Manhattan Associates, Inc.

Good afternoon, everyone. My name is Robert, and I'll be your conference facilitator today. At this time, I'd like to welcome everyone to the Manhattan Associates third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you'd like to ask a question during this time, simply press star one on your telephone keypad. If you'd like to withdraw your question, simply press star 2 on your telephone keypad. As a reminder, ladies and gentlemen, this call is being recorded today, October 25th. I would now like to introduce your host, Mr. Michael Bauer, head of investor relations of Manhattan Associates. Mr. Bauer, you may begin.

Thank you, Robert, and good afternoon, everyone. Welcome to Manhattan Associates' 2022 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 the future financial performance of Manhattan Associates. We will caution that these forward-looking statements involve risk and uncertainties, are not guarantees of future performance, and that actual results may differ materially from the projections contained in our forward-looking statements. I refer you to the reports Manhattan Associates files with the SEC for important factors that could cause actual results that differ materially from those in our projections, particularly our annual report on Form 10-K for fiscal year 2021 and the risk factor discussion in that report, as well as any risk factor updates we provide on subsequent Form 10-Qs. We note, in particular, the turbulent global macro environment could impact our performance and cause actual results to differ materially from our projections. 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. We have reconciled all non-GAAP measures to the related GAAP measures in accordance with SEC rules. You'll find reconciliation schedules in the form 8K we submitted to the SEC earlier today and on our website at manh.com. Now, I'll turn the call over to Eddie.

Thanks, Mike. Well, good afternoon, everyone, and thank you for joining us as we review our third quarter results, discuss our updated full-year 2022 outlook, and provide some preliminary color in our thinking around 2023. Both Q3 and year-to-date results were record-setting for Manhattan Associates, with Q3 total revenue of $198 million and adjusted earnings per share of 66 cents. Both exceeded our expectations. Demand is strong, customer satisfaction is solid, and we continue to be the leading innovator in core supply chain execution, omnichannel solutions, and retail point-of-sale commerce. And while we remain cautious regarding the global economy, we continue to set aggressive growth and investment goals. This includes strategically allocating capital towards industry-leading innovation, enabling customer success, and expanding our addressable market. And we expect these efforts to further deliver on our long-term growth and earnings objectives. We remain optimistic on our outlook for the remainder of this year and into 2023. And as such, we're raising our 2022 guidance for both revenue and earnings. Q3 was our sixth consecutive record revenue quarter, highlighted by 41% growth in cloud revenue, and 17% growth in services revenue. And this encompasses double-digit revenue growth across all of our geographies. These strong results drove our top line at performance and solid earnings leverage in the quarter. Our global teams are exceedingly busy in the field and are executing well for our customers. Driven by new product sales and system upgrades, we're experiencing strong services demand and continue to actively recruit into our services team around the world to meet demand and further drive customer satisfaction. And this includes hiring over 500 new team members across our company in the first nine months of 2022, slightly exceeding our original plans. And while we're prudently cautious, we still remain focused on adding additional exceptional talent Foundational to our growth is Manhattan's ability to deliver industry-leading innovation and services to our customers. Our mission-critical Manhattan Active platform and solutions are differentiated and are key components in our customers' success, providing them with the ability to best serve their end markets, adapt quickly and efficiently to changing market conditions, and profitably scale their businesses. These powerful benefits contributed to our strong customer satisfaction levels and 75% plus win rates within the quarter. Now despite noticeable FX headwinds, RPO, the leading indicator of our growth, increased 69% to $970 million at the end of Q3. On a constant currency basis, which uses the one year ago FX rates, RPO crossed the $1 billion milestone and was up 76%. Importantly, though, demand for our cloud solutions continues to be strong and resilient across our product portfolio. From a vertical perspective, retail, manufacturing, and wholesale continue to drive more than 80% of our bookings in the quarter. And across our solutions, the sub-verticals are pretty diverse. For example, the quarter Applied deals included a manufacturer and distributor of engineered components, a sporting goods and outdoor recreational retailer, an aerospace and defense company, a grocery retailer, an appliance and electronics manufacturer, and a food and beverage company, among many others. Our pipeline continues to be robust with solid demand across our product suites. Net new potential customers represent about 35% of that demand, And here to date, new logos have generated a full half of our total bookings. And as I mentioned earlier, our global professional services businesses both are all performing very well, posting record revenue results with Q3 revenue of 17%, and we continue to receive high marks for customer satisfaction, conducting well over 100 go-lives in the quarter. With our R&D spend poised to eclipse $100 million this year, let's move to a quick update on our industry-leading solutions, starting with Manhattan Active Transportation Management. Across industries and geographies, we continue to experience strong demand and win rates from Manhattan Active TM. And like Manhattan Active Warehouse Management, Manhattan Active Transportation Management serves the needs of retailers, grocers, the food and beverage industry, pharmaceutical distributors, industrial distributors, and many others. And that same principle holds true across geographies, with Manhattan active TM already live on three continents with a fourth in process. Now, according to Gartner, the total addressable market for WMS and TMS are approximately the same size and present a significant growth opportunity for Manhattan. Both WMS and TMS markets are large, global, and span nearly all industries. Now Manhattan Active's supply chain, which comprises of Manhattan Active Warehouse Management and Manhattan Active Transportation Management, affords us the ability to provide leading edge supply chain technologies to customers across industries and across the globe. And as supply chain practitioners hunger for continuous innovation, our truly cloud-native, always current, unified solution is uniquely positioned to provide our customers a platform for co-development. And as a result, we're seeing a growing number of our Manhattan Active WM customers also subscribe to Manhattan Active Transportation Management. In just five quarters after launching Manhattan Active Transportation Management, we believe this growing attach rate for the solution is further indication that our target markets understand and appreciate the many benefits of supply chain unification. Unlike application integration, which several software vendors can offer, true solution unification can only be achieved by replatforming applications to a truly cloud-native and shared collection of microservices. This state-of-the-art common platform makes this unification possible and gives Manhattan Active Supply Chain applications a clear advantage over the competition. And the great thing about the concept of solution unification is that it works up and down the application stack. Macro unification delivers powerful benefits from the suite level, such as with Manhattan Active Omni and Manhattan Active Supply Chain, but unification also delivers benefits all the way down to the feature level. Many of our early activating customers are already benefiting from the Manhattan Active WM's combination of warehouse management, labor management, automation, orchestration, yard management, slotting optimization, and a number of historically separate applications all built into a unified solution. Now, moving to our retail-specific capabilities, we continue to progress at a rapid pace, implementing Manhattan active store solutions across a number of leading retailers. To date, we have Manhattan Active Solutions running in more than 20,000 stores, enabling over 140,000 daily store users across 70 countries. And point of sale continues to be a strategic focus for us, and our message around the importance of running an omnichannel native point of sale continues to resonate. We believe strongly that to achieve omnichannel operational excellence, Store systems must be an extension of the retailer's digital platform. And Manhattan is the only technology provider who can provide best-in-class capabilities serving both the digital and the physical store channels. And we continue to add new prospects to our point-of-sale pipeline and anticipate an active Q4 with respect to point-of-sales. So in summary, Manhattan active supply chain continues to be a real force in the market with new customers subscribing and existing customers going live on a weekly basis. But before I hand off to Dennis, I'm also excited to share that Manhattan Associates recently won a Trust Radius 2022 Tech Cares Award for corporate social responsibility and ESG initiatives. Our company was specifically recognized for both our commitment to building environmental sustainability into the supply chain and also our employee wellness program. So that concludes my business update. Dennis is going to provide you with an update about financial performance and outlook, and then I'll close our prepared remarks with a brief summary before we move to Q&A. So, Dennis?

Thanks, Eddie. Our Manhattan global teams continue to execute extremely well in a challenging macro environment. For the quarter, we delivered strong financial results, as both our Q3 and year-to-date results compare favorably to the rule of 40-plus. Manhattan has solid visibility, and we continue to deliver strong metrics across growth, profitability, and cash flow. I'll start with a recap of the quarter with growth rates on a year-over-year basis. unless otherwise stated. Additionally, due to the volatile FX environment, we are also providing constant currency growth to demonstrate apples-to-apples comps. Unless otherwise stated, constant currency will compare results as if rates were unchanged from the year-ago period. Total revenue was a record $198 million, up 17 percent, as reported, and up 21 percent in constant currency, excluding license and maintenance revenue, which removes the compression driven by our cloud transition. As reported, total revenue was up 23 percent and 27 percent in constant currency. Q3 cloud revenue totaled $45 million, up 41 percent. And as Eddie highlighted, we ended the quarter with RPO, of $970 million, up 69 percent. Excluding FX, RPO totaled $1.01 billion, up 76 percent, and assumes year-ago FX rates. Sequential growth was 10 percent and assumes FX rates remain unchanged from the June 30th levels. Looking ahead to Q4, we expect RPO to be at the high end of our prior guidepost range of $950 million to $1.05 billion on an as-reported basis and exceed the range excluding FX. As of September 30th, over 97% of our RPO represents true cloud-native subscriptions. As Eddie mentioned, Q3 global services revenue was a record $103 million, up 17%, as cloud sales continue to fuel services revenue growth globally. Our Q3 operating profit totaled $51 million, with adjusted operating margin of roughly 26%, which includes $13 million of incremental performance-based compensation accruals. On a normalized basis, operating margin would be approximately 32 percent. I'd call that tapping on the door of Rule of 50. The quarter's better than expected margin performance was driven by revenue growth and operating leverage. Importantly, we continue to invest for future growth. For the quarter, Q3 adjusted earnings per share was 66 cents, and GAAP earnings per share totaled 47 cents. Turning to cash, Q3 operating cash flow was a solid $40 million, and year-to-date operating cash flow was $124 million. Q3 adjusted EBITDA margin was 27 percent, free cash flow margin was 19 percent, and was impacted by timing of cash taxes paid and accounts receivable billings. As previously discussed, the year-to-date decline in operating cash is solely tied to the incremental cash taxes paid associated with the U.S. Tax Cuts and Jobs Act that did not impact the year-ago period. Year-to-date, we have paid $42 million in cash taxes compared to $18 million over the first nine months of 2021, with the vast majority of the increase due to the new law. We continue to expect between $25 and $30 million of additional tax payments in 2022. For more information, I'd refer you to item eight in our earnings release supplemental information schedules. Turning to the balance sheet, deferred revenue increased 24% year over year to $169 million with subscriptions totaling over 50% of the line item. Similarly to free cash flow, deferred revenue was impacted by the quarterly fluctuation of cash receipts. Specifically, some customers paid us in Q2 of this year versus Q3 of 2021. We ended the quarter with $197 million in cash and zero debt. In the quarter, we invested $50 million in share repurchases, resulting in $150 million in buybacks year to date, Also, our board has approved the replenishing of our $70 million share repurchase authority. Now turning to updated 2022 guidance. With our strong year-to-date performance and increasing visibility, we are raising our 2022 outlook on both the top and bottom lines and are on pace to deliver our third consecutive record revenue year. As such, the midpoint of our total revenue range is increasing to $751.5 million, representing 13 percent growth as reported and 16 percent constant currency. This is up from our prior guidance midpoint of $737 million and 11 percent growth. Excluding license and maintenance attrition, 2022 growth would be 23 percent as reported and 26% in constant currency. That's pretty solid. Inclusive of our increased investment in hiring, we continue to anticipate full-year adjusted operating margin to be about 25.5%, which is in line with our prior guidance range and ahead of our original margin target of 23.25%. For full-year adjusted earnings per share, the midpoint of our range is increasing to $2.44 up from our prior midpoint of $2.37. For GAAP EPS, yes, that's GAAP EPS, the midpoint is moving to $1.72 up from the prior midpoint of $1.65. Note the difference between non-GAAP and GAAP is solely our investment in equity-based compensation. This implies Q4 revenue of $182.5 million, targeting cloud revenue of $47.5 million, services revenue of $93.5 million, and maintenance revenue of $32.5 million. Operating margin is targeted at 21.8%, resulting in adjusted earnings per share of 49 cents. As previously mentioned, On prior calls, our Q4 margin accounts for retail peak seasonality, which traditionally on a sequential basis is down from Q3 as customers' idle implementations to focus on their busy season. So that covers the 2022 guidance update, and we're going to move to preliminary 2023 parameters. Our financial objective is to deliver sustainable double-digit top line growth, and top quartile operating margins benchmarked against enterprise SAS comps. Please refer to item nine on our earnings release for our updated 2022 and 2023 guideposts. We are also reiterating our 2024 guidepost estimates that we published in February. which on an FX-adjusted basis should be used as a baseline for our future performance. Note, our published 2024 guideposts have not been adjusted for currency movements. As Eddie highlighted, we are taking a cautious approach to the volatile macro environment, balancing our optimism regarding our large and growing opportunity, strong, resilient demand across our solutions, with the uncertain economic outlook. Additionally, we are currently in our budget cycle and will firm up our 2023 parameters on our Q4 call in early February. Accounting for the current FX environment, our preliminary estimate for 2023 total revenue is $800 to $820 million, representing 16 percent growth, excluding license and maintenance attrition and 8% reported growth at the midpoint. If rates would have remained at June 30 levels, our 2023 total revenue range would be $10 million higher or approximately $820 million at the midpoint. For 2023 cloud revenue, we are targeting $230 to $233 million, representing 35% growth at the midpoint. This compares favorably to our prior guidepost midpoint of $230 million that used year-end 2021 FX rates. If rates remained at 2021 levels, the midpoint of our cloud revenue range would increase to $239 million. For our PO, we are targeting a range of $1.3 to $1.4 billion, representing about 30% growth at the midpoint which compares favorably to our prior guidepost midpoint of $1.325 billion. Yes, that's $1.325 billion. That used year-end 2021 FX rates. If rates remained at 2021 levels, our RPO range would be about $50 million higher. Additionally, as previously discussed, Our bookings performance is impacted by the number and relative value of large deals we close in any quarter, which can potentially cause lumpiness or nonlinear bookings throughout the year. Our services demand continues to be fueled by cloud, resulting in solid visibility. In 2023, we are targeting services revenue of $417 to $425 million. which represents 9% growth at the midpoint, 10% excluding the impact of FX. On attrition to cloud, we expect maintenance revenue to be $115 to $122 million, or a 15% decline at the midpoint and license revenue to be about 1% of total revenue. We expect our adjusted operating margin to be roughly unchanged from our current 2022 projections, While we continue to track ahead of our original margin expectations, the combination of opportunistic investment in our business and hiring supply chain talent, as well as attrition to cloud, is masking some of the inherent leverage in our model. We expect our effective tax rate to be 21.7 percent and our diluted share count to be approximately 63.4 million shares, which assumes no buyback activity. In summary, for 2023 parameters, and on an as-reported basis, we expect total revenue X license and maintenance attrition to increase 16 percent, cloud revenue to increase 35 percent, services revenue to increase 9 percent, RPO to increase 30 percent, and for us to achieve 25.5 percent operating margin. So that covers a very stout financial performance update and outlook. Thank you and back to Eddie for some closing remarks.

Great. Thanks, Dennis. Well, despite the volatile macro conditions, our global teams are executing extremely well. And we're really encouraged by the resiliency of our business. You know, we're pleased with our results and the strong demand for our solutions really across the world. But most importantly, we remain confident in our ability to deliver success for our customers and help them with their digital transformation journeys. So with that, thanks to everybody for joining the call and to our employees for their great work and dedication. With that, Robert, we'd be happy to take any questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Terry Tillman with Truist Securities. Please proceed with your question.

Hey, good afternoon, gentlemen. First, I guess congrats on GAAP earnings and tapping on the roll of 50.

Thank you.

So a couple of questions. Maybe first, Eddie, for you. We get asked the question a lot about the retail complex in general and e-commerce and just potentially impact on your business. The way I'd like to frame this question is if in retail-related industries and e-commerce, if we're shifting from just trying to sell as much as you can when demand is strong to managing maybe even excess inventory or trying to enhance service level, Do the conversations, or are they changing in terms of maybe what products you need to lead with and or just the directional dynamics around their budgets?

You know, there's just modest adjustments, Terry, when it comes down to it. I mean, I think, you know, obviously you've framed the general dynamic in the market well, but at the end of the day, you still don't get away from retailers really wanting to drive that loyalty and customer satisfaction. So, you know, being able to keep the promise is still very, very important to, again, drive that loyalty and reputation. And, of course, we're right in the middle of helping them do that.

Got it. And I guess maybe a follow-up for you, Eddie, is any more color you could share on the important product cycle around Cloud WMS? You know, I think you've given some commentary over the quarters in terms of given us some crumbs, so to speak, in terms of where you are in either go-lives or just total customer count, just any more you can share about where you ended at the end of 3Q or how you think about it by the end of the year? And then I'd follow up for Dennis.

Yeah, so let's see. We're at about 80 customers under contract. Just a couple more than that, I think, but let's use 80 for a random number. Still strong demand around the globe, still strong from Tier 1. and strong across industries. You know, we've mentioned before, we've far eclipsed now, frankly, the 100,000 users of WMS under Manhattan Active, the Manhattan Active WM subscription. So we're just, you know, we continue to be very pleased with that particular product.

That's great to hear. And I guess maybe, Dennis, for you, in terms of It was notable, the call-outs across FX, but then also the accrual. I'd like to double-click into that a little bit. So this $13 million was incremental. This was a new accrual in the third quarter, if I'm not mistaken, so otherwise the margin would have been even stronger than it was. How do we allocate the $13 million? Was some of it up in the cost of revenue or the three OPEX items? Any more you could share on the $13 million? Thank you.

No, we've basically spread that up and down the P&L, Terry, in terms of department structure. And you'll see that in the 10Q as well, which we probably will be publishing tomorrow.

Okay, great. Congrats again. Thank you, Terry.

Our next question comes from Joe Ruink with Baird. Please proceed with your question.

Great. Hi, everyone. I guess on the 2023 outlook, one of the interesting things is the maintenance revenues expected to see an accelerated pace of decline. I guess we've kind of been talking a lot this year about how good new logo interest has been in active WM. Are you starting to get the indication from the big installed base that those customers are now ready to move at a more aggressive pace? And if that's true, is the potential revenue benefit from that? And I understand there's a lot that's uncertain, but is that something that is maybe 2024, 2025, kind of that timeframe for getting an inflection in growth?

No real change in dynamic there, Joe. But some of the maintenance starts to fall off in 2023. And part of that is for deals, frankly, that we've signed in prior years that we're coming to a point of go live and that maintenance is starting to tail off in 2023. So I appreciate the question. It's a clever one. But there really is no... major change in trajectory or dynamic there.

Okay, okay. And then just on the broader approach you took to kind of recalibrating the 2023 numbers, it seems like we have, on one hand, your performance and execution, which has been really good, and it sounds like really no changes in that. And then there's also a macro overlay where you don't want to get ahead of yourself. You want to bake in the uncertainty that's out there. I guess, how would you kind of characterize one versus the other as we investors approach Manhattan into next year? Is there any sort of historical precedent where you would go back in time and say, in a tougher macro, this is what has been relevant to our business or What's kind of the puts and takes on your ability to execute versus the macro?

Well, Joe, in the three or four of these twists and turns that I've been through in my 20 years, we've followed a similar pattern. We've managed through the uncertainty. We've always done that pretty well, and we've invested into it. And in general, that will be our strategy regardless of what happens in 2023 and beyond. And the balance here is that we feel very positive and optimistic about our future performance. And frankly, we've looked as deep into the crystal ball as we possibly can, but we still see the glass is a little foggy when we look deep into it. So that's why we're taking sort of a cautious approach. Obviously, we feel great about a balance sheet position. Going into any turbulent times with cash on the balance sheet, zero debt, and so forth, gives us the flexibility that we need to be able to continue on with that strategy that I alluded to, which is focus on our customers, focus on our people, manage through uncertainty, but invest into it.

And then one quick one, if I may, Eddie, just your comment on investing into uncertainty and With the margin outlook kind of being flattish as opposed to getting a bit of improvement next year, I'd imagine this is part of it. Any particular areas you think are opportunities for investment?

Not particularly. I mean, across the portfolio, frankly. We've got some great opportunities across the portfolio and the areas that we've talked about before in terms of expanding a total addressable market.

Okay. Thank you very much.

My pleasure, Joe. Thank you.

Our next question is from Brian Peterson with Raymond James. Please proceed with your question.

Hey, gentlemen. Just maybe following up on the margin outlook for next year. Dennis, typically, or at least over the last few years, you guys have guided down in terms of the margins, and obviously you've outperformed and you've executed really well against that. I'm just curious, are we seeing just more leverage now, given that the product investments that you've made are maybe more leverageable or you know, updated stance on hiring. I'd just be curious, maybe some qualitative inputs on what went into that.

Yeah, I think, you know, I think we're definitely, you know, have some leverage opportunity. The other side of the equation is we've got such strong demand, we've got to continue to aggressively hire. So good problems to have there, Brian.

No, understood. And Eddie, maybe one quick follow-up for you. Just with your 80 or so active WM customers that you have, how do those look from a land versus expand perspective? I guess I'm trying to understand, are you getting in at a near 100% penetration in terms of the DC footprint, or is it kind of starting small and you have an expand motion over time?

It's a combination, Brian. We're still at about, which is very positive, we're still at about 50-50 in terms of meaning 50% brand new customers that we've never done business with before, 50% existing customers converting. And then when you look at the opportunity to continue to expand our WMS footprint with both those categorizations of customers, There's still plenty of opportunity there for sure.

Thanks, Eddie. My pleasure, Brian. Thank you.

Our next question comes from Matt Pfau with William Blair. Please proceed with your question.

Great. Thanks for taking my questions, guys. I wanted to ask on the visibility into 23 revenue guidance. On the cloud side, yeah, we'd assume that the RPO you have should give you pretty good visibility into that number, but correct me if I'm wrong there. But then on the services side, how much visibility do you have in that? What's the potential variability there, particularly in a weaker macro?

You're certainly right about the first. You know, we've got pretty good visibility into, you know, deals signed in prior years and so forth. Obviously, we've still got to sign new deals in 23, both for 23 revenue and the out years. In terms of services visibility, it's not all contracted work for sure, but we've got visibility into the rollout plans across our product portfolio, across geographies, and across industry verticals. And is there an opportunity for some of those things, some of those projects to slow down? I suppose there is. But when you think about the fact that most of them are backed up by irrevocable subscription fees it does seem like the likelihood that those things will slow down is lesser, number one, in no particular sequence. Number two, we are always considered mission critical and central to business operations. So when you put those two things together, yes, can never say there isn't any risk, but we feel pretty good about the visibility map.

Great. And just wanted to follow up on your comments around point of sale. I know that in your conference in May, it was a point of emphasis to make sure your customers were aware that you're in that market and have a new product, newer product there. Are you starting to see that materialize? Is that starting to build the pipeline?

It seems not just that event, but all of the efforts that our team, particularly our world-class marketing organization have put in to drive awareness through every avenue that we can gain. It certainly seems to be doing the trick, and that pipeline's building. And again, I mentioned in my prepared comments, we're looking forward to a pretty active Q4 from a point-of-sale perspective.

Okay, great. Thanks, guys. Appreciate it. Our pleasure, Matt. Thank you.

Our next question comes from a line of Mark Chappelle with loop capital. Please proceed with your question.

Hi, thank you for taking my questions and a nice, nice job on the quarter. Um, and he's starting with you, you know, based on the strong results, uh, you know, the guidance and the upbeat commentary, it appears that you're not seeing much of, uh, any way of a slowdown in your business. Is this the correct way to read this?

Uh, I think that would be an accurate way to read it, Mark, but, uh, You know, look, all of us, both personally and professionally, as I mentioned before, use that expression, you know, we've looked as deep into the crystal ball as we can look, and as we look deeper and deeper, the glass is a little claddy. So we're just, you know, applying a little caution to the outlook, too.

Okay, understood. And I appreciate your earlier comments on the ActiveTM product, and I Is the early success you're seeing coming from any particular industry or geography? I think you spoke earlier about maybe a 50-50 breakdown between new and existing customers, but what about industry or geographies? Are you seeing any particular strength?

No, it's... No, it's pretty balanced, Mark, actually. As I mentioned, we're live on three continents. We've got the fourth in progress, so it gives you a little sense of the geographic dispersion. Europe happens to be pretty strong. I'm not saying it's an outlier, but has some strong performance going on in Europe and across industry. you know, we've got some good penetration there too. So, you know, good start. You know, we're only about five quarters in from the release of the new product, but you'll feel pretty good about where we are for sure. Great.

Thank you. I'll hand it off to somebody else.

Okay. Terrific, Mark. Thank you.

My last question comes from the line of Blair Abernathy with Rosenblatt Securities. Please proceed with your questions.

Thanks, and nice performance, guys. I just wanted to maybe get a little bit more color on the active WMS, the 80 customers. As some of the earliest customers become more seasoned, what's sort of the dynamic you're seeing in terms of pull-through of other products?

Yeah, I mean, we're certainly seeing nice attach rate for transportation management. That's for sure. We continue to see expanded usage of WMS inside of that footprint. You know, labor management is a great and sort of obvious add-on into that, you know, into that portfolio as well. And then geographic expansion where, you know, one of our customers or customers might well be starting in one geography and expanding out across the world. So, you know, pretty nice footprint expansion across the board, Blair, frankly.

Yeah, Blair, here today we have 30% of our

year-to-date bookings as cross-sell upsell that's up from 20 last year same period that's across all products but again it's certainly a big part of it okay excellent excellent uh and then just uh dennis a quick one for you um as you kind of look at your 2023 margins in this declining maintenance revenue as the business transitions. I mean, how much of a headwind is that from a margin perspective? And as you kind of look out to more of a three- to five-year time frame, does that margin start to climb again?

Well, if you normalize the margins for license and CSSC, it's about 180 BIPs. of upside from a normalized perspective, so margin model's pretty stout.

Okay, okay, great.

We have reached the end of the question and answer session. I would now like to turn the call back over to Eddie Cable for closing comments.

Thank you, Robert, and thanks, everybody, for joining our call today. As you can tell, we're excited about where we are and even more excited about our future and look forward to updating you on that again in about 90 days or so. Obviously, we won't speak to you between now and then, so I know it's a little early, but happy holidays to you all. Thanks. Bye-bye.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.