Manhattan Associates Inc (MANH) 2005 Q3 法說會逐字稿

Good afternoon, my name is Ramona and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates Third Quarter 2005 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period. [OPERATOR INSTRUCTIONS].

As a reminder, ladies and gentlemen, this call is being recorded today, Tuesday, October 25, 2005. I would now like to introduce Mr. Matt Roberts, Director of Investor Relations of Manhattan Associates. Mr. Roberts, you may begin your conference.

Thank you, Ramona. Good afternoon, everyone. I'm going to start the call with our cautionary language and then turn the call over to Pete Sinisgalli, our CEO. 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 the 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, 2004 filed with the SEC on March 16, 2005. These documents contain and identify important factors that could cause 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, 2004. 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.

Thank you and I hand you over to Pete.

Thanks Matt, and welcome to our third quarter earnings call. Steve Norton, our Chief Financial Officer is on the call with me. Steve and Matt are in our Atlanta office, and I’m participating from Australia where we’re holding a conference for our Australia customers, partners, and prospects. So if our timing doesn’t seem perfectly in-synch, it’s likely because we’re not in the same room.

I’ll start the call by taking you through some of the highlights from the quarter. Steve will then get into details of our financial results and I’ll follow with additional details about our business and provide a view of the fourth quarter of 2005, and then we’ll move to questions.

I’m pleased to report that we had a solid third quarter in what has been for the past several years a difficult quarter for the Company. We performed well in all of the key financial metrics we track. As previously announced, we closed the acquisition of Evant on September 1, and therefore had one month of Evant results in our Q3 results. License revenue including just under $0.5 million from Evant was $12.5 million, or 22% better than the prior year. Excluding the contribution from Evant, license revenue was up 17% versus Q3 of ’04.

Services revenue was a new record both with and without Evant’s contribution, and we hit a 54% services margin for the quarter. For the quarter, we achieved adjusted EPS of $0.21, which includes $0.01 of dilution from Evant. The $0.21 was better than the prior year’s Q3 by 24%. And if you exclude the $0.01 dilution from Evant, adjusted EPS was $0.22, or 29% better than last year.

We signed some very important new clients across our solution suite during the quarter, including 3 deals with license revenue of more than $1 million. And I’m pleased with the progress of our integration of Evant into Manhattan Associates. Most important, our broad supply chain solution strategy, which now includes Evant’s products, continues to gain momentum.

I’ll now turn the call over to Steve to take you through the financial details. Steve?

Thank you Pete, and good afternoon everyone. As Pete mentioned, we had a solid third quarter that we are proud of with continued record service and total revenue. Aggregate revenues increased 20% over the third quarter of last year, and 2% over the record revenues recognized in the second quarter of this year, while core revenues, which exclude hardware and other revenue increased 19% over the third quarter of last year and slightly less than 1% over the second quarter of 2005, which is typically one of our seasonally best quarters of the year.

Excluding the revenues of Evant that were recognized in the third quarter, license revenue, services revenue, and aggregate revenue increased 17%, 16%, and 17% respectively over the third quarter of last year.

Software licenses and hosting fees for the third quarter of 2005 totaled $12.5 million of which the license revenue with Evant totaled approximately $0.5 million. Services revenue totaled $43.6 million for the quarter, of which approximately $1.2 million were from services performed by Evant during the month of September.

In the aggregate as highlighted earlier, total revenue amounted to $62.3 million, up 20% over a year ago and 2% over last quarter. Our international revenue contributed 24% of total revenue for the quarter compared to 26% last quarter and 24% a year ago. Although aggregate revenues from our international operations increased 23% when compared to the same quarter of last year, we are cautiously optimistic that this will continue. We began to realize the benefits of our second quarter restructuring in Europe during the third quarter with lower costs combined with increased revenue, which is encouraging.

Our services gross margin was 54% for the quarter and consistent with our expectations of the mid-50s. This is equivalent to the services margin of a year ago and a decrease from 56% in the second quarter. The decrease is partially the result of the increased use of contractors in the quarter for a specific customer requirement combined with slightly lower margins from the Evant services.

We continue to be pleased with the stronger gross margins, and we continue to believe that a target of services margin in the mid-50s going forward is appropriate. Services margin in the fourth quarter, as has been true in the past, will likely be on the low end of this range due to the lower level of services required during the holiday period.

Operating income for the current quarter includes $2.2 million of acquisition-related charges, including amortization thereof. Of those charges, $1.1 million consisted of non-recurring severance and other compensation-related charges resulting from the acquisition of Evant. Amortization for the quarter aggregated $1.1 million also, and is expect to aggregate approximately $1.6 million on a quarterly basis going forward, the increase of which is the result of 3 months of Evant acquisition related to intangible asset amortization compared to only one month this quarter given we finalized the deal on August 31.

Exclusive of the acquisition-related charges and amortization of $2.2 million operating income was $9.3 million, or 15% of revenues in the third quarter compared to $7.7 million and 15% of revenue in third quarter of last year, and $11.6 million and 19% of revenue in the second quarter of this year, a seasonally stronger quarter historically.

Aggregate Company-wide headcount increased by approximately 125 for the quarter, in addition to approximately 100 Evant employees to join Manhattan, bringing our total headcount to approximately 1,600. So the total addition for the quarter was approximately 100 employees including 100 from Evant. Excluding Evant, our operating expenses in the third quarter of 2005, defined as including sales and marketing, R&D, and G&A remain flat with the second quarter of this year. Decreases in incentive-based compensation due to lower license revenues were offset by increased headcount in India and other non-recurring expenses, including an increased sales tax accrual.

Interest income aggregated $1 million in both the third and second quarters of this year. Average returns for the third quarter increased to 3% compared to 2.8% in the second quarter and 2.3% in the first quarter. Net foreign exchange gains of $120,000 were recognized in the current quarter in the UK due to the exchange rate fluctuations between the pound Sterling and the Euro. Also included in interest and other income in the third quarter is $250,000 of interest expense on unpaid sales tax associated with in-process sales tax discussions with 2 states.

Our effective income tax rate for the third quarter of 2005 was 38.9% and is consistent with the second quarter after excluding the non-recurring restructuring charge recognized in the second quarter.

Consistent with my comments regarding income taxes on our last conference call, due to the change in the geographic mix of business from our original plan, we anticipate that our tax rate for the remainder of the year will be approximately in the 39%, which is approximately 3 percentage points higher than anticipated at the beginning of the year. To the extent that future operating results in those foreign locations improve and regenerate taxable income, our effective tax rate in those periods will be lower as we begin to recognize the tax benefits of current period losses. The $0.04 negative impact on EPS from the incremental rate has been reflected in our guidance for the remainder of the year as was also done in the last conference call.

Adjusted net earnings for the third quarter of 2005 were $6.2 million or $0.21 per fully diluted share, which includes the $0.01 dilution from the Evant results for the month of September. The $0.21 per share of adjusted earnings represents a 24% increase over the $0.17 per share in the third quarter of last year. Excluding the $0.01 dilution from Evant, adjusted earnings per share increased 29% over the third quarter of last year. Adjusted net earnings excludes the amortization of acquisition-related intangible assets in both quarters, and also the $1.1 million of non-recurring costs related to the Evant acquisition in the third quarter of 2005, all net of income taxes.

Cash generated from operating activities during the quarter aggregated approximately $11.1 million, which excludes a $2.8 million cash outlay to former Evant employees out of the $50 million purchase price, which is required to be included in the calculation of cash generated from operations on a US GAAP basis. This compares to $9.2 million of cash generated from ops in the third quarter of last year, an increase of 20%.

Our cash and investments at September 30, 2005 totaled almost $106 million compared to $168 million at June 30, 2005. The decrease is attributable to the repurchase during the quarter of $21.3 million of our outstanding common stock at an average price of $21.81 per share. As of September 30, we had $28.7 million of the $50 approved by the Board in the July Board meeting remaining to repurchase additional shares as we deem appropriate.

Additionally, as announced on August 11 and also on September 1, the Company paid $50 million in cash during the quarter for the acquisition of Evant. So far in 2005, we have repurchased 1,951,000 share of Manhattan Associates common stock for a total cost of $41.3 million. In addition to the share repurchase program, our fully-diluted share count has been lower in 2005 compared to 2004 because of our lower average stock price in 2005. The lower stock price causes the weighted average number of shares outstanding on a fully-diluted basis to be less because of the treasury stock method of calculating EPS as required by US Generally Accepted Accounting Principles.

The 2 effects combined to lower our fully-diluted share count by 5.6% for the third quarter of 2005 compared with 2004. Had we had the same share count in third quarter of 2005 as we had in the third quarter of 2004, our adjusted EPS would have been $0.01 lower. This does not take into consideration the incremental investment income that we would have had had we had that cash on the balance sheet. If we had the remaining cash on the balance sheet and not required those shares, the actual EPS with incremental investment income would have remained at the same amount as reported this quarter.

Deferred revenue consists mainly of maintenance revenue collected in advance of performing the maintenance service and increased to $29.1 million at September 30, 2005 from $25 million at June 30 and from $24.9 million at March 31. The increase is principally the result of maintenance renewals in the quarter combined with the addition of deferred revenue associated with Evant.

Our days’ sales outstanding were 73 days at September 30 compared to 69 days at June 30 and 79 days at March 31, 2005. As stated in the last quarter’s discussion, the improvement in the second quarter of 2005 from March 31 is due to the write-off of a $2.8 million account receivable from our German customer, which had a positive impact of 5 days. Our DSO continues to be well within the industry norms and our overall customer satisfaction level remains strong. We continue to anticipate that our DSOs going forward will be in the 70s.

As mentioned earlier, we have completed our initial allocation of the purchase price of Evant, which resulted in capitalizing approximately $15 million in intangible assets, the majority of which will be amortized over 6 years. Of the total cash outlay of $50 million, a total of $37 million was allocated to goodwill, which is not amortized for US GAAP purposes.

However, we will monitor the goodwill balance on a quarterly basis for impairment and write down the goodwill at the time it has been determined to be permanently impaired if ever. We are still investigating the fair-market value and the likelihood of realizing the benefits of NOI carry-forwards and research and development tax credit carry-forwards and we’ll adjust goodwill and deferred tax assets within the next 12 months as provided for by the accounting standards if necessary.

Thank you, and I now hand you back over to Pete Sinisgalli.

Thanks Steve. Our third quarter results were solid and positioned us well for the fourth quarter. I’m going to begin with an update of Evant’s acquisition. As I mentioned earlier, the integration is going well. We have many of the usual issues to deal with when integrating 2 companies, but we are dealing with them effectively. The Atlanta-based Evant team has already moved into Manhattan’s headquarters office in Atlanta. The sales team is fully integrated into Manhattan’s sales organization, as is the marketing, product management, and G&A functions. We expect all functional components of Evant to be fully integrated into the Manhattan Associates structure by the end of the year. And the teams are already working well together.

Marketplace reaction to the combination of Evant and Manhattan Associates continues to be very good, and we’re quite excited about the powerful combination of planning and replenishment solutions with our strong supply chain execution solutions.

We experienced good license sales growth Q3 in the United States, EMEA, and Asia-Pacific, though our reported results for the Americas, which includes the United States will be about flat with Q3 of ’04. In the Americas in Q3 of last year, we had a large deal in South America that didn’t repeat this year, thus causing the Americas’ results to be flat year-over-year. But in the US license revenue increased about 18% versus Q3 of ’04. In Asia-Pacific our license revenue increased about 35% from Q3 of last year. Our EMEA license revenue in Q3 was a little more than $2 million, a nice improvement from Q2. It was also up more than five-fold over last year’s Q3. But we still have much to do before we are pleased with our success in EMEA, this quarter’s improvement is certainly a step in the right direction.

We’ve had a successful quarter adding new clients and expanding our relationships with existing clients. I won’t run through the long list of new customers and expanded relationships, as the major ones are listed in our earnings release. We signed 3 deals this quarter of $1 million or more in recognized license revenue. Two of the three large deals were with existing customers, and one with a new customer. All 3 deals were for warehouse management solutions.

Our Microsoft Exacta partnership continued to gain traction this quarter with the signing of 2 key deals, 1 in the United States and 1 in EMEA. Both customers will use our warehouse management and transportation execution solutions for Windows.

About 40% of second quarter licensees were generated from new customers, and the remaining 60% came from our existing customer base. Last quarter, it was 60/40 the other way. This quarter’s results are roughly in line with the 50/50 split between new and existing customers we’ve experienced over the last couple of years. Because all 3 large deals in Q3 were warehouse management solution deals, license revenue for our warehouse management group were about 70% of total license fees and about 30% of license fees in the quarter were from non-warehouse management solutions. Because 2 of the 3 large warehouse management deals were I-Series deals, about 40% of the quarter’s license revenue was on I-Series and about 60% on open systems.

The retail and consumer good verticals were once again strong contributors to our license fees and combined for more than half of license revenue in the quarter.

For the Evant acquisition, we closed a total of almost $500,000 in license revenue. In addition to disclosing Evant’s specific results for Q3, we’ll also provide you with specific results on Evant for Q4. So once we head into 2006, we will no longer break out Evant’s results as the Company will be completely integrated into Manhattan Associates, and we will no longer be able to accurately separate the results.

During the quarter, we closed 8 RFID deals and booked a little more than $1 million in total RFID revenue. That compares with 11 deals and $1.5 million in total RFID revenue in Q2, and 6 deals and $0.7 million of RFID revenue in Q3 of ’04. We continue to make steady progress in RFID. Similar to reported results for Evant, we will provide specific results for RFID for Q4 of this year but no longer provide RFID stand-alone results for 2006.

Our professional services organizations around the globe did an outstanding job this past quarter. Our services financial results were a new record in the quarter and as important, the team did a very good job increasing customer satisfaction.

We now have about 1,600 employees around the globe. That’s an increase of about 125 since the end of Q2. About 100 of the 125 additions are from our Evant acquisition with the balance primarily in our professional services groups. With the addition of the Evant R&D team, we now have approaching 600 people in R&D which is more than a third of our total staff. The majority of our R&D team is in India, and as such we are able to maintain our cost of R&D at a highly-competitive level of about 15% of revenue. I believe our substantial personnel investment in R&D at a competitive P&L cost is a significant differentiator from our competitors. Sure, some of the ERPs have more people in R&D overall, but I have not found any company that has committed a similar number of people to R&D for supply chain solutions. And at the end of the day, I believe that is a major reason our Company will be successful over the long run.

Our third quarter results were in line with our plans and our outlook for the remainder of the year continues to be positive. Our sales pipeline for Q4 looks good. Please keep in mind that services revenue in Q4 will be lower than Q3 because of the holidays in Q4 and the impact that has on the number of working days plus the big holiday shopping season requires many of our customers to focus on meeting their sales goals during the quarter and take some focus away from supply chain initiatives. Last year, we had a 5% sequential decline in our services revenue from Q3 to Q4, and we expect a similar result this year.

Also similar to last year, because of lower revenue in the quarter, we expect a lower services margin in Q4 than in Q3. Last year we posted a 51% services margin in Q4 and expect a similar result this year. Sorry -- I think I said a 51% -- I hope so; last year we posted a 51% services margin in Q4 and expect a similar result this year. Our expectations for full year 2005 adjusted EPS are unchanged. We continue to expect to deliver full year 2005 adjusted EPS from Manhattan Associates base business of between $0.86 per share and $0.90 per share. Evant’s results were dilutive to Q3 by $0.01 and we expect an additional $0.01 of dilution from Evant in Q4. So the combined expectation for Manhattan and Evant remains at adjusted EPS of between $0.84 and $0.88 per share. That translates into Q4 adjusted EPS for the combined Manhattan Associates of between $0.20 and $0.24 per share.

To summarize, I believe our Q3 performance was good. The financial results were solid across all key financial metrics. And we’re pleased with our progress to date with the integration of Evant and the marketplace enthusiasm for our combined Company. There are certainly many areas for continued improvement and we’re focused on improving those areas. And there are serious competitive threats in the marketplace, particularly from the 2 large ERPs, but we’re confident that our strategy to be the global leader of supply chain solutions that optimizes the supply chains of our customers is dependable and will create substantial shareholder value.

We will continue to differentiate our products by offering the deepest, most comprehensive suite of supply chain solutions and deliver the best return on investment. And we will provide these solutions on our logistics, event management, business process platform for a low total cost of ownership and relatively easy integration into ERPs. Importantly, our professional services organization, the best in the world, will continue to distinguish us from all of our competitors. I believe the combination of great products on proven market-leading technologies delivered by the world’s leading experts will win Manhattan Associates a substantial piece of the supply chain management marketplace.

Operator, we’ll now take questions.

[OPERATOR INSTRUCTIONS]. Robert Schwartz, Jefferies & Company.

[Inaudible] the pricing environment and what you’re seeing out there, and if you’re seeing any change in appetite related to hurricane activity or anything else that we’ve seen over the last year.

Thanks Robert; in terms of pricing the market is still quite competitive. I think the market is evolving a little bit in instances where we’re able to communicate the value of our broad integrated suite of logistic solutions, I believe customers are more and more recognizing the value of partnering with Manhattan Associates of expanding the relationship across more than one supply chain solution, and in instances we’re able to do that; we’re able to reflect the value of our solutions in the pricing of those solutions.

In instances where a customer or a prospect is looking for a point solution, in cases like that perhaps just the stand-alone warehouse management solution pricing has been and continues to be quite competitive. I mentioned earlier, we try to differentiate ourselves from the competitors by offering a broader, deeper suite of solutions than anyone in the marketplace and believe over time that will allow us to continue to perfect the value of our solutions. But in instances where it’s a stand-alone point solution, the marketplace continues to be quite price-competitive.

In terms of impact from the hurricanes, I think some of you may know we have a relationship with the Federal Emergency Agency where we’re doing some consulting work for FEMA. We recognized some revenue in Q3 from that relationship and will also recognize some revenue in Q4 from that relationship. So in that regard, some of the weather activities have been positive to the financial performance of Manhattan Associates.

The flip side to that would be any impact from the hurricanes on buyers’ enthusiasm for committing investment dollars. We have not yet seen any impact yet on buying activity based on the negative impacts from the hurricanes.

Is there any positive impact from destroyed warehouses where people are having to rapidly replace their infrastructure?

So far Robert, we’ve not seen any substantial changes in that to date.

In previous conversations, you’ve mentioned some changes in routing behavior and maybe some terrorists in Eastern Europe and Russia being a boom in that part of the world, and I’m wondering if that’s continuing and how it’s performing.

Well, we continue to do well in our transportation and market space. A number of changes in that market space and we’ll continue to encourage prospects to reevaluate their transportation needs, not the least of which is the price of oil. The cost of moving goods around the world continues to increase, customers and prospects will continue to try to fine tune their routing plans to minimize their costs.

So that’s a big impact there, certainly changing the regulations around the world; hours of service, driver regulations in the US and similar initiatives in other parts of the world, as well as companies trying to take advantage of the substantial cost advantages of moving manufacturing to lower-cost locations, but the complication that presents in terms of transportation costs. There are a lot of moving parts in the transportation world. We believe those are actually quite positive for Manhattan Associates and look to continue to develop our solutions to reflect those changes and optimize the performance of those solutions for our customers.

And last question, really sort of housekeeping; what was CapEx in the quarter?

I’ll ask Steve if he wouldn’t mind telling you that.

I should have directed that to Steve.

It was somewhere in the area of between $1.5 million and $2 million.

Thank you very much.

Mark Burbeck, Citigroup.

Thanks a lot; Pete, can you tell me what the reaction to the Evant acquisition has been from your installed base to date, early feedback?

Yeah, actually it’s been quite positive. As we mentioned when we announced the deal, there were about a dozen or so Evant customers that were already Manhattan customers, and the feedback from that group is quite positive as you would imagine. We’re also finding a lot of interest in our existing customer base to learn more about the replenishment and planning solutions, how Manhattan plans to integrate those solutions into our broad database platform for supply chain capability. So there has been quite a bit of interest among our installed base.

The management team, Jeff Mitchell, Jeff Baum and their teams are presenting in many cases the combined product footprint to our customer base and enthusiasm is building for the combined solution set. So we’re quite pleased with the reaction so far within our installed base and across the general marketplace for a broader suite of supply chain solutions.

Any update on our integration plans, your product integration plans?

Well, we announced back in the March/April timeframe our LEMA -- logistics event management architecture – our business process platform for our supply chain solution. We will integrate Evant onto that platform over the next couple of years and continue to make good progress in introducing more and more products on our LEMA platform, web services, services-oriented architecture and believe that message is resonating also quite well in the marketplace.

Okay and Steve, on the written-off account receivable are you still in discussions on that or have you walked away from that?

We continue to have discussions internally with our legal counsel, with the customer, and so we’re not walking away from anything. As we mentioned in the last call, we’re required to reserve that when we think it’s likely that it won’t be collected but we still pursuing all of our rights under that agreement.

Okay thank you.

Terry Tillman, Suntrust Robinson Humphrey.

Thanks, Pete first question for you in terms of can you give us an update on the Evant go-to-market strategy? I would think initially replenishment is an easier sell for your current sales force, your existing sales force, so is that where more of the cross selling is going to be happening initially, or do you actually see some planning opportunities playing out as well?

Actually we see some of both Terry. We obviously have a strong footprint within the retail space where replenishment has played well for Evant so far, but also we believe that planning modules also are quite attractive to that large installed base for Manhattan as well as Life Sciences, electronics, and some of the other component parts of our vertical approach, so we see both areas as important good growth prospects for Manhattan.

We did pick up 5 or 6 very capable sales people from Evant in the acquisition. Those have already been integrated into our sales team and working side-by-side with Manhattan sales team on joint customers, on prospects to try to make sure we are fully communicating the strategy for Manhattan going forward.

Clearly many marketplace participants consider replenishment much more aligned with execution solutions than planning but we have seen some great commonality across the two and believe as we continue to integrate the sales team that our market messages will be able to effectively communicate the planning side of the equation as well.

Did you feel with 5 or 6 folks he brought over as kind of core sales group there, do you feel like you need to go out in the market and bring some more folks in that can sell planning and optimization type deals, or is this a good enough core group?

Well, we actually think there are some nice opportunities for us to continue to grow our sales team. Earlier this month, beginning October 1 we hired a gentleman, his name is Bob McFarland. Bob has more than a decade experience in our industry. Bob was hired to run our retail sales group in addition to having very good experience in warehouse management in some of the execution spaces, Bob has 7 or 8 years of experience with planning and replenishment solutions. He ran the Americas sales force for Manugistics for a period of time, and in that space had responsibility for planning solutions, as well as for transportation solutions and we’ve also already brought in an additional person under Bob to help us in that regard. So we’ll look for real opportunities to enhance, upgrade our team to be able to sell the broad suite of solutions.

Okay great, and then the final question is for Steve in terms of as we get into the fourth quarter, should we see a return to some operating margin leverage? And secondly, for next year as well could we see a return to that or should we put some of these transition costs and maybe the cost structure of Evant be inherently different into next year? Thanks.

We don’t specifically guide to the operating margins on a quarterly basis, but I think over time, as we’ve said -- and our objective is to get that operating percentage up closer to the high teens or the 20% range. So hopefully that will continue to improve and we’ll continue to work on it.

Brad Reback, CIBC World Markets.

Hey guys, just a quick point of clarification. Pete I believe you said the service business, we should expect to be down about 5% sequentially; is that correct?

Correct.

Does that include Evant, or is that excluding Evant?

Yeah, that’s actually if you look at Manhattan stand-alone, we’d be down about 5% sequentially, but if you also looked at Evant they would likewise. Similar customer base, similar issues that they’re working but if you look at basically the combined Company, you should see about a 5% sequential decline.

In Q3 we only had one month of Evant, but there’s -- Steve mentioned in his comments, the services revenue for the one month was about $1.2 million-ish. If you quarterize that and deduct about 5% you’d get close to the number.

Okay so take your core, take theirs, take 5% off of that, put them together and that’s going to be down 5% sequentially?

Yeah, that should be correct, yes.

Okay thanks.

Mark Schappel, KeyBanc Capital Market.

Hi, Pete first question for you; I realize it may still be early days here but have you noticed any different behavior from GLog since they were purchased by Oracle?

[Inaudible], yes there’s a little bit of noise in the marketplace, but we haven’t seen anything yet. I know, I’ve listened to some of the other solution vendors in the marketplace and they seem to think that the Oracle acquisitions have sort of taken some of the companies that Oracle acquired a little bit out of the marketplace in the near term since they’ve acquired so many organizations, and there’s a lot of integration work. But we haven’t seen much of that yet related to GLog.

GLog wasn’t that active in the new deals; we didn’t see that much of them and that hasn’t changed much in the last month or so.

Okay and then I guess along with that if you could maybe just give your comments on how Manhattan’s transportation offerings match up with that of GLog’s.

We believe we today have the best featured transportation solutions in the marketplace. And as you know, we’ve invested quite heavily over the past 3 years, and continue to invest quite heavily in the transportation market opportunity. GLog has a solid product; they’ve been investing in transportation solutions for a long time as well, and they have a solid product. But we believe our product is more advanced than GLog’s. Candidly, GLog has some functionality that is particularly attractive to certain verticals, where Manhattan doesn’t have much of the customer base yet, but we believe in other vertical markets our transportation functionality is the strongest in the marketplace.

There are a lot of good Legacy products in the market for transportation. We believe the opportunity for us to invest in and build out a state-of-the-art transportation solution that will allow us to take market share from all of the other Legacy applications in the marketplace, as well as win net new business.

Okay and I guess just one final question here for Steve, a housekeeping item; as far as cash flow from operations, I didn’t catch that when you mentioned that initially. Could you just repeat that please?

Cash flow from operations on a US GAAP basis was $8.3 million; if you exclude a $2.8 million payment which in our minds was part of the purchase price, it was actually $11.1 million directly from Manhattan.

I also answered a question before and actually looked at a wrong answer, a wrong line item on the cash flow statement. Our CapEx for the quarter was about $2.4 million.

Okay thanks, that’s all for me.

Adam Holt, JP Morgan.

Hi Steve, hi Pete; another quick question for you about the fourth quarter. I know you haven’t given specific license guidance but following your commentary about the sequential impact of services of having Evant in the fourth quarter, presumably you have a full quarter of license revenue in the fourth quarter. Should we see greater uptick in license revenue sequentially than we saw say last year?

Well certainly the impact of Evant will be additional to the Manhattan run rate, so I think what I would suggest is we’re expecting a good Q4 from license revenue. We expect the Manhattan contribution will be greater than the Manhattan Q2 license revenue result, and we would expect to add on top of that the output from Evant. So we’re looking at a solid license revenue quarter in Q4.

Okay and then just a question on the mix; I guess this is also maybe a drill-down on a couple of large deals. What was the largest deal in the quarter, and would you expect the mix to return to say what we’ve seen in the last couple of quarters, both in terms of open solutions versus the I-Series but also warehouse management versus non-warehouse?

Thanks Adam; we don’t disclose specific dollar amounts for deals. All we’ve done for the past couple of years is disclose how many deals were $1 million or more. In this quarter, we had 3 deals that were $1 million or more in the quarter. A year ago in Q3, we had zero deals of $1 million or more; Q1 and Q2 of this year both had 4 deals of $1 million or more. So that’s the magnitude of the large deals. We continue to participate; the pipeline is solid for large deals for Q4, so we continue to expect that we will close large deals in Q4 and into 2006.

We do expect the business mix of the license revenue for the foreseeable future to return to what we’ve seen over the past couple of quarters. We did have an unusually large number of WMS deals in Q3, and because 2 of the 3 larger WMS were on I-Series and a little bit of an unusual mix there, I would expect generally speaking over the next several quarters to have about 50% of license revenue warehouse management, 50% non-warehouse management, and that second half will continue to tick up a little bit as we add products to our product suite like the Evant replenishment and planning solution.

So likewise, I’d expect us to return to having about 20% of our license revenue on the I-Series and about 80% on all other platforms.

Okay terrific; and just one final question on clarification. I hate to nickel and dime you on this, but are you comfortable quantifying what the contribution was from the FEMA project in the quarter and what you expect in the December quarter? Thanks.

I’m sorry Adam, we don’t break out any particular results from any customer. It was a nice contribution to Q3 and we expect a nice contribution in Q4 as well, and importantly we’re also building I think a longer-term relationship with FEMA, and hopefully we’ll expand that into other government agencies to leverage our significant investment in supply chain solutions.

Philip Alling, Bear Stearns.

Thanks much; Pete could you just give a little bit of color on the large deal pipeline; I know you were just answering some questions on that but as far as the split there, TMS and WMS you obviously had a decent quarter with respect to large deals of WMS. On the outlook there, large deals going forward what color can you provide?

Yeah, we have I think a quite attractive pipeline. The pipeline is as big or bigger than it’s ever been before and in particular we have, I think a good looking pipeline for Q4. That Q4 pipeline is similar to what the pipeline has looked like in the past and the deal’s closing in relative proportion to the pipeline and we would likely see something along the lines of a 50/50 split between WMS and non-WMS solutions. Now of course, no one can predict with great accuracy which of those larger deals will close, but we feel pretty good about the path we’re on and we’d expect about half will be WMS deals and about half will be outside the WMS space.

Okay I appreciate that; just with respect to RFID revenue, could you give us the license service split on that that you had in the quarter?

Philip, as you may recall, we’ve not broken out that split between licenses and services; we have said in the past it was mostly license or mostly services. But I will tell you this quarter it was ballpark 50/50-ish license and services, but we don’t give more specific details than that.

Okay that’s helpful; now is there -- just one quick question more on the RFID space, is it your sense that the building pipeline there is retail-related mandates are expanding some the demand for software in that space, can you give us any color there?

Sure I’d be happy to; there continues to be real general interest in RFID and how RFID capability can improve supply chains as a sophisticated form of data capture. There continues to be a lot of energy around some of the compliance requirements, Wal-Mart, Target, Best Buy, and so forth. But the market continues to have a little bit of a wait and see attitude. People really want to see a return on investment, to see more of the Gen-2 tags and readers in market and proven business cases before they move much more aggressively to invest in RFID. So our expectation is we’ll be talking with a lot of companies, prospects, have a lot of activities underway.

But we’d expect in the near term anyway to have ballpark the same level of financial success as we’ve had over the last couple of quarters. Our belief is that the marketplace would expect a market leader like Manhattan and Associates to be investing in state of the art leading edge technologies and capabilities for their business customers, so that when our business partners are ready to deploy RFID, they’ll have confidence that Manhattan and Associates have the solution available for them. So while we don’t expect a material uptick in RFID financial performance in the near term, we do expect that it’s an important component part of our solution offering, and in the long run will continue to differentiate us from our competitors.

But we’re not seeing a lot of increased activity near term, and there are a lot of mandates that continue to be out there that are getting modified a little bit to allow vendors a better opportunity to get some of the Gen-2 hardware and software put in place so they can be more confident in their investment in RFID.

Outside of RFID, was there any noticeable change in the demand environment within the retail verticals for spending on IT? And perhaps you could also just comment on how things were in verticals outside of retail because I know you did make a few comments on retail in your prepared comments.

Sure I’d be happy to; the marketplace for retailers continues to be a little bit better in 2005 than it was in 2004 and 2003, and we expect that to continue for the foreseeable future as folks are upgrading their supply chains after several years of being very cost conscious. Folks recognize a real opportunity to improve their supply chains, create competitive advantage, get the right product at the right location, the right quantity, size, style and color to improve customer satisfaction and drive the top line, not just look for cost savings. So we’ve seen some improvement in the retail market space and we’d expect to continue to see that.

As I mentioned in my comments on retail and consumer goods, 2 of the biggest verticals, continue to be our largest and accounted for slightly over half of our total license revenue. But we continue to do well in logistic service providers and the grocery space and are making real progress into electronics and the remainder of our Life Sciences and the remainder of our vertical markets. But clearly retail and consumer goods, quite important and third-party logistics and grocery are having a very positive impact on our vertical market strategy.

Just a housekeeping issue here, perhaps best for Steve; was there anything one time in nature as far as the sequential improvement in the gross margins in hardware? Those are at a higher level than we had seen previously so what should the expectation be there going forward?

I don’t think there was anything special this quarter that caused that margin to be a little bit higher. I think it kind of depends on the order and the customer and the mix of the products that are shipped in that quarter, so nothing special or non-recurring that occurred in the quarter.

Well okay, so would you expect that hardware gross margins should trend up to levels closer to what you had in this quarter, or is it more likely that they’re going to trend back down to where they have been historically?

I think Philip if you look at our margins over the last several quarters and you average those out, I would suspect that it would be in that area on a go-forward basis.

Okay and I guess this is the final question then just on the Q, could you give us a little color on the sequential increase in deferred that you had in the quarter?

Yeah, it’s principally a result of maintenance renewals for the quarter as well as a combination of bringing Evant in and there’s some deferred revenue associated with Evant. Some of that is not deferred maintenance revenue, it’s deferred services revenue, but a good portion of it was related to Evant and the rest was maintenance renewals.

So there wasn’t any software in there from some of the large deals that you’re going to recognize in a subsequent quarter?

From a license standpoint do you mean?

Yes.

Not of any significance.

Thanks very much.

Operator I believe we have time for one more question.

Yun Kim, AG Edwards.

Thank you; can you quickly talk about your traction with top system integrators, not just Accenture? Are they playing a more prominent role now that you are selling deals with your I-List product strategy or with SAP and Oracle making some acquisitions in this space, are these system integrators getting less interested in partnering with you?

We’ve had I think some modest improvement over the last couple of quarters on our relationships with the big system integrators. In particular we’ve had some very good discussions with IBM and our relationship with IBM continues to grow nicely. We announced earlier this year the formation of a real partnership with CFC and we’ve been quite pleased with the start of that relationship. We had a lot of good initial momentum, particularly in marketplaces where we haven’t had much penetration in the past. Accenture is always a very prominent market participant. And we think we have an okay relationship with Accenture. In many cases we’ll be both working the same deal and partner up in those cases. We’d like to have a stronger relationship with Accenture; haven’t had much success in cracking that nut though. So we’ll continue to work at it, but I feel very good about the IBM relationship and the CFC relationship, and pretty good about the progress we’re making with Accenture.

I’d also point out that we’re having good success with our Microsoft relationship and the Exacta partnership, the industry-builder initiatives and the channel program in that medium-sized smaller market to get greater penetration and we’re pleased with the progress we’re making there as well.

Okay thanks, and Steve real quick, again, deferred revenue went up strong. You mentioned that Evant and strong maintenance renewals contributed to that. When I look at last year’s numbers, deferred revenue didn’t go up that much sequentially from Q2 to Q3 so what happened in the quarter that drove the strong maintenance renewals, and do you see another strong maintenance renewal quarter again this quarter?

Well as I mentioned the majority of the increase was revenue that was brought over from Evant. Some of it was deferred maintenance but some of the accounting rules don’t actually allow you to bring over the entire amount of maintenance; they only let you bring over the cost plus a small margin to be recognized in the future. So it was actually some unbilled – or billed but unrecognized revenue that had been brought over from a services standpoint. So it was nothing specific to Manhattan or anything that was really unusual. There were some maintenance renewals that caused a small increase but nothing inconsistent with what we saw last year.

So do you expect deferred revenue in line to be more or less consistent like what happened in the past year in Q4?

Yeah consistent growth from Q3 to Q4, yes.

Okay great, thank you.

Thank you and thanks everyone. We greatly appreciate you taking the time to meet with us and look forward to speaking with you again in about 90 days. Thanks very much, so long.

Ladies and gentlemen that concludes today’s Manhattan Associates Third Quarter 2005 Earnings Conference Call. You may now disconnect.