Manhattan Associates Inc (MANH) 2010 Q1 法說會逐字稿

Good afternoon. I'll be your conference facilitator today.

At this time I would like to welcome everyone to the Manhattan Associates first quarter 2010 earnings conference call.

(Operator Instructions). As a reminder, ladies and gentlemen, this call is being recorded today, Tuesday, April 20, 2010.

I would now like to introduce Dennis Story, Chief Financial Officer of Manhattan Associates. Mr. Story, you may begin your conference.

Thank you, Crissy, and good afternoon everyone. Welcome to Manhattan Associates 2010 first quarter earnings call. I will review our cautionary language and then turn the call over to Pete Sinisgalli, our CEO.

During this call, including the question-and-answer session, we may make forward-looking statements regarding future events or future financial performance of Manhattan Associates. You are cautioned that these forward-looking statements involve risk and uncertainties, are not guarantees of future performance and that actual results may differ materially from those in our forward-looking statements. I refer you to the reports Manhattan Associates files with the SEC for important factors that could cause actual results to differ materially from those in our projections, particularly our annual report on Form 10-K for fiscal 2009 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 8-K, 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 8-K reconciles our non-GAAP measures to the most directly comparable GAAP measures.

Now I'll turn the call over to Pete.

Thanks, Dennis.

I'll start the call with an overview of our performance in the first quarter. Dennis will follow with details of our financial results, and I'll return to cover operating activities for the quarter and then we'll be happy to answer your questions. Both Dennis and my prepared comments will be a bit shorter for this call than we've shared with you during recent calls. With the global economy continuing to stabilize, there are fewer issues for us to share with you and thus our comments shorter.

We're off to a good start for 2010. In Q1, we posted the best first quarter EPS results in the Company's history. We achieved solid revenue growth across all key areas. In particular, we were pleased to see a meaningful uptick in our professional services revenue as customers stepped up their investments in supply chain improvements. The combination of strong revenue growth and effective expense Management led to a very good financial start to 2010.

In Dennis's remarks he will cover the details, but I believe we've performed well across essentially all financial metrics. From my perspective, the fact that we continued to advance our competitive position in Q1 is more meaningful than our strong financial results for the quarter. Our deal-win rate continued strong and supply chain and corporate executives had a very favorable reception to the value of our full suite of solutions on our Supply Chain Process Platform. During the quarter, we recognized four deals of $1 million or more in license revenue. I believe these wins reflect the strength of our strategic market position.

Here is a high level snapshot of the deals. One was with a new customer while three were with existing customers. They were spread one each in the United States, Canada, Mexico, and Asia Pacific.

Let me provide a little more color on two of the deals to demonstrate my point about our strategic position. The deal with the new customer was for our Distribution Management, Transportation Management, Order Life Cycle Management and Extended Enterprise Management Solutions. During the sales campaign, it became clear to this customer that no other vendor could meet their broad supply chain needs with a strong return on investment and an attractive total cost of ownership.

The other deal I'd like to cover was with an existing customer who implemented our Warehouse Management for open systems solutions several years ago. Since then, they've become quite interested further improving their supply chain performance by accelerating inventory turns. To accomplish this, they want to improve how they allocate inventory and collaborate with suppliers. This lead them to purchase our Order Life Cycle Management and Extended Enterprise Management Solutions.

Moreover, this client was quite enamored with our technology direction and our Supply Chain Process Platform approach, and so as part of the same initiative, this customer is upgrading to our 2010 Platform Warehouse Management solution to gain even greater efficiencies and effectiveness as they deploy our other platform-based solutions.

I think these types of decisions will increase as clients review their upgrade strategies and come to fully understand the ways they can take advantage of our suite of supply chain solutions on a common business Process Platform. I believe these two large multi-solution wins as well as others reinforce our strong market position. I'll provide more details about our operating performance following Dennis's comments.

Dennis?

Thanks, Pete.

After weathering 2009, it's certainly more pleasant to kick off 2010 with a solid quarter, delivering record earnings per share performance with revenue growth as the catalyst. While our results over the past several quarters seem to be a clear signal of improving demand, we and our customers still remain cautious about the global macroeconomic environment.

Strong License and Services revenue performance drove Q1 adjusted EPS of $0.36, at 5 X, or 400% gain, off of an easy comp of $0.07 in the first quarter of 2009. Our $0.36 performance does include $0.05 or nearly $2 million of deferred services revenue associated with a customer commitment to develop and deliver a new module for an existing installed product. The revenue was budgeted for Q1 2010 but the services were performed in Q4 2009.

Q1 adjusted net income of $8.1 million increased 370%, or 5 X, over Q1 2009 net income of $1.7 million. Other first quarter highlights are License Revenue of $14.2 million was our second best Q1 License quarter on record, and led the way for total revenue growth of 22%. Services revenue grew 5% year-over-year, marking the first positive growth since Q1 of 2008. Plus margins continue to be world class as we delivered Services margins of 55.2%. Operating cash flow continues to be solid with $13.9 million for Q1, and our balance sheet continues to support long-term strategic flexibility and stability with a cash position of $123 million.

Our capital structure is efficient and well-managed. We have no debt and, with strong operating cash flow, we repurchased $15 million in common stock for Q1. And finally, we continue to maintain our meaningful strategic investments in R&D, investing about $0.14 of every revenue dollar to deliver competitively superior solutions.

So let's go through the operating results. Q1 total revenue performance of $73.9 million increased 22% over the prior year quarter on the strength of License and Services revenue growth. As I mentioned earlier, this was off of an easy comp, which will be the case for most technology companies. However, we snapped a string of six consecutive quarters of year-over-year negative total revenue growth. Strength in our Americas segment is anchoring this resurgence. Americas posted its third consecutive quarter of solid license revenue performance and delivered total revenue growth of 22%, the first positive growth since Q1 of 2008.

With respect to international performance, both EMEA and APAC had solid License revenue quarters, driving double-digit total revenue gains. EMEA's total revenue of $8 million for the quarter increased 14% year-over-year, and APAC revenue of $4.1 million was up 37% over Q1 2009.

While Q1 results were solid, until better forecast visibility returns, we believe Q1 total revenue of $74 million represents a reasonable quarterly total revenue proxy for the remainder of the year. The mix between License and Services will shift in the back half of the year due to Q3 summer vacations and Q4 holidays, but at this run rate, we would achieve 2010 total revenue growth of about 20%, reflecting a very nice rebound off of a tough 2009. License revenue for Q1 of $14.2 million tripled over Q1 2000 revenue of $4.9 million, increasing nearly 200% off of an easy comp as we recognized $4 million-plus License deals in the quarter, compared to none in the first half of 2009. Obviously, to achieve 20+% total revenue growth, our License performance for the remainder of the year will be key.

As we mentioned in our Q4 2009 earnings call, we believe our second half 2009 performance for License revenue is a good proxy for 2010. We continue to hold that view and consider Q1 license revenue, albeit a strong performance underpinned by pent-up demand, is the quarterly performance we need for the balance of 2010 to achieve total revenue growth objectives.

Americas generated $11.1 million in Q1 License revenue, up from $3.9 million in Q1 2009. The Americas team recognized three Q1 deals with software license values exceeding $1 million.

EMEA's Q1 License revenue totaled about $1.4 million, which was up from $445,000 delivered in Q1 2009, and finally, our APAC team delivered License revenue totaling $1.7 million, closing a $1 million-plus deal with an existing customer and outperforming the $650,000 they posted in Q1 2009.

Shifting to Services, total Q1 Services revenue was stronger than we had forecast, even excluding the $2 million in budgeted deferred revenue, as we saw demand in the Americas accelerate in early February.

Historically, Services revenue deferral has not been a material part of our business, however from time to time, when we have a Services engagement, with a new product development commitment, our accounting policy is to defer the revenue. We do not capitalize any of the project-related expenses as these are recognized in the period incurred. With respect to Q1 earnings per share performance, the $0.05 impact from the deferred revenue is notable for earnings per share run rate purposes on a perspective basis.

We posted total Services revenue of $53.5 million, increasing 5% compared to Q1 2009 and up 25% sequentially from Q4 2009. Even excluding the deferred Services revenue, we recognized in the quarter, we were up 2% year-over-year and 21% sequentially. If you recall on the Q4 2009 earnings call, we had forecast revenue to be up 10% to 15% sequentially. The catalyst for outperforming this forecast was strong demand activity in the Americas with sequential growth of nearly 30%.

Although we are upbeat, we do continue to experience some downward pressure on services revenue in EMEA, stemming from the combination of lower License revenues on a trailing 12-month basis and a less active upgrade climate given the sluggish economy, particularly in the UK. So for Q2 2010, we expect Services revenue to range from down slightly to even with Q1 revenue of $53.5 million.

Looking at our Services revenue components, our Q1 Professional Services revenue totaled $34 million, increasing 5% compared to Q1 of 2009 and up 51% sequentially. Maintenance revenue of $19.5 million increased 5% over Q1 2009 and is down 3% sequentially due to timing of cash collections on Maintenance renewals. Consistent with 2009, due to the economic environment, we do expect Maintenance growth for the year to be challenging as some customers deal with the negative macroeconomic impacts to their businesses. Additionally, collection timing also is shaped by the current economy and can impact our revenue growth as we recognize revenue for annual Maintenance renewals on a cash basis. With that said, we're off to a good start and we continue to manage effectively through these challenges as our Maintenance retention rates continue to track at 90+%.

Of particular importance respect to our Services business, we continue to deliver strong margin performance. For the quarter, adjusted consolidated services margins were 55.2%, compared to 54.7% in Q1 2009. Excluding the deferred revenue impact, Services margins were 54%. Consistent with comments on our Q4 2009 earnings call, we expect Q2 and full-year Services margins to be in the 52% to 54%. range. We are actively hiring Services personnel, so we will see some margin fluctuation from quarter to quarter due to on-boarding of new hires and second-half seasonality with Q3 summer vacations and Q4 end-of-year holidays.

That covers Services, moving on to adjusted operating income.

Q1 adjusted operating income of $12.9 million increased nearly 5 X over Q1 2009. Our operating margin for the quarter was 17.4%, or 15.5% when normalized for the deferred revenue, versus 4.7% in Q1 2009, driven on our strong revenue performance.

Our adjusted operating expenses, which include sales and marketing, R&D, G&A and depreciation were $30.5 million for Q1 2010, increasing 4% over Q1 2009, to absorb increased performance-based compensation, primarily commissions and bonus, restoration of short-term compensation reduction initiatives we executed in 2009, and two months worth of higher restricted stock expense associated with the change in our equity incentive program that we discussed on the Q4 2009 earnings call. As a reminder, we eliminated stock option awards in favor of 100% restricted stock grants of which 50% are service based and 50% are performance based. We issued our 2010 annual stock grants at the end of January, consistent with our historical grant practices.

For the balance of the year, we expect our quarterly operating expense run rate to be about $32.5 million. The $2 million sequential increase from Q1 is driven by $1 million in incremental expense for our annual Momentum customer conference with the balance being in additions to restricted stock expense and headcount. For Q3 and Q4, the annual customer conference expense is replaced by headcount capacity additions.

Overall, our Q2 operating margin goal is to deliver 13.5% to 14% and for the full-year to deliver operating margins in the 14% to 14.5% range. This raises by about 50 basis points the top end of the range discussed in our Q4 earnings call.

That covers the operating results. Now, for a few below-the-line items.

We reported a loss in other income of $475,000 for Q1 2010, compared to $374,000 loss in Q4 2009. Bank forecasts for 2010 FX rates continue to project the US dollar to further weaken. As a result, for the balance of 2010, we are forecasting a net quarterly expense of $400,000 in the other income expense line. For your reference, as part of our supplemental disclosure, we have added a breakout detailing the other income and expense components under item number six.

Regarding income tax expense, our adjusted and GAAP effective tax rate for the first quarter was 34.5%. We expect the full-year rate to be approximately 34.5% based on our mix of US to international taxable income at this time.

Transitioning to diluted shares, for the quarter, diluted shares totals 22.535 million shares, down slightly over Q4 2009 as share repurchases mitigated the impact of option dilution and option exercises driven by stock price appreciation. Q1 option exercise activity totaled 149,000 shares which was our highest exercise activity since Q3 of 2007. During the quarter, we also repurchased 595,000 shares of Manhattan Common Stock at an average share price of $25.21, which totaled $15 million. As noted in today's earnings release, this month our Board raised our remaining repurchase authority of $10 million to a total of $25 million.

For the balance of 2010, based on current stock price appreciation, which we like, we expect diluted shares to average about 23 million shares per quarter, which does not assume any common stock repurchases. These estimates depend on a number of variables such as stock price, option exercises, forfeitures and share repurchases, which can significantly impact our estimates.

So on a GAAP basis, we reported record GAAP diluted earnings per share of $0.32 for Q1 compared to $0.01 in Q1 2009, all driven by the performance I've discussed previously. A detailed description of GAAP to non-GAAP adjustments can be found in the supplemental schedule reconciling selected GAAP to non-GAAP measures in our earnings release today.

That covers the income statement, moving on to cash flow and balance sheet.

For the quarter, we delivered cash flow from operations of $13.9 million and DSOs of 53 days down from 56 days at the end of Q4 2009. Capital Expenditures were $1.2 million in the quarter, and for 2010, we continue to estimate CapEx to be $6 million to $8 million. Our cash and investments at March 31, 2010 of $123 million is flat sequentially with December of 2009 and up 38% compared to March 31, 2009 cash of $89 million. Deferred revenue, which consists mainly of Maintenance revenue built in advance of performing the Maintenance services, was $40.7 million at March 31, 2010, compared to $37.4 million at December 31, 2009. 100% of this increase is attributable to solid cash collections in Q1 for annual Maintenance renewals.

That covers the Q1 2010 financial results. As I mentioned in my opening comments, although demand signals are improving, we remain cautious regarding our ability to forecast with confidence and accuracy when customers and prospects will return to predictable patterns of supply chain capital investment. We therefore will continue with our approach of suspending official guidance, which under our previous policy, centered on providing a range estimate for adjusted and GAAP earnings per share. However, consistent with more recent prior quarters, we will provide some directional goals for financial performance.

With that said, directionally we currently believe Q1 2010 adjusted EPS, excluding the $0.05 benefit from Q4 2009 deferred revenue, represents a good baseline for the remaining three quarters of the year, adjusted for run rate impacts noted in my earlier comments which I will recap.

Total revenue, Q1 2010 performance of $74 million represents a reasonable proxy for each of the remaining three quarters adjusted for Q3 and Q4 License and Services seasonal mix. Services revenue, Q2 we expect to be down slightly to even sequentially from Q1 reported revenue of $53.5 million. Services margins, our goal is still to achieve 52% to 54% for Q2 in the full year. Operating expenses, we expect to increase sequentially about $2 million in Q2 and settle in at a run rate of about $32.5 million per quarter for the balance of the year. And operating margins for Q2, our goal is to achieve 13.5% to 14% and our full-year goal is to achieve 14% to 14.5%, which at the top end is 50 basis points higher than what we shared on our Q4 2009 earnings call.

Thank you for your time, that completes my report and I'll turn the call back to Pete for the business update.

Thanks, Dennis.

In the first quarter, more than half of License revenue was from new clients. That compares to Q1 of last year during the deepest part of the recession, when only about 20% of License revenue was from new clients. We view this as another sign the economy is continuing to stabilize and customers and prospects are beginning to invest more in improving their supply chains. A little more than half of License revenue was from our non-Warehouse Management Solutions and a little less than half from WMS.

The retail vertical market made a strong contribution to our license fees this quarter. Retail, along with consumer goods and third party logistics, once again accounted for more than half of License fees.

During the quarter, we took about 60 client sites live on our solutions. In addition, several customers began implementing our Warehouse Management Solution on our Supply Chain Process Platform during the quarter, and we expect our first go-live with that solution in the Second Quarter. We're quite pleased with how these deployments are progressing.

At the end of Q1, we had about 1,800 employees, which is a modest decrease since the end of 2009, and down about 250 employees from a year ago. We had 60 sales reps at the end of the quarter, up six from Q4 with five of the six additions in the Americas.

Next month, we'll host our annual customer conference, which we call Momentum 2010, at the Westin Diplomat Hotel in Hollywood, Florida. The conference theme is Platform Thinking and the content is all about the advantages created by having our complete suite of solutions and a common business Process Platform. We'll be showcasing numerous ways customers can leverage Manhattan's Platform approach to lower total cost of ownership and extend market advantage. Much of the material will be presented by our customers and registrations are up nicely compared to last year. We're looking forward to sharing time and a little fun with our global customers.

So that wraps up our comments about Q1. We're pleased with the beginning of the year and look forward to a solid back three quarters of 2010.

Operator, we'll now take questions.

(Operator Instructions).

Your first question comes from Terry Tillman from Raymond James. Your line is now open.

Good afternoon guys. Nice job on the quarter.

Thanks, Terry.

First question, Pete, just relates to, for the financial community, as we look into 2010, aside from maybe just pent-up demand playing out, what kind of financial benefits do we see potentially from the Process Platform? I know you said there will be a go-live in Q2 so maybe you'll give us an update in Q2, but could this start to drive more quicker attach rate of some of these non-WMS products or do you not even think we should expect license benefits from it this year?

It's a great question, Terry.

The initial response in the customers we presented our suite approach, our Platform approach, to the feedback has been quite good, as I mentioned in my prepared remarks.

In a couple of cases, we think it was a material benefit to closing large deals in the quarter. We would expect it to continue to have a positive impact on closing large deals over the balance of 2010 but the actual difference or differential between this year and other years is hard to calibrate in this environment. But we certainly feel very good about the initial feedback, the response to the solutions that we've presented to customers and prospects so far and certainly believe over the next several quarters and several years it will have a meaningful positive impact in our win rate and ability to close larger deals, but hard to tell for the last three quarters of 2010.

Okay. And what about the tone of business in the quarter? Does it feel like even if we're still at reduced levels that there's more normalcy in terms of how the quarters are playing out, and also I'm kind of curious, did you actually see some pent-up demand like right out of the gate in terms of maybe the beaten down retail vertical?

It's a great question, Terry.

There was continuous, we came out of the second half of 2009 in okay shape, and came into the beginning of 2010 in similar condition, where there is certainly some level of pent-up demand activity that we might have expected at normal times to take place in the second half of 2008 and throughout 2009 that customers can't neglect supply chain improvements for too long a period of time, so I believe we're starting to see some of that pent-up demand come back into the close rates within the quarter. I don't know that we're back to any normal level of activity yet. Our pipelines look solid so we're optimistic about that.

The activity level is solid, was solid in Q1, and we're off to a pretty good start in Q2 and we're optimistic about that, but I'm not quite sure how to define normalcy at the moment.

Okay. And just maybe the last question relates to you guys gave a fair amount of color on the rest of the year for us to work on our models, but I guess thinking out loud, and I don't want to get ahead of myself, but let's say actually the improvement actually continues and what if you were to get outside of the range on a positive basis and actually see quarters that were like before the downturn, like in late 2007 or still early 2008 where $15 million to $20 million a license in a quarter.

When do we see potentially a real need to step up the Services investment or do you still actually have quite a bit of productivity gains to be had out of the staff you have?

Yes, Terry, as you may recall when we had our call last -- mid-part of last year, we talked about retaining some capacity for extended increased demand and frankly we've used that up. We've talked about having between 75 and 100 excess capacity last summer. With a nice uptake in services in Q1, we've used up that capacity, and as Dennis mentioned in his comments, we're actively recruiting for additional Services people. We're quite pleased about that development and look forward to adding appropriately over the next couple of quarters.

During Q2 we're likely to add a couple of dozen folks. We're back on campuses looking for the best and brightest engineering grads and I believe there is building demand to absorb that capacity, the exact timing of which is a little hard to predict, but as Dennis mentioned in his comments, sequentially our Services revenue up over Q4 was about $10 million increase. So certainly not seeing that kind of increase going forward from here, but we believe there's adequate demand to keep our teams busy and add to those teams in different geographies around the world.

Okay. Thanks, guys.

Thanks, Terry.

Your next question comes from Michael Huang from ThinkEquity. Your line is now open.

Thank you very much.

Hey, guys. Just a few questions for you.

First of all, in terms of the Momentum Conference, I know you had talked about how it's trending better. Could you help quantify that year-on-year, and is that both for customers and in prospects, as well?

I would be happy to, Michael. We'll give you a directional comment.

As you probably know, most conferences are up in 2010 versus 2009. The economy is a little bit better, people are a little bit more enthusiastic and I think businesses are sending people to conferences to look for real steps they can take to improve their business, so making decisions on investments and so forth.

At the moment, we would expect our conference attendance to be up somewhere in the 20%, maybe as high as 25%, higher than last year, and that's for customers and prospects.

Great.

And then in terms of the size of the pipeline and what you saw in Q1, and I know and I appreciate the relative cost this year, but is there a chance we could see a significant sequential improvement in License performance in Q2, even though you aren't guiding for it, just based on historical Q2 seasonality?

Well Q2 is normally a pretty good License revenue quarter for us, better than Q1 and Q3 and usually in line with Q4, but I would suspect that it would not be materially better than the Q1 performance. Could be marginally better. Hard to know, there's two-plus months left in the quarter. We've got a nice pipeline and we're optimistic that in time that pipeline will close in Manhattan's favor, but it's difficult to predict exact timing. So I think as Dennis shared with you, using something like the Q1 achievement is probably a good place to start.

We would be thrilled if the market rebound is stronger than that, but we're going to take it a quarter at a time.

Great, and final question. With respect to the Service work that you're seeing and doing, is it a lot of upgrade work that you're doing? Is it a lot of strategic work that proceeds license spending or is it a lot of deployment work? Could you help us understand just some of the components within Services that you're seeing now that you weren't seeing a couple quarters ago?

Yes, similar to our comments a couple quarters ago, what we noticed happening when the recession was in its fiercest moments, people stopped upgrades, stopped rollouts, and stopped some of the enhancement work they normally ask us to do, and we saw that begin to improve in, as Dennis said, the February timeframe.

Similar to my comment about our conference, I think also if you check with other professional services firms, you'll find they also saw a nice positive uptick in the first part of the first quarter as companies got their sea legs back and some of the fear in the marketplace began to diminish. So we were quite pleased with the rebound, I think our rebound might have been a little stronger than most, but I think most companies that are in the IT professional services ranks also saw a pleasant uptick.

Thank you very much.

Thanks Michael.

Your next question comes from Yun Kim from Broadpoint. Your line is now open.

Thank you, and Pete and Dennis, congratulations on a great quarter. Very impressive that you were able to ramp up your consulting business 51% sequentially as you're able to show margin improvement.

I know you mentioned that there was some deferred consulting business that got recognized in the quarter, but I think the consulting business ramped up pretty significantly even after accounting for that, so the question is how strong of a ramp are you expecting going forward, and is that plan largely based on the business, are you close so far over the past two quarters or are you planning to ramp based on deals you have in your pipeline?

It's a little bit of both, as Dennis mentioned in his comments we have deferred revenue that helped Q1 by about $2 million, but his comments also suggested that revenue will be similar to that in Q2, Q3, Q4 give or take a little seasonality. So basically we're planning to -- or expecting to replace the deferred revenue that was in Q1 with additional revenue in Q2, and that will come from the build of upgrades and rollouts plus the start of projects that we sold in Q1. It will be a mixture of those kind of activities.

Shouldn't we expect just an uptick in consulting demand when you rollout a new product coming soon here?

You do, Yun, but you also have projects that are going live and coming out of the pool from a revenue generation point of view.

Okay, great. Got it.

And then, just thinking outside of the box a little bit, in terms of your traction outside of Americas, especially in Europe, can you give us an update on what your current plan is around international expansion, especially in Europe, and what your current thinking on that topic is?

Yes, as I think probably most folks know, markets outside the US are rebounding about in line with the US, with the probable exception of the UK. So we continue to struggle in the UK, as most of the IT marketplace has, but we've seen nice success in markets like France and other parts of the continent where we do business.

We saw a pretty good quarter in APAC in Q1. As you know, our revenue from those markets is not dramatic, but we think they can continue to play in an increasing important role for Manhattan going forward. We're looking to expand in those markets, but primarily organically. We look for a few partners in certain geographies, where we don't have a direct physical presence but we're not looking to significantly increase our investments in international markets any time in 2010.

Okay. And that leads me to my last question, which is how flexible are your investment plans for the year, outside of the Services business?

Well, as you probably know, our Company expenses are 70-ish% headcount related, so most of our expenses are based on our outlook related to License revenue over several years and the investments we need to make in people to accommodate that. I think as we demonstrated to some degree in 2009, if we do see some changes in our outlook, we can adjust our spending commensurately , but I will tell you that we are quite optimistic about the long-term prospects of Manhattan.

Dennis shared in his comments that in Q1 we once again invested 14% of revenue in R&D and because of our optimism about the long-run prospects for the Company, we'll continue to invest in R & D. We think we have a real opportunity, particularly over the balance of 2010, to further differentiate ourselves from our competitors and want to take maximum advantage of that.

So if your business does pick up materially in the year, you'd rather spend on R&D buildout rather than building out sales operations globally?

Yes, well let me correct that. It's a great point, Yun.

We probably have adequate staff in 2010 to achieve our R&D plans. I was considering if you were going in the other direction, if the market got more difficult, I think we have adequate staff to handle R&D. The place where we probably, if the market is stronger than we currently are planning for, sales and professional services support would be helpful. But we have a solid sales team now and I do believe we have the ability to add to our sales results without adding materially to our selling teams.

Okay. Let me just squeeze in one more question.

Dennis, you've got $123 million in cash. Any plans for more aggressive share buyback plans?

As we mentioned in the script, our Board increased our authority from $10 million to $25 million, and generally we don't comment on future share repurchase objectives just because of the implications in the market, Yun.

Okay, thank you.

Thanks, Yun.

Your next question comes from the line of Mark Schappel from The Benchmark Co. Your line is now open.

Hi, good evening.

Nice job in the quarter. And Pete starting with you, did your planning solutions contribute meaningful it in the quarter or are they still lagging the other core products?

Yes, we had an okay quarter Mark with our Demand Forecasting inventory optimization solution, but our Supply Chain Planning solution wasn't a meaningful contributor to the quarter. We still have some work to do there. The R&D teams, Services teams and Product Management teams are investing a lot of energy to advance that product, but we still have work to do there. But I do believe our Inventory Optimization components are making real progress in the market space.

As you know, we have not done as good a job as we would like in getting our brand well known in the planning space, so we've got more work to do there ,and we've got hopefully some real opportunities over the balance of 2010 and 2011 to take advantage of that market opportunity.

Okay, thanks, and in prior quarters, you've discussed some pressures you've been receiving from customers to reduce your maintenance fees, and I was wondering, just based on what I see on the maintenance line, it appears you're still receiving some pressure from customers on that account. Is that accurate?

Well we're up 5% year-over-year. We're down sequentially, which is mainly driven by timing of cash collections on Maintenance renewals. I would say that the activity or the pressure from customers so far out of the gate is lighter than it was in 2009, but there are some customers dealing with challenges, nothing that's materially impacting our retention rates at this stage.

Okay, thank you. And finally, Pete as you look out over the next 12 months or so, if there was a product area that could outperform your assumptions, where do you think that would be or what do you think that would be?

Probably in a couple areas, Mark. We're quite excited about our Order Life Cycle Management solution. The benefit of this product is it allows companies to look across their extended supply chain to better leverage inventory across, whether it's an online offering, a retail offering, a catalog offering, allows them to be much more efficient in managing their extended supply chain and allocating across different demand repositories.

In addition to that, our Inventory Optimization solution I think brings real value to our install base, and our Extended Enterprise Management solution allows our clients to more effectively collaborate with their global supply chain partners. So while we have great confidence and optimism about our Warehouse Management solution on the Supply Chain Process Platform, that release we think is a world beater. We think it does compliment nicely with our other solutions that can help give us greater acceleration in our non-WMS space as well.

Thank you, that's all for me.

Thanks Mark.

(Operator Instructions). There are no further questions at this time.

Thank you, Operator, and thanks everyone for joining us on the earnings call. We look forward to speaking with you again in about 90 days.

Thanks and goodnight.

This does conclude today's conference call. You may now disconnect.