Manhattan Associates Inc (MANH) 2016 Q1 法說會逐字稿

Good afternoon. My name is Skinner and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates first quarter 2016 earnings conference call.

(Operator Instructions)

As a reminder, ladies and gentlemen, this call is being recorded today, Tuesday, April 19, 2016. I would now like to introduce Dennis Story, CFO of Manhattan Associates. Mr. Story, you may begin your conference.

Thanks, Skinner and good afternoon, everyone. Welcome to Manhattan Associates 2016 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 FY15 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 and you can find a reconciliation schedule in 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 great start in 2016, posting record results that customers and prospects continue to invest in core supply chain and omni-channel commerce initiatives. Our competitive position in the marketplace continues to be strong, and customer satisfaction is solid across the globe.

We delivered a record total revenue in Q1 of $149.9 million, increasing 12%. And record adjusted earnings per share of $0.42, increasing 24% over Q1 2015. Software license revenue for the quarter was $20.6 million, up 7%.

We closed three $1 million-plus license deals in the quarter, two with existing customers, and one with a net new customer. Two of the large deals were in the US and one in Latin America. All three of the deals were led by omni-channel transformation initiatives and in one of the large -- three large deals, we were successful head-to-head against very strong competition.

Clearly, our sales teams are executing very well and our competitive win rates in head-to-head sales cycles against our major competitors remain strong, with over 75% for the quarter. Overall for the quarter, 50% of our license revenue was from net new customers, adding new, large, global brands to our customer portfolio.

Our success is driven by the focus we apply to delivering innovation in an ever-changing commerce market, focusing on our customers' success and leveraging our deep domain expertise. While we remain cautious regarding the global economic growth risks, with a strong start to 2016, we're raising both our revenue and earnings per share guidance for the year.

Dennis will share the specifics with you in a moment. 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. And I'm going to look forward to providing more color in my business update following Dennis' review of our financial results and our revised guidance details.

Thanks, Eddie. I'll cover our Q1 2016 results and then review our updated 2016 full-year guidance.

We posted Q1 total revenue of $149.9 million, representing organic growth of 12%. Excluding FX impact, total revenue grew 13%. For the quarter, Americas grew total revenue 17%; EMEA was down 14% on weak license performance; and APAC was up 2%. Adjusted earnings per share for the quarter was $0.42, up 24% over prior year and our GAAP diluted earnings per share was $0.38, increasing 23%. 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 $20.6 million.

From a regional perspective, Americas posted license revenue of $19 million; EMEA, $0.7 million; and APAC, $0.8 million. Consistent with previous quarter 's comments our license performance depends heavily on the number and relative value of large deals we close in any quarter. Consistent with last quarter, we continue to target a license growth goal of 6% to 8% for the remainder of 2016.

Shifting to services, demand continues to be solid. Q1 services revenue totaled $116.3 million, increasing 15% over prior year. Our services revenue is comprised of two revenue streams: consulting and maintenance. Consulting revenue for the quarter totaled a record $84.5 million, growing 16% over Q1 2015. With solid visibility into our global services demand, we hired 135 consulting associates in Q1 and continue to focus on hiring additional resources to meet our customers' needs. Maintenance revenue for the quarter totaled $31.8 million increasing 11% over last year. Strong cash collections, license revenue growth, and retention rates of 90%-plus contributed to year-over-year growth. And 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, which Q1's growth was positively impacted by cash collection timing.

Consolidated services margins for the quarter were 56.5%, benefiting from solid productivity while absorbing Q4 2015 and Q1 2016 new hires. We expect Q2 2016 services margins will likely be in the range of 57.6% to 57.8%, and our full-year 2016 services margins to normalize into the 57.5% to 57.7% range.

Turning to operating income margins, Q1 adjusted operating income totaled a record $47.9 million, with operating margin of 32%, up from 30% in Q1 2015. Our operating leverage is driven by solid organic revenue growth, workforce productivity, and a strong expense discipline. With the solid Q1 results, we are expanding our goal for 2016 full-year operating margin expansion over 2015 to a range of 75 to 100 basis points, providing for an additional 25 basis point upside as we continue to incrementally invest in innovation, marketing awareness programs and infrastructure in 2016. We are targeting a Q2 2016 operating margin range of 32.5%, or 32.5% to 32.8%, representing an 80 to 110 basis point increase over Q2 2015.

We expect second half 2016 operating margin to come in at 32.7% to 32.8% versus 32.5% in 2015. The second-half quarterly splits should be adjusted for quarterly license seasonality and lower Q4 services revenue due to the traditional retail holiday season. So that covers the operating results.

Regarding taxes, our adjusted effective income tax rate was 37% for Q1 compared to 37.5% in Q1 last year. We continue to project a full-year effective tax rate of 37%. Recall that Congress approved a permanent extension of the R&D tax credit in December of 2015. Prior to the permanent extension, Congress routinely extended the R&D tax credit in Q4, creating a full-year catch-up in the fourth quarter versus recognizing the benefit quarterly throughout the year.

Diluted shares for the quarter totaled 73.0 million shares, down from Q4 2015 shares of 73.6 million. We repurchased about 890,000 shares of common stock in the quarter, totaling $48.5 million. We estimate Q2 through Q4 2016 diluted shares to be 72.7 million and the full-year weighted average diluted shares to be 72.950 million. This estimate does not assume additional common stock repurchases. 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 $40.4 million, up from Q1 2015's $15.2 million performance on strong global cash collections. DSOs improved to 51 days versus 63 days in Q4 2015, and capital expenditures were $1.9 million in the quarter, and we estimate full-year 2016 CapEx to be about $11 million to $13 million. Our balance sheet continues to support stability and long-term investment flexibility, with zero debt, and cash and investments totaling $115 million at March 31, 2016, compared to $129 million at the end of Q4 2015.

The net decrease was driven primarily by our share buyback program. So that kind of covers the two Q1 2016 results in a nutshell, the four pillars of financial strength: growth, profitability, cash flow and the balance sheet are rock solid for Manhattan Associates.

Now I'll update you on our 2016 guidance and then hand it back to Eddie for the business update. With a solid start to the year, we are raising our full-year 2016 total revenue and EPS guidance, with a measured pace given potential risks associated with the current global growth outlook. For revenue, we are raising our guidance for full-year total revenue from our original range of $609 million to $615 million to a new range of $615 million to $620 million, representing 10.5% to 11.5% growth over 2015 versus our previous guidance of 9.5% to 10.5%. Our total revenue guidance factors in a 1 to 2 percentage point decline from FX headwind.

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 4% to 5% from Q3 2016 to Q4 2016.

For adjusted diluted earnings per share, we are raising our guidance range $0.04 to $1.73 to $1.76 representing 14% to 16% growth over 2015 adjusted EPS of $1.52. Our previous guidance was 11% to 13% growth at $1.69 to $1.72. We expect our full-year EPS split to be the same as the total revenue, with a 49% to 51% split, first half to second half. For GAAP diluted earnings per share, we expect to deliver $1.58 to $1.61, representing 13% to 15% growth over GAAP, 2015 GAAP EPS of $1.40.

The difference between GAAP and non-GAAP adjusted EPS represents the impact of stock-based compensation. So that covers the financial results and the 2016 guidance.

Now I'll turn the call back to Eddie for the business update.

Thanks, Dennis. Well, as Dennis has mentioned, we're off to a very good start in 2016, despite a challenging global environment, particularly in Europe and in Asia. We continue to see solid progress in our core verticals, led by retail, with a meaningful portion of our WMS and non-WMS licenses and services revenue activity, driven by digital commerce and technology modernization programs.

Our competitive position continues to be quite strong, and we are aggressively investing in innovation and market awareness to take market share and to position Manhattan for the next wave of retail multi-channel selling entering 2017.

As I discussed at the beginning of the call, we recognized three large deals in the quarter, two in retail and one in food & beverage. All deals were driven by strategic supply chain modernization programs.

In Q1, our license fee mix was weighted at about 65%/35% between our warehouse management and other solutions. A meaningful portion of our WMS and non-WMS licenses and service revenue comes -- continues to be driven by existing and new customer omni-channel initiatives and legacy supply chain modernization.

The retail, consumer goods, and food & beverage 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 aCommerce, Amrod, Bedrosians Tile & Stone, Central Garden & Pet Company, Levi Strauss & Company, Tokyo Chemical Industry, and Van Marcke Group.

Q1 expanding relationships with existing customers included Ascena Retail Group, Batory Foods, Carhartt, Country Road Group, Express, Floor and Decor Outlets of America, Genesco, Hy-Vee, Itochu Logistics, Lululemon Athletica, Mercury Marine, Michael Kors Europe, Mothercare, REI, Sketchers USA, The Hillman Group, Under Armour, VF Services, Wineworks, and Winning Appliances.

Our professional services businesses around the world continues to perform very well, posting record revenue results with Q1 revenue up 16%, and they continue to receive high marks for customer satisfaction. Our global services team have been very busy with core supply chain and retail omni-channel supply chain commerce enablement initiatives, with more than 335 system go-lives over the past 12 months.

Demand and visibility continues to be quite strong, as we added 135 associates to our global team in Q1, and plans for the balance of 2016 call for adding about 200 more net new associates to meet the needs of our customers.

We continue to be the leading innovator in supply chain technology. For the quarter, we invested about $15 million in research and development with over 650 people dedicated to R&D. And at the core of our success is our strategy to be serial investors and forward-thinking innovation to expand our addressable market and deliver market-leading differentiated capabilities to our customers.

And as I mentioned previously, our 2016 plans call for increased R&D investment beyond our core supply chain solutions, developing the industry's leading multi-channel retail store platform, with point-of-sale and client-telling capabilities focused on the consumer. Our most recent 2016 product releases reinforce our commitment to providing best-in-class capability.

So let me take this opportunity to share a few highlights of our latest versions. I'll start with core supply chain applications like WMS and TMS. In Q1, we shipped the 2016 version of our market-leading Warehouse Management System. This release continued the three-year trend of doubling down on providing best-in-class capabilities for efficient fulfillment of omni-channel or direct-to-consumer orders.

Given our substantial WMS customer base, we've been afforded the opportunity to collaborate with some of the largest and most sophisticated direct and indirect DTC shippers in the world. And inspired by these customers, our 2016 release has been focused on two key themes: mobile application enablement, and the maximizing of distribution center throughput.

On the mobility front, we've introduced the first-of-its-kind mobile application for the distribution center, in this case, focused on temporary and seasonal workers. The purpose of this new app is to allow our customers to flex their temporary workforces up very quickly and very efficiently, just in time for peak periods, like those following particular cyber sales or the yearly holiday peak.

Response from our customer base has been fantastic thus far, and we will work with several large retailers to have the app in place in time for this holiday season. On the DC throughput front, in addition to the substantial throughput enhancements afforded by workforce enablement from the mobile app, we've also redesigned our already world-class [add bag] order parcel fulfillment capabilities with a brand-new user interface and enhanced -- we've even enhanced our support for advanced robotics and semi-automatic automation.

These enhancements and others include -- included in the release put our customers in the best possible position to ship their small profile DTC orders accurately and on time. But that's just our perspective. At Gartner, recently released their Magic Quadrant for the Warehouse Management System and once again, Manhattan Associates WMS clearly separated itself from the pack.

And as we look forward, our investment plan in WMS isn't slowing down. We're committed to expanding our lead as the obvious choice for distribution organizations across the globe. Our 2016 version of transportation management focused on its investments on helping our customers deliver parcel and small shipments to consumers more quickly, more flexibly and more cost-effectively.

In particular, our TMS solution now includes a mechanism to leverage next-generation parcel transportation options, such as those provided by crowd source providers, local carriers and even recently, introduced modes from large traditional parcel service carriers. Of particular importance for our customer base is its flexibility to experiment with different delivery methods and take their direct-to-consumer model to new geographies.

The 2016 version of Manhattan TMS provides both of these capabilities. Now, that said, the largest and most sophisticated businesses, regardless of industry, on a single system, a single optimization engine, to optimize all of their freight, inbound, outbound, parcel, LTL, and full truckload. And paired with our WMS, only Manhattan offers the best-in-class suite of logistics applications purpose-built for the multi-channel, multi-modal and multi-geography businesses of today's largest and most sophisticated shippers.

Now, turning our attention to the fastest-growing portion of our business, our omni-channel applications. They continue to advance briskly in both market adoption and base product capability. In Q1, we shipped major new versions of our market-leading omni-channel OMS, and store inventory and fulfillment applications.

Among another -- a number of significant advancements within OMS, particularly noteworthy is the investment we've made in the product to support its usage for our customers operating multiple brands and in multiple geographies. Now, the application architecture has always been scalable enough to run incredible volumes of business through a single instance of the application. But now we've added the possibility to configure and run different brands in different geographies in different manners. This flexibility includes the ability to easily handle different prices and payment methods, and other brand and geo-specific requirements. In short, our 2016 release is a reflection of our strategic plan to provide an omni-channel operating system for the world's largest multi-brand, multi-national businesses.

Now, in addition to the core OMS, we continue to push hard to deliver the market's leading -- market's best solutions for managing store inventory, executing and store pick-up, and shipping orders from the retail store. With more than five years under our belt in helping our customers ship massive volumes from their stores, the last several years of Manhattan includes a relentless focus on mobility.

I think we'd all agree, mobile devices to store associates are quickly shifting from experimental and boundary-pushing to becoming table stakes and de facto elements of the store ecosystem. We've mobile enabled our best-in-class store fulfillment application in a manner which works for all flavors of retail, from large big-box retailers to a department store to specialty fashion retailers.

While one size does not fit all in this case, our store inventory and fulfillment mobile application has the flexibility to work well across the gamut of use cases and store formats. And in our next call, I'll look forward to providing an update on our upcoming shipments of our point-of-sale, client-telling and inventory optimization application releases, all of which are making great strides in their respective markets.

Now, turning to our global associates, we ended Q1 with about 3,015 employees around the globe, up 8% over prior-year Q1, and 90%-plus over headcount growth is in professional services on strong demand to support topline growth and customer satisfaction. We finished the quarter with 68 people in sales and sales management, with 62 quota-carrying sales reps, up four 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.

Now in about a month from now, we will again have the privilege to welcome our customers, partners, press and analysts to our annual customer conference, Momentum. We have a solid line-up of customer speakers and topics for this year's conference that will be held at Walt Disney World's Dolphin Hotel from May 15 to May 18.

Our focus for Momentum this year is on speed and complexity required for supply chain commerce to go from excelling at fulfillment to excelling at delivering a fulfilling experience. And throughout the conference, we'll plan to illustrate how clients are re-designing their strategies, ensuring each customer has a fulfilling experience at every touchpoint across the supply chain regardless of industry, while showcasing new technology to support eCommerce in the warehouse, transportation, and retail store operations.

Over the four days of the conference, we'll conduct over 100 sessions that cover a variety of topics, including our business strategy, best practices, customer panel discussions and deep dive technical immersions. Attendees will have the opportunity to hear directly from thought leaders among our clients, such as Nike, Target, Michael Kors, and FreshDirect. And once again, we're seeing very strong interest in this annual event.

Now let me close my prepared remarks with a brief summary. Of course, we're very pleased with our continued momentum and performance entering 2016. While global macroeconomic growth continues to give us reason to be somewhat cautious, we're 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 digitalization, eCommerce, and all of the things that are fueling those multi-year investment cycles. Our relative competitive position continues to be strong.

And we continue to invest in innovation to extend our market leadership and differentiation with the world's most talented supply chain employees, the best software solutions, and great market momentum. We believe we're well-positioned for the balance of 2016, and beyond.

Now, Skinner, at this point, we'd be happy to take any questions.

Absolutely.

(Operator Instructions)

Terry Tillman, Raymond James.

Great job. Good start to the year. So it was nice to see that really across the board. I just had two questions. First question relates to tablet retailing. First, I would like just a little bit more commentary on where your sales force is in terms of being more adept, now being able to talk tablet retailing. And where are you in terms of any early pipeline activity? And how we should think about that as potentially starting to show up in the license revenue?

Yes. So we've got a number of people -- so all of our sales organization are versed in mobile point-of-sale and as you're referring to it, tablet retailing, Terry. We have a number of individuals who specialize in that particular area. Frankly, they came over to us as part of our Global Bay acquisition well over a year ago now and it's still, they're still with us. They are experts in the field with many decades, actually, of industry experience. So we've got a great team focused on that space in the sales organization.

With regard to interest, momentum and pipeline, the solutions are being very well-received. We're getting a ton of interest. As we've said before, though, these sales cycles are not short. They are not Y2K-like, frankly. So what we expect to see license revenue, real license revenue contribution, only starting in 2017. We do expect that we will secure some additional early adopter customers here in 2016, but I think you should really expect to see license momentum in 2017, 2018 and 2019.

Okay. And in terms of the percentage of software that came from new customers, I've never seen that number before. I think it was a 5-0, if I'm not mistaken.

It was.

Is there anything you tweaked in terms of just the go-to-market or is it more to do with maybe you've just got a broader portfolio of solutions so some of the folks that wouldn't have started with WMS are now looking at you? I'd just like a little bit more color on just what seems like a big pick-up there.

I don't think there's any -- I think, as we've seen quarter over quarter, Terry, those numbers can vary a little bit. We are very pleased with the 50/50 split in this particular quarter, but I do believe that the -- our focus on bringing brand-new innovation to the marketplace is what has enabled us to be able to secure these new global brands and bring them into our portfolio. But I wouldn't attribute it to any particular marketing strategies or sales strategies, but merely the continued focus on research and development and innovation that we're delivering into the space.

Okay. I guess a question, Dennis for you, is in terms of -- I'll -- I won't try to pin you down for 2017 guidance yet. That's maybe a little too early. But people have come to expect margin expansion but your margins are starting to get to quite high levels, at least in relationship to any other company I cover.

Any talk about the R&D in this -- the requirements for innovation around some of these newer technology areas you're focused on, but as we turn to 2017 and beyond, do you -- are there still areas for margin expansion and could you elaborate on any of those areas where there's still leverage in the model? Thank you.

Yes. There are still areas for expansion, Terry. We'll talk more about 2017 in Q4. But bottom line is, as we've always said, there's leverage in every line item of the P&L. So it starts with the revenue lines, and the margin that we drive off of the revenue lines as well as gaining leverage off of our operating expenses.

Okay. Thank you. Nice job.

Mark Schappel, Benchmark.

Nice job on the quarter. Eddie, starting with you in your prepared remarks, I believe you discussed some of the enhancements that you're making to your Transportation Management Solutions. And I don't recall and maybe I missed it, but I don't recall much of a discussion about cloud there. And if I'm not mistaken, customers have been gravitating to your cloud TMS solution over the past few quarters. I was just wondering if it's fair to assume that you're still seeing that kind of a move?

Yes, yes. It is fair to assume that, Mark. It bounces around just a little bit, quarter by quarter. But certainly, in full-year 2015, we saw in the range of 70% to 75% of our transportation deals be in the cloud. 2016 has started off that way. And I think we'll continue to see that phenomenon.

Okay. Great. And then switching gears a little bit here. On the M&A front, the Company really doesn't have a history of being all that active on the M&A front. Now granted, you did do Global Bay and there was one, I think four or five years ago as well. But maybe you could just update us on where the Company's at or maybe your view of where the Board is at with respect to M&A, specifically moving into or acquiring new technologies or into adjacent markets?

Yes, sure thing. Well, we're -- we'd love to be more acquisitive. But we have some guidelines under which we operate. First of all, we will not buy more of what we already have. So we'll only buy strategic footprint-expanding capabilities. Obviously, we're looking for terrific technology alignment, with our current strategy. It has to be modern technologies. We're not looking to reinvent old architectures and so forth.

Of course, we're looking for fair value. Now, so that narrows the space -- that narrows the universe of opportunity quite a bit. Now, when you think about -- the other thing is, when you think about the areas in which we are moving into, particularly, customer platforms and consumer platforms and so forth, being that customer platform of the future.

I think frankly, one of the great pieces of news for us, our shareholders, is that it's pretty hard to acquire yourself into that space. The only place -- the only, way really, to get into that space is to innovate into it and that's why one of the reasons that we think we are very well-positioned here with our, of course, domain expertise, trusted advisor relationship in the retail space, and our ability to invest in research and development.

So Mark, let me jump on -- piggyback on Eddie's comments as well. So nothing's really changed with respect to the Company's priorities for cash. The number one priority is to continue to invest in innovation and as long as we can continue to take market share, and expand our addressable market we think that's a good bet.

Second is, we'll look at M&A opportunities. Eddie explained the filter that we go through there. And in the absence of that, third is, we'll look to put excess cash to work through the share buyback program. It's been a model of consistency.

Okay. Great. I think Evant was the other acquisition I was thinking of. I couldn't think of it at the time.

Yes. That was back in 2005.

Just a brief 11 years ago, yes. (multiple speakers)

Anyways, finally, here, let me just wrap up with one last question to you, Dennis. Cash flow from operations was exceptionally strong in the quarter and I was just wondering if you could just go through what main driver of that cash flow upside was in the quarter? And also, too, if you could remind just us if there was anything last year that maybe artificially lowered last year's number?

No. Just strong, really strong global collections. We had pretty good pull-through on the maintenance, Mark, but if you look, our global collections on an annual basis over the last 10 years has exceeded our revenue in every year that we've posted, so we're a Company that just has a really strong discipline towards cash management.

Great. Thank you. That's all for me.

Yun Kim, Brean Capital.

Thank you. Again, congratulations on another solid quarter, Eddie and Dennis.

Thank you, Yun.

So, as you guys entered the early stage of the retail POS launch, are you seeing the same buyers of your core products or are you finding different set of buyers? And how much of your near-term opportunity in that market or that product is focused on your existing WMS and OMS customers versus potentially brand-new customers?

Yes, let's see. So couple questions there, Yun, thank you. So typically, we're going to see a slightly different buying community. Now, obviously things intersect at the CIO, the COO and the CEO, but clearly, the buying community for mobile point-of-sale and store execution systems is slightly different from the core WMS and TMS products, but again, intersecting with those in the C-suite there. Number one.

Number two, with regard to are we targeting existing customers or new customers for these solutions, hey, we're an equal opportunity seller in that regard. We'll sell those solutions to either existing or new customers. But given that we have such a strong customer base in retail already, no question, the bridge there is not quite as far to cross. We are -- we tend to be a trusted advisor and are a trusted supplier in those spaces which I cannot deny, makes the journey a little bit easier.

So just want to understand the [fill-in] dynamic for your new product. Are you trying to leverage as much as you can in terms of the relationship that you have with your WMS and OMS users? And that particular line of executives to get into the retail POS or are you really trying to get in there as a standalone, maybe use some other relationship to get into those market opportunity?

No, no. We'll certainly continue to leverage our existing relationships. And our relationships inside of the organizations, frankly, are pretty senior so, so we get to leverage them quite nicely, number one. Particularly, where we have Order Management customers and implementations, given that our strategy is and our hypothesis is the next generation of point-of-sale or mobile point-of-sale will be an extension of Order Management so there is sort of a natural progression of conversation there.

And any update on -- in the terms of partnership opportunity or strategy that you're pursuing to better penetrate that market?

Nothing massive. We have a couple new partners signed up and they will be at Momentum with us. A few guys that have spent many, many decades in the point-of-sale and retail store space have joined our Manhattan Value Partner programs, which leads to about that.

Great. Looking forward to that. And then, it looks like your European business was down double-digits year over year. Is that something that you guys are concerned about or is it just simply a quarterly volatility that we see once in a while from that region? Just pointing out that it looks like European business was a pretty big drag on the margin in the quarter. Just wondering how -- what you're thinking in terms of running that European business more on a profitable basis?

Yes, certainly. Well, we weren't thrilled with the performance in EMEA this particular quarter, but not concerned about it, particularly. The -- as I mentioned, in some of my early comments, our win rates against our competitors was very high across the globe so this wasn't a situation where we were losing deals, but just a question of deals pushing and so forth.

So whilst again, we're disappointed by the performance in Q1, we continue to remain bullish about the region and are seeing solid pipelines there in EMEA. So more of a timing issue than anything that intrinsically that we are concerned about.

Great. And then (multiple speakers) --

Just a reminder, Yun, we delivered a 200 basis operating margin improvement managing through a tough Europe theatre, so that's a trademark of how we manage the business every quarter. Not all theatres are going to be blowing and going. And when you look at our track record, we performed quite well over the last five years from a margin leverage and expansion point of view.

Understood. And definitely see that track record over the years. Dennis, what drove the cost of license to be up a little bit in the quarter?

Just third-party software license.

Yes. And then I think that's it for me. Again, congratulations on a strong quarter, guys. Thanks.

Thank you, Yun.

Matt Pfau, William Blair.

Nice quarter. So first, wanted to hit on some of the non-WMS products. Can you give us some detail on what you're seeing in terms of demand in the quarter and also in your pipeline, what are you seeing the most interest in that's -- of the non-WMS side of your product set?

Yes. Matt, I would say that the second to WMS, the two products that are flourishing the most at this particular point, would be our Order Management System, and the adjacent components to that, and our Transportation Management System. And OMS being driven by digitalization, eCommerce, omni-channel and TMS, is, I think, largely driven by the innovation and differentiation that we are driving into the marketplace, frankly.

Got it. And then with the new customers that you're bringing on, is there a trend there in terms of what you see they initially adopt as their first product with Manhattan? Would it typically start out with WMS?

It's a great question. And in years gone by if you had asked that question 5 or 10 years ago, it likely would have been WMS was the lead product. Today, it is not so much the case. Could be either WMS, TMS, or Order Management, relatively evenly split across those three.

Matt, we're also seeing just the phenomena of omni-channel customers as part of their omni-channel initiatives, acquiring focused on execution capabilities, so it's pulling through WM sales under the umbrella of an overall omni-channel transformation within the enterprise.

Got it. And then last one for me, there's been quite a few headlines in the retail environment of companies having poor results or just volatility in general, but your results and it sounds like your pipeline being strong, too, certainly isn't reflective of that. So when we read negative headlines in the retail industry, especially from specific retailers, how do we think about that in terms of certain retailers' investments decisions and purchasing supply chain management software?

Certainly, there's no question that we would love to have a hugely buoyant environment everywhere in retail. But when you see retailers having a challenge, whether it be by market segment or by channel in which they're operating, in many, many cases, what we're seeing is what is required there is investment to transform that segment of the business.

And those -- quite candidly, those that don't invest can end up in a pretty dark place, frankly. Now, this is all under the backdrop of, as you well know, Matt, our solutions deliver excellent ROI to the retail space and all the industries in which we operate. So even in a tough environment, we're delivering great ROI for our customers.

Got it. Thanks for taking my questions, guys.

Thanks. Our pleasure, Matt. Thank you.

And at this time, we have no further questions from the phone lines.

Okay. Thank you, Skinner, and thank you everybody for joining us in our Q1 earnings call here. As I said, we're very pleased with the start to 2016 and we'll look forward to reporting our progress about 90 days or so from now. Thanks again. Bye-bye.

This does conclude today's call. You may now disconnect. Thank you for your participation.