Manhattan Associates Inc (MANH) 2015 Q3 法說會逐字稿

Good afternoon. My name is Kelly, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates third-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, ladies and gentlemen, this call is being recorded today, Tuesday, October 20, 2015. I would now like to introduce Dennis Story of Manhattan Associates. Mr. Story, you may begin your conference.

Thank you, Kelly, and good afternoon, everyone. Welcome to Manhattan Associates 2015 third-quarter earnings call. I will review our cautionary language and 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 was ultimate differ materially from projections contained in our forward-looking statements. I refer you to the reports Manhattan Associates filed with the SEC for important factors that could cause actual results to differ materially from those in our projections, particularly on our annual report on Form 10-K for FY14 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 the reconciliation schedules in our 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 continue to be quite pleased with our financial performance and very encouraged by our near- and long-term growth prospects. We continue to experience solid demand from our customers and prospects investing in omni-channel commerce enablement, including supply chain, retail store operations, and point-of-sale. We are investing to be the leading retail commerce enablement technology innovator in an ever-changing retail market while focusing on our customer successes and leveraging the deep domain expertise, which is what's driving Manhattan's growth and strong financial performance.

We delivered record total revenue in Q3 of $142.3 million, increasing 13%, and record adjusted earnings per share of $0.42, increasing 31% over Q3 2014. Software license revenue totaled $19.1 million in the quarter, growing 13%. We closed four $1 million-plus license deals in the quarter, three with net new customers and one with an existing customer. Three of the large deals were in the US and one in South America.

Our large deal activity was driven by a pretty healthy mix of platform-based warehouse management solutions, transportation management, and omni-channel initiatives. In three of the four large deals, we were successful head-to-head against strong competition as sales teams continue to execute very well with our competitive win rates in head-to-head sales cycles against our major competitors running over 75% for the quarter. Overall for the quarter, 45% of our license revenue was from net new customers.

While we remain somewhat cautious regarding the global economy with a strong 2015 year-to-date performance, we are raising our earnings-per-share guidance for the year, and Dennis will cover those details in a moment. Our license pipeline is solid, services business demand is strong, customer satisfaction is good, and we continue to be the leading innovator in core supply chain, retail store operations, and point-of-sale commerce solutions. I'll provide some more color in my business update following Dennis' review of the financial results. Dennis.

Thanks, Eddie. I'll review our financial performance, our 2015 full-year guidance, and I'll finish with some initial comments on 2016. So, Manhattan continues to deliver strong organic top-line growth in quality earnings. We posted total revenue of $142.3 million, increasing 13% over 2014. Adjusting for currency headwinds, total revenue grew 16% organic. By region, Americas grew 16%, EMEA grew 18%, and APAC was down 33% compared to Q3 last year. Overall demand for solutions continues to be quite solid.

Adjusted earnings per share for the quarter, as Eddie said, was a record $0.42, increasing 31% over prior year on solid revenue growth. Continued expense management and our buy-back program also contributed. Our GAAP diluted earnings per share was a record $0.38, increasing 27% over Q3 2014. A detailed reconciliation of GAAP to non-GAAP adjustments is included in our earnings released today. The remainder of my P&L discussion represents our adjusted results.

License revenue for the quarter totaled $19.1 million, up 13% over the prior year. License revenue exceeded our Q3 forecast as we manage to close a couple midsize deals originally expected to close in Q4 as part of our previous revenue guidance. From a regional perspective, Americas posted license revenue of $17 million, EMEA $1.3 million, and APAC $800,000. EMEA and APAC license performance was impacted by the usual Q3 summer holiday seasonality and regional macroeconomic weakness. As always, our license performance depends heavily on the number and relative value of large deals we close in any quarter. With the strength of Q3 license and a sluggish global macro, we are sticking with the full-year 2015 license growth goal of 9%, which should result in about $78 million of total license revenue for the year.

Shifting to services, customer demand remains solid. Q3 services revenue totaled $112.5 million, increasing 14% year-over-year. As you know, our services revenue is comprised of two revenue streams consulting in maintenance. Our consulting revenue for the quarter totaled $81 million, growing 17% over Q3 last year.

As a reminder, with Q4 holiday seasonality in many of our retail clients idling back implementations in preparation for peak season, we expect Q4 services revenue to be down sequentially from Q3 by about 3% to 5%. Year-over-year we have grown our services practice by about 140 associates, up 8%. We continue to actively recruit and hire additional associates to support demand and focus on customer satisfaction. For Q4, we are targeting about 100 hires globally and another 150 hires-plus primarily in the first half of 2016, which are predominantly services personnel.

So, maintenance revenue for the quarter totaled $31.6 million, increasing 8% over last year on license revenue performance. Retention rates continue to remain very strong at 90%-plus. While there were no major impacts this quarter, as a reminder we recognize annual maintenance revenue renewals on a cash basis, so the timing of cash collections can cause inter period lumpiness from quarter to quarter.

Consolidated services margins were 59% in the quarter on strong revenue growth and great productivity. We expect services margins to rationalize though with new hire activity while we optimize the balance of customer satisfaction with margin expansion objectives. It's not perfect science, but first and foremost, we need to maintain customer satisfaction while delivering steady year-over-year earnings leverage.

For the year, our 2015 services margins will be in the 57.3% to 57.5% range consistent with historical performance. Q4 services margins will decline sequentially over Q3, principally driven by the retail busy season that I spoke of while absorbing our second half new hire activity. All in, we expect Q4 services margins to land in the 56.3% to 56.9% range.

Now turning to operating income and margins. Q3 adjusted operating income totaled a record $49.1 million with operating margin of 34.5% compared to 30.1% in Q3 2014. Overall, the earnings leverage in Q3 was driven by record revenues with strong services revenue margins, operating expense leverage, and about 50 bps of currency tailwind on the operating margin line. Year-to-date, excluding currency, our adjusted operating margin is 31.8% versus reported 32.1%.

While early, you're catching a glimpse of our operating margin expansion potential over the long term. In the near term, we certainly don't expect this to be our go forward baseline as we dial up 2016 investment in talent and innovation to drive long-term growth. After all, putting the whole shot on strong competition and winning consistently requires investing in great talent and great products. So, for 2015 our goal is to achieve an operating margin in the range of 31.1% to 31.2%, representing a 340 to 350 basis point expansion over 2014. At the midpoint, this would peg 2015 full-year adjusted operating income at about $173 million with year-over-year organic growth of 27%. As a reminder, Q4 operating margin is sequentially lower, driven by the traditional retail busy season. So that covers the operating results.

Regarding taxes, our adjusted effective income tax rate was 37.1% for the quarter. Our underlying effective rate remained at 37.6%, but we recorded a positive $264,000 adjustment in the quarter due primarily to our final 2014 taxes being favorable to our prior estimates. We expect our full-year 2015 effective rate to be about 37.4% with Q4 to remain at 37.6%. Our 2015 higher effective tax rate is due primarily to higher state income tax expense and expiration of the US R&D tax credit effective January 1, 2015.

Transitioning to diluted shares. For the quarter, diluted shares totaled 73.8 million shares, down from Q2 2015 shares of 74.1 million. We continue to put excess cash to work investing $25 million to repurchase about 400,000 shares of Manhattan common stock in the quarter. Year to date, we both invested $76.5 million from operating cash flow, reducing common shares outstanding of 1.3 million shares. For the balance of 2015, we estimate Q4 diluted shares to be about 73.8 million and the full-year weighted average diluted shares to be 74.1 million. Our estimate does not assume additional common stock repurchases. And finally on shares, last week our Board approved raising our share repurchase authority limit to a total of $50 million.

Now turning to cash flow. Guess what, another record. For the quarter, cash flow from operations totaled $41.3 million, bringing year-to-date cash flow from operations to $84 million compared to $53.7 million last year. Our DSOs were 60 days compared to 54 days in Q2 2015 on record revenue growth. Capital expenditures were $3.9 million in Q3, and we now estimate full-year 2015 CapEx to be about $11 million to $12 million. Our balance sheet continues to support long-term strategic flexibility and stability with cash and investments totaling $119 million and zero debt at September 30, 2015, compared to $108 million at June 30, 2015. So that covers my Q3 remarks.

Let's move on to updated 2015 guidance and some early comments on 2016. For 2015, adjusted earnings per-share with our better-than-expected Q3 EPS performance, we are raising our guidance estimate to $1.47 to $1.49 from our previous range of $1.40 to $1.42. The new range represents 27% to 28% growth over 2014. For Q4, we expect earnings per share to be lower than Q3 given the combined impact of seasonally lower Q4 services revenue due to retail busy season and, as I mentioned, new hire activity.

Full-year GAAP EPS guidance estimates also increased to $1.34 to $1.36 from our previous estimate of $1.29 to $1.31, representing 24% to 26% growth over 2014. For reference, a guidance table is provided in today's earnings release. For 2015 revenue, we are maintaining our full-year revenue range estimate from $553 million to $558 million, representing 12% to 13% growth. That's 15% to 16% in constant currency, again all organic. Also, with Q4 retail holiday season we expect Q4 total revenue to come in similar to our Q2 2015 results.

In summary, achieving the midpoint of our 2015 guidance, we will deliver another record year in total revenue, operating profit, and earnings per share achieving an organic growth profile for total revenue of about 13% and adjusted earnings per share of about 28% over 2014. That covers 2015. Shifting focus to 2016.

Very similar to prior years, we're just starting our 2016 budget cycle, but here are a few early comments for adjusted EPS modeling purposes. Overall, we expect the competitive landscape to be about the same, which is aggressive, and remain cautious on the global macro environment. That said, we continue to be committed to driving shareholder return through steady revenue growth, consistent earnings growth, and efficient management of our capital structure. With our growth strategy and competitive position, we are positive on our outlook and still believe there is solid opportunity to take market share and drive potential earnings leverage.

For revenue, consistent with prior years, we plan to grow total revenue at about 1.5 times the forecasted market growth rate, which is expected to be around 5% to 7% for 2016. Year-over-year growth of about 9% to 10% total revenue growth. This is currently estimate with Street estimates which we will fine tune is needed on our Q4 earnings call.

Adjusted operating margins. We are targeting operating margin expansion of about 75 basis points over 2015 net of incremental strategic investments in R&D and marketing initiatives to drive further competitive differentiation, growth, and market awareness. Any potential upside will be addressed on a quarter to quarter basis going forward. For effective tax rate, our best estimate is 37.5%, subject to US federal, state, and foreign tax legislation changes. And for diluted shares, we are currently projecting about 73.9 million shares per quarter, which assumes no buyback activity in Q4 2015 or of the full year 2016.

So that covers 2016. That covers my financial update. Now I'll turn the call back to Eddie.

Thanks, Dennis. With that strong Q3 and year-to-date performance, we continue to execute well despite a pretty lingering and sluggish global economy, particularly in Europe and Asia. Digital commerce and technology modernization programs continue to drive significant long-term growth opportunities for Manhattan Associates. We've been quite active in 2015, investing and growing our business. Delivering new innovations such as the development and market launch of a fully integrated omni-channel point-of-sale and clientele solution driving market awareness for a retail store and point-of-sale capabilities, and working hard to earn greater market share.

As we prepare to enter 2016, we do expect to step up our investment in innovation and market awareness campaigns, positioning Manhattan Associates for the next wave of retail multi channel selling entering into 2017. Now, as I discussed at the beginning of the call, we recognized four large deals in the quarter, three in retail and one in wholesale pharmaceutical. All deals were driven by strategic technology modernization programs with a combination of supply chain and omni-channel initiatives. In Q3, our license fee mix was weighted about 70%/30% split between our warehouse management and our other solutions, with a meaningful portion of both WMS and non-WMS licenses services revenue activity.

The retail, food and beverage, and third-party logistics verticals were our strongest licensed contributors, making up more than half of Q3 license revenue. Q3 software license wins with new customers that have permitted us any way to share their names, include Citizen Watch, FreshDirect, ID Logistics, JM Family Enterprises, L.L. Bean, Lojas Riachuelo, Parlogis, and Santens Service.

Q3 expanding relationships with existing customers included Alliance Healthcare, Banaja Holdings, Beger, Belk, Brooks Brothers, Coach, DCG Fulfillment, Dentsply International, Eram, Harris Teeter, Hastings Deering, Integracolor, Jasco, MatahariMall.com, Ozburn-Hessey Logistics, My Chemist, New Balance Athletic, Office Depot Mexico, Petrovich, PurCotton, Richline Group, Simplehuman, Sportsman's Guide, Southern Wines and Spirits of America, Stella & Dot, The Hillman Group, Tuesday Morning, United Natural Foods, Wineworks, Winning Appliances, and Woodcraft Supply.

As you can imagine, our professional services business around the world have been performing very well, posting record revenue results with Q3 revenue up 17%, and they continue to receive high marks for customer satisfaction. Our global services team has been very busy with core supply chain and retail omni-channel supply chain commerce enabling initiatives. We've had 83 system go-lives in Q3. Demand in visibility continues to be quite strong as we added more than 60 associates to our global team in Q3 and plans for Q4 2015 call for adding about 100 more associates.

In Q3, we saw an uptick in installations of our version 2015 demand forecasting and inventory optimization solutions with several new installations as well as notable long-time key customers [Mike Grading] to the latest release. And our focus on delivering the industry's most advanced forecasting and replenishment math and science is being very well received by the market.

Across retail and wholesale markets our innovative solutions are handling the most complex multi-tiered and multi-channel inventory environments are generating significant returns on inventory for our customers. In particular, some of our recent developments focused on enhanced forecasting of seasonally intermittent skews has yielding significant inventory improvements for this traditionally very difficult inventory segment. We know the 2015 installation is underway both domestically and internationally, we are encouraged by the progress we're making in this key part of the Manhattan solution suite.

In the quarter, we also executed a seamless migration of our customers to the version 2015 of our multi-tenant cloud-based transportation management system, and while the upgrade itself was clearly completely transparent to our customers from an IT perspective, our transportation partners were able to access many key advancements that were included within this version. Specifically, improvements to our next-generation transportation modeling solutions that are enabling our customers to develop optimal transportation strategies to mitigate the impact of changes to shipping rates as well as the dramatic shift in demand normally experienced here in the upcoming holiday season.

Our cloud solution offerings are a key imperative for Manhattan, and our commitment to rapidly delivering the latest product innovations aligned with our customers' demand reflects that focus. The industry continues to respond positively to our 2015 product release for core distribution management solutions as well. Our investments in WMS mobile innovation, known as DM Mobile, continues to receive excellent reviews from prospects and customers alike.

The ability to gain both insight as well as troubleshoot distribution center issues using an iPad or other such tablet is a game changer for distribution center managers. Our blend of labor management capabilities, including engineered standards and incentive-based pay with more traditional WMS capabilities within a single mobile application, is a first of a kind. A number of customers are augmenting or accelerating their upgrade plans so as to take advantage of these market-leading mobile capabilities.

Finally, we continue to our journey to be the industry's only tier one provider of an omni-channel operations platform consisting of enterprise inventory availability, order management, customer service, point-of-sale, clienteling, and in-store personalization. Simply put, if one of your associates is serving a customer anywhere in your retail enterprise, we think that they should be able to use a single operating platform to do so, and we think that we have that platform.

We continue to work with leading and ambitious customers as we invest heavily to build capabilities that are best-in-class for both call center and store associates. We believe that providing great service to end customers both in-store and in the call center is a vital component of omni-channel commerce. We are committed to providing the software capabilities that our customers need to deliver great customer -- great experiences for their customers.

Clearly, the core of this success continues to be our investment and innovation. Year-to-date, we've invested $40 million in research and development, up 13% over 2014 with over 670 people dedicated to research and development, and were looking to increase our innovation investment capacity with strategic hires. Our supply chain process platform based suite solutions, including our omni-channel and point-of-sale solutions, distinguishes us from all of our competitors.

Industry analysts continue to recognize our market-leading solutions, driven by our investment innovation. In the quarter, we were ranked as the global leading supplier of total WMS software and services in the ARC Advisory Groups Warehouse Management Systems Global Market Research Study. Published annually, the ARC Study follows more than 40 suppliers of WMS and provides a detailed analysis and forecast for the marketplace all the way through 2019. In addition to its global market share leader position, we at Manhattan Associates also took the top spot for WMS and Asia-Pacific and North America. This marks the tenth year that we've been positioned as a leader in this prestigious report.

So turning for a moment to our global associates. We ended Q3 with about 2,905 employees around the world, up 6% over prior year Q3, about 85% of our head count growth is in professional services on strong demand to support the top line growth and customer satisfaction. We finished the quarter with 64 people in sales and sales management with 58 quota-carrying sales reps, that's down 2 from last quarter.

Let me close my prepared remarks with a brief summary. We're very pleased with our continued momentum and performance in 2015, and while global macro conditions continue to give us some reason to be cautious, on the other hand we're very optimistic about the future and remain focused on our customers and getting them commerce ready. Retail commerce and supply chain complexity and ad target markets continues to increase driven by digitalization and e-commerce which are fueling multi-year investment cycles for customers and Manhattan Associates alike.

Our relative competitive position continues to be strong and improving as we continue to invest in innovation to extend our addressable market, our market leadership, and our differentiation with the world's most talented supply chain employees, the best software solutions, and great market momentum, we believe that we're very well positioned for the balance of 2015 into 2016 and well beyond. So, with that, Kelly, we'd now be very happy to take questions.

(Operator Instructions)

Terry Tillman of Raymond James. Your line is open.

Hello. Can you hear me okay?

We can, Terry, yes.

First, congratulations on the 35% operating margin. Nice job on that.

Thank you.

My first questions just relates to, in terms of Asia Pac and Europe, it sounds like maybe conditions have worsened a bit, and just correct me if I'm wrong with the assumption, but that's what I'm operating under. But you're maintaining the full-year rev guide. Is there something to be said about improved visibility in the US business, or just more late-stage pipeline you're working with or some sort of share shift assumptions? I'd like a little bit of color on that.

Nothing too dramatic there, Terry. As you know, about 80% of our revenue does come from the Americas, so when we see a little bit of softening in both EMEA and APAC markets, the impact is not quite as significant. We did see a little softening again in Q3 of APAC and EMEA. As Dennis mentioned, it does tend to be some seasonal softness in both of those markets, particularly in Europe, the holiday season there brings a level of quietness that we don't see necessarily hear here in the US. Once we think we can certainly deliver on Q4 expectations, we don't see those shifts as being particularly volatile nor particularly concerning.

Okay. And in terms of the net new customer business, if I wasn't mistaken did you all say it was 45% of software mix or 40%?

45%, yes.

I don't remember it being that high for a long time. And I know it's a shift around each quarter, maybe depending on, and maybe it has something to do with three of the four large new deals were new customers. I actually would like some color on that, because it does seem even if it the focus on the large deals, to see so much of it exposed to net new customers. How do we think about that? Is that something you see more in the pipeline as well, more of a shift to new business with new customers versus the good thing?

Well, let me take it first and then Eddie can augment, Terry. Just from a perspective, we've been selling to tier one and tier two for a long time with WMS in and of itself some of the largest global retailers. So there is account penetration opportunity there. Not just looking at Q3, but if you look at year-to-date, 50% of our $1 million-plus deals have been net new global brands.

I've been talking about this for a long time, or actually since 2010. If you look back, we've been compounding global brands that throw off a lot of revenue multiple to license with services, maintenance, et cetera, and just a cumulative impact of that. We've benefited from a top-line growth point of you. So I don't think there's a unique phenomena here. It can be lumpy from quarter to quarter. It certainly was influenced by three of the $4 million plus deals that we signed in this quarter were new customers, but if you look at the 15 that we signed year to date, half of those are net new brands.

Okay. My last question, gentlemen, just relates to, I think, Eddie, you had earlier talked about retail store and point-of-sale, just briefly touched on it. I'm curious, either in the third quarter, or maybe in the current quarter, or maybe in the next 6 to 12 months, give us a report card or an update on the retail store initiatives and point-of-sale initiatives. Thank you.

So the retail store initiatives, both from a product development and a deployment in the field perspective, are both very strong. So we are making very good progress there, and when we talk about the omni-channel solutions that we are selling and being deployed out in the field, very, very frequently they include store execution systems. With regard to point-of-sale, as you know we are developing the next generation of strategic selling platform and point-of-sale. We are in the very, very early innings of that game for us.

We have a couple of early adopter clients that we are busily deploying out in the field, but I think as I've noted before and I think mentioned to you, we really see that business starting to reap benefits for us in 2017. The pipeline and the conversations around those solutions are active, but I think we are still three or four quarters away from seeing those being real contributors to the revenue stream. We'll continue to keep you updated, obviously, on a quarterly basis.

Sounds good. Thank you.

Certainly. Thank you, Terry.

Mark Schappel from Benchmark.

Hi. Good evening. Nice job on the quarter.

Eddie, starting with you in your prepared remarks. I believe you mentioned that next year you plan on increasing your marketing activities. I was wondering if you can you just talk a little bit more about some things you have in mind on that front?

Yes. Nothing out of the ordinary particularly, Mark, but we do frankly suffer from a little bit of a blessing and a curse going on. We are very, very well known for our core solutions, WMS, TMS, and inventory optimization, but as we move and expand our portfolio and expand our footprint, particularly the point-of-sale clienteling and so forth, we feel like it is very important that we don't have, frankly, the best kept secrets on the planet.

And we invest some specific marketing funds in driving awareness around those particular solutions. You'll see us certainly doing some pretty big launches and putting some strong messaging out beginning in Q4, flowing into NRF in January, and continuing on through 2016.

So it sounds like it's more of a global branding initiative that you'll be embarking upon.

Yes, I think it's fair to say.

Great. Moving on a little bit, Eddie. With respect to your cloud business and the impact that you're seeing of the cloud on your business, from your prepared remarks I gather that your cloud initiatives are currently focused a little bit more on the transportation side of your operations rather than warehousing side. Maybe you could just let me know if I'm reading this correctly.

Yes. I mean, that's true. That's where the market demand for cloud solution tends to be, Mark. We're making very good progress adding customers to that environment and making some great progress on the innovation side, as well. Your read is correct. As they say, that is where we are seeing most of the market momentum and market demand versus in the WMS space.

Okay, great. Don't want to leave Dennis out here. APAC was, if I recall, down about 33% year-over-year. Granted, that's as much smaller part of your business. Dennis, maybe could you just remind us was there something last year at this point in time that maybe drove an outsized quarter that caused that 33% downtick, or are you just seeing a little bit of hesitation over there?

No, I think it's just the macro, particularly China. China is weak right now, but it's a small business for us, Mark. It doesn't take -- the percentages are a bit overinflated when you roll out a 33% decline off a pretty small base, the cup -- we're just having a tough market in China this past quarter and past few quarters.

Okay, great. That's all for me. Thanks.

Thank you, Mark.

[Matt Bow] from William Blair.

Hey, guys. Thanks for taking my questions.

First one, I wanted to follow-up on Terry's comment on the POS system. I wanted to get -- if I read your comments correctly, it seemed like there were not many expectations built in for the POS system in the initial 2016 guidance that you gave.

That is, certainly, accurate, Matt. Yes.

Okay, great. And then I wanted to hit on the long-term margins of the business and where you -- if you could give us some clarity on where you see those potentially going and what the biggest remaining levers are in terms of that margin expansion. And then also along those lines, Dennis, maybe if you could clarify for us a little bit with your comments on the 70 basis points margin expansion, 16 net of incremental strategic investments, a bit of clarity around that.

Yes. So on the 16, the 75 basis points of expansion, Matt, if you go back and look at the past four or five years we're very conservative in talking about the next out year in the third quarter, and we tighten that up obviously because where entering our budget cycle. The point is we are putting up 340 BPS of growth year-over-year from a margin expansion point of view and have been growing at a pretty tall clip for the last four to five years, and we're taking an opportunity to plow, as we talked about, some strategic investment back into our R&D, as well as marketing. So the 75 includes funding those objectives, as well.

From a long-term margin expansion point of view, we're out of the business of giving three- to five-year guesstimates. Your crystal ball is as good as mine. We look to under promise, over deliver. My statements of steady revenue growth and consistent earnings expansion, that's our objective. We'll come back in Q4 and will go from there. So at this stage right now we're looking at 2016, 75 basis points of expansion with some strategic investment in R&D, as well as marketing.

Got it. And when you talk about the large deals that you have been signing with some of these new customers, maybe some detail on what's been driving those? Have these been typically replacements of competing solutions?

A little bit of a mix in there, Matt. Some -- four of them for this particular quarter, so another time, but even if you look back over the last couple three quarters at the big deals you'll see really three basic categories. One is the replacement of competitor solutions, another is a replacement of older legacy systems, and then the third is really new innovative transformation solutions around omni-channel. And in this particular quarter across the deals you see a blend of all three of those.

Got it. If I look at the -- I think you mentioned one of the large deals was in South America, if I heard you correctly, and I know you also find a partnership in Brazil this quarter, as well. So maybe if you can give us some details on what you're seeing in that geography and what your expectations are.

Yes, yes. Well, you can glue a couple of pieces of information together from the new customers that we won and big deal in Latin America and so forth, and you could probably derive that deal might have well been in Brazil when we did sign a new partner there, so we're excited about the opportunities in Brazil. Now, the FX situation is not exactly making it the easiest place in the world to do business at this particular moment, but the growth of retailing and sophisticated retailing there in Brazil, number one, and the number two, the relatively aggressive expansion of multinational big brands into that region is also a great opportunity and exciting for us.

Hey, Matt, I left off. Let me come back. You asked about operating margin lever. There's a number of margin levers in the business: pricing leverage, the emerging and international market growth. We've got a lot of runway there potentially. The expansion just in revenue growth into the new addressable market with our omni-channel retail point-of-sale solutions, leverage on our operating expense profile and R&D, we will continue to drive that. We had great leverage this quarter. If we could've hired another 100 service people in the quarter it might've been a little bit different margin profile, but still plenty of opportunity on the services, as well.

Got it. That's all for me. Thanks.

Thanks a ton, Matt. Appreciate it.

Yun Kim from Lake Street Capital.

Thank you. Hello, Eddie and Dennis. It's been a while and congratulations on continued success. Alright, so following up on a margin guidance for 2016. Obviously, the new point-of-sale system and the other opportunities emerging, I completely understand the need to make investments, but do you have a policy or goal not to overinvest to a point where you are showing potentially year-over-year declining margins? Just want to better understand your thinking regarding the level of investments next year. I do understand the 75 basis point improvement, but you left it open ended in terms of could be a little bit lower than that. Thanks.

Yes. Steady revenue growth and consistent earnings growth, which means consistent margin expansion, Yun. We have a very long track record of being fiscally disciplined, so that's 75 BPS. That includes the incremental investments that we are talking about in innovation and marketing. I'd be disappointed if we don't do 75 BPS at a minimum.

Okay, great. Thank you for the clarification, because you sounded like maybe it could be a little bit less depending on the level of investments. And then the next question is, obviously, the omni-channel initiatives is moving way beyond the simple distribution order management, and obviously the scope of these initiatives are getting larger. Do you see more interest among large system integrators to try to get more involved in the space and obviously you had an opportunity there in Brazil, seems like one large deployment there. From your perspective, when you expand your product footprint to include point-of-sale systems and retail systems and what not, are you actively seeking out maybe closer partnership with larger system integrators?

So, we are certainly seeing active interest from both the large third-party integrators and the specialist, boutique as they are known, system integrators both here and internationally. We are always interested in new and meaningful and fruitful partnerships. I wouldn't say that were particularly seeking out brand-new relationships.

We have a terrific partner network as it exists today. We call it our Manhattan Valued Partner Network. We have a 40 certified partners in that network, again ranging from frankly the big system integrators, the big domestic system integrators, the big offshore system integrators, and those specialist guys. We feel like we've got a very well-rounded but a very Manhattan-specific set of third-party integrators.

Okay, great. Lastly, Eddie, you mentioned there were three large deals that were competitive wins. Has the competition around those large deals changed over the past year? Are they the usual same suspects, or are you seeing other people coming in and partnering with others? And also are you actually seeing the deal side and deployment side of these large deals increasing?

Let's see, so a couple questions there. I would say that the competitive landscape over the last 12 months has remained pretty consistent in terms of who we are competing with. In terms of the magnitude and size of a large deals, as you know we categorize a large deal as $1 million or greater in license fees and we're very disciplined about that.

Frankly, we will occasionally sign the deal for $990,000 and of course that's not a $1 million deal. By the same token, we can sign a deal that is quite a bit more than $1 million and still categorize it as just a large deal. As far as are the large deals larger, not particularly and not by our categorization which also infers, I'm sure that is where you're going, given the license revenue growth, that we've had a very nice and very substantial kind of sweet spot license deal set of transactions.

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

Thank you, Yun. Appreciate it and welcome back.

And there are no further questions at this time.

Okay, terrific. Thank you, Kelly, and thank you, everybody, for listening into the call and asking questions today. We always appreciate your support and will look forward to reporting on Q4 and our full-year 2015 results in about 90 days from now. Good afternoon.

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