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Pete Sinisgalli - President & Chief Executive Officer

Dennis Story - Chief Financial Officer


Yun Kim - Wedbush Morgan

Mark Schappel - Benchmark Company



Good afternoon. My name is Jennifer and will be your conference facilitator for today. At this time, I’d like to welcome everyone to the Manhattan Associates quarter four and year-end 2008 earnings conference call. All lines have been placed on mute to prevent background noise. After the speaker’s remarks, there will be a question and answer period (Operator Instructions).

I’d now like to introduce Mr. Dennis Story, Chief Financial Officer of Manhattan Associates. Sir, you may begin your conference.

Dennis Story

Good afternoon everyone, and welcome to Manhattan Associates 2008 fourth quarter earnings call, also greetings from Bangalore India. Pete and I both are visiting our Bangalore operations and so in the off chance that we experience technical difficulties please bear with us as we believe we’ve covered all scenarios with backup alternatives for completing this call. Before we launch into the results discussion, I will review our cautionary language and then turn the call over to Pete Sinisgalli, 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 risks and uncertainties, are not guarantees of future performance, and that actual results may differ materially from those 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 2007 and the risk factor discussion in that report. We are under no obligation to update these statements.

In addition, our comments will cover certain non-GAAP financial measures. These measures are not in accordance with or an alternative for GAAP and may be different from non-GAAP measures used by the companies.

We believe that this presentation of certain non-GAAP measures facilitates investor’s understanding of our historical operating trend with useful insight into our profitability exclusive of unusual adjustments. Our Form 8-K filed today, with the SEC and available from our website contains important disclosure about our use of non-GAAP measures and in addition our earnings release filed with the Form 8-K, reconciles our non-GAAP measures to the most directly comparable GAAP measures.

Now I’ll turn the call over to Pete.

Pete Sinisgalli

Thanks Dennis and welcome to our fourth quarter earnings call. I’ll start by taking you through some of the highlights from the quarter and Dennis will provide details of our financial results. I’ll follow with additional observations about our business and provide an overview of our outlook for 2009. Dennis will conclude our prepared remarks with our financial guidance for the full year and first quarter of 2009 and then we’ll be happy to answer your questions.

In a very difficult selling environment, we posted a decent fourth quarter and full year 2008. Total revenue for the quarter was $75.7 million, a decrease of 11% versus the prior year. For the quarter, we achieved adjusted EPS of $0.26, within our guidance range and a decline of 30% compared to Q4 last year.

For the year, we finished with total revenue of $337.2 million, essentially flat to 2007 and adjusted EPS of $1.38, up 6% from last year. Despite a difficult global economy, particularly in the second half of the year, we delivered some very important, non financial successes. We improved customer satisfaction across all products and geographies and we extended awareness of our suite of solutions beyond our core strength in warehouse management.

Our competitive win/loss rate in 2008 was strong and most importantly, we made very good progress on our product roadmap. I’ll talk more about these shortly. Now I’ll turn the call back over to Dennis to provide details of our financial results.

Dennis Story

Thanks Pete. I will cover adjusted financial results first and then provide a summary of our GAAP earnings. As Pete mentioned in the difficult economic environment continues to put pressure on revenues and consequently earnings, as a number of licensed deals pushed out at the quarter.

We delivered $0.26 of adjusted EPS in the fourth quarter, which was within our guidance range and represented a 30% decrease over the prior year quarter, driven by lower revenues and $3 million equating to $0.08 impact of additional reserves associated primarily with revenues and collection risk tied to the economy.

Adjusted net income of $6 million in the quarter decreased 37% over Q4, 2007. There is no question that our business is feeling the impact of this unprecedented economic downturn. However we encourage investors to consider key takeaways from our 2008 performance that clearly indicates the strength of our business.

One, we have a strong track record of managing expenses wisely and in 2008 we proactively executed meaningful expense reductions that should contribute to operating earnings expansion in 2009. Two, we delivered record Q4 and full year maintenance revenues with 90 plus % retention rates. Three, our services margins continue to be world class. We delivered 50.7% services margins for the year after absorbing Q1 margins with 47.9%.

Four, our cash flow is very strong. We generated record Q4 and full year operating cash flows of $18 million and $64 million respectively. Five, our balance sheet, exiting 2008 was stronger than it was when we entered the year and it was very solid then. Of our $89 million in total cash, $86 million is highly liquid. Six, our capital structure is efficient and well managed. We have no debt, and our operating cash flow enabled us to sell fund $35 million in share repurchases for the year.

Our share repurchase program has been positively accretive, cumulatively since 2004 yielding a 24% accretion for shareholders and finally, our heritage commitment to supply chain leadership sets us apart. We continue to invest $0.14 of every revenue dollar into R&D to enable our customers to design and operate strategic supply chains that create market advantages, while delivering solid investment returns as reasonable ownership costs.

For the full year, we delivered adjusted EPS of $1.38, up 6% over the prior year, on adjusted net income of $33.6 million, which represents a 5% decrease over 2007. Our 6% earnings per share growth benefited from a lower share count, a lower overall effective tax rate and FX gains offsetting lower operating EPS contribution for the year.

Diluted shares for the quarter of 23.5 million shares were down 9% over Q4 2007 and down 4% sequentially. In the quarter we repurchased about 652,000 common shares at an average price of $15.35, totaling $10 million. This leaves $50 million in the remaining share repurchase authority from the board’s $25 million repurchase authority approved in October 2008.

For the full year 2008, our common stock repurchase investment was $35 million or about 1.7 million shares at an average price of $20.52. For 2009, we are estimating quarterly and full-year diluted shares to approximate Q4 2008 diluted shares.

These estimates depend on a number of variables such as stock price, option exercises, forfeitures and share repurchases that can significant impact our estimate. The current forecast estimate does not assume any common stock repurchases.

Now onto revenue and operating results; total Q4 revenue of $75.7 million decreased 11% compared to last year. Excluding currency, revenue was down 8%, a 3 percentage point negative impact. Full year total revenue of $337.2 million was flat compared to 2007 and currency impact for the year was neutral.

In 2008 we experienced a second half deceleration of revenue growth, as customers and prospects largely retrenched to assess the macro-economic consequences to their own businesses. We exited 2007 with solid momentum, posting two consecutive years of 17% revenue growth.

Transitioning to 2008, first half revenue growth slowed, but still was up 7% over 2007, while second half revenue declined 7% over 2007. While we do not provide revenue guidance, we are planning for macro-economic head winds to persist through 2009 with the first half impact similar to the second half of 2008.

The Americas segment reported total Q4 revenue of $63.6 million with both license and services revenue down for an overall decline of 10% over Q4, 2007. For the year, the Americas delivered total revenue of $277.2 million, representing a 2% decline over 2007. Overall, our international operations posted a solid year despite license revenue challenges in Q4.

EMEA, Q4 total revenue was $8.7 million declining 19% over Q4 2007 and APAC’s total revenue declined from $3.8 million in Q4 2007 to $3.3 million in Q4 2008, about a 13% decline. For the full year, EMEA delivered record revenue and operating profit with 16% total revenue growth. APAC full year revenue was up 6% over 2007. Both theaters delivered solid revenue and operating profit contributions for Manhattan in 2008.

Moving on to license revenue performance; for Q4, license revenue was $13.8 million, down 26% or $4.7 million compared to $18.6 million in Q4, 2007. For the year, license revenue was down 11%, largely driven by second half acceleration of the global economic crisis. First half license revenue was up 1%, on strong growth of 33% in Q1, second half revenue declined 23%.

We continue to close strategic deals with large customers and prospects. In Q4 2008, we signed four deals with license revenue exceeding $1 million each compared to three such deals in Q4, 2007. However, the tough economic environment was clearly expressed and a drop of about 55% in the volume of Q4 deals executed in the $250,000 to $1 million range. We also saw several million dollar plus deals push out of the quarter to 2009.

In the Americas, Q4 license revenue was $11.9 million down 21% over Q4, 2007. While some significant deals pushed to 2009, Americas closed all four of the $1 million plus deals closed in the quarter. In EMEA, license revenue totaled $1.5 million in Q4 which was down about $1.3 million compared to Q4, 2007 and APAC delivered license revenue totaling $426,000 for the quarter, down from $826,000 in Q4 of 2007.

Despite the tough macroeconomic head winds, we are encouraged by the fact that we continue to attract new customer to Manhattan and to earn new business from existing customers. In Q4, the ratio of sales to new versus existing customers was 30% new and 70% existing and for the year that ratio was about 50-50.

Transitioning to services; total Q4 services revenue of $53.8 million decreased 6% over Q4, 2007 and sequentially declined 10%. Historically, Q4 services revenue declined sequentially about 5%, due to the seasonal holiday impact. Consistent with my synopsis in the Q3 earnings call, the remaining gap can be attributed to a slowdown in services demand in the wake of lower license revenue and slower upgrade activity in our heritage iSeries solution.

Customers continue to preserve capital due to market liquidity concerns and this in turn, continues to hamper professional services revenue performance. However, full year services revenue managed to grow 4% on solid first half growth of 10%, largely driven by our double digit growth and maintenance revenues.

Looking in to our services revenue split; our professional services revenue in Q4 totaled $33.7 million, declining 13% compared to Q4, 2007 and 17% sequentially year to date. Our global professional services team delivered revenue of $159 million, essentially flat for 2007. Maintenance revenue for the quarter increased 11%, over Q4, 2007 to $20 million, a record quarter.

For the year, we grew our maintenance revenues 15%, another record year in terms of total maintenance dollars. Our double digit growth in maintenance revenues extends from new license revenue and strong maintenance retention rates, which continue to track at a healthy 90 plus %.

For the quarter, consolidated services margins were 51.5%, up 80 basis points compared to 50.7% in Q4, 2007 and up 20 basis points sequentially from Q3 2008. This reflects both the extent of actions taken during the quarter for lower head count and bonus accruals partially offset by $1 million of additional sales reserves, commonly known as allowance for doubtful account, taken in the quarter due primarily for retail sector bankruptcy risk.

Full year services margins were 50.7%, compared to 51.6% in 2007. Despite these intermediate challenges, we are pleased with our continued ability to deliver healthy services margins and expect to continue to perform solidly in this area as we leverage our domain expertise to drive customer satisfaction and strategic market advantage.

On to adjusted operating income; with lower revenues in the quarter, Q4 adjusted operating income of $7.2 million declined $6.1 million over Q4, 2007. Operating margin for the quarter was 9.5%, versus 15.6% in Q4, 2007. We delivered full year adjusted operating income of $44.3 million down from $50.5 million in 2007.

Full year operating margins were 13.1%, versus 15% in 2007. Our adjusted operating expenses which include sales and marketing R&D, G&A and depreciation were $34.1 million for Q4, 2008 down 1% both over the prior year quarter and sequentially. Lower operating expenses in the quarter were driven primarily by lower bonus and commission expenses, partially offset by $2 million in expense accruals, tied mainly to sales tax reserves. That covers the operating results.

Now for a few below the line items and GAAP earnings summary; we reported other income of about $1.7 million for Q4 and $5.5 million for the full year. Of the $1.7 million reported in other income for the quarter, $1.4 million was FX gain, the balance interest income. This brings the full year total FX gains to $3.9 million, up $2.7 million over 2007, driven by currency rate volatility.

The $3.9 million equates to $0.11 of EPS impact and is $0.08 more than FX gains recognized in 2007. For your reference, as part of our supplemental disclosure we have added a breakout detailing the other income component under item number six. While we acknowledge that currency volatility fell in our favor in 2008, we are not in the business of forecasting FX gains and/or losses.

Consequently, our 2009 guidance reflects the negative impact of net zero FX gains budgeted for 2009. Our adjusted effective income tax rate was 31.7% for the quarter and 32.5% for the full year, consistent with the estimate we provided in our Q3 earnings call.

For the year, we benefited from tax reserve contingencies released due to expiring tax audit statutes and from realized tax credits associated with R&D and state job training. We have provided a reconciliation of both GAAP and adjusted effective tax rates in our supplemental schedule included as part of today’s earnings release. Now I’ll cover the GAAP earnings summary.

We reported GAAP EPS of $0.08 in Q4 compared to $0.33 in Q4, 2007. Included in our Q4 GAAP, EPS is a work force reduction charge of $4.7 million pretax, totaling $0.13 EPS. Excluding the restructuring charge Q4 GAAP, EPS decline was driven by our adjusted operating results.

2008 full year GAAP, EPS decreased 17% to $0.94 compared to $1.13 in 2007. On an apples-to-apples basis, excluding the Q3 and Q4 unusual items year-to-date GAAP, EPS increased 3%. In the second half of 2008, we booked net charges totaling $0.22 of EPS impact.

In Q3, we booked impairment charges totaling $5.2 million pretax for the write-off of two investments, an RFID technology investment and in auction rate securities and in Q4 we booked a restructuring charge associated with the work force action discussed previously. These charges were partially offset by reversals of tax reserves primarily associated with the expiration of tax audit statutes.

A detailed description of these adjustments, including the tax reserves can be found in the supplemental schedule reconciling selected GAAP to non-GAAP measures in our earnings release today, and also are fully disclosed in our third quarter 10-Q and in the 2008 10-K we will be filing this month.

Now on to cash flow; for the quarter we delivered record Q4 cash flow from operations of $18.3 million, increasing 17% over Q4, 2007. For the full year, we generated record operating crash flow of $63.8 million, up $26 million or 67% over 2007.

Our DSOs for the quarter were 78 days, down from 79 days in Q3, 2008, a very solid year and a though environment for cash flow performance. Our capital expenditures for the year totaled $7.7 million, down from $9.4 million in 2007. We estimate 2009 capital expenditures to be in the range of $8 million to $9 million, consistent with our historical trends.

Our cash and investments at December 30, 2008 were $88.7 million, compared to $82.8 million at September 30, 2008 and $72.8 million at December 31, 2007. Cash was up $16 million for the year, after self-funding $35 million in share repurchases from record operating cash flow.

Preferred revenue, which consists mainly of maintenance revenue build in advance of performing the maintenance services, was approximately $33 million at December 31, 2008, up 4% from $32 million at December 31, 2007. The increase is driven by our business growth and our continued 90 plus % maintenance retention rate.

We continue to carry a strong balance sheet, with 80% of our net operating assets and cash investment and zero debt complementing our strong earnings and cash flow. Now that covers the financial results.

I’ll turn the call back to Pete for the business update.

Pete Sinisgalli

Thanks, Dennis. In Q4 we signed four deals of $1 million or more in recognized license revenue. Three of the four were with existing customers and three of the four were also led by warehouse management solutions, while the fourth was the transportation win. In the quarter, about 60% of license fees were for warehouse management and about 40% came from other solutions.

For the year, this ratio was 55% WMS and 45% for the rest of the solutions in our portfolio. The retail, consumer goods and logistic service provider verticals were once again strong contributors to our license fees and made up more than half of license revenue for both the quarter and the year.

We had a successful quarter adding new clients and expanding our relationships with existing clients. Software license wins with new customers included A.N. Deringer, BUT International, Carolina Logistics, Fasteners for Retail, J.J. Taylor, Loglibris, Optimal LTD, Pfizer, QVC and Wakefern Foods.

Projects with existing customers included Al-Shiwari, American Eagle Outfitters, Bed Bath & Beyond, Benjamin Moore, Genuine Parts, LeSaint Logistics, Maersk, McKesson, Sara Lee, Staples and Whirlpool.

Our win/loss rates for Q4 and the full year continued to be quite strong. In both, we won better than two out of every three deals we competed in. Customers have never been more satisfied with our solutions, services and people. Their support has manifested as an increasing number of references, customer white papers, written customer testimonials and overall customer enthusiasm for Manhattan.

Just one example is Adidas, naming its global IT Manhattan team as the most successful project team of 2008. Our relationship with Adidas involves collaborative team work from individuals in the Americas, EMEA and APAC across a global rollout. So it’s an excellent example of the holistic supply chain improvement organizations can drive with Manhattan.

As our success with customers mounts, market awareness of our broad suite of solutions expands. We continue to grow market share in every solutions space we compete in. Most potential customers recognize Manhattan as the leader and distribution management, but we are also gaining more recognition from customers, industry analysts and others for the strength of our solutions beyond warehouse management.

Recent examples include (Inaudible) coverage of a transportation life cycle management and supply chain planning to process automation solutions. AMR’s coverage of our assortment planning solutions and fosters coverage of our auto captured, order fulfillment solution.

Now let me take a moment to bring you up-to-date on our product strategy and our approach to delivering the best supply chain solutions in the market. In December, we delivered new releases for almost every solution in our broad suite, 18 different products to be specific.

This represents our largest collective release ever and is clear proof of our progress towards our Manhattan scope vision. That vision provides our customers with a common supply chain process platform across all of our supply chain optimization solutions. In addition, each of these solutions delivers deep, rich, functionality within this area and importantly allows improved effectiveness across solutions.

This creates an attractive total cost of ownership and a strong return on investment across a customer’s entire supply chain. With this release, our complete transportation life cycle management solutions suite, Distributed Order Management, Supply Chain Intelligence, Total Cost to Serve, Supply Chain Visibility, Extended Enterprise Management, Labor Management, Supply Enablement and Reverse Logistics are on our supply chain process platform. In total, we now have 22 solutions on the platform.

Now I’ll close my review of 2008 with an update on employee metrics. At the end of the year, we had about 2,100 employees around the globe. That’s about 200 fewer than at the end of Q3, and about 100 fewer than at the end of 2007. We finished the year with 63 quota-carrying sales reps which compares to 70 at the end of Q3 and 56 at the end of Q4 2007.

Moving to 2009, our plan assumes a continuation of a very difficult selling environment throughout the year with modest improvement in the second half. Dennis will provide our guidance for the first quarter and the full year in just a moment. At a high level, we expect total revenue for 2009 to be similar to full year 2008.

We expect full year adjusted earnings per share to be about the same in 2009 as in 2008, as well. Since the economic crisis didn’t hit its full might until Q3 of ‘08, we expect comparisons of 2009, 2008 will show declines in the first half of ‘09, with growth in the second half.

You may have remembered that through Q1 of last year, we had posted 14 straight quarters of double digit revenue growth. That streak came to an end in Q2 as the global economy began to freeze, but when the economy regains its footing we expect to return to double digit revenue growth.

Within this plan for 2009, we have devoted more than $40 million for research and development investments, to continue our strategy of delivering a complete integrated suite of end-to-end supply chain optimization solutions. This strategic investment will help us capture additional market share and achieve double digit revenue growth in the future. We have taken many actions to reduce expenses in 2009 to help fund our investments for the future.

As mentioned earlier, in Q4 we reduced head count by about 200. In addition, for 2009 we are holding salaries flat with 2008, reducing travel and entertainment expenses and overall, reducing all discretionary expenses to the greatest practical degree possible.

Now I'll turn the call back over to Dennis for specifics on EPS guidance.

Dennis Story

Thanks, Steve. For full year 2009, we anticipate adjusted earnings per share of $1.23 to $1.48, ranging from a decline of 11% to a gain of 7%. The mid point represents about a 2% decline over the $1.38 we achieved in 2008. Due to the uncertain global macro-economic environment, we've expanded our guidance range from our traditional $0.04 to $0.6 to $0.25 cents for 2009.

For 2009, our goal is to improve operating margins by about 50 basis points over 2008. Also, as I noted earlier, we expect interest and other income to decline by $3.9 million, as we do not budget for FX gains or losses. The 2008 FX gains are disclosed by quarter in the supplemental schedule to our earnings release.

Finally, for 2009 we are targeting an effective tax rate of 33.5% for GAAP, and adjusted results. The increase is primarily driven by 2008 one-time R&D, and job training tax credits, that are not expected to recur in 2009. Our adjusted EPS for the first quarter 2009, our adjusted EPS guidance for Q1 is $0.20 to $0.30, with the $0.25 mid point representing about a 29% decrease compared to the $0.35 we posted in Q1 of 2008.

As a reminder, in Q1 of 2008, we incurred $1.6 million in FX gains or $0.04 that we have not budgeted to recur in 2009. Apples-to-apples adjusted EPS would be down about 19%, at the guidance midpoint, as does our annual guidance. Our Q1 guidance reflects the impact of global macro-economic conditions.

For operating margins, we expect an increase over Q4 2008 due to expense reduction initiatives, but lower than our Q1 2008 margin on lower year-over-year revenue comp. As you may well know, historically our Q1 EPS and operating margins decline on a sequential basis from Q4 to Q1 due to lower license revenues combined with renewed FICA and merits expense increases. As Pete mentioned, 2009 merit increases are 0% across the board, for all non-promoted employees in the Company. However, we will have incremental FICA, bonus expense and restricted stock expense on a sequential basis totaling approximately $3 million pretax, which equates to about $0.08 of adjusted EPS. In Q4 2008, we accrued zero bonus expense to employees with revenue and EPS bonus targets.

Now I will quickly cover GAAP EPS guidance. For the full year 2009, GAAP diluted earnings per share we anticipate a $1.03 to $1.28 which represents growth ranging from 10% to 36%, and mid point growth of 25% over the $0.94 we delivered in 2008. We expect full year GAAP diluted earnings per share to be approximately $0.20 per share lower than adjusted earnings per share, which principally excludes purchase amortization from acquisitions, and stock option expense under FAS 123R. That covers our guidance, now I will turn the call back over to Pete.

Pete Sinisgalli

Thanks, Dennis. To summarize, we believe our 2008 performance continued to outpace others in our market, and we're confident we will continue to extend our market leadership in 2009 and beyond. We believe we've made considerable progress in establishing ourselves as the best in class supply chain solutions leader. We also believe the investments we've made in our products, technologies, customers and employee’s position us well for substantial growth when the market returns to a more normal activity level, and that our shareholders will be rewarded for our success. Operator, we will now take questions.

Question-and-Answer Session


(Operator Instructions) Our first question comes from Yun Kim - Wedbush Morgan.

Yun Kim - Wedbush Morgan

Thank you. Just want to talk about your exposure to seven-figure deals. Last two quarters, license revenue having lackluster, yet you guys still managed to sign four $1 million-plus deals each quarter. And I think you pointed out in your prepared remarks that you guys actually have done a good job, including large deals, but the under-performance is coming from those mid sized deals. How do you explain this and how do you try to remedy that situation? And then also are you somewhat worried that now you are becoming more exposed to those seven figure deals than ever before?

Pete Sinisgalli

It's a great question, Yun. I think I could explain that overall with a pretty general perspective. In general, we have seen the larger companies, with, budgeted for, planned for supply chain transformation programs continue to invest in those programs. We have seen larger deal activity continue to close at an okay rate. Where we've seen the most slowdowns for a [deferral] of projects have been in the mid market, those deals, as Dennis described was between $250,000 and $1 million in license fees.

Our view is that that part of the market has been most impacted in the short run by the difficulty in raising capital, borrowing funds and the difficulty in seeing where the next couple of quarters will lead them from a capital perspective. So, we are doing what we can to encourage our partners, to be able to make those decisions to invest in improvements in their supply chain. But we expect, probably for the next two quarters at least, that that pattern will be similar, that market strong companies that have made commitments for supply chain transformation will continue to make those investments, and some of the mid market folks that are very concerned about short-term funding will probably find it difficult to pull the trigger on initiatives.

Now, I think the good news there is, as we looked at those deals that did not close, both the larger ones that closed and the mid sized deals that are going to close, we believe those deals have been delayed not lost. We keep very close track on our win/loss rate. As we mentioned in our prepared remarks, our win/loss rate for the quarter and for the year was very strong, winning more than two out of every three deals we competed in. So we believe when the market returns to a more stable level that there is a lot of additional business for us to capture.

Yun Kim - Wedbush Morgan

Great. So you believe that under performance is really more of a market segment, coming through the SMB whether again just simply that certain modules are not doing well like you would expect, a significant customer trying to upgrade with new modules or adding on more modules incrementally?

Pete Sinisgalli

I think, Yun, as we said in the prepared remarks, about 70% of the quarter's license revenue came from existing customers and about 30% new. That's down from our normal 50% new rate. And we believe what we are seeing, and certainly other companies similar to Manhattan are seeing, are people leveraging existing programs, expanding existing programs, some hesitancy to investing in new initiatives. So, we do think that this clearly macro-economic in nature, and that once the macro economy regains some level of balance, these deals will get back on track.

Yun Kim - Wedbush Morgan

Great, and then in terms of your services business, specifically consulting, we saw a fairly good size drop in services revenue sequentially in the quarter. I can pull it out with the weak license revenue last quarter. Are we expecting this consulting business to continue to show sequential declines this year if license revenue remains where it is? And not improve much from the current run rate?

Pete Sinisgalli

We don't provide specific revenue guidance. But I can tell you, generally speaking, we would expect overall revenue for the Company to be about at 2008 levels, and we probably expect in that mix slight improvement in license revenue and maybe a little bit of an offset in services. As I think you will know, the services business generally follows the license business, and since license was down a bit in 2008, that will have some impact on us in 2009.

We're also experiencing a little bit of hesitancy on some clients' parts for upgrades of their existing solutions and also through those issues, trying to work with our clients to come up with economic solutions that work for them. And we expect that we will have some benefit in 2009. But we do expect the macro issue is going to significantly up in here, and expect overall 2009 revenue to be about flat with 2008.

Yun Kim - Wedbush Morgan

Last question, can you give us an update on your acquisition strategy for the year? It's been a while since you guys had a major one. You have a good balance sheet, strong cash flow. I am assuming valuation for a lot of interesting assets both big and small are probably reasonable right now. Do you anticipate being a little bit more aggressive on that front this year?

Pete Sinisgalli

We'd like to be more aggressive if we can find attractive acquisition candidates. The challenge has been, I think we've been in a strong financial position for many years, and been aggressive looking at different opportunities to expand our state of supply chain solutions. And it needs to be in the context of two qualifiers. We are very focused on supply chain optimization, so anything of interest needs to be a market leader in supply chain. Secondly we need to make sure that any acquisition fits with the technology road map.

As I mentioned in my prepared remarks, we believe we are making very good progress on our full year product plan, a rolling three year product plan, with now 22 of our solutions on a supply chain process platform. So our acquisition strategy needs to be integratable with both our technology strategy and our product strategy. Having said that, I certainly agree with you. I think that over the balance of 2009 there will be more opportunities for acquisitions at a more favorable price. And we do have a very strong balance sheet, so we will continue to be quite aggressive and opportunistic for those that match up to our strategy.


Your next question comes from Mark Schappel - The Benchmark Company.

Mark Schappel - The Benchmark Company

Pete, on your deals that were delayed, do you believe they are just being delayed or are you actually seeing deals that are actually being canceled?

Pete Sinisgalli

That's a great question, Mark. We really can't tell for sure. Most of our conversations with folks appear to be deals that have been delayed. At the end of the day, there will probably be a bankruptcy or two that will force companies not to progress with things that they might have in better economic times. For the deals that we're working with, I would say, if not all, the vast majority have been delayed. But time will tell if some of these customers are no longer standalone businesses in 2010 or so. So we certainly believe some deals pushed out of Q4 into 2009, not sure if they will close the first quarter for the past or when they might close, but I believe that we're well positioned in those opportunities and hopefully many of those will feel more confident in the market positions in the near-term.

Mark Schappel - The Benchmark Company

Okay, thanks, and on maintenance revenue, Dennis, could you just review what the maintenance renewal rates were in the quarter, and whether you saw any kind of a market shift in those rates over prior quarters?

Dennis Story

They were consistent with our traditional trends of 90-plus %, Mark. We are seeing, because of the economy, customers, some customers requesting some concessions around the maintenance. Generally, we deal with those on a case-by-case basis.

Mark Schappel - The Benchmark Company

Thanks. And could you just review the foreign exchange impact to both the top and bottom lines?

Dennis Story

Yes, it was about 3 percentage points in the quarter. For the year, it was basically, which was about $2.2 million for the year, was $2.2 million negative impact, or 3 percentage points in Q4. For the year, it was $243,000 positive impact on the top line. So basically it was a push. A lot of currency volatility, obviously, in Q4. And then on the operating income line, for the quarter we had a negative impact of $1.7 million , I'm sorry, we had a positive impact of $900,000 for the quarter. That was mainly driven by our India, Bangalore operations. And for the year, we had a positive $1.2 million impact on operating income, most all of that obviously coming in the fourth quarter. And all of that is detailed in the supplemental schedules that go out with the earnings release.

Mark Schappel - The Benchmark Company

Okay, thanks. Then finally Pete, have you seen any fallout in the marketplace yet with respect to the failed JDA i2 merger, or is it too early to tell, in your view?

Pete Sinisgalli

Yes, Mark, it's probably too early to tell. I think that deal wasn't able to conclude within the last quarter. I think there is still some priority that needs to be brought to that transaction. We have not seen anything in particular change because the JDA i2 deal did not close.

Mark Schappel - The Benchmark Company

So no frozen deals then?

Pete Sinisgalli


Mark Schappel - The Benchmark Company

Thank you.

Pete Sinisgalli

Not because of that.

Manhattan Associates, Inc (MANH) Q4 2008 Earnings Call February 10, 2009 4:30 PM ET


This concludes today's question and answer session. Mr. Sinisgalli, any closing remarks?

Pete Sinisgalli

Jennifer, thank you very much for everyone for joining the call. We look forward to speaking with you in three months. Have a good day.


This concludes today's conference call, you may now disconnect.

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Source: Manhattan Associates, Inc Q4 2008 Earnings Call Transcript
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