Manhattan Associates (MANH) Q3 2019 Earnings Call Transcript

Manhattan Associates (MANH 1.01%)
Q3 2019 Earnings Call
Oct 22, 2019, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Catherine, and I will be your conference facilitator today. At this time, I'd like to welcome everyone to the Manhattan Associates third-quarter 2019 earnings conference call. [Operator instructions] As a reminder, ladies and gentlemen, this call is being recorded today, 22nd of October 2019.

I'd now like to introduce Eddie Capel, CEO; Dennis Story, CFO; and Matt Humphries, senior director of investor relations. Mr. Humphries, you may begin your conference.

Matt Humphries -- Senior Director of Investor Relations

Thank you, Catherine, and good afternoon, everyone. Welcome to Manhattan Associates 2019 third-quarter earnings conference 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 the future financial performance of Manhattan Associates.

You are cautioned that these forward-looking statements involve risks and uncertainties and are not guarantees of future performance and that actual results may differ materially from the projections contained in our forward-looking statements. I refer you to the reports Manhattan Associates filed 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-year 2018 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. Now I'll turn the call over to Eddie.

Eddie Capel -- Chief Executive Officer

Thanks, Matt. Well, good afternoon, everyone, and thank you for joining us to review the Manhattan Associates 2019 third-quarter results. Manhattan had a very positive quarter, posting all-time record revenue on strong demand across all of our core solutions. We delivered third-quarter total revenue of $162 million and $0.51 of adjusted earnings per diluted share.

Despite some ongoing global market volatility, third-quarter revenue grew 14% compared with a year ago, and adjusted earnings per share exceeded our expectations by $0.15. Cloud, license and services revenue all exceeded their targets, driving strong operating results, all in our ongoing cloud transition. Adjusted operating margin results exceeded our expectations on stronger-than-forecasted license revenue performance with several large future pipeline deals accelerating into the quarter, creating some near-term variability in our operating margin performance. Our cloud transition continues to progress well.

We set aggressive goals while strategically allocating capital toward investments to enable customer success and expand our addressable market, and we expect those efforts to further deliver on our long-term growth and earnings objectives. With that in mind, we remain optimistic on our outlook for the remainder of this year and into 2020. And as such, we're raising our 2019 full-year total revenue, operating margin and earnings per share guidance. And we continue to see positive momentum in our business, driven by our ongoing cloud transition, as well as our disciplined focus on the following four key growth areas.

Firstly, our market-leading product innovation. We're investing aggressively in innovation, with year-to-date R&D investment spend of $61 million, up 21% versus 2018, and we're on pace to achieve over $80 million in R&D spend for the full year. Ad development agility enables us to deliver new competitively differentiated products and technology solutions to the market much more rapidly, leading to further pipeline growth, competitive wins and customer success. Secondly, pipeline strength.

It remains solid globally for cloud, license and services with better-than-expected trends in both cloud and license. With our transition to the cloud and increase in subscription revenues, we do expect our license revenue to continue to decline year over year. And while early, Q3 cloud WMS deal activities, booking strength and pipeline activity indicates demand is gradually building for WMS in the cloud. Overall, we continue to be very encouraged by our new customer signings and by the concentration of potential new customers in the global pipeline, with over 50% of our deal opportunities representing net new logos.

Thirdly, our consulting services delivered $92 million in revenue, growing 9% versus 2018 on strong demand for our market-leading Manhattan Active omni-channel, inventory and supply chain solutions. And due to strengthening global demand for new product sales and system upgrades, we've increased our capacity 13% year to date and continue to actively recruit global services consultants around the world to meet demand and to further drive customer satisfaction. And lastly, sales and marketing. Our competitive win rates remain strong at about 70% against head-to-head competition with approximately 30% of license and cloud sales coming from new customers.

Our verticals driving more than 50% of our licensing cloud revenue in the quarter were retail, consumer goods, and food and beverage. Sales and marketing investments are up about 9% year to date as we continue to drive broader market awareness while expanding our marketing, sales and account coverage, and that's predominantly in the Americas and across Europe. Total software revenue was $29.7 million in the third quarter, up 65% versus 2018, with the breakdown reflecting our continued revenue mix shift from perpetual license to a cloud-first company. And this performance marks our fourth consecutive quarter of year-over-year combined total software revenue growth, with cloud revenue expected to surpass license revenue in the fourth quarter of this year.

We recognized $15.5 million in license revenue in the quarter. Significant deals included four $1 million-plus transactions in the Americas. They were evenly split between new and existing customers. And although deal activity remains robust, we expect the overall license performance will continue to be impacted by timing, primarily related to the retail reconstitution and by customers and prospects weighing the potential shift to the cloud.

Now turning to cloud specifically. Our Q3 revenue totaled $14.2 million, growing 120% over the prior year and 58% sequentially. We continue to experience strong interest in subscription models for our traditional supply chain management solutions, including WMS, scale, transportation and inventory. And cloud activity in our supply chain management segment was particularly strong in Q3, underpinned by a large long-term government agency customer that transitioned several products from a managed services model to a full cloud deployment and it lowered our services growth rate a little but, in turn, positively impacted our cloud run rate.

And Dennis will provide a little more details around the specifics of these in his financial update. While early cloud adopters are impacting our license results, we continue to view this as positive for our long-term subscription revenue growth. And now I'd like to provide just a few updates on our product innovation, some insight into recent successes with implementations of these innovative solutions within our customer base. So let's start with our point-of-sale solution.

In the past few weeks, we completed a highly successful and on-schedule implementation of our point-of-sale application out of a major multichannel lighting retailer in the U.S. And in collaboration with this customer, we rolled out Manhattan point-of-sale application across the entire store fleet during the course of this past summer. Now as a reminder, unlike any other point-of-sale application for the Tier 1 market, Manhattan's point-of-sale is cloud-native. So it's version-less and always up to date.

So in this case, our customer has effectively done the very last implementational upgrade that they'll ever need to do for their stores. And we're very proud of the work that our research and development and professional services teams have done here, working hand-in-hand with the customer's leadership, IT and retail operations team. It's a real success story for both the customer and ourselves. And we believe it's a model of what in-store retail technology is going to look like in the coming decade.

And additionally, we've got a few more point-of-sale customers conducting initial implementations or in the process of rolling out our POS solution across their fleet of stores. And as we look at our POS sales pipeline, we're starting to see a healthy demand building. And we believe that our multi-year efforts to raise awareness for our solution, while establishing our brand within the store systems market, are finally beginning to pay off. And we're being invited to participate into more competitive evaluations, both within and outside our current customer base.

Our point-of-sale solution is increasingly being noted as one of the key must-consider next-generation solutions for brick-and-mortar stores, as we continue our mission to make the appeal of personal shopping accessible well beyond its traditional boundaries of luxury retail, as market data is telling us that exceptional personalized service is one of the primary factors separating retail winners and losers, and we're particularly committed to helping our customers win in this area. Now one other quick note before I offer some remarks within our supply chain area. Two weeks ago, we hosted our largest-ever contingent of our customers at Manhattan Exchange in Barcelona, Spain. Similar structure to Momentum, our customer conferences that is attended primarily by U.S.

customers. Exchange is principally focused on bringing together our community of European and Middle Eastern customers. The event was the best we've ever had, measured across a number of dimensions, customer attendees, partner participation, the number of customer-led presentations and participation in our user group meetings. Of particular note, I thought was the wide variety of customer-led presentations, ranging from the rollout of our Warehouse Management System for a grocery in Europe to the ongoing global rollout of Manhattan store technology for one of the world's preeminent luxury brands.

And we're proud to be at the nucleus of innovation for our customers across a wide landscape of commerce and supply chain projects. And finally, I'll close out my product-specific remarks with an update on our transportation management business. The third quarter marked another very successful quarter for the TMS of Manhattan, with the growing number of customers signed and projects in flight. And what's particularly encouraging is our ability to sign entirely new customers into our cloud TMS offering, meaning that we've added these customers who have hadn't previously used any technology from Manhattan Associates.

And these new customers represent success that we're having with establishing our brand in TMS. From our first-ever placement in the leaders quadrant of Gartner's Magic Quadrant to sharpening our sales and marketing efforts around TMS, Manhattan's TMS pipeline is certainly growing. And while product innovation is always key to the type of uptick we've been seeing, I think it is worth noting that the innovation we've seen from our professional services team around TMS. Because in a nutshell, leveraging the advantages of cloud, we're now able to get our customers live with our TMS solution quicker and at lower cost than ever before.

And we certainly look forward to continuing to build that momentum in this line of business in the coming quarters. So that covers our business update. Dennis is going to provide us with an update on our financial performance and discuss our 2019 full-year guidance in further detail. And then I'll close our prepared remarks with a brief summary.

Dennis Story -- Chief Financial Officer

Thanks, Eddie. Overall, our growth, profitability, cash flow and balance sheet metrics continue to be solid in our business transition. Third-quarter total revenue was $162.3 million, with 14% organic growth over prior year. Excluding FX, total revenue was up 15%.

Adjusted earnings per share was $0.51. GAAP earnings per share was $0.42 with stock-based compensation accounting for the difference between adjusted and GAAP EPS. License revenue for the quarter was $15.5 million, nearly double the $8 million target discussed in our Q2 call. The driver of the large Q3 beat was primarily timing related as we signed new deals in the third quarter versus our expectations of the fourth quarter and early 2020.

For the fourth quarter of 2019, we are targeting approximately $7 million to $8 million as license revenue mix continues to transition to cloud subscriptions. For full-year 2019, we are raising our license estimate range to $47 million to $48 million. Our previous range was $38 million to $42 million. Q3 cloud revenue was $14.2 million, up 121% versus Q3 2018, driven by robust customer demand for our cloud solutions, with 70% of our cloud deals and bookings driven by strong WMS demand, very positive.

In the quarter, 60% of the bookings generated came from a healthy combination of net new customers to Manhattan and net new product sales to existing installed base customers. As Eddie mentioned, early in Q3, we successfully converted a large long-standing customer from a managed services contract to a cloud contract, raising our quarterly cloud revenue run rate by approximately $3 million. The impact lowers our services growth rate but, in turn, positively impacts our cloud run rate, which we are reflecting both in our go-forward guidance. For the fourth quarter of 2019, we are estimating our cloud revenue to be about $15 million, up 121% over the prior year on solid demand for our cloud solutions.

For full-year 2019, we're raising our cloud revenue recognized range from our previous estimate of $42 million to $44 million to approximately $46 million, representing year-over-year growth of about 100%. For total software, representing cloud and license revenue combined, we are raising our 2019 full-year estimate to $93 million versus our previous estimate of $83 million, representing a year-over-year increase of approximately 36%. Regarding bookings, as we've discussed, remaining performance obligation, or RPO, is the leading proxy of our cloud bookings performance and represents the value of contractual obligations required to be performed, otherwise referred to as unearned revenue or bookings. Our RPO for the quarter totaled $152 million, up 137% over prior year and up 26% sequentially over Q2 2019.

This excludes the Q3 government contract conversion previously discussed. For Manhattan, this disclosed value represents our cloud bookings value of unearned revenue under noncancelable contracts greater than one year. Contracts with a noncancelable term of one year or less are excluded from the reported RPO amount. One last point on license and cloud.

Our performance continues to depend on the number and relative value of large deals we close in any quarter. As large license deals remain important, our markets continue to shift toward subscription models. While this is positive, deal sizes may be slightly smaller as subscription revenue is recognized over time. We also retain appropriate caution around slowed decision-making by some clients and prospects, particularly retailers and potential global macro and geopolitical events that could impact business investment cycles.

Shifting to maintenance. Revenue for the quarter totaled $37.8 million, up 2% versus the prior year on strong maintenance cash collections. Retention rates remained strong at greater than 95-plus percent. For 2019, we are estimating maintenance revenue to be about $147 million, roughly flat versus 2018.

We estimate Q4 2019 maintenance revenue to be about $36 million. Overall, we expect that our maintenance results will be influenced by perpetual license deals closed during the year, existing customer conversions to cloud, retention rates and timing of cash collection. Turning to services. Consulting revenue for the quarter totaled $91.6 million, up 9% over Q3 2018 on persistent global demand.

For Q4, we are forecasting a 6% sequential services revenue decline from Q3 due to retail peak seasonality as customers idle implementation work. We are targeting Q4 revenue growth of approximately 1% to 3% over prior year with a midpoint target of $86 million. For the full year, we estimate services revenue to be about $360 million. Our consolidated subscription, maintenance and services margin for the quarter was 50.4%, driven by increased head count investment in cloud and consulting services.

For 2019, we expect Q4 subscription, maintenance and services margin to be about 49% due to the combination of on-boarding of new hires, customers idling implementations during the retail holiday peak season and higher cost of compute, reflecting the seasonality impact of retail peak busy season as well. We are targeting full-year subscription, maintenance and services margin to be about 50%, which reflects our investment in cloud operations, performance-based compensation and increased services capacity to meet demand. Turning to operating income and margin. Q3 adjusted operating income totaled $43.1 million, with an adjusted operating margin of 26.6%.

For Q4 2019, we are estimating adjusted operating income of $26 million to $27 million and adjusted operating margin of 17.8% to 18.4%. Our license to cloud revenue transition combined with continued hiring across the organization, customers idling implementations as I mentioned previously for Q4 retail peak and seasonal impact of cloud compute costs for retail customers are included in our operating margin estimates. For full-year 2019, our adjusted operating income estimate is $141 million to $142 million, up from our previous estimate of $125 million to $129 million. For the full-year 2019, we estimate that our adjusted operating margin will be in a range of 23% to 23.2%.

Our Q3 adjusted effective income tax rate was 24.5%, and we are estimating a 24.5% effective tax rate for both Q4 and full-year 2019. Regarding our capital structure. In Q3 2019, we repurchased approximately 430,000 shares worth $36 million. Last week, our board approved replenishing our repurchase authority limit to a total of $50 million.

And for Q4 and full-year 2019, we are estimating 65.3 million diluted shares outstanding, which assumes no buyback activity. Turning to cash. Yes, we closed the quarter with cash investments of $114 million and 0 debt. Our current deferred revenue balance totaled $97 million, up 19% from December 31, 2018, on maintenance and cloud billings.

Q3 cash flow from operations totaled $40 million, and year-to-date operating cash flow is $112 million, up 9% over prior year. Year to date, capital expenditures totaled $11.4 million, reflecting significant facilities investment to accommodate business growth. For full year 2019, we estimate capital expenditures to be approximately $14 million to $15 million. Now I'll wrap up with our updated 2019 guidance and a preliminary look at 2020, then turn it back to Eddie for closing comments.

So for revenue, we're raising our 2019 total revenue guidance from our previous range of $598 million to $604 million to $610 million to $614 million, targeting total revenue growth of 9% to 10%. Our previous guidance targeted year-over-year growth at 7% to 8%. We expect Q4 2019 total revenue growth in the range of approximately 1% to 3% versus the prior year, reflecting retail peak seasonality impact. For earnings per share, we are raising our 2019 adjusted EPS guidance to $1.63 to $1.65.

Our previous range was $1.46 to $1.50. Our GAAP EPS guidance is $1.26 to $1.27. Additionally, we estimate our Q4 2019 adjusted EPS to be approximately $0.31. For operating margin, we're targeting a full-year adjusted operating margin range of 23% to 23.2% and GAAP operating margin range of 17.7% to 17.9%.

Our margin objectives reflect our business transition to cloud, continuing to ramp in 2019, including related incremental investments with the objective of driving long-term sustainable growth. As we look toward next year and beyond, our focus remains on sustainably growing our subscription base while making organic investments to position ourselves for long-term growth and profitability. While we are in our annual planning phase, we are going to provide some preliminary targets for 2020, bearing in mind our ongoing revenue mix shift as we transition to a cloud-first company, coupled with the growth investments we continue to make across R&D, sales and marketing, IT and facilities. Furthermore, as is customary, we expect to provide 2020 guidance during our fourth-quarter call and full-year 2019 earnings call.

For our preliminary 2020 targets, all year-over-year growth rates are pegged to the midpoint of our full-year 2019 guidance for the relevant target. For total revenue, from the midpoint of our 2019 total revenue guidance of approximately $612 million, our estimated range for 2020 total revenue is $643 million to $658 million, representing top line growth of 5% to 7.5%. For adjusted earnings per share, our estimated range for 2020 is $1.50 to $1.57. On a total software basis, again, license plus cloud, we are targeting $100 million to $110 million revenue range, representing 7% to 18% year-over-year growth.

We expect our 2020 software revenue mix of license and cloud to shift from about 50-50 to about 30% license, 70% cloud. As we've noted, license revenue will continue to decline as customer demand for our cloud solutions increase. We are currently targeting approximately $25 million to $30 million in license revenue in 2020. For cloud revenue recognized, we are estimating approximately $75 million to $80 million, representing 62% to 72% growth.

As we scale our cloud business, our view is that the more success we have with subscription adoption, the impact of the revenue mix shift from license to cloud on our near-term income statement results will be effectively masking a significant level of underlying value creation. For maintenance, we're targeting to be flat to down 2% year over year on lower license revenue and cloud conversions, resulting in a range of $144 million to $146 million. For services against record 2019 comps, we are estimating $380 million to $389 million in revenue or 7% to 8% growth with a midpoint value of $387 million. Regarding adjusted operating margin, with our ongoing transition to cloud, we are targeting an adjusted operating margin of 20% to 20.05%.

We expect our adjusted operating margin to trough at around 20% in 2020, subject to timing of business investment. And finally, our effective tax rate is expected to remain the same at approximately 24.5% subject to U.S. federal, state and foreign tax legislation changes. And for diluted shares, we're projecting 65.3 million shares per quarter, which, of course, assumes no buyback activity in Q4 2019 or for the full-year 2020.

That covers the financial update. Back to Eddie for some closing comments.

Eddie Capel -- Chief Executive Officer

Well, thank you, Dennis. And in summary, look, we're very pleased with our performance in the quarter with our continued cloud transition progress. Our underlying business fundamentals remain same, and we continue to focus on extending our market-leading position in supply chain and omni-channel commerce solutions. Our momentum and success continues to be underpinned by delivering innovation that anticipates the needs of an evolving market, as well as focusing on our customer success and leveraging our deep domain expertise.

Our year-to-date performance continues to increase our confidence in the significant expanded business opportunities within our core markets. Our competitive position remains strong, and we continue to invest in innovation to extend our addressable market, while expanding our market leadership and product differentiation. Our ongoing feedback from our customers and our strong competitive win rates continue to serve as guideposts for our investment strategy and capital allocation decisions. And as always, we remain absolutely committed to our customers' success while driving long-term sustainable growth for our shareholders.

We're the world's most-talented and knowledgeable omni-channel and supply chain commerce employees, the best software solutions and the market dynamics requiring customer investments in innovation, we believe we have a market-leading position and are able to succeed in the long term. And with that, Catherine, we're ready to take any questions.

Questions & Answers:

Operator

[Operator instructions] And your first question comes from the line of Terry Tillman with SunTrust.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Hey, good afternoon, gentlemen. Can you hear me OK?

Eddie Capel -- Chief Executive Officer

We can, Terry, yes. Good afternoon.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Good afternoon. Well, congratulations. First of all, hi, Eddie, hi, Dennis, and welcome, Matt.

Matt Humphries -- Senior Director of Investor Relations

Hey, Terry.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Yeah. The first question I wanted to ask, and Dennis, you touched on this a little bit, I want to make sure I have this right, but it's kind of a multipart question on RPO. The net add was strong in terms of the RPO figure. First, did you say that this federal agency that migrated for managed services, there's not much or any impact in that RPO addition in the quarter? And then secondly, maybe you all could hone in on, what was the real drivers of the strength in RPO? And then I have a follow-up.

Thank you.

Eddie Capel -- Chief Executive Officer

Hey, Terry, yes. It is not included in the RPO. That deal is not. And the strength of the quarter in terms of driving bookings was really across all the solutions, but WM had a very strong showing, which is very encouraging in terms of early demand signals for WMS in the cloud.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

OK. And just my follow-up question, and then I'll rest. As it relates to investments for 2020, you gave us specific guidance on margins. So when we look at increased investments in '20, how would you stock rank investments -- incremental dollar investments in sales and marketing and R&D going into next year?

Eddie Capel -- Chief Executive Officer

Yeah, good question. We'll talk -- we're in our annual budgeting cycle, and we'll talk about that in the Q4 earnings call.

Dennis Story -- Chief Financial Officer

But they will be the top two investment categories, Terry, for sure. And thank you.

Operator

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

Mark Schappel -- Benchmark -- Analyst

Hi. Good evening. Congratulations on the quarter. 

Eddie Capel -- Chief Executive Officer

Thank you, Mark. Appreciate it. 

Mark Schappel -- Benchmark -- Analyst

Hey, just Eddie, real quick, I was wondering if you could just provide some additional details around the government agency customer that decided to go to a full cloud deployment, maybe a little bit of color around what drove the change and whether you think -- maybe -- whether you expect further similar changes with other customers?

Eddie Capel -- Chief Executive Officer

We do think that it's, frankly, inevitable, Mark, that everything that we do and frankly, our customers do will move to the cloud over time. Really, it's just a question of prioritization and timing. This is -- this particular client is FEMA. They've been a customer for over a decade.

And as you probably know, there is, frankly, a pretty large initiative within the federal government to move to the cloud. And really, this was just part and parcel of that program. It happened kind of reasonably swiftly and certainly very efficiently from a product and an implementation perspective. But I think that we'll see, certainly, more of our customers go in that direction over time.

Mark Schappel -- Benchmark -- Analyst

Great. Thank you. And then it's a nice commentary around your TMS solution. I was wondering if you could just go into some of the demand drivers that are pushing customers to kind of upgrade the software category.

Eddie Capel -- Chief Executive Officer

Yeah. Yeah. So look, the capacity constraints are certainly a factor. The continued desire for better and better and better visibility, because we all as consumers want better visibility into our packages.

So in turn, we're seeing transportation providers and shippers provide that capability to their customers. And the other general factor is you're seeing many more frequent yet smaller shipments across transportation network, which requires better optimization and more advanced optimization to be able to make those moves, at least in a marginally, if not wholly profitable way.

Mark Schappel -- Benchmark -- Analyst

Great. And then finally, also some favorable commentary around the cloud WMS solution. I think also in the past quarter or two, there's been a favorable commentary around that solution. I was wondering if you could sketch out for us the customer profile that is considering moving to a subscription model for WMS.

Again, typically smaller customers or is it your newer customers? Maybe if you could just give us some details there.

Eddie Capel -- Chief Executive Officer

Yeah. So as we mentioned in our prepared comments, the momentum there and appetite is gradually building, I would say. It is interesting that we are seeing, really, the full gambit of customers, again, it's early days, but the -- a full gambit of customers are looking and executing on cloud deployments. So when I say full gambit of customers, smaller single distribution center customers to Tier 1 multi DC customers and also third-party logistics providers kind of in the middle there.

So the drivers can be a little different. Certainly, for the third-party logistics customers cost advantage is one, but also the speed to deploy. As third-party logistics guys bring on new customers, they need to be able to stand up a solution very, very quickly for them and obviously, cloud technology offers that capability and facility for them.

Mark Schappel -- Benchmark -- Analyst

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

Eddie Capel -- Chief Executive Officer

OK. Thank you, Mark.

Operator

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

Matt Pfau -- William Blair and Company -- Analyst

Hey, guys. Thanks for taking my question. First, I wanted to ask a follow-up on your commentary around the cloud WMS. So my understanding was that the current subscription version of WMS was more or less a hosted version, and there wasn't really a sort of true version-less WMS product like you have with the Active omni products yet.

Is that not the case? Is it similar to Active omni, where updates are automatically pushed across? Or is it more of a hosted version of the WMS product?

Eddie Capel -- Chief Executive Officer

Well, so included in the subscription are updates to the WMS product for sure. Obviously, when we're reporting out from a financial perspective, WMS in the cloud, it is the economic model that we're referring to, we moved from the license line to the subscription line. But included in that subscription line are updates -- frequent updates to the WMS product.

Matt Pfau -- William Blair and Company -- Analyst

Got it. OK. And then I wanted to ask on the license beat. So is -- all that's included in the license now, is that all related to WMS and you still brought up -- even though you commented that some was pulled forward, you still brought up the license expectation for the full year.

So obviously, there's -- you're seeing some strong demand there. So maybe some commentary on what's driving some of those license sales.

Eddie Capel -- Chief Executive Officer

Yeah. Strategic supply chain transformation for customers that still want to run on-premise. I mean, again, we're still convinced that eventually, there is -- it's inevitable that everything moves to the cloud, but that's timing related and there's a long tail on that. So there are some customers that still want on-premise solutions, and we're more than happy to execute and deploy in that mode.

As far as overall license for the quarter, it was driven kind of largely by WMS for sure, given that Manhattan Active omni is 100% deployed in the cloud and not all, but almost all of our TMS solutions are up in the cloud, too.

Matt Pfau -- William Blair and Company -- Analyst

OK. Got it. And then last one for me, just on the point-of-sale solution. The commentary there about now being included in more RFPs.

Maybe just what's the sort of feedback been on how your product now after making improvements on it over the past several years and having a few referenceable customers stacked up to the competition? And I guess, where are the main pushbacks you're seeing as to why somebody would choose a competing offering over yours?

Eddie Capel -- Chief Executive Officer

Yeah, yeah. Great question. So the feedback on the solution, its capability and, frankly, especially the technology architecture is being almost overwhelming in terms of how positive it is. The implementations that we've done have been swift.

They've been on time and very, very effective. So that's, I think, the reason that we're seeing this very, very strong momentum. Now just a quick reminder here. Whilst point-of-sale and the financial transaction that's consummated in the retail store is very important, our solution spans the entire retail suite of solutions inside the store.

So store execution, customer engagement, customer service, point-of-sale across all channels, ensuring that we can sell anything to anybody from anywhere, which is a big leap forward in technology and capability from, frankly, point-of-sale solutions from the days gone by. In answer to your question, where do we get pushback? Clearly, we do not have hundreds and hundreds and hundreds of implementations around the world. So if there is a question that we're asked, and it is around how many deployments, how many countries, how many -- and all of those kinds of things, things that you can't overcome overnight, you overcome one successful implementation at a time, and that's really what we're focused on that.

Dennis Story -- Chief Financial Officer

And suffice to say, Matt, the pipeline is looking very solid with respect to POS opportunities.

Matt Pfau -- William Blair and Company -- Analyst

Great. That's all I had. Thanks a lot, guys.

Eddie Capel -- Chief Executive Officer

OK. Thank you, Matt.

Operator

Your next question comes from the line of Brian Peterson with Raymond James.

Brian Peterson -- Raymond James -- Analyst

Thanks, gentlemen, and congrats on the strong results. So I wanted to follow up on the point of sale. Eddie, did I hear you correctly that you talked about opportunities with new customers that are not currently Manhattan customers? And I'm curious if that's happened a little bit quicker than you would have expected. And should we be hearing about any stand-alone customer wins in the next few years on the point-of-sale side?

Eddie Capel -- Chief Executive Officer

Well, we certainly hope so. I don't know that it's happening faster, Brian, but we are certainly picking up some momentum. And you did hear right that some of the inquiries and sales cycles that we're in are with new logos as the -- as it's generally noted. I think -- we're excited.

We're excited about that. We're focused on those just as much, of course, as we are on implementations or potential implementations with our existing customers. So exciting times from a point-of-sale perspective, for sure.

Brian Peterson -- Raymond James -- Analyst

Got it. And maybe one for Dennis. Just on the margin side. As we're thinking about the upside that you posted this year in the guidance for 2020, anything that you can say in terms of timing related to the hiring and the growth investments that happened this year? And did any of those shift into 2020?

Dennis Story -- Chief Financial Officer

Yeah. We're continuing to hire just based on business demand. So it's a pretty full employment market out there, Brian. So the hiring, we're doing pretty well, but it's taken a little bit longer, as Eddie said, on the services side of the business.

We've increased our capacity year-to-date, 13%. Last quarter, it was 10%. So we're definitely growing, but there are a lot more heads we need to pull into the business to meet customer demand. And then the investment cycles around the sales organization, we're quite active there.

We're really active across the entire organization because growth is pressing the business. So investment in facilities, investment in IT, continued investment in cloud ops.

Brian Peterson -- Raymond James -- Analyst

Thanks, guys.

Eddie Capel -- Chief Executive Officer

Thank you, Brian.

Operator

And your last question comes from the line of Yun Kim with Rosenblatt Securities.

Yun Kim -- Rosenblatt Securities -- Analyst

Thank you. Hi, Eddie and Dennis, and welcome, Matt. Congrats on a strong quarter. Eddie, very strong license revenue in the quarter.

You mentioned that some of those were Q4 and first-half 2020 deals. Can you mention what drove customers to pulling those deals into Q3?

Eddie Capel -- Chief Executive Officer

I think it was just -- there was -- well, let me just say, from our perspective, it was not any kind of financial management. It was the desire to get started with the supply chain transformation and begin to see the value from the solution faster. I do have reasonably firsthand experience and knowledge of those -- a number of those particular deals and just customers who saw the value and wanted to get cracking, frankly.

Yun Kim -- Rosenblatt Securities -- Analyst

OK. That's great. And then just on the MST customer, just kind of curious, are there any other opportunity for any other large current MST customers to transition to the cloud in the near term? Or was that just a one-time event within your current MST installed base?

Eddie Capel -- Chief Executive Officer

Yeah. There certainly are additional opportunities, Yun. Again, we think that full cloud deployments is an inevitability for at least most of our customers, frankly, maybe even all of them over time. So we're working hard to make sure that our customers understand the value and the benefit of a full cloud deployment.

But I would say that we're not about to do anything unnatural to encourage them to get there. We're letting them make that decision, make the right decision from a timing perspective for their business.

Dennis Story -- Chief Financial Officer

It's not a large percentage of our overall revenue either, Yun.

Yun Kim -- Rosenblatt Securities -- Analyst

OK. Great. And then just last one for you, Eddie. On the point-of-sales business momentum, how big are those point-of-sales deals, typically? I am just kind of curious.

Eddie Capel -- Chief Executive Officer

Yeah. Well, we're not going to -- obviously, we don't disclose the specific deal size, Yun. I'll say that they are nice deals and deals that we're very interested in closing. They are large, medium-to-large footprint stores, so deals that matter, for sure.

Yun Kim -- Rosenblatt Securities -- Analyst

OK. And for you, Dennis, surprised no one asked you yet, the contract length of new subscription deals that you signed in the quarter that show up into RPO, has that changed much in the quarter?

Dennis Story -- Chief Financial Officer

No.

Yun Kim -- Rosenblatt Securities -- Analyst

OK. Great. Congratulations on a strong quarter. Thank you, guys.

Eddie Capel -- Chief Executive Officer

Very good. Thank you, Yun, and welcome back.

Dennis Story -- Chief Financial Officer

Thanks, Yun.

Operator

And there are no further questions at this time.

Eddie Capel -- Chief Executive Officer

Very good, Catherine. Thank you. Well, thank you, everybody, for joining us on the Q3 call. We're, again, excited about the progress that we've made and look forward to another strong quarter and reporting that out to you in about 90 days or so.

In the meantime, have a wonderful holiday season. Thank you.

Operator

[Operator signoff] 

Duration: 49 minutes

Call participants:

Matt Humphries -- Senior Director of Investor Relations

Eddie Capel -- Chief Executive Officer

Dennis Story -- Chief Financial Officer

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Mark Schappel -- Benchmark -- Analyst

Matt Pfau -- William Blair and Company -- Analyst

Brian Peterson -- Raymond James -- Analyst

Yun Kim -- Rosenblatt Securities -- Analyst

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