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Manhattan Associates Inc  (NASDAQ:MANH)
Q3 2018 Earnings Conference Call
Oct. 23, 2018, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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) After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions) As a reminder, ladies and gentlemen, this call is being recorded today, October 23rd.

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

Dennis Story -- Chief Financial Officer

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 are cautioned that these forward-looking statements involve risk and uncertainties, are not guarantees of future performance and that actual results may differ 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 2015 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 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.

Eddie Capel -- Chief Executive Officer

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 objectives and represents flat revenue growth and a decline of 4% in EPS versus prior year. And 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 are 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 six consecutive quarters of year-over-year decline in growth comps as our services business demand is steadily improving.

That said, we are 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 and earnings. Our positive business momentum continues to be based on a consistent strategy driven by the following four pillars.

First, market-leading product innovation. Year-to-date, our R&D investment is up over 25% over prior year and we are on pace to invest about $70 million in R&D this year. We are delivering industry-leading transformative supply chain, inventory and omni-channel innovation. Our development cycles are faster than ever and our product and technology releases are bringing important differentiated new solutions to the market, resulting in some encouraging pipeline growth.

Secondly, strengthening pipelines. Our global pipeline is solid and we're seeing upward trends across cloud, license and services. We are 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, Americas services revenue grew 1% year-over-year, halting a run of six consecutive quarters of year-over-year growth comp declines.

And with services overall driving about 60% of total revenue, Americas strengthening demand will help us balance the fluctuations in license and cloud in the early stages of our business transition. And since our last call, we have 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 are on track to post incremental second half growth over 2017 and exiting 2018 with solid momentum

And lastly, number four, investments in sales and marketing. Our competitive win rates continue to be strong at about 70% against head-to-head competition, with about 30% of license and cloud sales coming from new customers. Verticals driving more than 50% of our license and cloud revenues in the quarter were 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 goal of $20 million and we remain very busy with new cloud implementations for 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 booking 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 had taken a little longer than forecasted to close.

That said, we are encouraged by both a robust level of customer interest and the number of active negotiations in which we're engaged. Since the beginning of 2018, we 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 three years (inaudible) duration entering the year, 70% of our 2018 bookings year-to-date have come from Manhattan Active Omni deals that are five years in duration.

While this demonstrates client confidence, it's also very positive in the context of predictable revenue cycles. And these five-year deals can sometimes have a lower one-year annual contract value run rate versus years of two through five and this is a factor of unique five-year deals. Whilst it represents purchase 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 two $1 million plus transactions. Both deals closed in the Americas, one in retail and one in transportation. And while deal activity is healthy, license performance does continue to be impacted somewhat by timing, primarily related to customers and prospects weigh more flexible purchase options for WMS and other supply chain management solutions.

Both our cloud and license pipelines are growing and active. That said, five quarters post Manhattan Active Omni launch we are 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 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 customers achieve operational excellence and best-in-class performance. I will 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 customers, including several multi-billion dollar consumer brand companies have accelerated their upgrade plans in order to take immediate advantage of a 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 their customers to more profitably and fluidly manage both the highly efficient bulk wholesale 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 volume and raising 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 TMS business is growing, reflecting increased investments in sales and marketing over the past two quarters and we believe there are good opportunities for continued growth and market share gains in this area.

Now, speaking of pipeline, we've also seen very positive interest in Manhattan's Active point-of-sale solution in recent months. As a remainder, this application is part of the Manhattan Active Omni platform and thus can be added to a customer's operations as part of that suite as the individual product are all part of one single application platform. Manhattan is uniquely positioned in the industry with this offering to provide a unified platform approach for omni channel and we are confident that we are very well positioned with a strong consideration when (Technical Difficulty) replacement cycle (Technical Difficulty).

And to that end, we 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 in the market for decades.

Speaking at Forrester Analyst Wave reports, we're also very pleased to be one of the only two companies named as leaders of its Omnichannel 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 road map and strategy. And while the leader rating isn't new for us, our competitive position also move forward which we believe recognizes the strength of the Manhattan Active native cloud offerings.

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

Dennis Story -- Chief Financial Officer

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 (inaudible) 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 are now targeting $11.5 million to $13.5 million for Q4 with a full year license revenue estimate of $43.5 million to $45.5 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 five-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 toward subscription models. While this is positive, deal sizes may be 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, (inaudible), totaling 3% growth over 2017. We estimate Q3 maintenance growth to be down approximately 1% to 2% with a 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 are 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 2% to 0% decline.

For Q4, given the seasonal drop off due to retail holiday busy season, we are 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, 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 retailer 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 structure, 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 are estimating about 66.1 million diluted shares for Q4 and 66.6 million diluted shares for full year.

Turning to cash, we closed the quarter with cash and investments totaling $94 million and zero 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 environment given geopolitical and economic volatility, and finally our cloud transition.

So for revenue with one quarter remaining in 2018, we are 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 are 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 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 top line growth with an operating margin profile on the top quartile compared to our peers. We are currently in our annual planning phase and we look to provide an update on any meaningful changes in our Q4 call.

Shifting focus to 2019, we are providing broad parameters for 2019 at this point with two primary elements impacting our 2019 P&L profile. Our total revenue mix across our revenue lines, given our business transition is the first. And second, our 2019 operating margin profile based on our growth investment objectives and innovation, sales and marketing, IT investments and facilities.

For 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 are 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 $1.06 to $1.40 for adjusted earnings per share.

Moving the 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 US federal, state and foreign tax legislation changes and for diluted shares, we are 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.

Eddie Capel -- Chief Executive Officer

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 omnichannel commerce, and we're excited by the significant and expanded business opportunities in our core markets. Our success continues to be driven by delivering innovation that anticipates the needs of an evolving market, focusing on our customer success and leveraging (inaudible) main expertise.

Our services business is experiencing healthy demand and we anticipate this trend will continue as demand for both upgrade support and cloud implementations as well as the ongoing management systems for our clients in the cloud, they are all showing very positive trends. Now while some global and macroeconomic conditions give us reason to be cautious, supply chain complexity and retail evolution in our target markets in fact brings continued need for our solutions (inaudible) customers and we will continue fueling licmulti-year investments across Manhattan Associates.

The move to subscription and cloud based model is positive and is outpacing our expectations. Customer feedback, industry analysts best estimates 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, market leadership and differentiation. And as always, we remain focused on our customer success, on driving sustainable long-term growth for our shareholders.

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 are very well positioned to end the year strongly.

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

Questions and Answers:

Operator

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

Terry Tillman -- SunTrust -- Analyst

Thanks for all the color and also for the initial view on 2019, that was good to see. I guess my first question for either of you two guys is on professional services, it does seem like it's turning the corner and 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 this Active Omni deals that might actually include a large component of services, just trying to understand maybe what's driving the services strength. Thanks.

Eddie Capel -- Chief Executive Officer

The answer is, yes, a bit of everything, Terry, frankly. There is no, I don't think there is 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, there are WMS and some -- very nice substantial WMS upgrades that we're working on.

Some of the Manhattan Active Omni implementations that are under way are substantial and transformative, and they're global frankly. And the another element of that is that the services business across the world, so Americas services is certainly strong and the 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.

Terry Tillman -- SunTrust -- Analyst

Okay. And maybe another question is, it's interesting to see the initial take on 2019 stats for 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 was some timing issues and some deals pushed. But the initial outlook though for next year looks pretty solid in relationship to what my model was.

So, what I'm curious is, do you think that some of those deals that pushed, it was just literally a matter of timing and you expect to close those and/or just a totality of the pipeline could more than offset any kind of pressure around when these deals actually close.

Eddie Capel -- Chief Executive Officer

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

Dennis Story -- Chief Financial Officer

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

Terry Tillman -- SunTrust -- Analyst

Yeah. And I forgot which one of you gentlemen -- this will be my last question, I think you said 20 or so open reps. Now, is that actually quota-carrying sales reps, I guess some just like for the nomenclature here, is it sales reps or is it sales and then SEs or is it also marketers, just trying to understand how much of that would be revenue producing sales folks? And thank you.

Eddie Capel -- Chief Executive Officer

Yes, good Terry. So, the 20 that I referred to was sales and marketing. And I don't have the exact breakdown, but about a third of those people would be full on quota-carrying reps. So, thanks again for the questions and we'll --

Dennis Story -- Chief Financial Officer

But all focused on top line growth and demand-gen as well.

Operator

And your next question comes from the line of Brian Peterson from Raymond James. Your line is open.

Brian Peterson -- Raymond James -- Analyst

Hi, gentlemen and thanks for taking the questions. 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 two through five revenue would be higher than the initial year revenue. I just want to make sure what's driving that, I thought in 606 it would be more ratable recognition. Is there a upsell or is there something driving that or did I just potentially hear that wrong?

Eddie Capel -- Chief Executive Officer

No, you didn't hear it wrong. We expect to exceed our going in expectations to 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 drivers there.

Brian Peterson -- Raymond James -- Analyst

It may be just kind of following-up and I appreciate all the color on 2019, but you have outlined some sales hiring plans. I'm just curious, should we expect most of those to be done by the end of 2019? I just want to think about how much of that investment made within the 2020? Thanks guys.

Eddie Capel -- Chief Executive Officer

So the sales -- again, 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 (inaudible) by the end of this year and likely we will see additional hiring in 2019.

Operator

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

Matt Pfau -- William Blair -- Analyst

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 and 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 toward and is that all related to the cloud business or is there other hiring that's going on?

Dennis Story -- Chief Financial Officer

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 a 150 reps 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.

Eddie Capel -- Chief Executive Officer

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 deals that -- deals in the customers' that we're managing to acquire, but also general build-out of that to make sure that we have got the appropriate scale, 24/7 coverage and so forth to support the growth.

Dennis Story -- Chief Financial Officer

And the real challenge, Matt, is just timing; timing of getting the resources in the door.

Matt Pfau -- William Blair -- Analyst

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 had 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?

Eddie Capel -- Chief Executive Officer

Yeah. The things that are driving the pipeline really when it comes down to (inaudible) is the innovation that we are building. We think we've really got some differentiated (inaudible) capability that we put out in the market starting 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 we get access to because of the cloud capabilities and cloud deployment models that wer are 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 go on a market share from competitors based upon the innovation that we continue to invest in and deliver to the market.

Matt Pfau -- William Blair -- Analyst

Got it. And then 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 net dissipated upgrade over replacement cycle with some of the existing deployed point-of-sale systems, so maybe you can discuss what would potentially drive that -- that replacement cycle and then I guess what Manhattan has to do to go in there and replace some of these existing solutions.

Eddie Capel -- Chief Executive Officer

Yeah, sure. The upgrade cycle I think is largely being driven by the fact that, like we all know, the fabric and context of the retail store is changing, moving from what it was decades and decades and decades, a single-function facility, retail stores were single-function facilities, cash and carry. And now they are multi-function facilities, everything from a boutique to a gallery to a customer service center, a billboard for the digital business, a mini distribution center, they are multi-function, often smaller footprint but much more technologically enabled locations.

And the systems that are being at the center of the retail stores for the last century or so really don't enable either the store associate or provides the service to the customer that is required in today's world. So that's what we think is driving the to-be upgrade cycles. It's important for us, hence you see the uptick in sales and -- to the marketing spend and 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've been known for the more traditional supply chains base, so it's 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

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

Mark Schappel -- Benchmark Securities -- Analyst

Eddie, first question for you. In your prepared remarks you noted that your cloud deals were weighted to the end of the quarter signings and 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.

Eddie Capel -- Chief Executive Officer

Yes. To be honest, Mark, when we put ourselves in our original expectations, the original model together and so forth, we took a sort of a straight down the middle position and thought that unlike perpetual license deals that tend to be very heavily waited till end a quarter close, we thought that cloud deals would close little more evenly across the quarter.

Turns out that and of course we 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 the model go forward.

Mark Schappel -- Benchmark Securities -- Analyst

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

Eddie Capel -- Chief Executive Officer

Our sales force is fuelled 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 here. So, not a lot of change, but a little more technology weighted.

Operator

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

Eddie Capel -- Chief Executive Officer

Okay, terrific. Thank you, Rob, and thank you everybody for joining us to get an update on the Q3 results. We're clearly encouraged by our momentum, the business fundamentals and early transition to the cloud. So we will look forward in early 2019 to reporting our 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.

Operator

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

Duration: 46 minutes

Call participants:

Dennis Story -- Chief Financial Officer

Eddie Capel -- Chief Executive Officer

Terry Tillman -- SunTrust -- Analyst

Brian Peterson -- Raymond James -- Analyst

Matt Pfau -- William Blair -- Analyst

Mark Schappel -- Benchmark Securities -- Analyst

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