Dennis Story - CFO Eddie Capel - CEO.

Terry Tillman - SunTrust Robinson Brian Peterson - Raymond James Monika Garg - KeyBanc Matt Pfau - William Blair Mark Schappel - Benchmark.

Good afternoon. My name is Jessie and I will be your conference facilitator today. At this time, I'd like to welcome everyone to the Manhattan Associates Q3 2017 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, Tuesday, October 24.

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

Thank you, Jessie, and good afternoon, everyone. Welcome to Manhattan Associates 2017 third quarter earnings call. It's truly a global call, I am here in Atlanta, and Eddie is down under in Sydney, Australia. So I will review our cautionary language and then turn the call over to Eddie.

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

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

I refer you to the reports Manhattan Associates files with the SEC for important factors that could cause actual results to differ materially from those in our projections, particularly our annual report on Form 10-K for fiscal 2016 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. Now, I will turn the call over to Eddie..

Good afternoon, everybody. Q3 was a very solid quarter for Manhattan. Our financial results demonstrate our continued market leadership and the increased adoption of our cloud solutions particularly in the retail omni-channel sector.

We continue to drive strong innovation in the quarter delivering substantial differentiated capabilities to the market and our services teams performed at a very high level delivering efficient plan implementation. So Q3 represents the first full quarter post launch of our Manhattan Active Solutions suite.

And I'm very pleased to report that customer and prospect response has exceeded our expectations. While it's early with only one quarter under our, belt but there appears to be two principal factors in play. Firstly based upon client feedback for our Manhattan Active Omni solution, cloud is the preferred deployment and buying model.

And secondly, the Manhattan Active Omni product itself is superior and differentiated over competitive alternatives in the market. Already we’re seeing 13% of our total Q3 software revenue generated by cloud deals.

And based on discussions with customers and prospects globally, we expect continued acceleration to our Manhattan Active cloud business as customers look to a cloud first approach. We continue to manage our business strategically with strong operational and financial execution.

More year-over-year comps reflect macro retail challenges to services revenue, our Q3 results were solid across all other financial metrics reflecting the anticipated move by clients towards subscription-based cloud models.

While we remain cautious in managing through a tough retail business cycle, we will clearly exit 2017 stronger than we entered the year. License revenues for the quarter was $18.8 million down 13% over prior year, a $3.5 million of otherwise perpetual license deals converted to subscription revenue in the quarter.

On a perpetual equivalent basis, license revenue grew 3% over prior year, EMEA operations delivered $2.2 million and APAC $1.9 million of license revenue in the quarter. Our Q3 services revenue was down 3% compared to prior year in line with the rate that we reported in Q2 2017.

And in summary, we delivered Q3 total revenue of $153 million, that’s about flat year-over-year and $0.51 of adjusted EPS up 2% versus prior year. Now on a perpetual equivalent growth basis, total revenue was up 3% and adjusted EPS up 8%.

Our competitive win rates head-to-head against our major competitors remained very healthy winning greater than 75% of the time. We added several new large global brands to our customer portfolio closing four $1 million plus deals perpetually - perpetual license model. Of these large deals, two of them were with new customers and two with existing.

We had two additional $1 million perpetual equivalent license deals that selected a subscription model. Five of the deals were in the U.S. and one was in APAC. Two of the deals were for distribution management, two were for Manhattan Active Omni, and two were for transportation management.

All of our Manhattan Active Omni deals in Q3 were with new customers. Our Q3 license mix was split roughly 60% to 40% between warehouse management and other solutions. The retail, consumer goods and third-party logistics verticals were again our strongest license fee contributors making up more than half of our Q3 software license wins.

And as previously stated, interest in our new Manhattan Active Omni offering is exceeding our expectations. And we're in detailed discussions with a number of customers and prospects which are extending sales cycles in a very positive way enabling and driving the full evaluation of our new capabilities in the technical architecture.

And finally as permitted by our customers, our earnings press release highlights some of our Q3 software license wins. Now turning to services, consulting revenue was down 7% versus Q3 2016 and down 2% sequentially from Q2 2017.

The Americas was down 12% in Q3 and year-to-date over prior year, while EMEA increased 15% year-over-year and APAC increased 61% against July comp. We completed 370 system go-lives over the past 12 months and continue to receive high marks from our customers.

Our consulting organization continues to execute well and performing in a highly efficient rate against a tough retail secular headwind particularly in the U.S.

market and is important to note that these results reflect a more agile implementation process, as well as early positive results against an associated internal goal that we have to reduce our implementation cycle times materially over the next five years.

Our focus is on increasing customers time to market and time to value in order to drive total lower cost of ownership with the corollary of increasing our owned lifetime customer value.

For the quarter, we invested nearly $15 million in research and development with nearly 700 associates dedicated to R&D and our plans for the remainder of 2017 and beyond continue to factor an increased R&D investment.

This investment is yielding first of the type products and as mentioned in our last call, we unveiled the single largest set of product announcement in our company's history in May of this year, including Manhattan Active Omni, the industry's first omni-channel as a service-cloud native platform.

As a reminder, Manhattan Active Omni is a single application that combines our market-leading contact center, order management, and store fulfillment solutions with our new point of sale and clienteling applications.

Manhattan Active Omni is the industry's only cloud native application that supports literally every customer facing associate for the modern merchant. Every associate at every level in the contact center and in the store can deliver a best-in-class channel less experience to their customers, the consumer.

The core technology of Manhattan Active Omni is differentiating and unifies what many others have only managed to cobble together through acquisitions of disparate technology. Only Manhattan's micro service cloud native technology delivers a single set of components serving all forms of commerce.

Furthermore, our extensible yet version less capability uniquely meets the needs of Tier 1 customers for customization without the sacrifice of access to next generation updates.

In addition to the current pipeline of customers interested in Manhattan Active Omni, I'm happy to report that we have a number of implementations already underway covering a variety of retail business models.

A multibillion-dollar direct business was an even larger brick-and-mortar business, a focused deployment of our store fulfillment applications for a very well-known department store retailers, a combined deployment of OMS and point-of-sale of the specialty of our power retailer, and we have several others underway accompanies in the consumer goods and direct to consumer spaces.

Additionally, several global information are being planned for Manhattan Active Omni with large international brands. As finally on the product front, I’ll return to the theme of speed of innovation. In years past we've typically done one or the most two releases of our applications each year.

With Manhattan Active Omni, we've already had two substantial releases of order management, point-of-sale and store inventory fulfillment since the initial release in May.

This rapid delivery of innovation provides customers faster capabilities and services enabling deeper consumer engagement and loyalty, while driving scale, and optimizing revenue and margin. Further out, versionless platform lowers TCO by eliminating the need for future upgrades.

Now turning to our global associates, we ended Q3 with about 2830 employees around the globe down about 70 compared with Q2 2017 and down about 190 from the year-end 2016.

We finished the quarter with 62 people in sales and sales management, with 56 quota carrying sales reps that's unchanged from last quarter and we continue to look opportunistically to add technical, marketing and sales professionals on the demand and growth basis. So that covers the business update.

Dennis, why don’t you provide the financial update and guidance along with our preliminary outlook for 2018 and beyond and then I'll close our prepared remarks with just a brief summary..

Okay, thanks Eddie. As Eddie mentioned, our year-over-year reported comps in my opinion were positively influenced by our Manhattan Active Omni cloud transition.

Approximately 3.5 million of what we would have reported as traditional perpetual license deals with $0.03 of EPS in fact converted to cloud this quarter based on customer demand with future routable revenue cash flow and EPS impact.

Q3 total revenue was 153 million flat versus a year ago, Americas was down 4%, Europe grew 22%, and Asia-Pacific was up 36%. Adjusted earnings per share for the quarter was $0.51 up slightly compared to Q3 2016 EPS of $0.50 on flat revenue and expense management. Our GAAP earnings per share was $0.47 flat compared to prior year.

For your reference a detailed reconciliation of GAAP to non-GAAP EPS is included in our earnings release today. So license revenue for the quarter, reported license revenue totaled $18.8 million declining 13% versus Q3 2016 driven by Manhattan's transition to the cloud.

The 3.5 million in on-prem equivalent license revenue that converted to cloud will begin generating recognize subscription revenue in Q4 of this year. Just to be clear, the $3.5 million only represents the license portion of subscription for the total subscription value.

Our reported 18.8 million in license for the quarter includes 2.5 million of cloud revenue predominantly from our TMS product. Regional license splits were Americas $14.7 million, Europe $2.2 million, and Asia Pacific $1.9 million.

Global pipeline activity is robust for our Manhattan Active Omni solutions so we expect Q4 cloud sales will have a similar impact on Q4 license revenue as we close out the year. Shifting to services, Q3 services revenue totaled $115.6 million down 3% over prior year and down 1% sequentially.

Our services revenue is comprised of two revenue streams as you know consulting and maintenance. Consulting revenue for the quarter totaled $79.2 million down 7% compared to prior year and down 2% sequentially from Q2 2017.

Americas was down 12% year-over-year, Europe and APAC combined were up 27% year-over-year with Europe up 15% in Asia-Pacific up 61% over a low comp.

Maintenance revenue for the quarter totaled $36 million increasing 6% over last year on strong collections license revenue growth, cash collections and retention rates of 90 plus percent contributed to this year-over-year growth.

As a reminder, we recognized maintenance revenue on a cash basis of timing of cash collections can cause inter-period lumpiness from quarter-to-quarter. Consolidated services margins for the quarter were 62% benefiting primarily from strong productivity and lower performance-based compensation accruals.

We expect Q4 2017 services margins will likely be in the range of 61.8% to 62% and our full-year 2017 services margins to be about 60%. 2017 services margins are benefiting by about 200 basis points due to $8 million and lower performance-based compensation expense which will reset in 2018.

Turning to operating income and margins, Q3 adjusted operating income totaled $34.9 million with an operating margin of 35.9%. The $3.5 million impact of license revenue converting from perpetual to subscription revenue lowered operating margin 140 basis points.

Our full year 2017 operating income estimate range is $202 million to $206 million with an operating margin of about 34.3%. While disappointing it's important to note the lower performance-based compensation expense positively impacted operating margins by 240 basis points.

If we would had achieved our 2017 growth rates, operating margins would have been about 32%. That covers the operating results. Our adjusted effective income tax rate was 36.5% for Q3 and we continue to project a full-year effective tax rate of 36.5% for adjusted earnings per share.

For GAAP, new accounting rules related to taxes associated with vesting restricted stock will lower our 2017 GAAP effective tax rate to 35.5%. Diluted shares for the quarter totaled 69.1 million shares. Our year-to-date common shares outstanding are down 2%.

For Q3 we did not execute any share repurchases in order to replenish our domestic cash reserves, and reestablish our $100 million cash threshold that we like to carry on the balance sheet to show financial strength against our competition.

We estimate Q4 diluted shares to be about $69.3 million and full-year weighted average diluted shares to be about $69.6 million shares. This estimate does not assume additional common stock repurchases. We currently had 50 million of share repurchase authority approved by our Board.

Turning cash metrics, we closed the quarter with cash and investments totaling $130 million and zero debt compared to $87 million and zero debt reported for Q2 2017. Q3 cash flow from operations was $44 million with year-to-date operating cash flow totaling $116.6 million up 15% over prior year.

DSOs were 58 days versus 57 days in Q2 2017 and capital expenditures were $1.2 million in the quarter. We estimate full-year CapEx to be about $5 to $7 million. Now I'll update our 2017 guidance and provide a preliminary 2018 outlook and then hand off to Eddie for closing remarks.

So, we are maintaining our 2017 full-year total revenue and EPS guidance issued last quarter. Total revenue will be in the range of $590 million to $600 million. With the Q4 holiday season, we are modeling typical sequential decline and services revenue of about 3% to 4% from Q3 2017 to Q4 2017.

For adjusted diluted earnings per share our guidance range remains at $1.85 to $1.89. For GAAP and diluted EPS again there is no change at a $1.71 to $1.75.

Now shifting focus to 2018, several moving parts here with adoption of ASC 606 and anticipated transition to the cloud subscription model ramping up, we are providing broad parameters for 2018 as the streets 2018 models are currently geared towards our traditional perpetual license business.

There are four primary elements impacting our 2018 P&L profile. Number one is ASC 606 revenue recognition adoption January 1, 2018 which all companies will be adopting this accounting standard. Second is our Manhattan cloud transition, third performance-based compensation reset and fourth strategic investment.

So on the rev rate adoption, we will adopt 606 on a modified retrospective basis. I know that excites you all, so we will not be restating years 2017 and prior. There are two primary impacts for Manhattan.

One, we will report hardware revenue net of the related expense on our income statement, and two we will be amortizing commissions expense related to maintenance and other services that extend beyond 12 months.

While the netting of cost against hardware revenue will not impact our gross profit, it will reduce our base year 2017 revenue by about $31 million and therefore directly impact revenue growth comps 2017 versus 2018. The impact is earnings neutral on a comp basis. 606 requires net reporting since we do not take title to any hardware sold.

We're still evaluating the impact of the amortized commissions but currently do not expect this to be material. Second is cloud transition. Based on our early client preference for Manhattan Active Omni cloud deployment, we're estimating 25% to 30% of our recognized software revenue to be cloud revenue in 2018.

We are pegging total software revenue to be approximately $84 million in 2018, so we expect 2018 cloud revenue recognized will double to triple over 2017 with that range. Starting in Q1 2018, we will report our license and cloud revenue and cost of revenue splits in our publicly reported financials.

The new revenue line will include all subscription hosting an infrastructure as a service revenue from our existing and new software as a service and hosted customers. As always our software performance will depend heavily on the mix of license to cloud deals and the number and relative value of large deals we close in any quarter.

The cost of the cloud line will include our global cloud operations, compliance cost and third-party cloud and software costs associated with the management of the cloud environments.

As a checkpoint, we expect our 2018 license gross margin to be about 89.5% and our cloud gross margin to be about 44% as a large portion of our initial upfront cloud ops investment is fixed cost. Moving onto the third element, performance-based compensation reset.

Due to lower than planned revenue in 2017, our performance-based compensation paid to our associates is significantly lower than in previous years. In 2017 these plans worked as designed by sharing the negative impact of lower than planned revenue performance between our employees and our shareholders.

As we began 2018 compensation plans, we were reset with the expectation of achieving our financial goals in the coming year with the financial impact of about $15 million. We have the deepest domain expertise in our industry, a strong heritage of execution and focus on our customers. We're making great strides in innovation as well.

Resetting our performance-based compensation target annually is a very important component of serving our markets, customers, investors while continuously retaining and attracting top supply-chain commerce talent.

And finally the fourth element is strategic investment of $10 million to $15 million earmark for product innovation across the Board and omni-channel addressable market expansion.

This represents phased investment capital driven by market demand essentially adding a second layer of investment for product innovation, marketing and sales coverage in cloud operations necessary to drive growth and expand addressable market. We are currently in our budgeting cycle factoring in the transitional impacts.

We will provide 2018 guidance on our Q4 earnings call February - that's going to be held on February 6, 2018. We will also address key metrics at that time.

After taking the above factors into account our preliminary outlook for 2018 follows; for revenue, assuming the midpoint of our 2017 total revenue guidance of $595 million, our estimated range of - for 2018 total revenue is $556 million to $568 million.

So 2018 total revenue estimate is from $556 million to $568 million representing a decline of 6.5% to 4.5% respectively. Apples-to-apples adjusting for 2017 revenue for the 606 hardware impact, we expect total revenue to range from a decline of 1% to an increase of 1%, and our recurring revenue mix is targeted be at about 30% of 2018 revenue.

For earnings per share assuming the midpoint of 2017 EPS guidance of a $1.87, our estimated range for 2018 EPS is from a $1.26 to the $1.29 representing a decline of 33% to 31%. Adjusted operating margins with the business transition to cloud ramping up in 2018, we are targeting an operating margin range of 24.1% to 24.3%.

As I mentioned, we will address longer-term trends in key metrics in our Q4 earnings call. Our effective tax rate estimate is 36.5% subject to U.S. federal state and foreign tax legislation changes. Per diluted shares we are projecting 68.5 million shares per quarter which assumes no buyback activity in Q4 2017 or the full year 2018.

So we covered a lot here in an effort to provide some transparency to investors we have added a section in our supplemental financial schedules attached to today's earnings release in the Form 8-K we submitted to the SEC earlier today, and on our website@manage.com. It recaps some of the information I've just provided you for 2018.

That covers the financial update. Thank you very much. And I'll turn the call back to Eddie for some closing comments..

Thanks Dennis. I’ll close my prepared remarks with a brief conclusion. As success continues to be driven by delivering innovation, the anticipated needs of a rapidly evolving market focusing on our customer success and leveraging our deep domain expertise.

For the global and retail macroeconomic condition certainly give us reason to be cautious, we’re very bullish on the market opportunity ahead of us. Supply chain complexity in retail evolution in our target markets will continue fueling multiyear investment cycles for customers and Manhattan Associates.

The move to subscription and cloud-based model is positive and is outpacing out expectations.

Customer feedback on our exciting market leading innovation demonstrate that we’re delivering true differentiation, and that we’re investing significant energy and capital into advancing the world's leading suite of supply-chain commerce solutions to extend that market leadership in the 2017 and certainly in the out years.

Our competitive position is strong.

We continue to invest in innovation to extend our adjustable market, market leadership and differentiation and with the world's most talented supply-chain 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 for 2017 and beyond.

And with that, Jesse, we’d now be happy to take any questions..

[Operator Instructions] Your first question comes from Terry Tillman with SunTrust Robinson. Your line is open..

So, first, it’s a lot of color you provided on 2018, so I really appreciate you being proactive on that front, Dennis in giving us all that clarity for the '18 model, I know it’s just an initial view, but it is really helpful. Also good to see the Active Omni products seeing a strong start out of the gate.

I have a series of questions, first, if I look at some of the numbers, Dennis is there any way you can look at, you said about 84 million of software sales next year.

Could you look at a like for like, if we break out any of the pre-existing cloud business and then obviously the incremental cloud business, so let’s look at just traditional on-prem license products, what’s the underlying growth rate or is there any growth looking at '18, 34 [ph] million?.

You're asking for on-prem equivalent right, Terry?.

Yes, but that will also take into account some of existing sub revenue from WMS and couple of your preexisting products in '17. I really want to strip out anything and everything that has to do with subscription, pre-existing or new stuff.

And if you can't do it, that fine, I'm just trying to get at how the WMS business and some of the traditional, you know what are going to remain licensed products, what kind of growth forecast you're assuming there?.

Yes, we just don’t have that level of detail yet, Terry. We’ll be better prepared once we close out Q4..

I guess one thing though as it relates to -- we're going to get a question as it relates to the ongoing evolution of this cloud transition, and it will never play-out exactly like you are forecasting.

There’s going to always be puts and takes, but what about the WMS business? And this is for either of you guys in terms of are your customers and prospects asking for WMS in the cloud or is that potentially something that’s longer down the road?.

So, I think it’s a little further down the road. As we look at the Active Omni Solutions, certainly cloud seems to be the preferred, both deployment and economic buying model. The need for consistent and frequent innovation is much more important in that particular arena.

In the WMS space, while deploying WMS [indiscernible] from a technology perspective certainly has its benefits.

The need for such frequent innovation update is lesser with WMS, because frankly they are a bit more disruptive in the WMS world number one and the economic delivery model of WMS by subscription does not seem to be a focus at this particular juncture from the market..

And then just my last question. Eddie, this is directly for you. You know in the past, when I'm talking to investors and even I'm just thinking about it, it seems like everybody should be doing omni-channel today or yesterday.

I know there's inertia, there's disruption even to Active Omni, or the omni-channel investments, but do you see with delivery now of a quicker to deploy maybe more of a writable revenue recognition type story around Active Omni, that could actually accelerate adoption of your order management capabilities and maybe just further accelerate overall adoption of omni-channel in general given that you can now provide it in the cloud? Thank you..

Yes, I think it’s right Terry. Certainly the speed to deploy is very helpful, very valuable to our customers number one and the ability to be able to ramp and scale more incrementally based up on both the technical deployment in the cloud and the economic model that we’re offering, I think certainly offers us a great deal of a promise in that area..

The next question comes from Brian Peterson with Raymond James. Your line is open..

Thanks for taking the question.

So maybe a tactical one for you Eddie, just as we're thinking about Active Omni is that something that's going to continue to focus on kind of the high-end of the market which your traditional customer base has or do you think maybe that's more TAM expanding and potentially moving down markets?.

Yes, certainly as we deliver the solution again both from a deployment perspective and an economic model in a cloud way, I think our ability to be able to go down market to smaller revenue customers and so forth certainly gives us the opportunity to expand.

Now, I would just clarify that the innovation and the capability that we’re delivering is very focused on that Tier 1 and that Tier 2 customer delivering that very sophisticated, very seamless experience to the consumer, but as we know, the need for those capabilities being driven down into smaller retailers has certainly become more and more evident on a day over day basis.

So, we’re certainly encouraged about our ability to go deeper into that pyramid for sure..

And as a follow-up just on, you guys are pretty explicit on the license key to cloud transition and the impact of that so I appreciate that. Is there any way that you could size the total customer impact as we think about the lifetime value of services and other aspects, do you guys have any math that you can provide on that..

Way too early as I mentioned Brian, we’ll talk about more detailed metrics once we get another quarter behind us and we level set the guidance in February..

Your next question comes from Monika Garg with KeyBanc. Your line is open..

Thanks for taking my question. First is on the operating margin guidance, if I look at the impact of ASI 606 both in 2017 and 2018 your revenue guidance is kind of flattish year-over-year but your operating margins, you were guiding almost down 12 points, right.

So could you help me reconcile the 12 points gap between 2017 and 2018?.

Yes so Monica I kind of stepped through that. You know it's the three big factors. Number one is the transition to cloud, number two is resetting our performance based comp and then number three is we’ve earmarked based on demand generation and growth potential $15 million of strategic investment..

So $15 million strategic investment, $15 million for comp and then about $30 million impact is transition to cloud then, rest?.

Sure, I mean it's when you take the transition from - when you take a traditional perpetual as you know on-prem license deal and you begin spreading it over a three to five-year period it's going to have significant impact in at least the year one, year two transition to cloud..

Looking at the revenue 2018 guidance, total revenue kind of flattish in ASC 606 impact.

You just said softer revenue you are expecting to be flat so are you expecting services to be flat too that means?.

I would say the goal is right now what factoring into that where the goal is on the high end of the range to be flat on the low end of the range we forecast to be down about 3% to 4%..

I guess broader picture perspective could you help us understand when you move to cloud generally people need lower services, so how should we think about impact to service revenue as you model shift to cloud?.

I think we'll talk - that's part of the key metrics and longer term impact. We'll give guidance or will talk about that in the Q4 call itself. .

Just a last one, free cash flow guidance for 2018?.

We don't give guidance of free cash flow right now, never have..

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

The first wanted to start on the cloud gross margins and I know you said that you expected them to be about 44% for next year. How should we think about that longer-term, what's the margin potential in that business as you are start to gain some scale there..

As I said in the call we're going to talk about all of those metrics when we get to the Q4 call.

We're a quarter and we've had fantastic results, we're extremely busy, we love the activity in our pipeline, our associates are working their tails off in the organization and it would just be premature for us to really start throwing those kind of metrics around for the investors, our employees, our shareholders et cetera.

We won't get another quarter of activity under our belt. I mean we're modeling the heck out of this but as you know this is - any business that goes through this it's a big transition..

And then maybe you'll talk about that later too but figure I'll ask it anyways.

When we think about the revenue recognition of the subscription deals relative to license obviously there is the ratable recognition there but in terms of when you actually start that recognition is it more delayed versus the license dealer how should we think about that?.

It is not more delayed. .

And then just want to dig into the incremental investments for 2018. I know you had talked about for 2017 were you're making some as well over around the Active Omni solutions so how does the ones for 2018 compared to the ones that you've made are in the process of making in 2017. .

We put a $9 million bogie out there and essentially we did not consume it, we self-funded it internally. So in the fourth quarter we got some seed investment going into the marketing side of the house to drive market awareness around our cloud solutions.

So the $15 million is not incremental on top of the 9 that we established in the initial guidance in 2016. Incremental wise we'll probably be about $14 million relative to 2017, strategic investment..

And then just last one from me, Omni Active, Omni deals that you've been selling I think one goal of the product was to I guess encourager or health cross-selling amongst the products that are grouped into that Active Omni solutions by removing some of the implementation or double implementations between various products.

So have you been seeing customers in either deals in the pipeline or deal that you've sold be interested in it may be more products than they would have when all those were kind of separate applications that you were selling?.

Yes, that's definitely the case Matt. There is customers and prospects and particularly now customers buy into the Active Omni of products suite, they are clearly buying into the vision of the roadmap and the incremental implementation of the solutions built into that suite. So certainly very encouraged by that for sure..

[Operator Instructions] Your next question comes from Mark Schappel with Benchmark. Your line is open..

Eddie first question for you down under. Anyways the supply chain space has been one of the slower software categories to embrace the cloud, excuse me, however in your prepared remarks you are noting that the clouds is really becoming the preferred buying models.

I was wondering if you can just walk us through what some of the changes that you're seeing in the buyers' mind with respect to the supply chain execution space..

Yes, well there is a little bit of a bifurcation Mark, in as much as the, kind of, that traditional logistics side of supply chain is still tending to be kind of an on-prem perpetual model but in the area of supply-chain commerce particularly you know the omni-channel solutions and so forth, A, the need to be able to drive innovation much more quickly to be able to capture the hearts, minds and loyalties of the consumer, I think is, it's really what is front and center of the retailers, wholesalers and manufacturers' minds.

Obviously we're seeing the way I phrase it, we're seeing a lot more retailers today than we've ever seen before, and what I mean by that is we're seeing of course manufacturers go direct to consumer, we're seeing wholesalers going direct to consumer and the need for them to be able to respond quickly to the expectations that are being driven into the marketplace by the pure play online guys drive that need for consistent and speedy innovation.

And then secondly, it would be remiss of me not to mention that the ability to be able to ramp the economic spend is also very attractive in that particular space.

When you're building a distribution center, the WMS is going in - you're building the distribution center, you're building the distribution center with a very specific set of volume requirements, so it's pretty clear the type, the nature and the volume of the WMS you need.

When you are entering the direct to consumer or omni-channel market, the ability to be able to ramp the economics over time is surely very attractive as well..

Mark, I like to piggyback on that a little bit too. Eddie it's a subtlety that probably flew over everyone's head on the call but Eddie mentioned in the script that we signed the - Manhattan Active Omni deals were all with new customers in the quarter.

So if you remember when we launched WMS on the platform in January 2010 our win rates went from roughly 60%, 65% north of 70%. We had, when we launched on that platform we had a number of existing customers that had already implemented.

In this scenario we released brand-new net new technology born in the cloud and scored some nice new logos without any installs to compare to..

And then one follow-up question. Eddie with respect to re-architected Active Solutions, do you expect the implementations for these products to require less so imitation services..

Well the simple answer is yes, Mark, and there is two factors there. One is the speed of technical implementation is greater with this architecture, so it improves the time-to-market, the total cost of ownership speed to market and so forth.

And then secondly we set ourselves some aggressive internal goals to continue to improve our efficiency that deliver that value back to our customer. So the simple answer is, yes, on a couple of fronts..

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

Okay, very good Jesse. Well thank you and thank you everybody for joining us this afternoon. We certainly appreciate your attention and your support of Manhattan Associates and we'll look forward to updating you in about 90 days on the continued transition to the cloud and giving you more specifics around our 2018 target.

So thank you again and good afternoon..

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