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Manhattan Associates (NASDAQ:MANH)

Q2 2011 Earnings Call

July 19, 2011 4:30 pm ET

Executives

Dennis Story - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Peter Sinisgalli - Chief Executive Officer, President and Director

Analysts

Mark Schappel - The Benchmark Company, LLC

Yun Kim - Gleacher & Company, Inc.

Terrell Tillman - Raymond James & Associates, Inc.

Operator

Good afternoon. My name is Jessica, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Manhattan Associates Second Quarter 2011 Earnings Conference Call. [Operator Instructions] Dennis Story, Chief Financial Officer, you may begin your conference.

Dennis Story

Thank you very much, Jessica, and good afternoon, everyone. Welcome to Manhattan Associates' 2011 Second Quarter Earnings Call. I will review our cautionary language and then turn the call over to Pete Sinisgallii, our CEO.

During this call, including the question-and-answer session, we may make forward-looking statements regarding future events or future financial performance of Manhattan Associates. You are cautioned that these forward-looking statements involve risk and uncertainties, are not guarantees of future performance and that actual results may differ 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 2010 and the risk factor discussion in that report. We're 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 other companies. We believe that this presentation of certain non-GAAP measures facilitates investors’ understanding of our historical operating trends with useful insight into our profitability, exclusive of unusual adjustments. Our Form 8-K filed today with the SEC and available from our website, manh.com, contains important disclosure about our use of non-GAAP measures. 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.

Peter Sinisgalli

Thanks, and welcome to our second quarter earnings call. I'll start the call by taking you through an overview of the quarter. Dennis will follow with details of our financial results. I'll return for a general business update and then we'll be happy to answer your questions.

We're quite pleased with our second quarter financial results and continue to be encouraged by our near-term and long-term prospects. Dennis will provide the details shortly, but essentially all of our Q2 financial metrics were outstanding. And more importantly, our longer term strategic metrics were equally strong.

Over the past several quarters, we've mentioned that we were working on a substantial large deal pipeline and we're optimistic that once customers and prospects were more comfortable with the outlook of their businesses, we'd return to closing $3 million to $4 million-plus deals in those quarters.

As an indication that customers in our target markets are becoming more optimistic about their businesses, in Q2, we closed 4 deals with license revenue of $1 million or more. Here are 2 encouraging metrics regarding the large deals that closed in Q2. Three of the 4 were new customers from Manhattan and one was in Europe. And another sign that customers in our target markets are getting more comfortable about the prospects for their businesses, over 55% of license revenue for the quarter was sold to new customers and our pipelines and activity levels for Q3, Q4 and 2012 are encouraging.

Other important long-term strategic indicators are also quite positive. Our investments in research and development over the past several years are really paying off, as indicated by continued strength versus our competitors. Our win-loss rate continues to be strong and in the first half of 2011 was about 75%, meaning we won 3 out of every 4 deals we competed in.

And to further support our sales momentum, implementations of our scope, supply chain process platform solutions continue to be quite successful. While questions certainly remain regarding the health and direction of the global economy, we believe we're well-positioned for continued success. I believe our ability to execute and our commitment to innovation will be well rewarded in the future.

I'll speak more about this following Dennis' comments. Dennis?

Dennis Story

Thanks, Pete. No question Q2's financial results benefited from a strong uptick in license revenue performance combined with solid execution across all other revenue lines, effective expense control and good capital structure management. Despite lingering economic volatility and uncertainty, it was good to see many of our customers and prospects investing in their supply chains again.

Before I get into the results in detail, I would like to summarize the key Q2 financial takeaways. Number one, revenue growth in the demand environment is certainly improving. Total revenue of $88.4 million increased 14% on strong license and services revenue performance.

Number two, operating profit and margin expansion objectives continue to drive earnings leverage. Manhattan Associates posted an all-time record quarterly adjusted earnings per share of $0.65 and GAAP earnings per share of $0.57, growing at 55% and 58%, respectively. First half adjusted EPS of $1.06 is a record as well, growing 29%, and GAAP EPS of $0.89 increased 31% over 2010. Excluding the $0.09 India tax benefit realized in Q1 2011, on an apples-to-apples basis, year-to-date adjusted and GAAP EPS increased 18% versus 2010.

So number three, services demand is exceeding capacity. In Q2, we had nearly 100 net new associates and our headcount is up more than 160 net new associates versus our staffing level in Q2 2010. The increase is almost entirely within professional services to support demand and continued customer satisfaction.

Number four, operating cash flow continues to be strong. We generated $16 million in operating cash flow for the quarter and $24.1 million year-to-date.

Number five, our balance sheet continues to support long-term strategic flexibility and stability. Cash investments for the quarter totaled $110 million with a cash-to-asset ratio of 40% and no debt.

Number six, our capital structure is efficient and well-managed. Our share buyback program continues to be accretive to our shareholders. Year-to-date, we have bought back 1.9 million shares against option exercises of 1.1 million shares, reducing our common shares outstanding by 3% or 841,000 shares. In addition, last week our Board approved raising our share repurchase authority limit to a total of $50 million.

And the final takeaway, number seven, we continue to maintain meaningful strategic investments in R&D that deliver competitively superior solutions with nearly 1/3 of our workforce dedicated to R&D.

Turning to the details. Q2 2011 total revenue performance of $88.4 million increased 14% over Q2 2010 and sequentially improved 23% over Q1 2011 on the strength of license revenue performance and services revenue growth.

Our license revenue rebounded well in Q2. Total license revenue of $16.3 million in the quarter grew 6% compared to $15.5 million we delivered in Q2 2010 and sequentially more than doubled Q1 2011 license revenue of $7.8 million.

We delivered four $1-plus million deals in the quarter, returning to a more historic norm. In the Americas, we recognized three $1-plus million deals and delivered $12.5 million of license revenue in the quarter, about flat with the $12.8 million we delivered in Q2 2010. EMEA's Q2 license revenue totaled $2.9 million versus $1.4 million in Q2 2010 and included one software license deal valued above $1 million. And finally, our APAC team delivered license revenue totaling $907,000 compared to $1.3 million in Q2 2010.

As we've said before, our license performance depends heavily on the number and relative value of large deals we close in the quarter. And the sales cycle on these deals remain somewhat less predictable than in prior years. But overall, our large sized deal activity is building momentum, which should bode well for future revenue performance.

Our Q2 services revenue of $63.8 million increased 16% compared to Q2 2010 and was up nearly 14% sequentially from Q1 2011.

Our consulting services business continues to experience solid demand with revenues of $42.2 million, increasing 23% over Q2 2010.

In the quarter we recognized approximately $3 million of previously deferred consulting revenue from a large services engagement as we successfully completed our contract delivery requirements ahead of schedule in Q2. Our previous annual guidance included the impact of this revenue and its associated earnings in Q3 2011. The $3 million impact provided $0.10 of EPS earnings contribution in the quarter.

Second quarter maintenance revenues of $21.6 million reflects growth of 6% over Q2 2010, driven by license revenue, customer maintenance renewals and cash collections.

Our customer retention rates continue to run at a strong 90-plus percent.

As we formulate our outlook for Q3 2011 total services revenue, we are factoring in both continued strength in services demand along with the effect of recognizing the $3 million in previously deferred revenue in Q2. Balancing these effects leads us to expect Q3 2011 total services revenue to decline sequentially by about 1% to 3%.

And looking forward to the fourth quarter and full year results, remember the holidays and seasonally high vacation results and sequentially -- results in sequentially lower services revenue in the fourth quarter of the year.

Consolidated services margins for the quarter were 57.5% compared to 55.2% in Q2 2010. Net of the $3 million deferred services revenue, our Q2 2011 services margins would have been 55.3%.

Of the nearly 100 net new associates hired in Q2, the majority are in professional services, and the full costs of these added resources will not be seen until Q3. With continued solid services demand, we expect to bring on additional professional services resources in the second half of the year, including a group of recent college graduates. Given the training time required for these new resources and the effect of Q4 holidays, we continue to estimate our full year 2011 services margins to be in the 54% to 55% range.

Turning to profit, our Q2 adjusted operating income totaled $21.1 million with a very strong operating margin of 23.8%. Net of the $3 million deferred services revenue, our Q2 operating margin would have been 21%, still very strong, reflecting the leverage associated with strong license and services revenue combined with strong services margins given the relative timing of new hires in the quarter.

With year-to-date operating margins at 19.6%, for 2011 full year, we continue to target a 100 basis point improvement or 19% operating margin versus 2010 adjusted operating margin of 18%.

Operating expenses, which include sales and marketing R&D, G&A and depreciation, were $32 million for Q2 2011, a sequential increase of 10% over Q1 2011 due primarily to variable commission expenses associated with incremental license revenue and the cost of momentum our annual user conference. And our effective income tax rate for the quarter was 33.5% and remains our current forecast for Q3 and Q4.

Transitioning to diluted shares, for the quarter diluted shares totaled 21.8 million shares, down from 22.1 million shares in Q1 2011. The decrease was driven by the weighted average impact of share repurchase activity in the quarter, partially offset by option exercises and the impact of a rising stock price on our fully diluted share common stock equivalents.

In Q2, we repurchased about 1.1 million shares of Manhattan common stock at an average share price of $35.50, totaling $38.3 million. Option exercises in the quarter totaled 579,000 shares. On a year-to-date basis, we repurchased 1.9 million shares at an average price of $33.55, totaling $63.9 million while option exercises in the same period totaled 1.1 million shares.

As our stock prices continue to appreciate, over the past 6 quarters, 2.7 million options have been exercised, significantly reducing the company's equity overhang.

During the same period, our share buybacks have totaled 4.6 million shares, mitigating the dilutive impact of option exercises while delivering positive earnings accretion to our shareholders.

So for the remainder of 2011, we are estimating full year and quarterly diluted shares to total about 22 million shares. Our estimate does not assume any common stock repurchases and certainly depends on a number of variables including stock price, option exercises, forfeitures and share repurchases, which all can significantly impact estimates.

Turning to cash flow and balance sheet metrics, for the quarter we delivered cash flow from operations of $16 million, bringing our year-to-date total to $24.1 million, slightly ahead of last year. Operating cash flows nearly doubled sequentially from $8.1 million in Q1 2011 to $16 million in Q2 driven on strong earnings, while our net accounts receivable balance has increased by $7.8 million since Q1 2011. On higher sequential revenue performance, our DSO improved from 57 days in Q1 2011 to 55 days in Q2 on very strong cash collections.

Capital expenditures were $700,000 in the quarter and are $2 million year-to-date. On a full year basis, we continue to estimate CapEx to be about $5 to $6 million. Our cash and investments balance at June 30, 2011, totaled $110 million compared to $119 million at March 31, 2011, and $127 million at December 31, 2010. The net decrease represents investment in our share buyback program. And deferred revenue, which consists primarily of maintenance and consulting services revenue, billed and collected in advance of performing services, was $50.3 million on June 30, 2011, compared to $52.1 million at March 31, 2011. The reduction was primarily driven by the aforementioned deferred services engagement of $3 million that was recognized this quarter. So that covers my Q2 remarks.

Let me now review our updated guidance. For 2011 revenue, given stronger-than-expected license and services revenue in Q2, we are increasing our full year total revenue guidance from our previous range of $325 million to $330 million to $325 million to $335 million. Delivering $330 million of total revenue at the midpoint of our revised guidance would imply $170 million of total revenue in the second half, which we are planning to be about equally split between Q3 and Q4. We are forecasting Q3 license revenue to be sequentially lower than in Q2 due to typical Q3 seasonality and Q4 license to be about equal to our Q2 2011 result.

As mentioned earlier, we are forecasting Q3 services revenue to be about 1% to 3% lower sequentially given the Q2 deferred services revenue recognition. And consistent with historical seasonality due to Q4 holidays, we are forecasting Q4 services revenue to be about 4% lower than in Q3 2011. So that covers revenue.

For 2011 adjusted earnings per share, again, given our better-than-expected Q2 earnings per share performance, net of the $0.10 deferred services revenue factored into previous guidance, we are raising our previous full year guidance by another $0.10, taking our previous range of $1.87 to $1.92 to a new range of $1.97 to $2.02. This new range now represents about 25% to 28% growth over 2010 adjusted EPS of $1.58. We expect Q4 EPS to be a bit lower than in Q3, given the combined impacts of seasonally lower Q4 services revenue and our planned ramp-up of headcount, primarily in the professional services area, which will not be fully absorbed until Q4. Full year GAAP EPS guidance is also raised by the same $0.10 to $1.65 to $1.70, representing a 32% to 36% growth range over 2010. For reference, a guidance table is provided in today's earnings release.

Regarding adjusted operating margins, we continue to focus on year-over-year operating margin expansion and are maintaining our full year operating margin objective of 19%, representing 100 basis point improvement over 2010. Due to the seasonality impacts on Q3 and Q4 license and services revenue combined with continuing hiring efforts, we expect Q3 margins to be about 19%, slightly below our year-to-date operating margin of 19.6%. And consistent with historical trends, we are forecasting a sequential decrease in Q4 operating margin versus Q3 2011 due to the impact of Q4 seasonal holidays generating lower services revenue combined with realizing the full impact of new hire activity from Q2 and Q3.

So that covers our 2011 guidance. Now I'm happy to turn the call back to Pete for the business update.

Peter Sinisgalli

Thanks, Dennis. As Dennis mentioned, we posted license revenue of $16.3 million in the quarter with 4 large deals. Each of the 3 large deals in the U.S. was led by our platform-based Warehouse Management solution. Two of the three were with new customers and one with an existing customer. The existing customer is upgrading our previously installed WM solution to our platform-based solution and expanding the use of our solution to additional sites. Both of the new customers are large retailers transforming their supply chains. We are thrilled to see the return of large retailers making substantial investments in supply chain transformations and are optimistic this trend will continue.

The Europe large deal was driven by our Extended Enterprise Management solution that allows companies to collaborate across their supply chain networks.

While I am on the topic of large deals, although below $1 million in recognized license revenue, we set a new record during the quarter with our largest sale ever of Manhattan SCALE, our Microsoft-based Warehouse Management solution. About 60% of the quarter's license revenue came from Warehouse Management sales and about 40% from our other solutions. The retail vertical was particularly strong this quarter making up about half of license revenue.

And as I mentioned in my opening comments, about 55% of license revenue in the quarter came from new customers. That compares to the last 4 quarters when 30% or less of license revenue was from new customers. Obviously, returning to a more normal large deal closed rate with new customers strongly influences this metric.

Some of the new customers that have allowed us to share their names include Bollore Logistics, Copernica, Devanlay, Michael Kors, MWI Veterinary Supply, Precision Planting, Starbucks and Westco. We're quite excited about each of these new customers, but particularly thrilled to add Starbucks to our roster of clients.

We expanded partnerships with many existing customers such as American Eagle Outfitters, Ceva Logistics, Coach, Ewing Irrigation, Family Dollar, Fiskars, Follett, House of Fraser, Kwik Trip, Masscash, Ocean State Jobbers, O'Reilly Automotive, Panalpina and True Religion.

While it is gratifying to see success of our platform-based WMS solution, we're also encouraged to see our other solutions gaining momentum.

I mentioned a moment ago the large deal in Europe being led by our EEM solution. In addition, several of our license deals with existing customers are for some of our newer solutions. During the quarter, we closed our first deal in the United Kingdom for our Order Lifecycle Management solution and we recorded a meaningful license of our newest solutions, total cost to serve to one of our existing customers.

Our professional services organizations around the globe continue to perform well. In addition to posting solid financial results, the teams continue to drive improvement in customer satisfaction.

In the second quarter, our global services teams helped customers go live with our solutions in more than 80 sites. I'm quite pleased with our overall professional services business and in particular with our success implementing our latest platform-based solutions. We now have 10 clients live on our platform-based WMS solution at 18 sites. In addition, 10 new clients are currently implementing this solution with an additional 7 existing clients upgrading to our platform-based WMS.

Headcount at the end of the quarter was a little over 2000, up almost 100 since March and close to 200 greater than a year ago. Essentially all of the headcount growth is in our professional services business. Today, we have 64 people in sales and sales management with 55 of those serving as sales reps. That's down one head in both categories since March. Over the balance of 2011, we plan to add about 100 people to our staff. The additional staff will largely be in our professional services teams, where current customer demand continues to strain our ability to meet client requests. In addition, we'll be looking to add a few sales and sales support people to our team largely in the U.S. as demand has increased and we want to be sure we're able to support it.

In May, we held our Annual Customer Conference Momentum in San Diego California for about 900 attendees, about 10% more than in 2010. This year's theme, Platform Thinking [Activated], highlighted the expanded possibilities and broad reaching value our customers can derive from deploying a complete suite of supply chain solutions on a common supply chain process platform. Our platform message was very well received by the audience and the energy level was high throughout the event.

So let me wrap up our prepared remarks. We're very pleased with our second quarter financial results and with our progress in nonfinancial areas. I believe our relative competitive position continues to be strong and improving, and our ability to deliver innovative supply chain solutions is second to none. We're looking forward to a solid second half of 2011 and continued success in expanding the strategic impact of supply chain solutions through our platform approach.

Operator, we'll now take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Terry Tillman from Raymond James.

Terrell Tillman - Raymond James & Associates, Inc.

Just a couple of questions. I guess, Pete, in terms of the license performance in the quarter. I was wondering if maybe you could dissect a little bit quantitatively in terms of -- if you can separate the benefit from a couple of quarters of deals that had slipped as opposed to naturally occurring new business that you expected to play out in the quarter?

Peter Sinisgalli

Sure, Terri. Certainly, one of the deals that we closed in the quarter we had thought would likely close in Q1 and it did slip. The other 3 large deals haven't been in our pipeline for some time. So there certainly has been some pent-up demand. So that certainly was a factor in the 4 deals that closed in the second quarter. But as both Dennis and I mentioned in our comments, we're quite enthusiastic about the large deal pipeline we're currently working. It's been growing over the past couple of quarters. We're quite excited about that. And the activity level within those larger deals continue to be quite good. So we're optimistic that the performance we saw in Q2 as long as there's not some large macro event to upset the current economic situation that we'll be able to maintain that kind of momentum.

Terrell Tillman - Raymond James & Associates, Inc.

Okay. And I guess a lot of the retailers and suppliers at retail [ph] are talking about e-commerce, the effect on the business for retailers is becoming quite material for the revenue and then this concept of multi-channel, the challenges brings. It seems like it's a tailwind. But could you help us understand how you monetize that or how you're doing it currently? Is it just driving additional license sales in the installed base for more WMS? Or is it you're signing a lot more units for the Lifecycle Order Management product or it's driving large new RFEs around transformation projects? Maybe just a little bit about how meaningful this is and how excited should we be about the idea of multichannel e-commerce?

Peter Sinisgalli

Yes, actually, Terri, in the retail channel we have a number of things going for us that I think put us in a unique position. The first thing is over the past couple of years in the soft economy, a lot of companies, retailers in particular, have delayed upgrading and enhancing some of their technologies. So there is certainly a pent-up demand for retrofitting existing systems and expanding the capability of existing systems that's been somewhat neglected in the most difficult economic times. The second benefit is, as you described, the strong growth in multi-channel and the clear visibility that CEOs, senior level execs in these retailers are putting on, strengthening their position in multichannel, the buy online, pick up in store varieties. The strong revenue growth we've seen in that multi-channel space has driven a lot of net new activity. And one of the things that we're mostly excited about, we think we're uniquely positioned to serve that need. While there are order management systems out there besides Manhattan and there are warehouse management systems besides Manhattan and there are transportation systems and replenishment systems and so forth, we're the only one that offers all of those solutions on a common platform. And we think that puts us in a very advantageous position to meet that existing and growing need for an integrated multichannel approach. So we feel very good about the technology refresh that's becoming apparent in the retail space. And we feel very good about the push to multi-channel and we feel very good about Manhattan's unique ability to meet a lot of those needs.

Terrell Tillman - Raymond James & Associates, Inc.

Okay. And I guess, Dennis, just a quick question. Can you remind us on the total deferred revenue as we exit 2Q? Is there any other material kind of transactions or milestones as it relate to license revenue or service revenue to think about on a go-forward basis or was this, the material portion and there's really not anymore things that are notable on the outlook?

Dennis Story

Yes, Terri, this was the material portion and there's nothing else that's really notable.

Operator

Your next question comes from the line of Yun Kim from Gleacher.

Yun Kim - Gleacher & Company, Inc.

Pete, can you just talk about whether there were any special sales initiatives to target new customers that showed a strong performance? It looks like it's been going on for a while. And just obviously, some of these customers were kind of pushing out deals. But what was the urgency behind why all of a sudden 3 new customers committed to your platform upfront in such a big way? And on that topic, how does your sales pipeline for large deals look between new and existing ones, existing customers? And do you expect the strength from new customers that was signed in the quarter to be more than a one-quarter event? And do you expect the mix to trend back towards existing customers?

Peter Sinisgalli

We had no specific new sales initiative in the quarter to try to monetize some of the pipeline. I think our sales teams have been working very hard for an extended period of time, and we're pleased to see that rewarded. As I mentioned, our sales win rate at 75% is very strong. So the sales team is doing a great job. We think the reason that a number of these deals closed in the quarter relates to the comments I made to Terri's question that a number of companies had been postponing for as long they could investments in supply chain infrastructure, supply chain technology. And it's certainly our sense -- this could change but it's certainly our sense at the moment that our target markets are getting more confident in the outlook for their business. So that doesn't mean that their businesses are going to be booming. But it means that, I believe, they're less fearful of a major setback in their businesses. And for that reason, they need to get on with building their businesses for the next 5 and 10 years. And I think that's the largest impetus behind the deals that closed in the quarter. But I also think that's feeding our enthusiasm for our outlook for the second half of this year until 2012. If you look at our pipelines in total, in particular, the large deal pipeline, we're seeing a number of interesting things. One thing that I'm excited about though is some of the large deals are from new customers. But new customers will be replacing, if we win those deals, some of our existing competitors. So we think that's pretty exciting. We think the investments we've made in our platform, in our platform-based WMS in particular, are going to give us an upper hand to replace some of the existing competitors solutions in that space, so that's exciting. But also we see a very healthy pipeline for our other solutions. And also referring back to Terri's question earlier, our proposition of offering customers a combination of how to manage inventory, how to manage transportation costs, how to manage labor all while exceeding customer expectations is a pretty unique value proposition. And we think that combination of our platform-based solutions and the breadth and depth of the functionality in those solutions is doing a lot to motivate the pipeline to get started and take advantage of their market opportunities. So we're quite enthusiastic about our pipeline in total, new and existing clients and the ability to sell a broad suite of solutions into that more motivated market space.

Yun Kim - Gleacher & Company, Inc.

So as you look into your pipeline for large deals, do you expect continued strength coming from the new customers or do you kind of see the trend going back towards the more driven by existing customers?

Peter Sinisgalli

Yun, I think we're probably, once things settled out, we'll probably back to where we had been where it's 50-50, about half for new customers and half for existing. This quarter, it was 55 new and 45 existing. We think something in that ballpark is likely and frankly, I think very healthy. We're quite thrilled by the prospect of selling into the installed base. Obviously that's a very helpful way to go, but adding a lot of new customers is kind of fun, too. So we look forward to driving that balance.

Yun Kim - Gleacher & Company, Inc.

Dennis, why was CapEx spending lower in the quarter and where do you see that spending trending going forward?

Dennis Story

Yes, we've gained some pretty good efficiencies with investment and server consolidation in our infrastructure. And generally, the CapEx is around mainly infrastructure and tool support for new staff and on boarding. So we'll see a little bit higher CapEx in the second half of the year, Yun.

Operator

[Operator Instructions] Your next question comes from the line of Mark Schappel from Benchmark.

Mark Schappel - The Benchmark Company, LLC

Just a couple of questions. Dennis, starting off with you, with respect to the large deals in the quarter, were any of those deals blockbuster deals, the deals over $2 million or were they just kind of classic Manhattan million-dollar deals that were a little bit over $1 million?

Dennis Story

Mark, we don't disclose that. The actual level basically our standard disclosure is million-plus-dollar deals. We had a nice mix, I would say across the 4 deals. It wasn't any one deal that stood out amongst the others. We liked all the brands and we liked the size.

Mark Schappel - The Benchmark Company, LLC

Okay, that's fair. Thanks. And then Dennis, in your prepared remarks, I believe you noted -- or gave some guidelines with respect to Q3 services revenue. I was wondering if you could just review those guidelines again?

Dennis Story

Yes. We expect the total services revenue on a sequential basis to be slightly below Q2's performance because of the deferred -- the $3 million deferred impact that we recognized in Q2. And we said about 1% to 3% was our estimate there, Mark.

Mark Schappel - The Benchmark Company, LLC

Okay. And then, Pete, in your prepared remarks, I believe you noted or made a comment about your distributed order management product and the deal you had in the quarter with respect to that. I haven't heard about that product in the last quarter or two. I was wondering if you could just give us maybe some particulars on that particular deal? And was that deal part of some of the larger transactions in the quarter?

Peter Sinisgalli

Yes. Sure, Mark. I'd be happy to. Actually, we're quite thrilled with the success we're having with our Order Lifecycle Management product that's also referred to often by us as our DOM product or our Distributed Order Management product. I think it's clearly one of the key differentiators in the market for any distribution management solution. So we're going up against any other WMS competitor. It's often quite influential in winning that deal and winning it at attractive values. So we've had very good success and it was sold several times during the quarter in some of our deals. The one I'd pointed out in particular because it is the first time we had sold solution to a retailer in the United Kingdom. We had success selling it before several times in Europe. But it was our first Order Lifecycle Management deal in the United Kingdom, and we are excited about that deal. And United Kingdom has probably been the softest market in which we have a decent presence. And being able to work with one of our existing retailers to add additional capability to help them with their multichannel initiatives, we think is hopefully a sign of good things to come over the next couple of quarters and in 2012 out of the U.K. marketplace. But we are quite excited about the success we're having with Order Lifecycle Management.

Mark Schappel - The Benchmark Company, LLC

Okay, great. And then finally back to you, Dennis. Can you just give us the currency impact on revenue in the quarter?

Dennis Story

Yes, it was $1.7 million positive impacts, so about 2% and then less -- slightly less than a penny on the net income line, earnings per share line.

Operator

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

Peter Sinisgalli

Thank you, operator. And thanks, everyone, for attending the call. We appreciate your time and look forward to speaking with you again in about 90 days. Thanks. Have a good night.

Operator

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

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