Manhattan Associates Inc (MANH) 2004 Q1 法說會逐字稿

Good afternoon. My name is Tina and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates first-quarter 2004 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. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press star then the number two on your telephone keypad. As a reminder, ladies and gentlemen, this call is being recorded today, April 22, 2004. I would now like to introduce Mr. Richard Haddrill, CEO of Manhattan Associates. Mr. Haddrill, you may begin your conference.

Thank you, Tina. Welcome to our first-quarter call. I have with me today Ed Quibell, our SVP and CFO; Pete Sinisgalli, our new President and COO, and Eric Peters, our EVP for Strategy and Business Development. Ed's going to go over the financial results and then Pete will give us a few comments on his opening weeks here at Manhattan Associates. I'll provide some additional color on our first-quarter operations and then we will open up the call for questions. Ed, how about the financial results?

Sure. Thank you, Dick. Good afternoon, everyone. Once again, we have come off a successful quarter with all our major revenue categories setting records for Manhattan. License fees, services revenue, core revenue and total revenue. But 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, 2003, filed with the SEC on March 15, 2004. 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 the "Safe Harbor Compliance Statement for Forward-Looking Statements" included as Exhibit 99.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2003. Manhattan Associates undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results.

The highlights from our first quarter ended March 31, 2004 were -- license fee revenue was a record 12.3 million, up 2% from last quarter and 21% from a year ago. Core revenue, consisting of license fees and services revenue was also a new record at $45.9 million, up 4% from Q4 '03 and 14% from Q1 '03. Total revenue of $51.3 million was also a record, up 4% from last quarter and 11% from the previous year. Our adjusted earnings per share of 20 cents is within our expected range and we had another excellent cash quarter generating $11.8 million cash from operations, and our total cash and investments balance at quarter end was $166.8 million.

Let me now review the numbers in more detail. Our total revenue of $51.3 million was a record at 4% increase over last quarter and an 11% greater than the same period last year. Software licenses and hosting fees for the first quarter of 2004 totaled approximately $12.3 million, a new record for Manhattan in a quarter that is not normally a strong license fee quarter. This was an increase of 2% over the fourth quarter of 2003 and an excellent 21% over the first quarter of 2003. Services revenue totaled $33.6 million for the quarter. As I mentioned, this is also a record for Manhattan. This represents an increase of 5% over the fourth quarter of last year and 11% over the same period last year. Even though this is an increase over prior periods, it was lower than our expectations. Due to this, our services gross margin percentage reduced to 55% from the previous levels of approximately 58%.

Our services business performed at a high efficiency level and we anticipate that the margins should maintain in the mid to upper 50s percentage range going forward. Our hardware and other revenue was up 3% from the prior quarter and down 6% from 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 revenue contribution continued to be good at 21% for the quarter compared to 22% last quarter and 21% a year ago. We are pleased with the success we have achieved and are excited about the increasing strength we are seeing in the international arena.

Adjusted net earnings for the first quarter of 2004 was $6.2 million or $0.20 per fully diluted share. Adjusted net earnings excludes the amortization of acquisition-related intangible assets. This result compares to adjusted net earnings of $7.2 million or 23 cents per fully diluted share in Q4 of 2003 and adjusted net earnings of $5 million, or $0.17 per fully diluted share in Q1 of 2003. Although adjusted net earnings reduced by 13% from last quarter, they increased year over year by 24%.

Our expenses for the quarter were in line with our expectations. Overall, approximately $1 million of the increase from last quarter relates to higher accrual of incentive compensation and higher payroll taxes as incurred in the earlier part of the year. Research and development expenditure was $7.4 million for the first quarter of 2004. This is in line with last quarter at 14% of revenue and down slightly from 15% a year ago. This continuing investment in our future is a key element to our overall growth strategy of differentiating ourselves from our competitors. We are committed to the long term, and our goal is to continue to invest in R&D at the rate of 12 to 13% of total revenue.

Sales and marketing expenses were $7.9 million or 15% of total revenue for the first quarter of 2004. Although this amount increased by 2% over Q4 of 2003 and 5% over last year, it actually reduced by 1% as a percentage of revenue from both prior comparable periods. The increase this quarter relates to the increased selling costs due to the higher license fee revenues. General and administrative expenses, excluding depreciation and amortization expense, increased by 1% as a percentage of revenue over last quarter and the prior year and came in at 9% of revenues.

Our operating income reduced 6% to $8.3 million from $8.8 million last quarter and increased 28% from $6.5 million a year ago. Our operating margin of 16% was down 2% from last quarter due to the reduced services gross margin but increased 2% from the 14% from the same quarter last year.

Interest and other income for the quarter amounted to $389,000, down from $732,000 last quarter and $557,000 for Q1 of 2003. We continue to earn low returns on our sizable cash position and had no net benefit from foreign exchange gains in the quarter in contrast to the gains we experienced in the prior quarters. Our income tax rate was 34.5% for the quarter as compared to the blended rate of 34.3% for 2003. We do not anticipate any major variances in the near term.

I will now address our financial condition at March 31, 2004. Our cash and investments at March 31, 2004 increased 11.4 million to 166.8 million as compared to $155.4 million at the end of Q4 2003. Cash from operations during the quarter amounted to $11.8 million. During the quarter we acquired the assets and key employees of (Indiscernible), Inc., a distributed auto management company for a nominal price including an own out component. We have experienced excellent initial market reaction to the product, and with our large cash position, we continue to evaluate strategic acquisitions that we expect to be accretive.

Deferred revenue was $21.7 million at March 31, 2004, an increase of $3.7 million over December 31, 2003 and an increase of $1.1 million over March 31, 2003. The increase from last quarter was mainly due to maintenance fees that account for approximately 90% of deferred revenue. Our days sales outstanding reduced to 74 days at March 31, 2004. This compares to 76 days last quarter and 71 days a year ago. This reduction was caused by improved collections and the DSOs remain below industry average. Our overall customer satisfaction level remains excellent. The record revenue levels achieved in Q1 2004 are a clear indication that we are starting to reap the benefits of the ongoing investments we have made over the last few years. We will continue to invest in our future for the benefit of our customers in our targeted markets, and together with the gradual improvement in the metric and economic environment, we look forward to continued growth and success for Manhattan. Thanks for your attention and I hand you over to Pete Sinisgalli.

Thanks, Ed. Good afternoon, everyone. I've now been active with Manhattan Associates for about a month. During that time, my attention has been focused on getting to know our people, our customers, our markets and our issues. I've spent a lot of time with our senior management team and am quite impressed with the team and excited about working with them. I've spent time in small meetings with many Manhattan Associates leaders to get to know them and to discuss our issues and opportunities. I was pleased to learn in these meetings how many of our associated have many years of experience in our company and our industry. Our domain knowledge is a substantial competitive advantage and one that we'll continue to leverage. During the past month, I've also gotten a deeper understanding of the tremendous opportunity for our company. While we currently lead a niche software market, the opportunity for us to grow within that niche and continue to expand into contiguous areas is exciting.

As you know, we continue to move to expand our addressable markets through internal research and development, potential new alliances, and mergers and acquisitions. I've also had the opportunity to meet with customers and prospects. I spent a week in Australia at the end of March and was fortunate to be along for the contract signing of Coles Myer, a leading retailer in Australia. I was pleased to see the many opportunities for Manhattan in this market.

I believe we have significant opportunities in many international markets and will continue to focus substantial energy to penetrate those opportunities. Next month we host our annual users conference, and I'm looking forward to getting to know many more customers and prospects at that meeting. During the second quarter, I'll continue to take full advantage of the time Dick remains as CEO and learn as much as possible from him. I'll also focus energy on working with our management team to drive improvements in areas that can further increase our market share and competitive position.

We've got a lot of sustainable competitive advantages and will drive to enhance and expand those advantages. Net net overall my first month has been great. I love the market, the team and the opportunities and I'm excited about helping Manhattan Associates continue to grow and dominate our market. Dick?

Thanks, Pete. It's really been great having you on board here at Manhattan Associates. Pete has done a really excellent job of quickly gaining the confidence of our senior management team, employees and board of directors. He joined us in early March and had the opportunity to work with the team on closing out the first quarter and he met a number of customers in that process. Communication and teamwork between Pete and I have been excellent, and I remain confident of the smooth and coordinated handoff in the months ahead.

Now to our first-quarter operating results. I am extremely pleased with our back-to-back record license revenue quarters. This, combined with strong sales pipelines for the rest of the year, gives me the highest level of confidence in our business that I have had for some time. During the weak economic years, we made substantial investments to retool from an AS400 warehouse management company in the supply to retail vertical in the U.S. market to a multi-platform broad and integrated supply chain execution company strong in eight key vertical markets with a global infrastructure. The overall improved market conditions are now allowing us to begin to capitalize on these many investments. The only slight disappointment for the first quarter was that we had expected our services revenues to be $1 million to $1.5 million higher than we posted. The combination of some services projects not getting started as quickly as we had anticipated after the holidays, and some inefficiencies resulting from our services reorganization early in the year, impacted our billability during the first half of the first quarter. However, billability for the second half of the first quarter and the start of the second quarter have returned to our more typical levels and leave us optimistic for the rest of this quarter. I should emphasize that although we are not completely satisfied with our services revenue for the quarter, they were at a record level and we still achieved a very satisfactory 55% profit margin.

Now shifting to new business - - we added some great new customers during the quarter including Neiman Marcus; GameStop; Motorola and I-Technology; Dannon, the yogurt and food company; Dollar General, the discount retailer; Armstrong, the flooring company, and as Pete mentioned, the largest retailer in Australia, Coles Myer, where we replaced a competitor. 64% of our second-quarter license revenues were from new customers, higher than our average of last year. We closed two license deals in the quarter in excess of $1 million, and our sales pipelines indicate that the uptick in larger yields should continue. Our sales pipelines are at record levels and business activity continues strong, reflecting a good mix of business across our key vertical markets.

We closed five RFID license deals in the quarter and had RFID revenues in excess of $500,000 during the quarter. Business activity surrounding RFID continues to build at a steady rate. We have 50 active sales opportunities surrounding RFID at this time. Six major market movers have announced some form of top supplier RFID requirements to be implemented by January ‘05 or sooner -- the Department of Defense, Wal-Mart, Target, Albertson's, Tesco and Metro. During the quarter we began RFID initiatives in Europe by installing our RFID product at the auto ID headquarters for Europe at Cambridge University, and we are holding a European demo day on May 19th. We remain optimistic that our RFID will contribute to our future growth prospects and that with each passing quarter, we will gain greater clarity around what that contribution will be.

We are very pleased with the continued strengthening of our international business which was weak during the middle of last year. International represented 21% of total revenues in Q1 with very good license revenue production. Investments we have made over the last 18 months in continental Europe and in particular in Asia are starting to pay off. International pipelines have increased significantly in recent months. Regarding our headcount, we continued to add personnel during the first quarter, increasing our personnel by 63 during the quarter to 1,183 at the end of March. We had 25 more billable personnel at March 31st than we had three months earlier and we have open requisitions for an additional 74 personnel as we continue to take advantage of growth opportunities.

Looking forward to the balance of the year, our sales pipelines are at record levels, and our level of business activity remains very strong. We are seeing the possibility of more larger size deals as we are increasingly able to capitalize on our integrated logistics message and garner excitement around our newer offerings such as RFID, transportation management, and distributed order management. Also, our warehousing outlook has strengthened during the last quarter. Our visibility at the beginning of the second quarter includes license deals signed to date in the quarter, percent complete deals expected to be recognized during the quarter, as well as deals where we have been selected and are in the contract discussions. That total license revenue visibility is in excess of $6 million going into Q2.

At this time, we reiterate our adjusted EPS guidance for calendar year 2004 at $0.91 to $1.04 per fully diluted share. I want to thank you again for your support and thank the Manhattan employees again for another great quarter, and with that, open it up to questions. Tina?

At this time, I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Andrey Glukhov of Southwest Securities.

Yes, hi. Thanks. First of all, Dick, I believe there were several large deals that flipped from Q4. How many of them actually closed this quarter?

Yeah, we mentioned, I think, on the last call that we had four deals that flipped from that quarter. One of those -- those would be deals over $1 million. One of those closed during the most recent quarter, one is still very active and is targeting for a May decision. One of those has diminished in size and is still active, but it's less than a million dollars now, and one of those decided to stick with their internal decision.

Okay. And just to clarify your comments on the services margins -- so your services revenue is basically at the level of sort of meet fiscal '03. So you ramped up the services organization in anticipation of higher revenue and the utilization did not come through? Is that what pushed the margin down?

No, not totally, Andrey. As I mentioned, there were a couple of issues between the fourth quarter and the first quarter relating to our accrual of bonus compensation and also -- in the first part of the year, you have much higher cost relating to payroll employee costs, and some of that accounted for a fairly large portion of it. But -- and also there were two other things that Dick mentioned on the services as well and that was there were some projects that were a little late in starting and also that with our reorganization that we made the first part of the year, our billability percentages were lower in the first half of the quarter, but we seem to have got them back on track for the second half of the quarter and going into the second quarter.

Okay. On RFID, congratulations on those five deals. Sounds like -- if they are a half a million in revenue, the ASP there is about $100,000 per deal. Is that what we should expect, or what's the direction of that metric?

I think at this early stage, Andrey, we expect quite a bit of variance in deal size. So we expect some early adopters and some strategic accounts where the pricing is very low for a pilot versus others as they get to look at more broader deployments across multiple locations within their supply chain. The license fee opportunity and the services opportunity could be much larger. But I don't think it's an easy extrapolation and one reason, like we said in the comments, we think that with every passing quarter, we'll be able to give you a little bit more specificity on the impact of RFID. Like this quarter, we mentioned the license revenue amount. We mentioned 50 sales activities in process. Our RFID pipeline is bigger than it was a quarter ago. And we see these looming deadlines and believe at some point that activity could pick up much more, but it's just hard to tell.

Okay. And lastly, could you give us an update on sort of the go-lives for end tier system in North America? How many live references you have? Thank you and kudos on the numbers.

I don't have handy the goal lives. I think every other business day last year we had a go-live. Over the last six quarters or so, I think our open system license revenues have averaged about 75% of our total license revenues and the roll-outs tend to take anywhere from three to 12 months, so we certainly have a number of go-lives just in the last five or six quarters. We've been selling the open system product now for four years, so I just don't have the exact numbers here.

Your next question comes from the line of Brad Reback with CIBC.

Hi, guys. Ed, back on the services issue, you talked about seasonality being one of the reasons that it was down 300 basis points sequentially. That same type of seasonality wasn't in place last year. It was only down about less than 100 points. What's been different this year than last year?

Well, last year was very difficult to look at, Brad, because you know we did have the acquisition coming in there. So when I look back at last year, I must admit I didn't get really good comparisons at all. We also didn't have a major reorganization in our services organization, so I think that definitely was a contributor to it because our billability rate for the first half of the quarter was lower than before. So I won't say it's totally seasonality. I think there were some internal actions as well that contributed to that.

Yeah, Brad, the first half of Q1, net billability was lower by 4 or 5 percentage points over the average of the prior four quarters and the last half of Q1 and the beginning of Q2. So it specifically related to that six-week period.

Okay, and on that issue, given that you guys had your first-quarter conference call so late, I believe it was February 9th, is there any reason you didn't sort of highlight some of these late starts, some of these issues last quarter?

Well, when it comes to services, you do find it's always a moving target. In other words, sometimes when projects get delayed, your people then become very busy in subsequent periods. So in any given quarter, we will have periods, two-week periods, that are higher and others that are lower. And we certainly felt as we came on our earnings call in early February, a lot of pressure on our services people to be busy. So we felt like if we continue to be good and we certainly feel like our earnings production, our quarter is a very solid quarter, so no need to highlight it at that time.

Okay, so basically what you're saying is some of the things you expected to come through in the second half didn't come through?

No. I didn't say that. On February 4th, when we were on the call, we would have had the first half of January services numbers available so we wouldn't have the second half. So that was one factor. And our services people were busy. Now the question is whether they're billable or whether they're working on reorganization issues was hard to tell until we got more information in the middle of February, and we certainly don't view this as -- we somehow missed $1 to $1.5 million from what we had expected, we view the quarter as a very solid quarter.

Okay, great. Thank you.

Your next question comes from the line of Chris Rowen with Sun Trust Robinson Humphrey.

First a clarification -- the $500,000 on RFID, is that license revenue or total revenue?

The $500,000 is total revenue, the majority of which is license revenue.

Right, because the projects are just getting started?

Yes.

And then R&D -- why was that -- I guess I have two questions on that. Are we not getting the leverage out of India that you expected, and/or are you moving people that might have been in services into R&D to work on internal projects and therefore that's driving that number up?

Well, on your second point, Chris, we're actually doing the opposite. We're moving some people from R&D into billable work because there's so much demand right now. And of the 74 open requisitions, 37 are for services people again. But I think as Ed eluded, the R&D uptick is pretty much related to the incentive compensation where we are accruing at a higher rate in Q1 than we did in Q4 and the payroll tax issue also contributed. Our longer term goal is to reduce that as a percentage of sales a couple of points, but in Q1, the number is pretty much as we had planned.

Okay, and then can you remind us why -- what lead to the services reorg and what the general -- what was the reorg? Would you go from and to?

The main crux behind it was to time more closely our implementation teams with our technical teams, with our customer support teams, with our R&D teams, so that we had more efficiency in the delivery and more seamless customer basing. So there were people who ended up with new reporting relationships and some reassignments on projects which caused some of that inefficiency in the first six weeks of the quarter.

Great. Thanks a lot.

Your next question comes from the line of Robin Roberts with Stephens, Inc.

Hi, Dick and Ed. Looking at your license revenue, it does not have the seasonal decline that you usually experience. Can you elaborate on exactly what product line contributes the strength or what geographic regions contribute the strength?

Robin, we had kind of all vertical markets produce good. I think we were pleased, as we said, with our international license revenue which often is even more variable than the U.S.. In other words, we tend to often see a weak Q1 internationally, but we're very pleased with that. We've got some good business working now in Asia. All the product lines produced pretty much as expected. You know, warehousing was in the 40-60% range as it has been. The newer products were in that remaining 40-60%. So it was really good production across the board, and we feel very good about business going forward.

Okay. So does that mean going into the second quarter I should expect a seasonally -- well, the second quarter is usually seasonally stronger than first quarter. Should I expect to see sequential improvement in license revenue, and how about going into the third quarter where it's usually seasonally weaker?

Well, we don't give the quarterly guidance so I guess we're just not in a position to comment on that. As I said, our business activity is very strong, our sales pipelines are at record level, and we've got about an excess of $6 million of license visibility going into the quarter and we're going to make you work for the rest on your own model, Robin.

Okay. The order management -- you said in the press release you are able to sign a key customer. So what is the total license revenue contribution from order management this quarter?

Well, you know, we avoided giving individual products in the past and there are several reasons for that, one of which is that when we do a combination deal, we have to make an allocation, and it's not necessarily the same way the customer would always do it. But I think in general we're seeing it as a differentiator for the Manhattan solution and we are seeing a lot of business activity for it. Now I would say that the one deal that we did close was meaningful and it certainly is providing a differentiator for us in other deals, and we would expect a couple more deals in that area to close during the second quarter.

So meaningful means $1 million a year range?

No. It's bigger than a breadbox so to speak. So let's say more than $100,000 but less than $1 million and we can leave it at that.

Okay. And last quarter you mentioned that you're expecting more companies to make RFID project decisions in mid '04. We're coming close to mid '04. You've got five customers signed up, so does that mean that we should expect a floodgate starting soon on RFID?

Eric Peters is here who spends a lot more time on the RFID front than I do. Maybe, Eric, I'd ask you to comment on that.

Sure. Yeah, Robin, I think that what we're going to see is with the DoD event of a couple of weeks ago with Wal-Mart finishing their vendor meetings, we're going to see more companies out there making RFID decisions. And I think as the deadline moves in the next three quarters, each quarter we should see more and more companies starting to implement their RFID solutions.

Okay. And in Australia you replaced a competitor in Coles Myer. Can you disclose which competitor is that?

No, as a matter of policy, we wouldn't do that.

Robin Roberts. Okay, thank you.

Your next question comes from the line of Alan Weinfeld with Fulcrum Global.

Congratulations on the quarter, guys. It's Alan Weinfeld and Jamie Friedman. I was just curious in Australia, Pete, when you were there, at Coles Myer there were two other vendors, (inaudible), doing some type of work with them. I think they're changing out their host system. How are you working with the large systems integrators, as well as the two other vendors, and which exact products are you doing, WMS plus some of the other logistics?

Well, we won't get into the specifics of the products that we're implementing, but we have a very good relationship with the service provider with Coles Myer and a very productive relationship with their entire IT infrastructure team. It's a very large project as you know to retool the information systems within Coles Myer, and we believe we'll play an integral part in that overall program. We're excited about the potential of working with them throughout Australia in the next couple of years as we're rolling out that solution anticipating it is they and their partners.

Alan, I would add if you're looking on the partnership front, we did close a couple, three deals in partnership with JDA during the quarter. I think they were the domestic marketplace.

And can you make any comments on scalability? I mean, you must have amazing scalability to do, I believe it is 6,000 stores with Dollar General. Is this the largest number of warehouses you've put out there?

Well, we don't comment on individual customer projects. But certainly we have got some major warehouse implementations ongoing right now, and we certainly feel very confident about anything we've committed to during the water.

Hey, Dick, this is Jamie Friedman. If I could just follow up. Not to double team you here, but with regard to the systems integrator channel, now that you are signing some larger deals -- it sounds like you had a couple seven figures in the quarter -- are any of those tending to be led by independent third-party integrators themselves versus deals you would integrate internally with your own headcount?

None of the deals we signed in the first quarter are we subcontracting to a systems integrator.

Okay. Is that consistent with what's happened with seven-figures deals in the past?

Yeah, I think in our history we've been a subcontractor. You could probably count it on one hand the number of times we've subbed to a systems integrator. We usually find we can work very well side by side. There are complexities. Not that we're against completely being a subcontractor. But we find that typically it's better if we have a direct contractual relationship with the customer.

Got it. Okay, thank you very much, guys.

Your next question comes from the line of Phillip Alling with Bear Stearns.

Yeah, thanks much. I just wanted to talk about on service gross margins. I know you've had a few questions on it, but you have also -- there's been some discussion about larger deals in your pipeline, and is one way to look at the degradation in the gross margins here -- is that a reflection in any way of closer work that you're doing with Sis, and are you outsourcing some more of the implementation work? And consequently then, is it just sort of a slightly lower level of service gross margins here that we should expect to see on a going forward basis?

No, I don't think that that's a factor. I think the factor is the billability in the first half of the quarter and I think it’s the two reasons that Ed and I cited. I mean, there could be a host of other little things here there that contributed, but I think we would not expect that billability issue to be a recurring challenge for us and I don't believe it's related to any systems integrator partnerships.

All right. This was another quarter in which you made some additional hires and obviously looking to boost the staff. Could you give us a sense of where you think you need to make investments in your business to go forward? Are there certain geographic areas you think are worthy of more investment? Is it in RFID? Is it because of the new transportation management solutions that you've been selling? Where specifically are you looking to make the investments because obviously you're planning to make some more going forward.

That is a good point, and we certainly have been in investment mode now for five quarters in anticipation of the improved economy. So we remain very judicious in how we make the investments. We did add 22 people in the quarter in Asia, and so we're clearly expecting to harvest that investment in the not too distant future. We're already about to the point where our RFID investments will be profitable for us and that's positive news. The investments in R&D, as Ed had mentioned, we do expect R&D as a percent of revenue to moderate as we progress throughout the year. So I think we're feeling very good about the investments we've made, Phillip, and really are more looking forward to how we're going to harvest those. And I don't mean we won't continue to invest, but the synchronized product release, the global infrastructure, building out what we did around the transportation product, were some significant investments we made. And now we're seeing the excitement around distributor order management and RFID. I think those are two areas where we'll continue to make judicious investments, but in general I think we're looking for some of the investments we made to start producing a higher level of profitability.

Okay and with respect to RFID, some of the metrics that you've given in the past, not the ones that you provided today. Previously you talked about sort of expressions of interest from companies, proposals outstanding and others in process, what's the sort of comparable figure for the numbers you gave this quarter, say, for prior quarter?

Well, one reason we didn't give the expressions of interest is at some point the number gets so high it becomes not very meaningful. I think it was in the 600 range last quarter and you start keeping track of all the expressions of interest, I think we feel it's more meaningful to give, and we'll continue to refine the information we give you, but to say we have 50 active selling opportunities. So whether there's an RFP, a proposal outstanding or whether somebody is working closely with us on a procurement, we think that number 50 is pretty relevant versus the 28 number I think we gave you last quarter which was actual written responses outstanding. And our RFID sales pipeline for license fees was like $5 million last quarter; it’s $6.5 this quarter. We are continuing to refine that pipeline. That does not include other deals in, say, warehousing or transportation that might be impacted by RFID. That's basically for the focus on the middle ware, so those are some of the comparable sound bites, Phillip, and we'll continue to try to refine the information we give you to allow you to track with us as best we can what's happening without trying to give you information that we don't think is meaningful.

The dates you issued this time with respect to RFID, does that imply that the total customer count that you have in that space is 11? I believe I recollect that you had said that you had six signed up for RFID projects last time your reported numbers.

That's probably in the ballpark, and then we've got this other nine or so that we're doing the pharmaceutical jumpstart with. So I guess if you included them, which is in partnership with Accenture that that would bring it to closer to 20.

Okay, I'll just ask one more then. Can you give us a sense of your staff? What percentage of them are focused in the RFID area, and how has that changed from a quarter ago?

Well, it's a combination of dedicated and part-time people, and I don't think we have that very accurately because there is an awful lot of people on our warehousing and transportation teams that would be spending part time on it. We'll give some thought to a metric there going forward.

Okay, thank you.

Your next question comes from the line of Peter Coleman with Schwab Soundview.

Thanks, guys. A lot of my questions have been answered. Maybe a couple of little things. Dick, just on the linearity standpoint, and maybe sort of makeup of deals -- you saw certainly in the fourth quarter a good pickup in what I'd say is your bread and butter business. You obviously didn't have any large transactions. A couple of those flowed into the first quarter. Is there any feeling as you look at the makeup of your business -- is there more of a recovery in the middle market? Is it across the board? Can you give us any color on that at all?

Well, we had four deals we mentioned on the last call that slipped out of Q4, one of which closed in this quarter. We had another four, five, six deals that could have closed in this quarter that slipped into the second quarter. As Ed had mentioned on the last call and again this call, we do see in the pipeline a number of deals over $1 million, and we feel pretty confident that that number of $1 million deals will be a couple a quarter or better going forward. And the vertical markets, the pipelines are kind of increasing across the vertical markets so there's like no dramatic change in the vertical markets. I would say the biggest change is just the growth in the international pipelines which had been very weak during much of last year and started to pick up late last year and have continued to grow nicely early this year.

Great. Then maybe on the product side, I don’t know if you would be the person to answer it or maybe Eric. Just talking about the transportation, you've now kind of been in more of the best of breed part of transportation now for over a year. You gave your new products release out now. What are your internal expectations, not necessarily from a revenue standpoint but where you'd like to start to see that contribution start to ramp?

Well, certainly I think we view the transportation product as having a lot of potential upside for us during the year. We have invested a lot as you mentioned in building it out. Some of that is not quite complete yet, but a good portion of it has been completed recently, and we're very excited about our transportation pipelines. Our win ratio in transportation is not as high as it is, say, in warehousing, but we are beginning to see more opportunities to sell the integrated warehousing and transportation solution which is really quite unique out there. And in general we're starting to get our sales force retooled to do a better job at selling transportation which is an increasing opportunity for us. On one hand we need to do better at selling, i.e. close, an even higher percentage of the transportation deals and get in more deals. But we are making good progress there and have very good transportation pipelines.

Okay and then maybe just a final one on the RFID side. You've given in the past sort of indications of existing customers versus non-Manhattan customers looking at RFID. I wondered if you could sort of give us an indication if that's changed any with the current customers that you've got signed? And then maybe given that you got a few deals done -- deals that you've missed or have gone to competitors, or are folks doing it internally? Maybe give an idea of what is really the competition when selling RFID solutions today?

Peter, this is Eric. What we saw was we had Manhattan customers that bought our RFID solution. We had new customers to Manhattan that bought the RFID solution, and we had customers that have no Manhattan content and are buying just pure middleware. So it's hard to characterize any one type of customer that's buying the software out there. I think that with the level of activity that we see out there, we're in a lot of deals that can be customers, non-customers and folks that don't even have WMS. So it's pretty varied.

I would say, Peter, we're still seeing a lot of people just not making decisions, and Eric, correct me if you see it differently, but I would say that the deals that we don't win, it tends to be first and foremost to an internal solution where they're just going to do a short-term compliance solution and come back and visit it later. But we see a variety of companies like Ode Systems and IBM and others that are having middleware solutions or are doing some custom work for customers.

Okay. Thanks a lot guys.

Your next question comes from the line of Aaron Schwartz with J.P. Morgan.

Hi. You've talked a few times about the opportunities in the international pipeline. If you look at the total pipeline, what percent of that do you think is international opportunity?

We've not given that specific out in the past, but if you were sitting here a year from now, we would expect international to be more than 21% of our revenues I can tell you that. We do expect international to grow at a faster rate than the domestic business. Now the domestic pipelines we're growing steadily though, Aaron, over the last six quarters, whereas our international pipelines actually declined the early part of last year and then began to build late last year. So their growth has been more dramatic in the last four months, partly because they were flat or down for much of last year.

Okay, excuse me, one last quick question. On the services side, was there any change in pricing there?

No, I would say that our rate per hour we collect in certain emerging markets is lower than our rate per hour, say, in the U.S. market or the more mature UK market. But we believe we can continue to maintain margins in those markets because in most cases our expense structure is lower there as well.

Great, thank you.

At this time, there are no further questions. Mr. Haddrill, are there any closing remarks?

I just want to thank our investors for their continued support and thank our employees again for another great quarter. Thank you.

This concludes today's Manhattan Associates first-quarter earnings release conference call. You may now disconnect.