Manhattan Associates Inc (MANH) 2003 Q4 法說會逐字稿

Good afternoon. My name is Hazel (ph) and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates fourth-quarter 2003 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). As a reminder, ladies and gentlemen, this call is being recorded today, February 10, 2004. I would now like to introduce Mr. Richard Haddrill, President and CEO of Manhattan Associates. Mr. Haddrill, you may begin your conference.

Thank you and welcome to the Manhattan Associates fourth-quarter 2003 earnings call. I have got Ed Quibell here, our Senior Vice President and Chief Financial Officer. Ed is going to go through the financial results and then I will give more color on the operating results and our strategic outlook. Then we will open it for questions. Ed, let me turn it over to you.

Good afternoon, everyone. We just completed a very successful quarter, where we exceeded expectations and posted record license fee revenue for the quarter. Before I get into the details, let me first review the cautionary language. In our statements during this call and during the question-and-answer session, we may make forward-looking statements regarding future events or the future financial performance of Manhattan Associates. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. I refer you to the documents that Manhattan Associates files from time to time with the SEC, in particular our report on Form 10-K for the year ended December 31, 2002, filed with the SEC on March 31, 2003. These documents contain and identify important factors that could cause the actual results to differ materially from those contained in our projections. Additional factors are set forth in Safe Harbor compliance statement, with forward-looking statements included as exhibit 99.1 to the Company's annual report on Form 10-K for the year ended December 31, 2002. Manhattan Associates undertakes no obligation to update or revise forward-looking statements to reflect change in assumptions, the occurrence of unanticipated events or changes in future operating results.

The highlights from our fourth quarter ended December 31, 2003, were -- license fee revenue was 12.1 million. This is a record for Manhattan, up 25 percent from last quarter and 14 percent from a year ago. Total revenue was slightly down from last quarter by less than 2 percent, but up 14 percent from the adjusted previous year. Adjusted net income was also a record and we had adjusted earnings per share of 23 cents, up 3 cents from last quarter and the same as last year. We exceeded consensus estimates. We continue to generate cash with 6.1 million coming from operations, and our total cash and investments balance at year end was 155.4 million.

Let me now review the numbers in more detail. Our total revenue of 49.4 million was 2 percent lower than last quarter and 14 percent greater than the same period last year, after adjusting for the Kmart recovery in 2002. Software licenses and hosting fees for the fourth quarter of 2003 totaled approximately 12.1 million, a record for Manhattan. This was an excellent increase of 25 percent over the third quarter of 2003 and 14 percent over the fourth quarter of 2002.

Services revenue totaled 32.1 million for the quarter. This represents a decrease of 4 percent from the third quarter of 2003 and an increase of 17 percent over the same period last year. The fourth quarter can be a difficult service period due to the holidays. Our services gross margin percentage was a strong 58 percent, which has been consistent for the last year. We continue to see some rate pressure that was offset by improved productivity. Our services business continues to perform at the same high levels of consistency we have established over the years.

Our hardware and other revenue was down 26 percent from the prior quarter and up slightly over the prior year. This continues to be a service to our customers who require a single point of contact for their systems and is not strategic. Our international business revenue contribution improved to 22 percent for the quarter from 17 percent last quarter. This is slightly down from 23 percent in the fourth quarter of 2002. We were pleased with the pickup in international business after the prior two dismal quarters.

Adjusted net earnings for the fourth quarter of 2003 were a record 7.2 million, or 23 cents per fully-diluted share. Adjusted net earnings excludes the amortization of acquisition-related intangible assets. This result compares to adjusted net earnings of 6.1 million, or 20 cents per fully diluted share, in Q3 of 2003, and adjusted net earnings of $7 million, or 23 cents per fully diluted share, in the fourth quarter of 2002. Overall, our expenses for the quarter were in line with our expectations.

The search and development expenditure was 6.8 million for the fourth quarter of 2003. This is in line with last quarter at 14 percent of revenue. Actual costs were slightly down from last quarter and up 34 percent from a year ago due to the broadening of our product offerings. In 2003, we have invested $27.3 million in R&D as we continue to invest in our future. We feel this level of investment will continue to differentiate us from our direct competitors. We are committed to the long-term, and our long-term goal is to continue to invest in R&D at the rate of 12 to 13 percent of total revenue.

Sales and marketing expenses were 7.7 million, or 16 percent of total revenue, for the fourth quarter of 2003. This increased by 6 percent over Q3 of 2003 and 14 percent over last year. The increase this quarter relates to the increased selling costs due to the higher license fee revenue. General and administrative expenses, excluding depreciation and amortization expense, remained flat and came in at 8 percent of revenue, in line with our targets.

Our operating income increased to 8.8 million from 7.4 million last quarter, and from 8 million a year ago, excluding the Kmart recovery. Our operating margin of 18 percent, up from 15 percent last quarter, is moving back towards our historical levels of 20 plus percent. The improved mix of license fees to services was the main contribution to this margin improvement.

Interest and other income for the quarter amounted to $732,000, up from $402,000 of last quarter, but lower than the 935,000 of a year ago. We continue to earn low returns on our sizable cash position and benefited to the tune of $355,000 from foreign exchange gains in the quarter. Our blended income tax rate reduced to 31.4 percent for the quarter and 34.3 percent for the year. Stronger international results and some pick up in R&D credits contributed to this improvement.

I will now address our financial condition at December 31, 2003. Our cash and investments at December 31, 2003, increased 5.5 million to 155.4 million, as compared to 149.9 million at the end of Q3 2003. Cash from operations during the quarter amounted to 6.1 million. During the quarter, we acquired Streamsoft, a slotting optimization company, for approximately $1.5 million cash, which equates to slightly less than two times last 12 months' revenue. With our large cash position and strong equity currency, we continue to evaluate strategic acquisitions that we expect to be accretive.

Deferred revenues of 17.9 million at December 31, 2003, were actually flat with the last quarter and up 2.6 million from a year ago. The increase from a year ago reflects our overall growth in our business, with maintenance being the vast majority of this amount. Our days sales outstanding increased to 76 days at December 31, 2003. This compares to 66 days last quarter and 65 days a year ago. This increase was mainly caused by the linearity in the quarter being at the high end of our norm, not collecting sufficient cash on signature and slow international collections. We are not pleased with the statistics and will be focusing on getting it back to 70 (ph) days in the future. January 2004 was a record collections month in the U.S. This increase in DSOs does not indicate a lower level of overall customer satisfaction and still falls within acceptable industry ranges.

We are proud of our overall performance in Q4 2003, which was achieved by hard work in all areas of our organization. We remain extremely well positioned to take advantage of any upward trends in the market to increase capital spending, new technologies or general business confidence. Thanks for your attention and I will return the call to Dick Haddrill.

Now I would like to provide further details regarding our operations for the quarter and the current state of our business. Overall, we had an excellent quarter, with record license revenue and record adjusted net income. As Ed noted, we are very pleased with the level of license revenue for the quarter at 12 million, up 25 percent from Q3. We achieved this record level of license revenues despite our four largest deals during the quarter slipping. Now, of these four, one has selected Manhattan Associates subsequent to year end, and we are in the contract phase; two are progressing through the pipeline; and one has become a smaller and less certain procurement. This lack of large deals resulted in a lower average deal size for Q4. However, our 2004 sales pipelines, our broadening product suite and our sales activities to date indicate that we should see larger deals at least return to our historical norms of 1 to 2 per quarter.

As Ed pointed out, our Q4 services revenues were somewhat disappointing due to delayed projects and holiday-related nonbillable time. We have experienced this choppiness in Q4 services in several other years. Our services margins, however, were strong at 58 percent. We continue to see pressure on rates; however, these were offset by better product quality and better utilization of our personnel. The large number of midsize deals that we closed in Q4 should bode well for future services, and we do expect services revenues to improve in 2004 from the Q4 levels.

The only real operating disappointment for the quarter was our days sales outstanding at 76 days, above our (technical difficulty). We simply did not do a good enough job of collecting cash down with contract signing, partly due to the lack of large deals; and international revenues contributed to higher DSOs. I should note that this past month, January '04, was a good collections month, and we are definitely targeting 70 days as we proceed into the balance of 2004.

We welcomed key new customers during the quarter, including Raley's, the West Coast grocery chain, which furthered our progress in the food industry; Acushnet, which makes the Titleist golf balls in the sporting good field; Clark's, the UK shoe company; retailer Red Envelope; and third-party logistics companies such as Metron, Tri-Modal (ph) and, in Europe, TDT. We continue with a good mix of license revenues from both new and existing customers, with 51 percent of our license revenues coming from new customers in Q4.

I am very pleased with the continued progress on our key strategies during the quarter. First, regarding the expansion of our productlines. Our WM Windows product had its best quarter ever, and we see possible future benefits from an evolving partnership with Microsoft. We completed some key customer product buildouts in both our transportation management and trading partner management during the quarter, including an important reverse logistics go-lie (ph) for Cingular Wireless. And we are beginning a strategic alliance with Newgistics, the leader in retail returns outsourcing. Newgistics will use our technology in return for a recurring royalty payment to Manhattan Associates. As Ed mentioned, we acquired Streamsoft, which positions us as the clear leader in slotting software. And we're very excited about the acquisition completed in January here of Avere, a small team of experts in the area of distributed order management, where we see a high level of interest.

International results have picked up and represented 22 percent of revenues in Q4, up from the 17 to 18 percent range of the previous two quarters. Our international sales pipelines have been expanding these last five months and we have recently added some very experienced talent in Shanghai and in Tokyo, which will help us to further our expansion in Asia.

Regarding vertical industries, the retail and consumer goods manufacturer segments made up 54 percent of total revenues, consistent with our '03 total. The third-party logistics industry is showing some signs of life again after two very weak years, and represented 15 percent of our revenues in Q4.

Now regarding RFID. As many of you saw in November, our partners paid for a Wall Street Journal ad for our Industry Week award for Technology of the Year for RFID in a box. This ad, combined with numerous other RFID activities, generated significant inquiries during the fourth quarter. In total we now have had over 650 companies explore RFID with Manhattan Associates. Of these, we have signed up six companies for RFID projects, we have 28 proposals outstanding, and another 20 in process. And we have just last week been selected as the technology provider through an RFID pilot project for a group of nine Tier 1 companies in one of our key vertical markets that will run through July of this year. We continue to form a number of good partnerships surrounding RFID and build on our leadership position. In summary, we remain convinced that RFID will be a key contributor to our future growth. Although still not significant to our financial results, we see mounting pressure from many companies to sort out their direction this year.

By any measure, this was an excellent quarter for progress on our strategic initiatives. Our total personnel increased by 21 during the fourth quarter to 1,117 people, and we have plans to continue to add headcount because we see many opportunities. Since year-end, 30 new hires have accepted employment with our Company and we have 76 other open requisitions for hiring. Sales and account management personnel were 56 at December 31, the same as September 30th, but we have added a couple since year end.

Our team of people at Manhattan Associates again performed extraordinarily well in Q4. I am very proud of our team of professionals and their accomplishments during 2003. For example, during 2003, we received accolades for growth and profitability from Forbes, Fortune and Business 2.0. We were again selected by Forbes as one of the best small companies in America. Cape Horn Strategies honored us as one of only five software companies with 10 or more years of sustained profitability and growth. And Nucleus Research gave Manhattan a rare thumbs up for our customer satisfaction levels. And in Q4, Industry Week acknowledged our RFID in a box as the technology of the year.

As we enter 2004, we are the best-positioned to capitalize on market opportunities as at any time in our past. We are confident that our investments in RFID, customer satisfaction, strong partnerships, new products and international expansion, especially the continent of Europe and now in Asia, will begin to pay off. We are off to a good start to 2004, with record sales pipelines, and, for Q1, approximately 5 million of license revenue signed, selected or in the contract process as of today. As we look to 2004, we are anticipating an improved IT spending environment, and at this time, believe that we can achieve adjusted EPS in the range of 91 cents per share to $1.04 per share for 2004. With that, Hazel, I would like to open it up to any questions.

(OPERATOR INSTRUCTIONS) Adam Holt with J.P. Morgan.

My first question relates to the large-deal environment. Were there any common denominators that you can extrapolate from the four largest deals slipping into the March quarter, and were there any million dollar plus deals in Q4?

We had one deal that was almost $1 million in Q4. And the four deals that slipped, there really was no common denominator. I think it is partly a reflection of this continued, deliberate process that we are seeing in general; but at the same time, the activities progressed. One of those deals, they got the decision done here since the end of the year. Two of the other four deals are continuing to progress. Only one of them seems to have been pared back in its scope into a deal that will be less than $1 million and, in fact, may be a procurement that will not happen. So I don't think we saw anything unusual. I think it just happened to all the big deals this quarter. Our pipelines still have a very good mix of larger deals. We don't have any concern that that is going to be an ongoing issue.

Secondly, on the RFID updates, can you elaborate a little bit more about what the RFID pilot you highlighted for, I think, nine Tier 1 companies, what that means -- Tier 1 companies? Also, as we are building our models for '04, updating our models, how we should think about RFID revenue flowing through your business model next year.

The first question, we're not in a position to name the companies or that overall pilot project at this time. That will be done by other parties in the weeks ahead. We are excited about it because it will, although not generate a lot of revenue between now and July, certainly does position us as the likely technology provider for at least some of those nine companies long-term in RFID and gives us a great opportunity to provide our transportation warehousing and trading partnership management systems to them.

With respect to revenues in our 2004 and 2005 for RFID, still very hard to project. Our 28 proposals we have outstanding are for license fees of 5 to $6 million range. So will those close, will they close as business that will be near-term or will they close as smaller pilots, which is what we have seen most of to date, and then lead to bigger opportunities 6 or 12 months from now? It is just too early to tell.

I think we are seeing over the last 30 to 60 days some increased activity around people trying to get serious about what they do. We have always felt that the middle of the year would be a time when a lot of people would have to make decisions. We have the Wal-Mart meetings coming up in February, March, where they are meeting with some of their larger suppliers to get an update from those suppliers on their plans. So we do expect an increasing level of clarity to come over the next 3 to 6 months, but still real early for us to project a large amount of revenue in '04 just yet.

We have given you kind of a wide range of adjusted EPS guidance because we have got a lot of opportunities for some exciting things this year. RFID is one; order management is one; our initiatives in Asia is one; just continued growth in trading partner management and reverse logistics and transportation management is one. So we have a lot of exciting things going on -- some new partnerships. We have kept the range wide and RFID is certainly one of them, but too early to say what the contribution is going to be.

Finally, Ed, I apologize if I missed this, but what tax rate should we be using for 2004?

I would say that I would go with the blend of around 34 percent. It definitely is going to be a percent or two lower than what we have been planning in the past.

Is that due to the R&D credits going forward or a greater mix of international revenue?

It is basically both of those, but definitely driven by R&D credits.

Great, thank you.

Robin Roberts with Stephens Inc.

(indiscernible) I look at your DSO number, it has been increasing two quarters in a row and deferred revenue has been declining three quarters in a row. I understand this quarter you have higher than normal sales linearity. I'm wondering does that mean that your sales linearity has been stretching out. And also, going into 2004, what does the maintenance renewal look like or should we expect different revenue to increase in the first quarter or continue to decline?

I think if you look at our history as a public company, at least, or at least the last four years, our deferred revenue declines virtually every quarter from the end of Q1 through the end of Q4, due to the high level of maintenance renewals in Q1, much of that due to the Intrepa acquisition that occurred a couple of years back. So that is a very normal trend, and if anything, deferred revenue I think was flat Q3 to Q4. It is essentially all maintenance at the end of the year. You should expect to see that pick up again at the end of Q1.

With respect to business linearity, this was not our most back-end loaded quarter from a license revenue perspective. We have had other quarters be more so than this. It bounces around by quarter based on when we can get the contract signed. The DSO, as you know, I think if you look at what DSOs have done this year, we were unhappy with DSOs in Q1 and we made a concerted effort to bring them down and they dropped from like 72 to 59, which we said at the time was very low. They have been mostly in the mid, high 60s range, and this was an unusual kick-up to 76. But I don't think we approved a single deal in the quarter with extended payment terms beyond six months. I mean, it wasn't like the business conditions had changed and we had gone to extended payment terms on license fees or anything like that.

We did not do as good a job of collecting cash down with contract signing. We usually do a pretty good job of that when we sign bigger contracts became we are more focused on it, and we just didn't do a good job of it. I also don't think we did as good a job overall on cash collections. We probably were -- not probably -- we were not quite as disciplined as we could have been on our accounts payable and in the international growth. So I think you are going to see us refocus on it again here in Q1. But combined -- with international growth, I think we are saying 70 is a reasonable number going forward, so expect it to come down. I don't think we should expect the low 60s or 59 number that we had earlier this year.

Okay. When I look at your revenue stream going into next year, Logistics.com acquisition is grandfathering one year starting in 1Q, and then I believe some of the (indiscernible) revenue recognition from Wal-Mart and Cisco deals are going to go one year grandfathering as well. So does this mean that we are go into a very difficult comp going forward? And with all the (ph) good things on with RFID, what type of license revenue growth should I expect in '04?

The guidance we are giving on '04 is just the adjusted earnings per share. With respect to the L.com comps, some of that -- in fact virtually all of that percent complete revenue burned off in Q3. So although we do have some percent complete revenue going into this year and we expect to continue to have that from some of our hosting and some of the contract terms we enter into when we do codevelopment, we are feeling pretty good coming into this quarter with about $5 million of license revenue either signed or where we have been selected or in contract, which compares pretty favorably with the outlook that we have had in the past. So I think we are feeling generally positive as we go into Q1. You know, Q1 is usually not as easy as Q4, but we're certainly off to a good start and we seem to have a slightly improved economic environment.

So that $5 million closing in January time frame, is that much higher than what you normally have in the March quarter -- same time at this time? And also, in terms of seasonality in the first quarter, should we expect much less seasonality in the first quarter then?

First, the 5 million does compare favorably with other Q1s starting out on an average basis, certainly. With respect to how Q1 is going to shake out, the quarter is going to have to play out for us to see that. However, our pipelines are at record levels; business activity is very high. We have said historically that although we (indiscernible) have a terribly seasonal business, from a license revenue point of view, we tend to have a little more strength in Q2 and Q4; and from a services point of view, we tend to have a little choppiness in Q4. And I think that those trends could continue. But by the same token, we have historically at times had some good Q1s and Q3s. I just think we have a good environment, we feel good going into the quarter -- still plenty of work to go.

Okay, thank you.

James Friedman with Fulcrum.

Good quarter, guys. I was wondering if you could break out the contribution from new products in the 4Q '03, and in particular highlight the integrated warehouse and the transportation product.

We don't break out transportation and warehouse because in many cases we sell them combined and other cases we do break them out and sell them separately; so we don't actually break that down. As far as the new business, it was 51 percent of our sales were to new customers, if that is what you mean (indiscernible).

I was actually hoping for some color specifically on the product level. Dick, I think that you mentioned what you called the Windows product, which I think you previously used to call Pronto, having a strong quarter. Maybe if you could give us some color around that.

A couple of little breakdowns on the product that people have asked about in the past. We did -- about two-thirds of our products came from open systems this quarter, and for the year, that totals about 80 percent from open systems. Although we will not break out specifically what Pronto did, as we have continued to buildout that WM for Windows, we find that it is a good cost-effective solution to penetrate the Tier 3 and Tier 2 customer base. We are developing a good working relationship with Microsoft, which we hope will evolve into an even stronger partnership in the months ahead. And those things, combined with the buildout of the product, have really made it a nice, profitable business unit, and we have good hopes for that product going forward, especially in some of these markets like in Asia, where the price points are very competitive.

In general, let me see if I can give you quickly the non-PkMS license revenue, which I think was just 45 kind of percent -- 40, 45 percent was from the newer, if you will, the newer products, which would include WM for Windows and our trading partner management and transportation solution. So the broad suite is continuing to gain popularity. The thing I would say that Ed said as well, when you sell them as a broad suite, we have to make some allocations between the products, and I don't want to diminish warehousing at all. Warehousing still is our leading sales activity; our warehousing pipelines have been increasing. So a lot of times we lead with warehousing, but the customer will buy the other products at the same time.

Last question. Dick, you were going kind of quick there with regard to the headcount, but you mentioned I think you added 50 people since the year end. Did I get that right? And something about new requisitions?

Yes, we added about 20 in the quarter, 30 since the end of the quarter, and we have 76 additional requisitions to add people that we haven't yet filled. It will take three to five months to fill those; but in the meantime, I'm sure that there will be some other requisitions (indiscernible) and presented as well.

Thank you very much.

Brent Thill with Prudential.

You mentioned the 58 percent gross margin on service -- that has been pretty steady. Is 60 percent still kind of the peak number that you guys are planning towards? How do we think about the gross margin number on the services?

We have been very consistent at 58 percent just about every quarter. In fact, I think last quarter we got it to 59 percent. So I really feel that we are kind of very consistent and we are producing at that level. I think 58 is probably a very good number.

So we are clear on the levers that are working there, there have been rate pressures in the tough economy. At the same time, our efforts on product quality and utilization of employees have offset that, and our continued strong maintenance renewal, which is included in there as well. It is possible with an improving economy if we could get some rate improvements, there might be a couple of points more. But I think it is very premature to bank on that, because there still is a lot of negotiating going on by customers on the rates and we have not been able to garner rate increases in the past year.

You mentioned the dynamics in the international market are starting to improve. Can you just give us a sense of what the change has been there and what you expect this year from the international community?

It is certainly not a robust economy yet. Just to give everyone a reminder, kind of, on our international business. We are strong in the United Kingdom and we started branching out about 18 months ago in a more aggressive away into continental Europe, at the same time we began to just plant a few seeds in Asia. You'll remember our Chairman and Founder was in Japan for the better part of a year. What we are seeing is that some of the customers we have obtained on the Continent, we have gotten the rollouts done, good customer satisfaction, so we are getting more and more opportunities in France and Germany despite still rather poor economic conditions there. In Asia, we are pretty optimistic that '04 will be a good year for us in Asia. Some of the seeds we have planted are paying off, and we have hired a team of people in Japan and are hiring a small team in Shanghai, including a very experienced team, that we think can really help us accelerate the seeds we have sewn in Asia. So I would not say the economies are strong in Europe yet by any sense, but I think our efforts are beginning to pay off.

Great, thanks.

Alan Weinfeld with Fulcrum Global Partners.

Congratulations on the license number. Can you give us any color on the contribution to the license revenues from Siemens Simatic, PeopleSoft, Accenture, possibly even JDA -- what they might have influenced in the quarter?

Actually, as a percentage of the new deals, it was a little lower than our historical average, which has been in the 50, 60 percent range. It came in around 40 percent this quarter, but on the positive side we -- since the end of the year we have closed a deal in partnership with Microsoft where they were very helpful. We closed our second PeopleSoft deal in the fourth quarter, and we continue to have good partnership with a number of the system's integrator firms. So although no single partnership has really taken off, the partnerships we have formed seem to be helpful, and JDA helped us in a deal during the quarter. So they are definitely helping, one or two deal they quarter. The Siemens Simatic partnership is moving a little slower than we thought, but still every partnership has one or two deals a quarter. That really adds up and is helpful to us.

Could you talk about the competitive environment as you move up the stack, even as order management? Do you see more Manugistics, i2 or maybe even Retek when they sell the whole suite to a retailer?

On the competitive front, we would consider i2 and Manugistics competitors for our transportation suite. In the warehousing area, we continue to have pretty fragmented competition, and our win rates were particularly strong in '03 in warehousing, well over 60 percent. And we do see SAP and Oracle a bit more than we did a couple of years ago. At the same time, our niche competitors we tend to see less and less, and our win rates against the niche competitors continue to get stronger.

On the other hand, it is a company like Manugistics we partner with from time to time, and we are one of their RFID partners, particularly in the government sector. So I would say as we look over the next couple of years, I think we are expecting the niche competitors to become a little less of a threat, and perhaps seeing a little bit more of a few of the ERPs. To remind you, our strategy is to be so good in our domain and so good at our best-of-breed confidency (ph) that certain of, if not all, the ERPs would eventually want to partner with us in supply chain execution, which is a pretty difficult area to be successful in.

Anything special going on up at 3M with highjump?

Nothing we have seen.

Thanks very much.

Robert Manoff (ph) with Copper Beech Capital.

Can you help me understand the math here -- I'm just doing a model. I want to make sure I have the numbers right. You're adding about 100 heads in the year ahead, and does that translate, I guess, then into sort of flat margins year-on-year, if we're not going to see much growth in revenue from RFID? If you could just help me understand the math there, I would appreciate it.

Actually with just over 1100 employees, it depends on when you add that 100. If you added them on the first of the year, that would be a 10 percent headcount growth. If you added them on average during the year, I guess that would be a 5 percent headcount growth. Right now, we have added 30; we have open requisitions to add another 76, which I would expect to be added in the next three to five months. And yet I'm sure there will be other requests to add additional employees, and I'm sure we will have some turnover.

That's all fine. I wasn't sure how the headcount was going to filter through the year.

That is not our annual growth plan. Many of those people are billable people, so I wouldn't see that -- we were hoping, of course, to drive increased revenue and we're hoping to be able to maintain or improve our margins during the year. But at the same time, we do see a good opportunity to make investments and we are going to continue to do that. We think it has positioned us very well in '03 to do that, even though it has cost us a couple of cents a share in earnings.

Okay. Just quickly on the balance sheet, what was the allowance for doubtful accounts in the quarter?

I don't have it in front of me here, but it normally runs in the high single percentages. We will have that on the K when we disclose it.

Thanks.

Brad Reback with CIBC World Markets.

Dick, on the prior question, you mentioned about continued investment in the business. At what point -- I mean, obviously, 2003 was an investment year. It's looking like 2004 is going to be another investment year. Do we get back to the 20 percent margin in '05?

I think that the adjusted EPS guidance we gave showed a pretty nice increase, so I think we are expecting to harvest some of the investments as well. Did I understand your question right?

Yes, you did. I am just trying to figure out -- it just sounded to me that you guys are talking about margins basically staying flat. Am I misinterpreting that?

No. I think there was a question specifically on services margins, for which we said that we don't want to be overly rosy and project improvements beyond the 60 percent levels since we have been in this sort of high 50s all year and -- frankly, last couple of years -- between the mid and high 50s; this year, pretty steady around 57, 59 percent. But I think we see the opportunity for operating margin expansion back to the 20 plus range by increased license revenues and managing R&D expenditure, which you will see was flat Q3 to Q4. We are very happy with how our indy offshore development is going -- it's up to over 170 people now. So I don't think we are seeing this as an investment here in terms of declining margins or declining earnings in any way, shape or form.

I just wanted to make sure. So you do see yourselves moving back towards 20 percent in '04?

I think especially, Brad, if you're looking at the 30 percent increase in earnings per share, which is the top end of our guidance, we are going to have to get there. So just to give you the math, you will see that definitely that margins will improve (multiple speakers) hit the numbers.

Was there any -- the impact from acquisitions in the quarter other than Logistics.com -- that was pretty minor, correct?

Yes, the (indiscernible) acquisition I don't think added any revenue during the quarter. The Avere acquisition occurred after the end of the quarter.

Okay. Finally, Ed had talked about early in the call -- mentioned some commentary around acquisitions, went on to say they would be accretive. Also mentioned in the same breath or pretty there close about strong equity currency. Can you give us an update there. Do you expect to do a large deal for stock in the near-term? Any guidance there?

I think the strategy is to continue to look for acquisitions, strategic acquisitions that will be accretive. And we will continue to look at that. We still have a lot of cash, as you can see on our balance sheet, which we can use. But we do have a fairly strong equity in our stock as well. So I don't think I was kind of implying anything specific other than we will continue to look at acquisition opportunities, particularly in the (indiscernible) build situation as we expand our products.

And geographic expansion. I think we would be very cautious about doing a big equity deal at these prices -- of our share price.

Great. Thank you.

Peter Coleman (ph) with Schwab SoundView.

Dick, I was wondering if you could maybe just clarify a little bit on the competitive front as it relates to SAP and some of the larger ERPs, obviously, the increasing competition over time -- are you seeing anything specific in this quarter -- or excuse me, in the fourth quarter, that may have anything to do with the larger deals, or can you comment at all on the actual win rates as you see between you and some of the larger ERPs?

I don't believe SAP played a role in any of those four larger deals that I spoke of. We obviously see them a bit more in Europe; we don't see them too much in the U.S. -- in Europe, where they have such a strong presence, and in many cases, as customer control, we have seen them a bit over the last couple of years. But we had a good quarter in Europe and in international. So I think it is just one of those kind of keep an eye on them. When I joined the Company in '99, I said, boy that is the one thing to keep an eye on. Here we are almost five years later and we're still keeping an eye on them. But I think that -- with RFID, some of them are going to focus more attention in this space and we will just have to see if they are successful in it. If we look at the space in general, it is not a space that really anybody but Manhattan has had sustained growth and profitability in.

Also, along your comments -- just want to make sure I understand, when you were characterizing the couple that had slipped, and one of them you said essentially has disappeared in size. Is there any sort of indication as you look from a competitive standpoint that you are seeing increased competition from your typical competitors that is pushing the deal size down; thus, that is why you're not seeing as many larger deals? Or is this again just kind of this is what happened this quarter, and as you look at the next quarter, seems like there are as many as normal?

No, I don't think that has affected the deal size at all. I mean, don't get me wrong -- I think for two years we have seen almost desperation pricing from some of our competition, so we are almost never the low price; occasionally we are, but very, very rare. The one deal that you referred to that I said had gotten smaller in size and may go away as procurement is actually an existing customer who is just reevaluating an internal solution versus a buy, and may do a smaller scope project to see if they get the ROI before doing the bigger buy that they were looking at. So none of those four deals were really due to competitive issues. But I would say that, to be consistent with what I said before, any one of our competitors can be tough in any one procurement, whether it be on price or whether it be a strong functional fit that have had with another project they have done. So I do not want to diminish the potential impact of competitors, but that did not play a role in these four deals that slipped.

Okay, thanks.

Phillip Alling with Bear Stearns.

You have given a guidance range here for the full year. I want to get a better sense of what you are baking in there with respect to RFID. Now, you may not want to give revenue numbers there, but when you're providing that guidance range, really what are you conveying to us with respect to your views on the impact that RFID should have on your business for the year?

Kind of consistent with some earlier comments, it's pretty uncertain as to how much real revenue RFID is going to drive this year. We are doing pilots now; companies are pretty cautious. There is the possibility as we get to midyear and deadlines loom that we will see people clarify their decision-making and spend some real money. So that is one reason we have given the broad range. We are not anticipating huge numbers from RFID in the short-term, and yet we believe that it is one of the nice upsides we have that could take off as the year progresses.

Let's say with respect to R&D, the investment that you intend to make this year, what percentage of those would be in the RFID area?

We've got a team of people that is a combination of services and development in RFID that we can ramp quickly if we need to. As this point, it is a team of 25 total people; some of them are in development and some are in services. So I would say it is a flexible number. We have the ability to ramp it if need be, but it's not -- when you consider we have over 300 R&D people, it is not a huge percentage of the team right now. Keep in mind, though, that we have our integration layer of development people that is highly leveraged into our RFID product. The reason we were able to get the RFID product developed so quickly is we took the core of our integration layer product and developed the RFID around that. So we have that other team of developers, as well, that can be leveraged into RFID as necessary. In addition, we are building RFID capabilities in our transportation, warehousing and trading partner management products, which would be in addition to those people, and I can't tell you what percentage that is. Again, it is a relatively small percentage of each of those pillars, but it is in each pillar as well.

Okay. What is your sense as to sort of the revenue mix that you may see in the RFID area? I mean do you expect to have a boost in services as opposed to software, given sort of the heavy services component that is in that space? Are you still pursuing services-related business, perhaps independent of software license sales in that space?

Certainly, some of the early going are pilots with very nominal license fees and small services projects. I think as we see over the next 12 to 18 months, we believe that RFID will probably have a mix not unlike our current P&L. That is kind of our best guess right now.

Just another question on a separate track here. You have had a fair amount of consolidation in your space in the past couple months. It sounds like there's going to be a little more activity there going forward. What can you say with respect to the impact that the consolidation has had on the pricing environment?

So far, we have not seen any significant impact from the SSA acquisition of EXE or the 3M acquisition of high jump. We just really haven't seen much. A very high percentage of acquisitions don't work out, and we are certainly at this point not expecting any dramatic change in the competitive environment, either improvement or deterioration, as a result of those acquisitions. That is about all I can say at this point. We just haven't seen much impact from them. We have seen some people want to join Manhattan, but that we have seen over the last couple of years.

(indiscernible) and said (ph) as well. Sales and marketing as a percentage of revenue has been going up now for four years in a row -- '03 marked the fourth consecutive year. Have you gotten to a point at some point where that starts to come down, where you start to leverage the sales force and the marketing activities, or is that going to continue to rise as you see it going forward?

I think that is largely due to the competitive pricing environment. I think to the extent that improvement in the economy continues, we should see that percentage flatten out or maybe even come back a little. But if the pricing environment remains tough, I think we are going to see that continue at that rate. Also, we are projecting to kind of cover our expenses in the Asia expansion pretty quickly. If that didn't happen, we could see it creep up. So there are some factors going both ways. I think in general that we would see it remaining pretty constant over this year.

That is within your guidance, kind of constants on the sales and marketing as a percent of revenue?

No, the only thing in our guidance is the adjusted EPS range, but good try.

But in that adjusted EPS range, I mean, you're not expecting anything special or different or less or more on the sales and marketing?

Without giving you guidance, I mean, we certainly cannot project it to a T. A lot of it depends on how our revenue plans evolve. But you have seen that (indiscernible) our sales and marketing headcounts flat from the end of September to the end of December, up just a couple cents the end of the year. So we don't see dramatic changes in the near-term in our sales headcount.

We're not going to change anything materially in our go-to-market strategy either. So you shouldn't see major differences in the way we operate.

Even the one-off ad we did in Q4, our partners paid for it. So we still very much believe it is a reference business, a business with partnerships, a business built on reputation, and that we don't need to do anything dramatically different from a marketing perspective.

Okay, thank you.

Terry Tillman with Schwab SoundView.

You had mentioned overall pipeline is at record levels, but what about TMS specifically? Is that still going to take some time with the new release going GA (ph) or are you starting to see a ramp already in the pipeline?

Some of the deals in the pipeline are going to be again allocated because they are multi-pillar deals. But the transportation pipeline has been improving along with our total pipeline. We have successfully completed the buildouts for some major customers that really improved the functionality. The (indiscernible) is getting completed here in this next release. So we're pretty excited about transportation overall.

In terms of an update, what is that release scheduled for?

Towards the end of March.

Okay, thanks.

Thank you very much. We certainly appreciate your interest in Manhattan Associates and look forward to speaking with you again in a couple of months.

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