Manhattan Associates Inc (MANH) 2018 Q3 法說會逐字稿

Good afternoon. My name is Rob, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates Third Quarter Earnings Conference Call. (Operator Instructions) As a reminder, ladies and gentlemen, this call is being recorded today, October 23.

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

Thank you, Rob, and good afternoon, everyone. Welcome to Manhattan Associates 2018 Third 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're cautioned that these forward-looking statements involve risk and uncertainties, are not guarantees of future performance, and that actual results may differ materially from the 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 2017 and the risk factor discussion in that report. We are under no obligation to update these statements. In addition, our comments include certain non-GAAP financial measures in an effort to provide additional information to investors. All non-GAAP measures have been reconciled to the related GAAP measures in accordance with SEC rules. You will find reconciliation schedules in the Form 8-K we submitted to the SEC earlier today and on our website at manh.com.

Finally, with the adoption of ASC 606 revenue accounting rules and our new P&L line item format, we have included in the supplemental schedules of our earnings release year-over-year comparisons for apples-to-apples comps. Our year-over-year revenue percentage growth comments and our results are based on an apples-to-apples comparison, normalizing 2017 revenue for hardware revenue impact.

Now I'll turn the call over to Eddie.

Well, good afternoon, everyone, and thanks for joining us to review the Manhattan Associates 2018 third quarter results. We delivered Q3 total revenue of $142 million and $0.49 of adjusted EPS. This is in line with our objective and represents flat revenue growth and a decline of 4% in EPS versus prior year. Now we exceeded our Q3 targets across all revenue lines with the exception of license revenue. But based upon our outlook for the remainder of the year, we're narrowing our full year total revenue range and raising our 2018 full year operating margin and earnings per share guidance.

Notably, despite the declines in revenue expected from an ongoing cloud transition, our flat revenue performance abated 6 consecutive quarters of year-over-year decline in growth comps as our services business demand is steadily improving. That said, we're still very early in the transition to cloud with aggressive transformational goals and investment earmarked for driving our customers' success and in turn, our long-term future growth in earnings.

Our positive business momentum continues to be based on a consistent strategy, driven by the following 4 pillars. First, market-leading product innovation. Year-to-date, our R&D investment is up over 25% over prior year and we're on pace to invest about $70 million in R&D this year. We're delivering industry-leading, transformative supply chain inventory and on omni-channel innovation, at development cycles that are faster than ever and our product and technology releases are bringing in the important, differentiated new solutions to the market, resulting in some encouraging pipeline growth. Secondly, strengthening pipelines. Our global pipelines are solid and we're seeing upward trends across cloud, license and services. We're especially encouraged by our new customer signings and by the concentration of potential net new customers in the pipeline, with more than half of our current deal opportunities representing net new logos to Manhattan Associates. Three, improving consulting services. Global demand is strengthening for new product sales and system upgrade activities and our services teams are operating at capacity. Global consulting services grew 2% sequentially over Q2 2018 and was flat year-over-year. Importantly, America's services revenue grew 1% year-over-year, halting a run of 6 consecutive quarters of year-over-year growth comp declines. With services overall driving about 60% of total revenue, America's strengthening demand will help us bounce the fluctuations in licensing cloud in the earlier stages of our business transition.

And since our last call, we've on-boarded about 100 consultants and we're actively recruiting for another 75 to 100 services consultants across all geographies. And as I mentioned in our Q2 call, we're on track to post incremental second half growth over 2017 and exiting 2018 with solid momentum. And lastly, #4, investments in sales and marketing. Our competitive win rates continue to be strong, up about 70% against head-to-head competition, with about 30% of license and cloud sales coming from new customers. Verticals drive in more than 50% of our licensing cloud revenues in the quarter for retail, consumer goods and food and beverage, with retail being our strongest vertical.

Sales and marketing investment is up 10% year-to-date as we continue to focus on driving market awareness and expansion of our sales and marketing coverage, predominantly in the Americas and Europe. And we finished the quarter with 65 people in sales and sales management with 58 quota-carrying sales reps, and we're actively recruiting for about 20 new hires across our sales and marketing teams. Our recognizable cloud revenue continues to track ahead of our original 2018 goals of $20 million and we remain very busy with new cloud implementations from Manhattan Active Omni and TMS is growing, too.

For the quarter, we recognized $6.5 million in cloud revenue, a 155% increase versus both Q3 2017 and year-to-date 2017. Manhattan Active Omni drove about 85% of the bookings this quarter with Americas delivering 90% or so of the deal activity. Our win rate for cloud deals year-to-date is 70% against head-to-head competition. And overall, our deal activity for the quarter was healthy. Although our close ratio was below our expectations as a few large complex deal negotiations have taken a little longer than forecasted to close. That said, we're encouraged by both a robust level of customer interest and a number of active negotiations in which we're engaged. Since the beginning of 2018, we have more than doubled our cloud pipeline and are seeing very positive early adopter interest and long-term deal activity.

In fact, while we anticipated a 3-year subscription duration entering the year, 70% of our 2018 bookings year-to-date have come from Manhattan Active Omni deals that are 5 years in duration. While this demonstrates client confidence, it's also very positive in the context of predictable revenue cycles, and these 5-year deals can sometimes have a lower 1-year annual contract value run rate versus the years of 2 through 5, and this is a factor unique to the 5-year deals. And whilst it presents pressures in the near-term cloud revenue line, in the longer term, we view this as a win-win both for Manhattan Associates and for our customers.

License revenue for the quarter totaled $11.5 million, which included 2 $1 million-plus transactions. Both deals closed in the Americas, 1 in retail and 1 in transportation. And while deal activity is healthy, license performance does continue to be impacted somewhat by timing, primarily relates to customers and prospects weighing more flexible purchase options for WMS and other supply chain management solutions.

Both our cloud and license pipelines are growing and active. That said, 5 quarters post Manhattan Active Omni launch, we're currently seeing that similar to license, cloud deals are heavily weighted to the end of quarter signings. Further customers are taking their time to judiciously evaluate the business impact of shipping from the ownership -- from an ownership to a services model. And these dynamics are impacting deal timing and the interplay between our cloud and license revenue results.

Now moving to product and customer fronts. We continue to make great progress in helping our customers achieve operational excellence and best-in-class performance. I'll start with Warehouse Management. The customer response to our 2018 version of WMS that we shipped in Q2 has been very positive as reflected in our services pipeline. A number of our customers including several multibillion dollar consumer brand companies have accelerated their upgrade plans in order to take immediate advantage of the new waveless Order Streaming and warehouse execution system features within WMS 2018. Waveless Order Streaming optimizes the balance between direct-to-consumer and wholesale bulk fulfillment within a single distribution center, enabling our customers to more profitably and fluidly manage both the highly efficient bulk wholesale deal batch fulfillment and rush individual shipments to fulfill direct-to-consumer orders.

And with the included warehouse execution system, our customers can now optimize the combination of legacy automation, next-generation robotics and human resources within the DC to deliver maximum facility velocity and lower total operating cost. This introduction was well-timed to meet the market need as we see the distribution sector continuing to accelerate its implementation of new forms of automation to meet increasing direct-to-consumer volumes and rising customer expectations around speed of delivery. Both customers and industry analysts continue to recognize our leadership by Manhattan Associates and we earned the highest position possible in the most recent Gartner Magic Quadrant for Warehouse Management Systems for the 10th consecutive time.

Further, on the supply chain front, I'm pleased to report that our pipeline activity within the TMS business is growing, reflecting increased investments in sales and marketing over the past 2 quarters, and we believe there are good opportunities for continued growth and market share gains in this area.

Now speaking of pipeline. We're also seeing very positive interest in the Manhattan Active Point of Sale Solution in recent months. As a reminder, this application is part of the Manhattan Active Omni platform and thus, could be easily added to our customers' operations as part of that suite as the individual products are all part of 1 single application platform. Manhattan is uniquely positioned in the industry with this offering to provide a unified platform approach for omni-channel, and we're confident that we're very well positioned for strong consideration when the coming sources and replacement cycle kicks into gear. Now to that end, we've received very favorable reviews for our solution within the recently published Forrester Wave for point of service applications, especially in light of being a relatively new entrant into this space. Forrester compared us quite favorably to providers who have been with us -- been in the market for decades.

Speaking of Forrester analyst wave reports, we're also very pleased to be 1 of the only 2 companies named as leaders for omni-channel order management in their most recent Forrester Wave Report for that particular product. We received top scores in over 23 areas including our store inventory and fulfillment application and for our product roadmap and strategy. And whilst the leader rating isn't new for us, our competitive position also moves forward, which we believe recognizes the strength of the Manhattan Active native cloud offering.

And with that, I'll turn the call over to Dennis who will do a deep dive into our financials. Dennis?

Okay, thanks, Eddie. So as mentioned, we reported Q3 total revenue of $142 million and $0.49 of adjusted earnings per share, which includes about $0.03 from rupee FX gains in the quarter. Overall, with our business in early-stage cloud transition, we're tracking slightly ahead of our 2018 targeted total revenue and earnings objectives. Our GAAP earnings per share was $0.43 in the quarter compared to $0.47 in Q3 2017. License revenue was $11.5 million against the $13 million target objective for the quarter. Given the interplay between license and cloud on supply chain management deals, extended deal timing and customer purchasing preferences, we're now targeting $11.5 million to $13.5 million for Q4 with a full year license revenue estimate $43.5 million to $44.5 million and a corresponding license gross margin of about 87% to 88%.

Cloud revenue was $6.5 million, up 155% over Q3 2017. Year-to-date, we've recognized $16.3 million in cloud revenue, up 154% year-over-year. For Q4, we estimate our recognizable cloud revenue will be about $6.7 million. This assumes all Q4 deals closed are back-end loaded to the quarter. On a sequential basis, our growth forecast is adjusted based on our 5-year deal signings achieved in Q2 and Q3, combined with lower Q3 deal volume on push deals. We are maintaining our full year estimate of $23 million with year-over-year growth at 140% as compared to our $20 million goal entering 2018. As a reminder, this line includes all subscription, hosting and infrastructure as a service revenue from our existing and new software as a service and hosted customers.

Regarding license and cloud, our performance continues to depend on the number and relative value of large deals we close in any quarter. While large license deals remain important, we expect the mix to continue to shift towards subscription models. While this is positive, deal size is maybe a bit smaller as subscription revenue is recognized over time and product components are also easier to add over time in contrast to the one-and-done enterprise deals. We also retained some caution around slow decision-making by some clients, particularly retailers and potential global macro and geopolitical events that could impact business investment cycles.

Shifting to maintenance. Revenue for the quarter totaled $37 million, increasing 2% on new license revenue, with strong retention rates greater than 90%. As a reminder, our maintenance renewal contracts become effective once we've collected cash from the customer, so timing of cash collections can cause inter-period lumpiness from quarter-to-quarter. For 2018, we are estimating maintenance revenue to be about $147.3 million, dialing it in, totaling 3% growth over 2017. We estimate Q4 maintenance growth to be down approximately 1% to 2% with the midpoint of $36.8 million. Q4 and full year results will depend somewhat on the timing of perpetual license deals closed as well as the level and timing of any existing customer conversions to cloud, customer retention and timing of cash collections.

Services revenue for the quarter totaled $84.1 million, exceeding our Q3 target, up 2% sequentially from Q2 2018 on growth in the Americas and Europe. With services demand and pipeline increasing, we're now estimating full year consulting services revenue of about $325 million, representing a decline of about 0.5% over prior year versus our previous estimate of a 2% to 0% decline. For Q4, given the seasonal drop-off due to retail holiday busy season, we're estimating services revenue to be about $79.5 million to $80 million. Sequentially, we expect services revenue to decline about 5% over Q3 2018 and to increase about 3% to 4% over prior year.

Consolidated subscription, maintenance and services margins for the quarter were 54.3%, driven by cloud and maintenance revenue growth, strong consulting -- and strong consulting services productivity. For 2018, we expect full year services margins to be about 53.8% and our Q4 range to be 51.2% to 51.5% as retailers idle software implementations during the retail holiday busy season.

Turning to operating income and margins. Our Q3 operating income totaled $41.5 million, with an operating margin of 29.2%. We estimate our Q4 operating margin to be in the range of 22.4% to 23.4%, reflecting retail busy season impact on services revenue and global hiring and investment in our business.

That covers the operating results. Our adjusted effective income tax rate was 24.5% for Q3 and we are maintaining our 2018 provisional effective income tax rate of 24.5%, which includes the estimated impact of state, local and international tax expense.

Regarding capital restructure, we reduced our common shares outstanding about 1% in Q3, buying back 389,000 shares totaling about $21 million. So year-to-date, we've reduced common shares outstanding 4% and last week, our board approved replenishing our repurchase authority limit to a total of $50 million. We're estimating about 66.1 million diluted shares for Q4 and 66.6 million for full year.

Turning to cash, we closed the quarter with cash and investments totaling $94 million and 0 debt. Our deferred revenue balance totaled $83 million, up 11% over December of 2017, driven by maintenance and cloud billings, and down 8% sequentially on maintenance revenue recognition from Q2. So year-to-date, cash flow from operations totaled $103 million compared to $117 million in 2017, down due to positive cloud revenue results and lower license revenue. For the quarter, cash flow from operations totaled $35 million. Capital expenditures totaled $1.5 million in the quarter. And for 2018, we estimate capital expenditures to be in the range of $7 million to $9 million.

I'll wrap up with our 2018 guidance and a preliminary look at 2019 and then turn it back to Eddie for closing comments. As Eddie mentioned, we are narrowing our total revenue guidance range and increasing our adjusted EPS and adjusted operating margin guidance. To reiterate, we remain cautious regarding the retail environment, the global macro environment given geopolitical and economic volatility, and finally, our cloud transition. So for revenue, with 1 quarter remaining in 2018, we're adjusting our total revenue guidance from the previous range of $548 million to $560 million to $552 million to $555 million, with a midpoint estimate of $553.5 million. We expect total revenue guidance to be down about 1% to 2% over 2017. Recurring revenue mix, which includes cloud and maintenance, is targeted at 31% of total 2018 revenue.

For earnings per share, we're raising our 2018 adjusted EPS range $0.07 to $0.10 to $1.69 to $1.71, with a midpoint estimate of about $1.70. Our GAAP EPS guidance will increase $0.12 to $0.14 to $1.48 and -- to $1.48 to $1.50 range. This anticipates our estimated Q4 2018 adjusted EPS to be about $0.36 to $0.38.

Operating margins. With the business transition to cloud continuing to ramp in 2018, including growth investments, we are targeting a full year adjusted operating margin range of 26.3% to 26.5% and a GAAP operating margin range of 22.6% to 22.9%. We estimate Q4 operating margin will come in between 22.4% and [23.4%].

So with regards to our long-term aspirations, our focus remains on building our subscription base at a responsible rate that returns to our expected and sustainable topline growth with an operating margin profile in the top quartile compared to our peers. We're currently in our annual planning phase and we'll look to provide an update on any meaningful changes in our Q4 call.

Shifting focus to 2019. We're providing broad parameters for 2019 at this point, with 2 primary elements impacting our 2019 P&L profile. Our total revenue mix across our revenue loss given our business transition (inaudible) the first. And second, our 2019 operating margin profile based on our growth investment objectives in innovation, sales and marketing, IT investments and facilities.

For revenue, assuming the midpoint of our -- for total revenue, assuming the midpoint of our 2018 total revenue guidance of $553.5 million, our estimated range for 2019 total revenue is $559 million to $571 million, representing growth of 1% to 3%. Regarding license revenue based on 2018 results, we expect license to continue to be under pressure with our ongoing cloud transition. We're currently targeting approximately $39 million to $40 million in license revenue.

For cloud revenue recognized, we are estimating about $40 million. For earnings per share, assuming the midpoint of our 2018 EPS guidance of $1.70, our estimated range for 2019 is [$1.36] (corrected by company after the call) to $1.40 for adjusted earnings per share.

Moving to adjusted operating margins. Again, with the ongoing transition to cloud, we are targeting an operating margin of 20.8% to 21.1%. As we have discussed, we expect our operating margin to trough in late 2019, early 2020 in the 20% to 22% range.

And finally, our effective tax rate remains the same at 24.5%, subject to U.S. federal state and foreign tax legislation changes. And for diluted shares, we're projecting 65.6 million shares per quarter, which assumes no buyback activity in Q4 2018 or for the full year 2019. So thank you for your time and that covers the financial update. I'll turn the call back to Eddie for some closing comments

Yes, thanks, Dennis. Well, in summary, clearly, our underlying business fundamentals continue to gain momentum and we remain focused on extending our market-leading position in supply chain and omni-channel commerce. Now we're excited by the significant and expanded business opportunities in our core markets. Our success continues to be driven by delivering the innovation that anticipates the needs of an evolving market, focusing on our customer success and leveraging our deep domain expertise. Our services business is experiencing healthy demand and we anticipate this trend will continue the demand for both upgrade support and cloud of implementations as well as the ongoing management assistance for our clients in the cloud that are all feeling very positive trends.

And while some global macroeconomic conditions give us reason to be cautious, supply chain complexity in retail revolutions at target markets, in fact, brings continuing need for our solutions from our customers and will continue fueling multiyear investment cycles for Manhattan Associates. The move to subscription and cloud-based models is positive and is outpacing our expectations. Customer feedback, industry analyst discussions and our win rates continue to validate our investment strategy.

Our competitive position is strong and we continue to invest in innovation to extend our addressable market leadership and differentiation. And as always, we remain focused on our customers' success on driving sustainable long-term growth for our shareholders. And with the world's most talented supply chain e-commerce employees, the best software solutions and market dynamics that require customers to adapt and invest in supply chain innovation, we believe that we're very well positioned to end the year strongly.

So with that, Rob, we'd be happy to take any questions.

(Operator Instructions) And your first question comes from the line of Terry Tillman from SunTrust.

Can you hear me okay?

We can, Terry, yes.

Yes.

I guess my first question for either of you 2 guys is on professional services, it does seem like it's turning the corner in the Americas, important milestone returning to growth. Could you update us both on what you've seen recently and as it relates to your outlook commentary that also speaks to this continuing in terms of the improvement? How much of it is upgrade, so people wanting this newer version of the WMS that has the new innovation or just upgrading other platform technologies versus actually, these Active Omni deals that might actually include a large component of services? Just trying to understand maybe what's driving the services strength.

Yes. Well, the answer is a bit of yes, a bit of everything, Terry, frankly. There's no -- I don't think there's one single dynamic that is changing there. You frankly have laid out a good bit of what's driving the strength there. We do think that the innovation that we're delivering to the marketplace has really inspired a lot of our existing customers to want to be able to adopt this new innovation to help them drive business value for themselves. So our WMS is nice, very nice substantial WMS upgrades that we're working on. Some of the Manhattan Active Omni implementations that are underway are substantial, transformative and they're global, frankly. And then the other element of that is the services business across the world. So Americas services is certainly strong, our business in Europe and the business in Asia is also very strong as well. So again, in conclusion, the answer is yes, an element of all of those things.

Okay. And maybe another question is, it's interesting to see the initial take on '19 SaaS subscription revenue. Based on your color earlier in the call, I thought maybe there could be more pressure on that than maybe what I'd originally had in my model, but it's pretty close, actually. So what I'm curious about is, you mentioned some deals that maybe there were some kind of timing issues and some deals pushed, but the initial outlook though, for next year looks pretty solid in relationship to where my model was. So what I'm curious is, do think that some of those deals that pushed were just literally a matter of timing and you expect to close those and/or just the totality of the pipeline to more than offset any kind of pressure around when those deals actually close?

Again, it's both of those, Terry. So, yes, we did have a couple deals push and there were larger deals and the negotiations were a little more complex than maybe either party anticipated, so we do anticipate closing those deals. And as we indicated, our cloud pipeline, since the beginning or coming into the year 2018, has doubled. And so we are certainly very encouraged by the future outlook there.

As well as the net new logos that are greater than 50% of the pipeline makeup, Terry.

Yes, yes. And I forgot which one of you gentlemen, this will be my last question, is I think you said 20-or-so open recs. Now, is that actually quota carrying sales reps? I guess, I'm just looking for the nomenclature here. Is it sales reps or is it sales and then SCs or is it also marketers? Just trying to understand how much of that will be revenue producing sales folks?

So the 20 that I referred to was sales and marketing and if you'll -- I don't have that exact breakdown, but about 1/3 of those people would be full-on quota-carrying reps. So thanks again for the questions and we'll...

But all focused on top

(technical difficulty)

Brian Peterson from Raymond James.

So Eddie, I just wanted to clarify a comment you made on some of the cloud deals. It sounded like you said that the year kind of 2 through 5 revenue would be higher than the initial year revenue. I just want to make sure what's driving that. I thought that since 606, it would be more ratable recognition. Is there upsell or is there something driving that or did I just potentially hear that wrong?

No, you didn't hear it wrong, it's all right. We expect to exceed our going-in expectations for 2018 from a cloud revenue perspective. Certainly, the revenue is recognized ratably for sure. 606 really doesn't affect the cloud revenue particularly. But just really, at the end of the day, strong demand and great execution, Brian, is the -- are the drivers there.

All right, and maybe just kind of following up and I appreciate all the color on '19, but you've outlined some sales hiring plans. I'm just curious, should we expect most of those to be done by the end of '19? Just trying to think about how much of that investment may bleed into 2020.

So the sales executive and the sales rep hiring is active today, Brian. So whether we can accomplish it or not is another matter, but we would like to try to close those recs out by the end of this year and likely, we'll see additional hiring in 2019.

And your next question comes from the line of Matt Pfau from William Blair.

I wanted to follow up a bit on the question about the hiring and expenses. So as part of the upside in the quarter came from lower operating expenses, at least relative to what consensus expectations were, but then as we look at the guidance for 2019, it implies a fairly substantial ramp-up in operating expenses throughout the year. So maybe just help us, where is that hiring targeted towards? And is that all related to the cloud business or is there other hiring that's going on?

Yes, three major pillars, Matt, and I'll let Eddie chip in as well. But continuing to hire R&D resources and drive innovation, global services around the globe where we probably have 150 recs that we're going to be pursuing. We'll tighten that up when we get through Q4 and see how our hiring goes through Q4, and then sales and marketing, concentrated folks, which Eddie has already discussed there as well.

Yes, nothing much to add really, Matt, other than sort of embedded in there is the cloud organization, the DevOps organization that continues to grow both commensurately with the deals that -- the deals with the customers that we're managing to acquire, but also a general buildout of that to make sure that we've got the appropriate scale, 24/7 coverage and so forth to support the growth.

Yes, and the real challenge, Matt, is just timing, getting the -- timing of getting the resources in the door.

Sure. Okay, and then I wanted to ask about the pipeline commentary that you guys made. I think the comment was about half of the pipeline is made up of new logos. And so maybe you just give us an idea of what that compares to maybe a year ago. And then is that driven by the Active Omni Solutions? And I know last quarter, you mentioned that you perhaps have been able to address smaller retailers or smaller customers than you had originally anticipated, so is that a factor in that net new customer number in the pipeline as well?

Yes. So let's see. I think in the things that are driving the pipeline really when it comes down to the innovation that we're building, Matt, we think we've really got some differentiated WMS capability that we've put out in the market starting a couple of quarters ago, and certainly seeing a big uptick there. Obviously, Manhattan Active Omni, we know, is providing great value for our customers. You're right, some of the net new logos might be some smaller customers that we get -- slightly smaller customers that we get access to because of the cloud capabilities and cloud deployment models that we're delivering. But the 50% net new logo has been pretty steady for us, frankly, over the last 12 months-or-so. And again, really, I think it's our ability to garner market share from competitors based upon the innovation that we continue to invest in and deliver to the market.

Got it. And then I just wanted to follow up, Eddie, on your comments about the point-of-sale solution. So I guess, one of the comments in there was an anticipated upgrade or replacement cycle with some of the existing deployed point-of-sale systems. So maybe you can discuss what would potentially drive that replacement cycle and then I guess, what Manhattan has to do to go in there and replace some of these existing solutions?

Yes, sure. Well, the upgrade cycle, I think, is largely being driven by the fact that, I think, we all know that the fabric and the context of the retail store is changing, right? Moving from what was for decades and decades and decades, a single function facility, retail stores were single-function facilities, cash and carry. Now they are multifunction facilities, everything from a boutique to a gallery to a customer service center, a billboard for the digital business, a mini distribution center. They're multifunction, often smaller footprint but much more technologically-enabled locations. And the systems that have been at the center of the retail stores for the last century or so really don't enable either the store associate or provide the service to the customer that is required in today's world. So that's what we think is driving the 2 big upgrade cycles. It's important for us and hence, you see the uptick in sales and -- sale or excuse me, marketing spend. It's important for us to drive awareness of these new differentiated solutions that we've developed. We've got obviously, a fantastic customer base in the retail industry but historically, we have been known for a more traditional supply chain in the space. So very important that we make the market aware of these new differentiated solutions, so that as this upgrade cycle kicks in, we're part of the conversation narrative.

(Operator Instructions) Your next question comes from the line of Mark Schappel from Benchmark.

Eddie, first question for you. In your prepared remarks, you noted that the cloud and the -- or your cloud deals were heavily weighted to the end of the quarter signings. I was just wondering if you can just go into a little bit more detail on some of the other customer purchasing behaviors that you're seeing, that you continue to see.

Yes. To be honest, Mark, when we put our sort of original expectations, the original model together and so forth, we took sort of a straight down to the middle position and thought that unlike perpetual license deals that tend to be very heavily weighted to end of quarter close, we thought the cloud deals would close a little more evenly across the quarter. It turns out that -- and because we're in early days here, but it turns out cloud deals seem to -- in terms of the close timing and so forth, seem to model the perpetual software license deals that we've seen historically, so toward the end of the quarter. And that's just a reasonably minor adjustment. It has some impact but a reasonably minor adjustment to our thinking, forecasting and our models going forward.

Okay, great. And then as your cloud services business builds and as new customers continue to make up a greater percentage of your pipeline, I was wondering if you could just comment a little bit on the makeup of your sales force and how that's evolving just to meet these changes.

Yes, Look, our sales force is fueled by domain-rich confidence. We've thrived on that for years. We'll continue to invest in individuals that have deep domain expertise. I think the only thing that has really changed for us, there tends to be a little stronger technology component of the sales process, but obviously with the fantastic technology expertise that we have inside the organization, we've got terrific coverage there. So not a lot of change but a little more technology-weighted.

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

Okay, terrific. Well, thank you, Rob, and thank, everybody, for joining us to get an update on our Q3 results. We're clearly encouraged by our momentum, the business fundamentals and the early transition to the cloud. So we will look forward in early 2019 to reporting our own full year results and our continued progress toward our long-term aspirations. And in the meantime, everybody, have a wonderful holiday season. Thank you. Bye-bye.

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