Manhattan Associates Inc (MANH) 2009 Q2 法說會逐字稿

Good afternoon. I will be your conference facilitator. I would like to welcome everyone to the Manhattan Associates second quarter 2009 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. (Operators Instructions). As a reminder, ladies and gentlemen, this call is being recorded today, July 21st, 2009. I would now like to introduce your host for today, Mr. Dennis Story, Chief Financial Officer, and Mr. Pete Sinisgalli, Chief Executive Officer, of Manhattan Associates. Gentlemen, you may begin.

Thank you, Abigail, and good afternoon, everyone. Welcome to Manhattan Associates 2009 second quarter earnings call.

Before we launch into the results discussion, I will review our cautionary language, then turn the call over to Pete. During this call, including the question-and-answer session, we may make forward-looking statements regarding future events or future financial performance of Manhattan Associates. You are cautioned that these forward-looking statements involve risks and uncertainties, are not guarantees of future performance, and that actual results may differ materially from those in our forward-looking statements. I refer you to the reports Manhattan Associates files with the SEC for important factors that could cause actual results to differ materially from those in our projections, particularly our annual report on Form 10K for fiscal 2008, and the risk factor discussion in that report.

We are under no obligation to update these statements. In addition, our comments will cover certain non-GAAP financial measures. These measures are not in accordance with or an alternative for GAAP and may be different from non-GAAP measures used by other companies. We believe that this presentation of certain non-GAAP measures facilitates investors' understanding of our historical operating trends with useful insight into our profitability exclusive of unusual adjustments.

Our Form 8K filed today with the SEC and available from our website, www.manh. com, contains important disclosure about our use of non-GAAP measures. In addition, our earnings release filed with the Form 8K reconciles our non-GAAP measures to the most directly comparable GAAP measures.

Now I will turn the call over to Pete.

Thanks and welcome to our second quarter 2009 earnings call.

I will start the call by take you through an overview of the quarter and the first half. Dennis will then get into the details of our financial results. I will follow with additional details about our business and provide our outlook for the balance of 2009. And then we'll be happy to answer your questions.

As we announced in early July, the global economic recession continued to hurt our license revenue results in the second quarter. In fact, we closed the first half of 2009 having signed no million dollar deals, compared with seven deals of this size closed in the first half of 2008. That said, sales activity was substantially higher in Q2 than in the first quarter.

Customers and prospects are meaningfully engaged with us. In fact, going into the last couple weeks of June, I was quite optimistic about our potential financial results for the second quarter. But, as the quarter wound down, it proved to be very difficult to get ink on contracts for larger deals.

Our win-loss rate continues to be strong, but companies continue to be reluctant to make capital commitments in this environment. As Dennis will cover in his remarks, we continue to execute well on essentially everything within our control. Unfortunately, finalizing customers and prospects commitments for capital expenditures in this environment is somewhat outside our control.

We believe we have been selected by several companies that will make million dollar plus license fee commitments to Manhattan, but the question remains when. Given our substantial active pipeline for the third quarter and the fourth quarter, and our continued strong performance on everything within our control, we continue to be optimistic about our third quarter and full year financial results.

I'll speak more about our outlook for the balance of 2009 following Dennis' comments. Dennis?

Thanks, Pete.

I will cover adjusted financial results first, then provide a summary of our GAAP earnings. As Pete mentioned, persistent macro economic uncertainty continued to put pressure on revenues as we saw final contracts for license deals again delayed. However, while Q2 revenue performance approximated Q1 2009, earnings and operating margins nearly doubled over Q1, benefiting from aggressive expense management to protect margins and earnings in this tough environment. We delivered $0.14 of adjusted EPS, doubling EPS performance sequentially over our first quarter 2009, adjusted EPS of $0.07, versus the prior year, adjusted EPS is down from $0.42 in Q2, 2008, as the first half of 2008 preceded the global economic collapse; this is a very tough comparison. We posted adjusted net income of $3.2 million in the quarter, which is down 69% from Q2, 2008, but up 87% sequentially over Q1 2009.

There's no question that our business is not immune to the economic downturn that is freezing capital investment across industries. However, we encourage investors to consider key take-aways from our Q2 performance that clearly indicate the strength of our business in a tumultuous economy.

First, we have a proven track record of managing expenses and taking prudent actions necessary to protect earnings. Q2 2009 total expenses decreased 29% over Q2 2008, and we nearly doubled operating margins sequentially, from 4.7% last quarter to 8.8% this quarter.

Two, our services margins continue to be world-class as we align capacity with demand. We delivered services margins of 57.2% this quarter compared to 54.7% in Q1 2009, and 52.3% in Q2 2008.

Three, our operating cash flow is very strong. We generated $10.8 million in Q2 bring our year to date total to $23.5 million.

Four, our balance sheet continues to support long-term strategic flexibility and stability with a cash position of $91 million, up from $89 million in Q1 2009.

Five, our capital structure is efficient and well managed. We have no debt and our operating cash flow has enabled us to self-fund $20 million in accretive share repurchases year to date.

And Six, finally, our heritage sets us apart 689 we have the financial and operational strength to maintain meaningful strategic investments in R&D that deliver competitively superior solutions.

Now I will cover the operating results. Q2 revenue performance was almost a carbon copy of Q1 2009. For the first half, we're coming off tough 2008 comparisons as these were strong license quarters for Manhattan, and the full hammer stroke of the global economic collapse did not manifest itself until the second half of 2008. Against this backdrop, total Q2 revenue of $58.4 million decreased 35% compared to last year. Two percentage points of this decline is due to currency fluctuations, making the revenue decline absent this impact, 33%.

Revenues were down about 35% in each of Manhattan's geographic segments. Our Americas segment reported total Q2 revenue of $47.4 million, down 36% over Q2 2008. EMEA, Q2 total revenue was $7.8 million, declining 35% off of very strong Q2 2008. And total revenue on our Asia Pacific operation of $3.2 million declined 35% from Q2 2008.

Now looking at license revenue performance, $4.1 million in Q2 reflects a decrease of 79% or $15.2 million compared to $19.4 million closed in Q2, 2008. We believe this reflects the continued caution on the part of decision makers to commit to meaningful investments given macro economic uncertainty. In the Americas, Q2 license revenue was $2.4 million, down $12.9 million or 85% over Q2, 2008. In EMEA, a license revenue totaled $1.1 million in the quarter, which was down about $1.4 million over Q2, 2008, and APAC, delivered license revenue totaling $704,000 for the quarter, down from $1.7m in Q2 2008.

Shifting to services, total Q2 services revenue of $49.4 million decreased 21% over Q2 2008 and, sequentially, declined 3%. Consistent with the past several quarters, the services revenue decline can be attributed to a slowdown in services demand in the wake of lower license revenue and slower upgrade activity. Customers continue to conserve capital due to current market conditions which hampers professional services revenue performance.

Looking at our services revenue components, our professional services revenue in Q2 totaled $30.8 million, declining 28% compared to Q2 2008 and declining 5% sequentially. Maintenance revenue for the quarter decreased 4% over Q2 2008, equating to a 1% decline on a constant currency basis. Sequentially, maintenance was up 1% over Q1 2009. For the first half of 2009, maintenance revenue of $37.2 million was down 1% over the prior year. Excluding currency impact, maintenance grew 2% in the first half of 2009 compared with the first half of 2008.

Like other software companies in this economic environment, we are experiencing pressure from customers to reduce maintenance, and we have experienced some customer bankruptcies as well. And, of course, collections timing is also being shaped by the current economy. But, so far we are managing effectively through these impacts. As a reminder, we recognize maintenance renewal revenue on a cash collection basis, so we can experience revenue lumpiness from quarter to quarter.

Overall, though, the good news is our maintenance retention rates continue to track at 90 plus%, and we have retained all significant customers. Of particular importance with respect to our services disciplines, we continue to efficiently manage our capacity to protect margins. For the quarter, adjusted consolidated services margins were 57.2%, up nearly 500 basis points compared to 52.3% in Q2 2008. And up 250 basis points sequentially from Q1 2009.

Our year to date services margins are 56%, up 600 basis points from 50% margins posted in the first half of 2008. This reflects the expense actions executed proactively to date to align capacity with demand, combined with lower bonus accruals. On a normalized bonus accrual basis, our services margins would likely be tracking in the 53% to 55% range.

Despite the intermediate term challenges, we are pleased with our continued ability to deliver strong services margins and expect to continue to perform solidly in this area as we leverage our capacity to drive customer satisfaction and strategic market advantage. Consistent with our first quarter earnings call comments, and based on our expense actions to date, for the full year 2009, our goal is to achieve a 300 to 400 basis point improvement year-over-year in services margins; so about 53.5% to 54.5%.

Moving on to adjusted operating income, Q2 adjusted operating income of $5.2 million declined $10.3 million over Q2, 2008. Operating margin for the quarter was 8.8% versus 17.1% in Q2 2008. Given our license revenue challenges over the past several quarters, the more relevant benchmark is how are we performing on a sequential basis. Despite a 4% sequential revenue decline, we delivered Q2 adjusted operating income of $5.2 million with an operating margin of 8.8% nearly doubling our performance over Q1 2009, operating profit of $2.8 million at a 4.7% margin. Our performance reflect our focus on taking prudent expense reduction actions to protect earnings and R&D investment.

Our adjusted operating expenses which include sales and marketing, R&D, G&A, and depreciation were $26.9 million for Q2 2009, down 26% over Q2 2008, and down 9% sequentially. Lower operating expenses in the quarter were driven by lower headcount and lower performance based compensation. Overall we are well-positioned for positive margin expansion once our license engine starts humming. Given the attractive leverage opportunity of license margins combined with our lower expense base.

Memories can run short in the worst recession post-World War II, but as reminder, from 2003 through the first half of 2008, five and a half years, Manhattan posted double-digit revenue growth in 19 out of 22 quarters during this period. We have continued to invest in extending the competitive advantages that underlie this performance and believe that as macro economic conditions improve, our customers and prospects will want to leverage those advantages. So, for the full year 2009, with our vigilance around expense management, our goal is to achieve operating margins in the range of 8% to 13%. Improved second-half license revenue will be paramount in delivering our 2009 operating margin goals as well. That covers the operating results.

Now for a few below the line items in GAAP EPS summary. We reported in other income a loss of $403,000 for Q2 compared to $650,000 of income in Q2 2008. The year-over-year change was driven by $100,000 swing from FX gains to an FX loss position in Q2 2009. The year-to-date swing from an FX gain to an FX loss is $2.8 million. Apples to apples this represents an $0.08 negative impact year-over-year to our year to date EPS performance. For your reference, as part of our supplemental disclosure, we've added a breakout under item 6.

I also want to note that we continue to. We have no debt, and our $91 million in cash positions us well from a liquidity standpoint.

On the tax front, we lowered our year-to-date effective tax rate from 33.5% to 32.5% as we benefited from an FX loss through the repatriation of cash from an international subsidiary. We estimate our effective rate for the balance of the year will remain at 32.5%. For the quarter, diluted shares was $22.4 million shares, down 10% over Q2 2008, and down 3% sequentially. We repurchased about 578,000 common shares at an average price of $17.34 in the quarter, totaling $10 million. That leaves $15 million remaining under our current share repurchase authority. For 2009, we are estimating quarterly and full-year diluted shares to approximate 22.5 million shares. These estimates depend on a number of variables such as stock prices, option exercises, forfeitures and share re-purchases that can significantly impact our estimates. The current forecast estimate does not assume any common stock repurchases.

Now on a GAAP basis, we reported a GAAP EPS loss of $0.02 in Q2 compared to $0.37 in Q2 2008, with lower revenues driving the difference. In addition, Q2 2009 GAAP EPS includes a $3.8 million pretax restructuring charge, or a $0.12 EPS impact. Excluding the charge, GAAP EPS in Q2 was a positive $0.09. A detailed description of GAAP to nonGAAP adjustments can be found in the supplemental schedule reconciling selected GAAP to nonGAAP measures and our earnings release today.

That covers the P&L. Let's get on to cash flow and the balance sheet. For the quarter, we delivered Q2 cash flow from operations of $10.8 million, bringing our year to date total to $23.5 million. Our DSOs for the quarter were 61 days; we invested about $500,000 in capital expenditures in Q2, bringing our year-to -ate total to $1.4 million, which is down 75% over our comparable spend of $5.6 million in 2008. We estimate 2009 capital expenditures to be in the range of $3 million to $5 million.

Our cash and investments at June 30, 2009, increased to $90.8 million compared to $89.2 million at March 31, 2009, and $88.7 million at December 31, 2008. Cash and investments increased over the 2008 year end even after self-funding $20 million in share repurchases in the first half of 2009.

And deferred revenue, which consists mainly of maintenance revenue, billed in advance of performing the maintenance services was approximately $33 million at June 31, 2009, compared to $33 million at December 31, 2008 So, that covers the financial results. Just to recap, the macro economic environment continues to generate persistent head winds on the demand environment to which we are prudently managing the business.

We have the financial strength in our business to weather these challenging times, while still investing in our solutions and customer satisfaction and in resources strategic to our market advantage. We continue to manage expenses aggressively to protect our earnings. We continue to deliver superior service margins. We continue to invest in our supply chain solutions to position us to take share when the market turns. We continue to generate strong operating cash flow and our balance sheet metrics remains strong with about 95% of our net operating assets and cash and investments, and zero debt, which provides financial stability to weather economic uncertainty. so thank you for your time, and now I'll turn the call back to Pete.

Thanks, Dennis.

The fact we didn't close any million dollar license agreements in the first half of 2009 meaningfully impacted our results. Deals of this size generally reflect a strategic upgrade in our buyer supply chain operations. Unfortunately, in the current economy, prospects in our target markets were not prepared to make such commitments in the first half of 2009. While I'm disappointed in our license revenue result for the second quarter, I'm pleased with the efforts of our selling teams around the world. I believe our teams gave 110% effort in the second quarter. And while that effort didn't lead to the results we had had hoped for in Q2, I'm confident it will eventually result in closed deals for Manhattan. It simply is difficult to predict when.

As I mentioned earlier, we were actively engaged in several million dollar deals right up to the end of the quarter and remain actively engaged in each of those cases. I'm confident we'll eventually get those signatures. Hopefully in Q3. Our professional services organizations around the globe continue to perform well. In addition to posting solid financial results, the teams continue to drive improvements in customer satisfaction. In the second quarter of 2009, our global services teams helped customers go live with our solutions in more than 85 sites.

Our ability to help customers create and execute sophisticated supply chain strategies continued to strengthen this quarter as we issued several new releases of our products in June. These include warehouse management for open systems, inventory optimization, extended enterprise management, supply chain intelligence, and billing management. Our R&D teams around around the world did an exceptional job meeting our objectives for these releases delivering quality software on time and on budget.

Headcount at the end of the quarter was about 1,900, down about 150 from March, and down about 400 from Q2 of last year. Today, we have 65 people in sales and sales management with 55 of those serving as sales reps. That's right in line with the sales staff levels I shared with you during our April call.

Overall, I believe our staff levels today are about right to meet existing customer needs and to fulfill the growth in demand we expect over the next several quarters and into 2010. Let me now provide some color on our outlook for the rest of 2009. We're optimistic about our financial prospect for Q3 and Q4. Other than our license revenue performance, we are executing well in all areas of our company and have confidence in our forecast for those areas. And our license revenue pipelines are substantial for Q3 and Q4; however, as evidenced by our license revenue results in Q1 and Q2 forecasting the close rates for deals in our pipeline in this economy is challenging. And because license revenue carries about a 90% gross margin, it has a very large impact on our overall financial results.

Therefore, due to economic uncertainty, and a lack of clear visible into pipeline opportunity close-rates, we're going to suspend guidance for the balance of 2009. We'll revisit providing guidance once markets stabilize. So to summarize, while disappointed in our first half license revenue results, I'm pleased with our ability to deliver at essentially every area of our business. All indications are that we continue to earn our customers' confidence and support, and I believe that will eventually translate into impressive financial results. Until capital spending improves we'll stay focused on improving customer satisfaction, enhancing our software and services and improving our overall competitive position, all while we continue to manage expenses to weather this economic storm.

While this recession is painful, I'm confident we're doing the right things to be well positioned to capitalize on top and bottom line growth opportunities as economic conditions improve.

Thanks, and operator, we'll now take questions.

(Operator Instructions). Your first question comes from the line of Michael Tong, with Fink Equity.

Thanks very much few. Questions for you. First of all, so in terms of the activity level that you saw in Q2, which were better than Q1, which product areas seem to be poised to rebound first? And is there any difference in activity level across geographies and verticals?

As Dennis mentioned in his comments, regarding geographies we had about the same performance in each of the three geographies in the second quarter overall with each down about 35% overall revenue I don't think there was a material difference in geographies.

In terms of the product categories, particularly the larger deals coming down the stretch at the end of Q2, we had a number of multi-product deals that were in those conversations, leveraging our supply chain execution solutions as well as some of our inventory optimization and planning opportunities; so, a mix of items. But as you know, the majority of our solutions tend to be in the supply chain execution space, largely our warehouse management solutions, extended enterprise management solutions,supply chain intelligence solutions, and transportation solutions. And we see that activity going forward from here.

I'm not sure if you had a chance to take a look at JDA's results reported last night, but they also highlighted that the demand environment is improving versus Q1 and they plugged planning optimization as an area of strength. So are you seeing anything that would suggest your planning optimization area could be an area that could rebound first in the second half of the year?

The JDA's results were actually quite encouraging to us. Obviously they had a very strong quarter with strong license revenue, which I think is a good indication of future markets' appetite for enterprise solutions that will help them improve infrastructure and operating effectiveness. We compete with JDA in just a couple of application spaces.

From what I can discern from their results, the majority of their success in Q2 was in planning and optimization at the store levels of operations. So in those areas where we don't compete, they had, from what I could tell, the strongest success. But that, as I said, that is encouraging to us.

We have a number of common customers, purchasing different solutions from one another, but a number of common customers, and as the markets get more comfortable, at least in capital, I think that's a good sign for all of us.

Okay. But with respect to just replenishment and allocation areas that you have been focusing some more resources around, are you seeing any encouraging signs that we might be seeing some better adoption ahead in those areas?

I would think in line with my comments earlier about the overall pipeline activity, we'll see some solid rebounds in the inventory optimization area and some of our newer solutions, as well as continued progress in our core execution solutions.

And just from a headcount standpoint, as you look through Q3, would you expect that we would be stable with Q2 levels, or do you think that we might be cutting more heads?

I would expect for the balance of Q3 that you'll see our headcount stable.

Thanks very much.

Thanks, Michael.

Your next question comes from the line of Andrew Shaw with Raymond James. Your line is open.

Thanks for taking my questions.

Sure.

Can we just get an update on the scope migrations; when do you think you will see it WMs get imported over?

As I mentioned in my earlier comments, quite pleased with the progress our R&D teams are making on delivering all of our solutions. We now have about 22 of our solutions on the platform as of year end and have a couple more to move over during 2009. The most important is warehouse management on the platform.

We don't have any publicly announced date for the release of WM on the platform, but we are making very good progress and continue to be quite optimistic about the ability of that product to be an important addition to our solution offering.

Okay, thanks. And then you guys didn't give guidance, but internally, do you guys have some target that you're still trying to hit, or just given the uncertain environment, is it just kind of hard to predict, even internally?

It's very difficult to predict. We're a little bit gun shy given, at least I am, given the prognostication I gave for Q1 and Q2 and our actual results. Internally, we're not discouraged looking forward. We think we have a very good pipeline for Q3 and Q4 and I'm personally not uncomfortable with our previous sort of expectations of quarterly license revenue in the $10 to $15 million range. So $20 to $30 million over the back half of the year.

But as we demonstrated unfortunately with Q1 and Q2, forecasting the actual close rate for what's in the pipeline is pretty challenging. There's a lot of good activity in the pipeline, and that will close at some point, hopefully soon.

All right, thanks.

Sure, thanks, Andrew.

Your next question comes from the line of Mark Schapel with Benchmark Company.

Hi, good evening. Pete, on the maintenance side of your business, this is the second consecutive quarter that the maintenance business has slowed considerably. I was wondering if you could go into a little bit more detail about some of the pressures that you're seeing with respect to that business.

Good, Dennis and I will be happy to share that question. Dennis is our chairman of maintenance, not quite chairman, but he's quite active in helping out our teams around the world. One of the things that is hampering us a little bit in the first couple quarters is the absence of strong license revenue growth and the benefits of first year maintenance. In addition to that, like everyone else, we're having customers interested in discussing with us their maintenance payments. But I believe Dennis and the team have done an excellent job of being sensitive to our customers' needs, at the same time, protecting Manhattan's value and relationships with customers. But let me let Dennis take the balance of the question.

Yes, I think Pete nailed a couple items. First off, new license revenue is a big contributor to maintenance growth year-over-year mark. Not unlike any software company; all customers are asking for discounts, we do the same to our vendors on our side as well. Just a sign of the economic times. The other thing to consider is that we take a very conservative revenue recognition position on maintenance renewals. We do not recognize any revenue until we collect the cash. So that can create some lumpiness and certainly we have had some customers as they're feeling the stress of the economy, trying to push their payments out.

I believe as Dennis mentioned, absent FX, maintenance revenue was up about 2% year-over-year.

And up sequentially.

Thanks. Pete, based on your results and based on some of your competitors supply chain vendor results out there, do you believe your product line-up is broad enough or sufficient enough to go forward.

Yes, we certainly do. One of the things mentioning earlier, I think some of the companies in the space have very good products and good product lines and they compete in different markets than we do, compete for solving the needs of different areas of businesses than we do. In the supply chain, core supply chain sourcing to consumption for companies with complex supply chain operations, I believe we've got a very extensive suite of solutions that can help companies meet that need. now, in the current economic environment that's apparent to us and in certain cases customers are not uncomfortable deferring some important initiatives in their businesses. In previous recessions, companies actually stepped up and did more activity within the areas in which we offer solutions than we're seeing in this recession.

I think the difference in this recession -- this recession seems to be more driven than previous recessions by the absence of capital and the concern about making capital commitments. And while our solutions have very strong demonstrable return on investment, I think in a couple of cases, we've seen clients just feel uncomfortable making that commitment, even though the ROI was quite powerful. But we believe in the not too distant future we're starting to see some early signs of stabilization that will change and our broad suite of solutions will be very compelling.

As Dennis mentioned, up until the last couple quarters we had been consistently showing double-digit revenue growth, and we're optimistic that when things normalize we'll get back to that kind of a trend.

Thank you. That's all for me.

Your next question comes from the line of Yun Kim with BroadPoint AmTech.

I know you don't like to answer this question, but have to ask. Did any of the large deals close since the quarter ended?

Yes, as you know, we don't comment on that. It sets a precedent that we are uncomfortable with so we won't comment on that other than we continue to be optimistic about closing business in the third quarter.

Okay, great, fair enough. Were the licenses you miss simply due to a lack of $1 million deal in the quarter or did you see also weakness within your SMB for the segment?

There was certainly some weakness in the small to medium businesses as well, but the biggest change from previous quarter was the absence of larger deals as mentioned in my prepared remarks normally we have $3 million to $4 million plus deals in a quarter. We average more than a million dollars per deal, of course, and seven in the first half of 2008.

If you recalibrate for that, the quarters in our first half look very different, but it is what it is, and we'll stay focused and try to improve it. But we did see some softness in the small and medium sized business as the rest of the global major difference was the absence of larger deals.

Has any business improved from Q1 level.

Yes, it improved sequentially from Q1 to Q2. We were pleased by that, just didn't improve enough, frankly, and we would expect further improvement to get back to levels of activity we've seen in the past, but Q1 was a particularly tough quarter for us activity-wise. Activity in Q 2, larger deals, as well as small and medium size business market was noticeably better than Q1. Didn't close as much as we would have like but the activity level was good and encourages us about the prospects in the near term.

Then just curious on the overall health of your partner network. I know you had had some large ones and small ones. How have those smaller ones fared during the last couple quarters? Are the smaller ones [inaudible] facing any liability issue and among the large partners, are they completely supportive of your solutions as well.

It's a great question. It's interesting for the large partners, we're probably getting greater attention than we've ever gotten from them. I'm sure you know they're having a tough time in the marketplace and are paying more attention or more interested in how we can work together. I think that's great in the near term and hopefully will continue to be very beneficial for Manhattan as the economy improves.

Several of our smaller partners are struggling in this economy. I do think they are all trying to be creative in how they continue to improve their value propositions for the markets working with us, and working among themselves. I'm a little concerned about the long term health of some smaller partners. I think for the most part they will be able to tough it out and weather the economy and continue to be strong positive contributors to our long term success. But there are a couple that are quite challenged at the moment.

Any plans for you guys to offer some assistance if those two smaller ones are [inaudible] or not necessarily?

Well, I'' tell you, Yun, all of our partners are important to us, and play varied roles but important roles for us. I don't think there's any one partner, though that is material to our success. So it's unlikely, other than to continue to work with them and share possible opportunities, increase the value of our joint propositions, other than the things we've done for awhile, I don't see much of a need for Manhattan step in to do more than that.

Thanks. Then last question. It's a hypothetical one. Looks like you are comfortable with your current headcount at the current level of business. But when the business improves, do you feel that you can add headcount to support that growth without hurting the margins or would there be a quarter or two where we can expect some modest margin hit as you ramp up assisting consulting? That's it for me.

Great question. For the most part, it would depend on the ramp and the level of activity. I would love that problem, quite frankly, but at the moment we think we're amply staffed to handle the possible ramp-ups within our sphere of scenarios.

As may recall from the last call, we did a few things to try to protect some additional heads in our organization, made some other cuts in other areas of the company -- unpaid vacation days and executive compensation cuts, and things along those lines to make sure we retained a little band-width -- so as the market rebounded we'd be able to absorb that rebound with skilled experience resources and we continue to believe we're adequately staffed for that; it would be a pleasant challenge to have if it turns out we need to ramp up more quickly.

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

Hello?

Hey, Brad.

How are you?

Good.

So Pete, just one sort of general question. At what point in your mind in the future will this go from an economic issue, if this continues, to an execution issue?

That's a very fair question, Brad, given the results we posted in the first two quarters. I would guess if the rest of the market, bigger players in the space, are having strong results and we're not, and we're confident in our portfolio of products, then we have to ask ourselves a different question. But I'm quite confident the team we have is a very strong team and will continue to drive great results as they've done in the past. That's a fair question.

But that being said, I mean, everyone has talked about June being better than the March quarter, and your business is down, your license business is down 20% sequentially. I know it's small numbers. I'm trying to marry that up with your comments about your optimism, the sales activity, but the performance.

Yes. And you're spot-on, Brad. Unless the deal closes, the activity isn't worth much. Having said that, we acknowledge that we did not close several multimillion dollar deals we had hoped to close in Q2. If they had closed, be probably a somewhat different conversation. But at the end of the day we're accountable for delivering results, and our results in the second quarter were clearly disappointing.

Having said that, we also are focused on driving this business for long-run success and not quarter to quarter. Obviously the sequential build of quarters determines the long run success, but we're very focused on making sure we're doing the right thing so that over the long run, our shareholders are richly rewarded for their investments in Manhattan, and we believe that will be the case.

Thanks.

Thanks, Brad.

There are no further questions at this time. I will now turn the call back to Mr. Sinisgalli for any closing remarks.

I would like to thank everyone for joining us this afternoon, and we look forward to catching up with you again in 90 days. Thanks, everyone. Good night.

This concludes your conference call for today.