Dennis Story - Chief Financial Officer Eddie Capel - Chief Executive Officer.

Terry Tillman - Raymond James Mark Schappel - The Benchmark Company Matt Pfau - William Blair Yun Kim - Lake Street Capital.

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. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period.

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 then turn the call over to Eddie Capel, our CEO.

During this call, including the question-and-answer session, we may make forward-looking statements regarding future events or future financial performance of Manhattan Associates.

You are cautioned that these forward-looking statements involve risk and uncertainties, are not guarantees of future performance, and that actual results may differ materially from projections contained in our forward-looking statements.

I refer you to the reports Manhattan Associates files with the SEC for important factors that could cause actual results to differ materially from those in our projections, particularly on our Annual Report on Form 10-K for fiscal 2014 and the Risk Factor discussion in that report. We are under no obligation to update these statements.

In addition, our comments include certain non-GAAP financial measures in an effort to provide additional information to investors. All non-GAAP measures have been reconciled to the related GAAP measures in accordance with SEC rules.

You’ll find 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’re investing to be the leading retail commerce enablement technology innovator. It's in an ever-changing retail market, while focusing on our customer successes and leveraging our 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%, and 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 where in the U.S. 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.

Our 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.

Although we remain somewhat cautious regarding the global economy, with a strong 2015 year-to-date performance, we’re 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 continued 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 and 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 our 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 yea, on solid revenue growth.

Continued expense management and our buyback 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 release 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 managed to close a couple of mid-sized deals originally expected to close in Q4, as part of our previous revenue guidance.

From a regional perspective, Americas posted a 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, but with the strength of Q3 license and a sluggish global macro, we’re sticking with our 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. And as you know, our services revenue is comprised of two revenue streams, consulting and maintenance. Our consulting revenue for the quarter totaled $81 million, growing 17% over Q3 last year.

As a reminder, with Q4 holiday seasonality and 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-plus hires 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-percent.

While there were no major impacts this quarter, as a reminder, we recognized annual maintenance revenue renewals on a cash basis, so the timing of cash collections can't 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 margin 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 at 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 and 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 continued 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've invested $76.5 million from operating cash flow, reducing common shares outstanding 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 limited 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 our 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, as I mentioned, new hire activity. Full-year GAAP EPS guidance estimates also increase 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 about 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 year as we're just starting our 2016 budget cycle, but here are few early comments for our 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 planned to grow total revenue at about 1.5x the forecasted market growth rate, which is expected to be around 5% to 7% for 2016, so year-over-year growth of about 9% to 10% total revenue growth.

This estimate is currently consistent with street estimates which we will fine-tune as needed on our Q4 earnings call.

Adjusted operating margins, we’re 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 U.S. Federal State and foreign tax legislation changes. And for diluted shares, we’re currently projecting about 73.9 million shares per quarter, which assumes no buyback activity in Q4 2015 or the full-year 2016. So that covers 2016. That covers my financial update.

Now I'll turn the call back to Eddie..

All right, thanks Dennis. With that strong Q3 and year-to-date performance, we continued 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 clienteling solution, driving market awareness for our 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 and 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 the 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 licensing services revenue activity.

The retail, food and beverage and third-party logistics verticals were our strongest license fee contributors, making up more than half of Q3 license revenue.

Q3 software license wins with new customers that have permitted us anyway 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 Athletics, Office Depot Mexico, Petrovich, PurCotton, Richline Group, Simplehuman, Sportsman’s Guide, Southern Wine & Spirits of America, Stella and Dot, The Hillman Group, Tuesday Morning, United Natural Foods, Wineworks, Winning Appliances and Woodcraft Supply.

As you could 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 have been very busy with core supply chain and retail omni-channel supply chain commerce enablement initiatives. We've had 83 system go lives in Q3. Demand and 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 migrating 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 for handling the most complex multi-tiered and multi-channeled 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 SKUs has yielded significant inventory improvements for this traditionally very difficult inventory segment.

And with other 2015 installations underway, both domestically and internationally, we’re encouraged by the progress we're making in these key part of the Manhattan solution suite. In the quarter, we also executed 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 shifts in demand, normally experienced during the upcoming holiday season.

Our cloud solution offerings are a key imperative to Manhattan and our commitment to rapidly delivering the latest product innovations aligned with our customers’ demands 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 less troubleshoot distribution center issues using an iPad or other such tablet is a game changer for distribution center managers, a blend of labor management capabilities including engineered standards and incentive-based pay with more traditional WMS capabilities within a single mobile application is the first of its 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 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 to the 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 and we are committed to providing the software capabilities that our customers need to deliver great experiences for their customers.

Clearly, that the core of this success continues to be our investment in 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 we're looking to increase our innovation investment capacity with strategic hires.

Our supply chain process platform-based suite of 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 Group’s 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 in Asia-Pacific and North America. And this marks the 10th year that we've been positioned as a leader in this prestigious rapport. 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 headcount growth is in professional services on strong demand to support, both 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 two from last quarter. So let me close my prepared remarks with a brief summary.

We're very pleased with our continued momentum and performance in 2015, and while the global macro conditions continue to give us some reason to be cautious, on the other hand, we are very optimistic about the future and remain focused on our customers getting them commerce-ready.

Retail commerce and supply chain complexity at our target markets continues to increase, driven by digitalization and e-commerce, which are fueling multiyear 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 a differentiation.

With the world's most talented supply-chain employees, the best software solutions and great market momentum, we believe that we are 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] Your first question comes from the line of Terry Tillman of Raymond James. Your line is open..

Hi guys.

Can you hear me okay?.

We can Terry. Yes..

Okay. Well, I guess, first congrats on the 35% operating margin. So nice job on that..

Thank you..

My first question just relates to, in terms of Asia Pac and Europe, it sounds like maybe conditions had worsened a bit, and just correct me if I’m wrong with that 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 U.S.

business, or just more late-stage pipeline you're working with or some sort of further share shift assumptions? I'd like a little bit of color on that..

Yes. 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 here in the U.S.

So whilst we think we can certainly deliver on our 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..

Yes. I don't remember it being that high for a long time, and I know it can shift around this quarter maybe depending on and maybe it has something to do with the three of the four large deals were new customers.

I actually would like some color on that because it does seem - even if it is a focus on the large deals to see so much of it exposed to net new customers.

How do we think about that? And is that something maybe you see more in the pipeline as well more of a shift to new business with new customers versus existing?.

Well, let me take it first and then Eddie can augment, Terry.

But just from a perspective, we've been selling the tier-one, tier-two for a long time with WMS and it’s 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 million-plus-dollar deals have been net new global brands and 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 etcetera, and just the cumulative impact of that we've benefited from a top line growth point of view. So I don't think there is a unique phenomenon 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’ve signed year-to-date, half of those are net new brands..

Okay.

And 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, but I’m curious either in the third quarter or maybe in the current quarter or just over the next, I don't know, six to 12 months, give us a report card or an update on the retail store initiatives and point-of-sale initiatives.

Thank you.

Yes. So the retail store initiatives, both from a product development and a deployment in the field perspective are both very strong. So we're making very good progress there.

And when we talk about the omni-channel solutions that are adding - that we’re selling and being deployed out in the field, very, very frequently they include the store execution systems. With regard to point-of-sale, as you know, we’re 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’re 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're still three or four quarters away from seeing those being real contributors to the revenue stream. But we'll continue to keep you updated obviously on a quarterly basis..

Sounds good. Thank you..

Certainly. Thank you, Terry..

Your next question comes from the line of Mark Schappel from Benchmark. Your line is open..

Hi, good evening, and 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.

And I was wondering if you could just talk a little bit more about maybe some things you have in mind on that front?.

Yes. Nothing as of the ordinary particularly, Mark, but we do frankly suffer from - we got 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 in the point-of-sale, clienteling and so forth, we feel like it's 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.

So 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 kind of a global branding initiative that you'll be embarking upon?.

Yes, I think that’s fair to say..

Okay, great. And then 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 gathered that your cloud initiatives are currently focused little bit more on the transportation side of your operations rather than the warehousing side.

Maybe you could just let me know if I'm reading this correctly..

Yes, 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.

But your reading is correct, and as I said, that is where we're seeing most of the market momentum and market demand versus in the WMS space..

Okay, great. And then, don’t want to leave Dennis out here, but APAC was - if I recall correct, it was down about 33% year-over-year.

And granted that's a 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. So it doesn't take - the percentages are a bit over-inflated when you roll-out a 33% decline off of a pretty small base. We’re just having a tough market in China this past quarter and past few quarters..

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

All right. Thank you, Mark..

Your next question comes from the line of Matt Pfau from William Blair. Your line is open..

Hi guys. Thanks for taking my questions. First one, I wanted to follow-up on Terry’s comment on the POS system and 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 are you guys.

Maybe 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, if maybe if you could clarify for us a little bit with your comments on the 70 basis points of margin expansion in ‘16 net of incremental strategic investments, maybe just a bit of clarity around that?.

Yes.

So on the ‘16, the 75 basis points of expansion, Matt, if you go back and you 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 tightened that up obviously because we are entering our budget cycle but the point is we're putting up 340 bps of growth year-over-year from a margin expansion point of view and been growing at a pretty tall cliff for the last four to five years and we’re taking an opportunity to plow as we talked about some strategic investment back into 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 we'll go from there. So at this stage right now we’re looking at 2016, 75 basis points of expansion with some strategic investments in R&D as well as marketing..

Got it.

And when you talked about the large deal that you’ve 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?.

Yes. A little bit of mix in there, Matt. There were four of them for this particular quarter, so now in time, but even if you look back over the last couple or 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 transformational solutions around omni-channel. And in this particular quarter across the deals, you'll see a blend of all three of those..

Got it. And 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've also signed 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. 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 that deal might well have been in Brazil when we did sign a new partner there, so we are 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 then number two, the relatively aggressive expansion of multinational big brands into that region is also great opportunity and exciting for us..

Matt, I left off, let me come back. You asked about operating margin levers. So there is 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 will continue to drive that. We had great leverage this quarter.

If we could have hired another 100 service people in the quarter, it might have been a little bit different margin profile but still plenty of opportunity on the services as well..

Got it. That's all from me. Thanks guys..

Okay. Thanks Matt. Appreciate it..

And your next question comes from the line of Yun Kim from Lake Street Capital. Your line is open..

Thank you. Hello, Eddie and Dennis. It's been a while, and congratulations on a continued success..

Thank you, Yun..

All right, so following up on the margin guidance for 2016, obviously the new point-of-sale system and the other opportunities emerging, completely understand the need to make investments but do you have a policy or goal to not to over-invest to a point where you are showing potentially year-over-year declining margins? So just want to better understand your thinking regarding the level of investments next year.

I do understand that 75 basis point improvement but you kind of left it open-ended in terms of the - it could be a little bit lower than that. Thanks..

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

Okay, great. Thanks for the clarification, because it sounded like maybe you could be a little bit less depending on the level of investments. And then the next question is the - obviously the omni-channel initiatives, it’s moving way beyond the simple distributed order management and obviously the scope of these initiatives are getting larger.

Do you see more interest among large system integrators trying to get more involved in this space and obviously you had an opportunity there in Brazil, seems like one large deployment there.

From your perspective, do you expand your product footprint to include point-of-sale systems and retail systems that were not - are you actively seeking out maybe closer partnership with larger system integrators?.

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

We have a terrific partner network as exist today. We call it a Manhattan Valued Partner Network. We have 40 certified partners in that network, again ranging from frankly the big system integrator, the big domestic system integrators, the big offshore system integrators and again those specialist guys.

So we feel like we've got a very well rounded but a very Manhattan specific set of third-party integrators..

Okay, great. And then lastly, Eddie, you mentioned there were three large deals that were competitive wins. Has those come - 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 maybe them partnering with others.

And also are you actually seeing the deal size and deployment size of these large deals increasing?.

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

Frankly we’ll occasionally sign a 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 as a large deal.

As far as, are the large deals larger? Not particularly, not by our categorization which also infers I’m sure that’s where you're going given the license revenue growth that we've had a very nice and very substantial kind of sweet spot license deals set of transactions..

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

Thank you, Yun. Appreciate it, and welcome back..

Thank you..

Thanks Yun..

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 we 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..