail fiscal end-of-year finish up late February. So, given that we had a number of deals in retail, sometimes we do see them move out of our Q4 but still remain in the Q4 of our retail customers. So, for them, it doesn't feel like slippage; sometimes for us it does.

Okay. Okay. And on the order management side, it's always interesting to watch what's going on with the progress in that business. What about in the install base? Because you have a lot of WMS customers and other supply chain execution customers. What is it like? Is there any kind of low-hanging fruit you're seeing going into the install base, and getting them to understand omnichannel, if they don't already? And indeed, more easily sell this product as an add-on? Or is it not that simple?

I think -- let's see. So, there's not low-hanging fruit, per se, number one. Number two, the education process, I think the market and the industry is pretty well-educated at this point. But I do have to say that, as we've talked about before, these programs are strategic, and certainly take some momentum to get them moving.

So the sales cycles are not swift, particularly, by any stretch of the imagination. And whenever we are involved in a strategic omnichannel initiative, we are generally speaking up against pretty tough competition. So, I couldn't characterize any of them, unfortunately, as low-hanging fruit opportunities.

Terry, this is Dennis. I'd also add, that's how we started and really gained market traction in this business is, is selling into our installed base to really build customer reference-ability with some marquee installed accounts.

Got it. Thanks, Dennis. I guess my third question is on the POS and clienteling side, I wouldn't expected to hear much yet about that. Because, I mean, those are still newer areas for you all. So I guess, given that they were part of the transactions in the first quarter, is that further along than you expected? And what are you seeing in terms of how much sales activity we could see out of those newer areas for you all in 2015?

Yes. So, we are very pleased with the early activity. We have been working hard, obviously, to integrate the solutions and get them onto kind of our common technology stack. So we are pleased with the progress that we've made. We are pleased with the acceptance and the validation that we are seeing in the marketplace.

I do think that we will see some more activity in 2015. But, generally speaking, I think as we see the pipeline building in 2015, I do think this is more of a 2016 play, frankly, and onward, Terry, versus seeing a marked impact in 2015.

Okay. And my last question is just -- Dennis, for you, in terms of -- I get asked the question a lot about what's left in the tank in terms of margin expansion. If we think out three to five years -- and I'm not trying to pin you down to an operating margin target -- but is there much expansion in gross margin? Or would you expect it to be more from OpEx items?

Thanks again. And nice job on the quarter.

Terry, I expect to get it up and down the P&L. So, yes, I think there's opportunity on the gross margin as well as OpEx -- and pricing leverage as well.

Thanks, guys.

Very good. Thank you, Terry.

(Operator Instructions). Mark Schappel, Benchmark.

Good evening, and nice job on the quarter, very nice job. And Dennis, starting with you, I was wondering if you just repeat the impact of currency in the quarter (multiple speakers) -- on both revenue and EPS?

Yes. It's basically 3 percentage points on the top line is about $3.5 million, Mark, $2.9 million out of Europe, $0.5 million out of APAC, mainly Australia.

That's positive?

It was negative. Negative impact. Okay? And then about 4 percentage points on EPS. Negative. So --

So, thanks. And then cash flow from operations was down. Kind of surprising in such a strong quarter. Was that just mostly a timing of receivables issue?

No, it was just timing. We had a very -- with a record 2014 year, the annual bonus payouts came in Q1, so incrementally, they are a little higher year-over-year, but we will make that up. We will make -- we had a very strong quarter in terms of cash collections, et cetera.

Okay. That's fair. And then, Eddie, last quarter I believe you noted that one of your R&D priorities was cloud enablement of your existing solutions. I was wondering if you'd just expand a little bit on that?

Yes. Well, so we continue to be driven by the market and our customers, Mark, and what they are looking for. But certainly, the ability to be able to leverage the modern cloud technologies, particularly as we implement multiple products for our customers, and being able to benefit from the elasticity the cloud technology provides, is a very important aspect in helping us drive down hardware infrastructure costs and so forth for our customers.

So -- but, of course, in order to be able to do that, our applications have to be kind of core cloud-ready. So we are, I think, making excellent progress in that regard.

With regard to the economic side of kind of cloud and subscription-based models and so forth, we are not being driven there by our customers. As you know, we focus mostly on Tier 1 and Tier 2. And most of those organizations want to own the software outright. You know, subscription models don't fit particularly well into Tier 1.

Okay, great. And then staying on the R&D theme, I also believe focusing on your retail store platforms or solutions was also going to be a priority this year. And again, if you could just drill down a little bit on that for us --?

Yes, yes. So we continue to make great progress. Four of the large deals that we closed in the quarter were omnichannel, retail-related. So we are very pleased with that progress; continues to frankly require significant investment to keep up with the changes and the rapid omnichannel expansion plans that our customers and prospects have.

I think we are making terrific progress in integrating our mobile point-of-sale clienteling and tablet retailing applications into the retail platform. And then, finally, this expansion into the retail store, bringing our execution systems into the store, continues to go well. I think we've talked about the stat before. We either have live, or in implementation, about 15,000 retail stores now. So, that count continues to grow pretty substantially. And we continue to be excited and focused in those areas.

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

Sure. Thank you, Mark.

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

Okay. Well, thank you, Mike. We appreciate it. And thank you, everybody, for joining us on our Q1 call here. Again, we are pleased with our start to 2015. And we'll look forward to talking to you in about 90 days from now, and giving you an update on Q2 and first-half 2015 results. Thank you.

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