Manhattan Associates Inc (MANH) 2010 Q2 法說會逐字稿

Good afternoon. I will be your conference operator today. At this time, I would like to welcome everyone to the Manhattan Associates second quarter 2010 earnings call. (Operator Instructions) As a reminder ladies and gentlemen, this call is being recorded today, Tuesday, July 20, 2010.

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

Thank you, Operator and good afternoon, everyone. Welcome to Manhattan Associates 2010 second quarter earnings call. I will review our cautionary language, and then turn 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 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 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, and welcome to our second quarter 2010 earnings call. I'll start the call by taking you through an overview of the quarter and the first half. Dennis will then get into the details of our financial results, and then we'll be happy to answer your questions.

We are quite pleased with our second quarter and first half financial results, and continue to be encouraged about our near-term and long-term prospects. License revenues for the quarter at $15.5 million was more than three times last year's results, and includes two deals of $1 million or more in recognized revenue. Total revenue was $77.6 million, up 33% versus Q2 of last year. Adjusted EPS was $0.38, almost three times Q2 2009's outcome. Our win/loss rate continues to favor us in two out of every three competitive deals, as the market is quite receptive to our broad suite of supply chain solutions on a common supply chain process platform.

This quarter's million-plus license deals illustrate our strong strategic position. In one, our customer is looking for a distribution solution to complement a supply chain transformation program. Although our discussions initially focused on the customer's request for distribution management, we soon were able to expand the evaluation to include transportation management, as we demonstrated the meaningful advantage of integrating warehouse management and transportation management for better performance. The second million-plus deal was with an existing warehouse customer who wanted to build on their WMS efficiency gains by enhancing their order management and inventory allocation processes. We were able to demonstrate the additive value of combining our order life cycle management solution suite with their existing WMS system.

While questions certainly remain regarding the health and direction of the global economy, we believe we are well positioned for continued success. Since the global economy began to stabilize in the third quarter of last year, we've posted four straight quarters of strong financial results. In addition, we continue to make important investments in innovation that clearly differentiate us from all others in our markets. I believe our ability to execute and our commitment to innovation will be well regarded and well rewarded in the future.

I'll speak more about this following Dennis's comments. Dennis?

Thanks, Pete.

The second quarter of 2010 mirrored the first, as strong license and services revenue performance paved the way for Manhattan to deliver Q2 adjusted EPS of $0.38, representing growth of 171% over a weak Q2 2009 comp of $0.14. No question we have had an exceptional first half in 2010 against six significantly disparate comps in 2009. Business momentum is very positive on a trailing 12-month basis, and heading in the right direction. As we look to the second half of 2010 and into 2011, our visibility is positively firming up on license pipeline and services demand. At this point, we believe our business will begin to return to more historically typical seasonality starting in the second half of this year. I'll provide some directional financial parameters for the second half throughout my review of Q2, and recap at the end, before I turn the call back to Pete for the business update.

Now for some highlights in the second quarter. One, license revenue of $15.5 million nearly tripled the $4.1 million we delivered in Q2 of 2009, leading the way toward total revenue growth of 33%. Two, services revenues increased 11% year-over-year, as positive license performance over the past four quarters is driving current growth in both professional services and maintenance revenue. Three, services revenue demand is exceeding capacity. We are actively hiring, and added 55 net new associates during the second quarter, almost entirely within professional services, to cover services demand. The full quarterly expense impact of these hires will not appear until Q3. Four, we continue to maintain our meaningful strategic investments in R&D, investing about $0.14 of every revenue dollar, to deliver competitively superior solutions. Five, we had an unexpected FX gain in Q2, resulting in a positive impact to other income, which generated $0.02 sequential quarterly improvement in EPS. Six, operating cash flow of $10 million brings our year-to-date total to $24 million, sustaining very healthy performance for this metric. And finally, seven, our balance sheet continues to support long-term strategic flexibility and stability, with a cash position of $120 million, and a consistently efficient and well managed capital structure. Having no need to debt service, and backed by strong operating cash flow, we repurchased $25 million in common stock during Q2. That covers the key highlights.

From an operating results perspective, Q2 total revenue performance of $77.6 million increased 33% over the prior year quarter on the strength of license and services revenue growth. While this year-over-year growth comparison reflects a weak quarter comp, we are encouraged by our license pipeline activity and the strength of services demand. Our Americas segment continued its momentum, posting its fourth consecutive quarter of solid license revenue performance, and delivered total revenue growth of 37%. Internationally, both EMEA and APAC again had solid license revenue quarters, driving double digit total revenue gains. EMEA total revenue of $8.6 million for the quarter increased 10% quarter-over-quarter, and APAC revenue of $4.2 million was up 30% over Q2 2009. While all theaters posted solid topline results, Europe's economic recovery continues to lag the US, particularly in the UK. However, we are seeing some modest signs of improvement in our license pipeline activity in the UK.

Considering our strong total revenue performance in the first half of 2010, and acknowledging 2009 as a macroeconomic anomaly, here is our view toward total revenue in the second half of 2010. Historically, we've experienced seasonality in certain of our revenue streams, and traditionally we plan for a seasonally low Q3 license quarter, and a seasonally low Q4 professional services quarter. Taking economic, historic and current performance factors into consideration, we believe average total revenue per quarter of about $74 million represents a reasonable quarterly total revenue proxy for the remainder of the year. Achieving this level of performance would result in 2010 full year total revenue of nearly $300 million, or 22% growth over 2009 total revenue of $247 million.

With respect to license revenue, Q2's $15.5 million represents 275% growth over Q2 2009 revenue of $4.1 million, as we recognized another two $1 million-plus license deals in the quarter compared to none in the second quarter of 2009. License revenue of $29.7 million for the first half of 2010 represents 228% growth over the first half of 2009.

In the quarter, Americas generated $12.8 million dollars in Q2 license revenue, up from $2.4 million in Q2 2009. The Americas team recognized one Q2 deal with software license value exceeding $1 million. EMEA's Q2 license revenue totaled about $1.4 million, which was up from $1.1 million delivered in Q2 2009, and included one software license deal with a value exceeding $1 million. Finally, our APAC team delivered license revenue totaling $1.3 million, nicely outperforming the $700,000 they posted in Q2 2009. For the balance of the year, we are forecasting license revenue to be slightly below our first half results, as we plan for a seasonally low Q3 and for a Q4 similar to our Q2 2010 result this year.

Now on to services. We posted total services revenues of $54.8 million, an increase of 11% compared to Q2 2009 and a sequential increase of 2% over Q1 2010. During our Q1 call, we shared our view that Q2 services revenue would range from down slightly to even with Q1 revenue of $53.5 million. As expected, our professional services revenue increased only slightly on a sequential basis, and leveraged the strength of underlying growth in the Americas to overcome the effect of $2 million in deferred services revenues we recognized in Q1. Maintenance revenue also performed solidly, increasing 5% sequentially, driving better than expected services revenue in Q2, based primarily on timing of cash collections.

Looking at our services revenue components, our Q2 professional services revenue totaled $34.3 million, increasing 12% compared to Q2 2009 and up 1% sequentially. Sequential growth was somewhat masked by the $2 million in deferred revenue recognized in Q1 that I just mentioned; net of that deferred revenue, underlying sequential growth and professional services revenue was 7%. EMEA continues to experience some downward pressure on services revenue, stemming from the combination of lower license revenues on a trailing 12-month basis, and a less active upgrade climate given the persistent sluggish economy, particularly in the UK.

Maintenance revenue of $20.4 million increased 10% over Q2 2009, and is up 5% sequentially on solid license revenue activity, and timing of cash collections on maintenance renewals. As stated on previous calls, we recognize maintenance renewal revenue on a cash basis, so the timing of cash collections can cause some intra-period lumpiness. Most importantly, our customer retention rates continue to track at a healthy 90%-plus.

For the second half of 2010, we expect Q3 services revenues to range from flat to up modestly on a sequential basis from Q2, and for Q4 services revenue to be down sequentially from Q3 by about 5% to 8%, due to the seasonal holiday period. You may recall our sequential decline from Q3 to Q4 in 2009 was 9%, and in 2008 it was 10%. Consolidated services margins for the quarter were 54.8%, compared to 57.2% in Q2 2009 and 55.2% in Q1 of 2010. Excluding the Q1 deferred revenue, underlying services margins in Q1 2010 were 54%. We expect second half services margins to average about 52.5%, higher in Q3 and lower in Q4, and full year services margins to be in the 53% to 54% range. We are actively hiring services personnel, so we'll see some margin fluctuation from quarter to quarter, as we on-board new hires and factor in our traditional second half seasonality based on Q3 summer vacations and Q4 year end holidays.

Now I'll move on to adjusted operating income. Q2 adjusted operating income of $12.8 million increased nearly three times over Q2 2009. Our operating margin for the quarter was 16.4% versus 8.8% in Q2 2009, driven by strong revenue performance combined with lower than forecast headcount expense. As expected, our adjusted operating expenses, which included sales and marketing, R&D, G&A and depreciation, were $32.3 million for Q2 2010, increasing 20% over Q2 2009 due to an abnormal comp. As discussed in our previous calls, this increase was planned to absorb performance-based compensation, which includes commissions and bonuses tied to improved results, restoration of normalized base compensation following short-term reduction initiatives executed in 2009, and higher restricted stock expense associated with the change in our equity incentive program as discussed in our Q4 2009 earnings call.

As you know, starting in 2010 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. $1 million of the $1.8 million sequential increase from Q1 2010 is attributed to our annual Momentum customer conference, with the balance being additions to restricted stock awards and headcount. So we expect quarterly operating expenses of approximately $32 million for the remainder of the year, per quarter, as we expect strategic headcount additions, mainly in R&D, to be roughly equivalent to our Q2 Momentum conference expense.

So from an operating margin perspective, based on expected seasonality and license revenue in Q3 and in services revenue in Q4, our Q3 operating margin goal is to deliver 13.5% to 14.5% margins, and our full year goal is to deliver operating margins in the 14.5% to 15% range, representing a 110 basis point to 150 basis point improvement over 2009. This also raises the top end of our operating margin range by about 50 basis points above the range discussed in our Q1 earnings call, reflecting our healthy first half performance.

So that covers the operating results. Now for a few below the line items. Given the current FX environment, we expected currency losses in Q2. However, we reported a Q2 gain in other income of $304,000, compared to a Q2 2009 loss of $404,000 and a Q1 2010 loss of $498,000. The sequential improvement from Q1 2010 resulted in $0.02 of incremental EPS benefit. For your reference as part of our supplemental disclosure, we've added a break out detailing the other income expense components under item number 6.

Regarding income tax expense, our adjusted effective tax rate for the second quarter was 34.5%, consistent with Q1. Our Q2 GAAP effective rate dropped to 33.5%, due to tax benefits associated with employee option exercises of incentive stock options. We continue to expect the second half adjusted and GAAP effective tax rates to be approximately 34.5%, based on our mix of US to international taxable income.

Now transitioning to diluted shares. For the quarter, diluted shares totaled 22.8 million shares, up slightly over Q1 diluted shares of 22.5 million, as our Q2 stock price appreciated 15% over Q1, driving increased option exercise activity and higher common stock equivalents. In Q2, options exercised totaled 649,000 shares, which in turn generated $14.4 million in cash proceeds to Manhattan. We also experienced share dilution from our common stock equivalents, due to higher in the money value associated with remaining stock options outstanding.

During the quarter, we repurchased 869,000 shares of Manhattan common stock at an average share price of $28.77, totaling $25 million, fully utilizing our repurchase authority in the quarter. The timing of the share repurchases did not quite offset the dilutive impact of option exercises, and the increase in common stock equivalents for the quarter. As noted in today's earnings release, this month our Board approved $25 million of new share repurchase authority.

For the balance of 2010, based on current stock price appreciation, 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.

On a GAAP basis we recorded -- we reported GAAP diluted earnings per share of $0.36 for Q2, compared to a loss of $0.02 in Q2 2009, driven on the strength of operating results. 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.

So that covers the income statement. Now I'll move on to cash flow and the balance sheet. For the quarter we delivered cash flow from operations of $10 million, bringing our year-to-date total to $24 million, slightly ahead of last year. Q2 operating cash flows are down sequentially, primarily on working capital bill and trade receivables. Our accounts receivable balance increased 10% or $4 million sequentially on license and services revenue growth. Our DSOs continue to be solid at 55 days, compared to Q1 DSO of 53 days. Capital expenditures were $1.5 million in the quarter. For 2010, we continue to estimate capital expenditures to be in the range of $6 million to $8 million.

Our cash and investments at June 30, 2010 were $120 million, and up 33% compared to June 30 of last year, with last year's balance of $91 million, and down from $123 million at March 31, 2010. Cash is down about $3 million year-to-date, as we've invested about that amount in capital expenditures, and cash flow from ops is essentially self-funded share buybacks net of option proceeds, on a break-even basis.

That covers the 2010 financial results. In summary, our first half 2010 performance was very solid. However, as I mentioned in my opening remarks, our view is that our second half forecast should follow the typical seasonality trends we have experienced historically. Additionally, we expect the low balance staffing levels to meet demand requirements exiting 2010 into 2011.

With these two considerations in mind, rather than provide an expected EPS range for the remainder of the year, we are enumerating directional parameters for the second half, and the rational underlying them, for five variables affecting EPS as follows. First, total revenue. First half total revenue of $151.6 million was very strong. Traditional seasonality in Q3 license revenues and Q4 services revenue makes it difficult to use Q2 results as a proxy for the second half of the year. Adjusting for Q3 and Q4 license and services seasonal mix, and factoring in the possibility of continued global macroeconomic shifts, we expect second half total revenue of approximately $148 million. This will lower adjusted EPS about $0.08 to $0.10 in the second half versus our first half performance. Two, services margins, our goal remains to achieve average services margins of 52.5% for the second half, adjusting for Q3 and Q4 seasonality and full year services margins of 53% to 54%. Three, operating expenses, as I mentioned we expect Q3 and Q4 operating expenses to track at about $32 million per quarter for the balance of the year. Four, operating margins, our full year goal is to achieve 14.5% to 15% operating margins, which is 50 basis points higher than the goal we shared on our Q1 earnings call and a 110 basis point to 150 basis point improvement over 2009. Our second half margins for services and operating margins reflect additional headcount hires to balance capacity with demand, which will lower EPS by about $0.05 compared to our first half. And last, other income and diluted shares. Given the current FX environment, we do not have sufficient insight to expect a repeat of the FX gain reflected in other income this quarter, and are therefore forecasting an FX loss in Q3 and Q4 consistent with our past estimate of approximately $400,000 per quarter, based on four out of the past six quarters we've experienced FX losses. Diluted shares for the second half, we are forecasting at 23 million shares each quarter. The combined EPS impact of these below-the-line items is a reduction of $0.05 over the first half results.

So overall, our forecast 2010 full year adjusted results project a solid year versus 2009, with total revenue of about $300 million versus $247 million in 2009, an increase of about 22%, which should drive earnings per share growth of about 33% over the $0.96 per share we delivered in 2009.

That completes my report. I'll turn the call back to Pete for the business update.

Thanks, Dennis.

As Dennis mentioned, we posted a solid license revenue result of $15.5 million in the quarter. About 55% of this quarter's license revenue came from warehouse management sales, and about 45% from our other solutions. The retail customer goods and third-party logistics verticals were once again strong contributors to license revenue in the quarter. In addition, one of our large deals was in the life sciences vertical this quarter. Both large deals were with existing customers, making our license revenue mix this quarter 75% from existing customers and 25% from new customers.

During the quarter, we completed software license wins with new customers such as Associated Hygienic Products, HVHC, Pickwick, Haier Logistics, C.D. Hartnett and The Chamberlain Group. Three of the customer wins this quarter were customers who wanted the advantage of warehouse management on our supply chain process platform. Two of the three were wins over RedPrairie and one against Oracle. We also expanded partnerships with existing customers such as 3 Suisses, A.N. Deringer, Avon, Benjamin Moore, Challenger Motor Freight, Converse, Dick's Sporting Goods, Exel, McKesson, Panalpina, Phillips-Van Heusen, Southern Wine & Spirits, Speed Transportation and Harvard Drug.

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 2010, our global services teams helped customers go-live with our solutions in more than 85 sites. Importantly, two of the go-live sites were for one client who was deploying warehouse management on our supply chain process platform. Given this product has been available for just six months, bringing two sites live so far this year is a real accomplishment. In addition, we are currently implementing many other customer sites with this solution. I am quite pleased with our overall professional services business, and in particular with our success so far implementing our latest platform-based warehouse management solution.

Headcount at the end of the quarter was about 1,850, up about 50 from March, and about the same as Q2 of last year. Today we have 70 people in sales and sales management, with 59 of those serving as sales representatives; that is down one head in both categories from March. Over the balance of 2010, we'd like to add about 100 people to our staff. The additional staff will largely be in our professional services team, where current customer demand is straining our ability to meet customer needs.

In May we held our annual customer conference, Momentum, in Hollywood, Florida, for about 850 attendees, about 30% more than last year. This year's theme, platform thinking, highlighted the expanded possibilities of broad-reaching value our customers can derive from deploying a complete suite of solutions on a common supply chain process platform. Our platform message was very well received by the audience, and the energy level was high throughout the event.

Let me now wrap up our prepared remarks to summarize for you. We are pleased with our first half 2010 financial results, and our progress in non-financial areas. I believe our relative competitive position continues to improve, and that our ability to deliver innovative supply chain solutions is second to none. We are looking forward to a solid second half of 2010, and continued success in expanding our strategic supply chain solutions through our platform thinking approach.

Operator, we will now take questions.

(Operator Instructions) Your first question comes from the line of Mark Schappel from The Benchmark Company. Your line is open.

Good evening. Nice job on the quarter, number one. Number two, Pete, starting with you, with respect to the Momentum user conference in May, which appeared to be a pretty good success, how did the event impact the current quarter, or Q2, and how do you think it's going to impact Q3 coming up here?

Thanks for the compliment, Mark. It's a great question. We were very pleased with the atmosphere, attitudes and I believe the lingering success that carried over from the Momentum conference. At the conference, largely attended by existing customers, this year we did have a fairly large group of prospects that attended, and I believe their exposure to very satisfied existing Manhattan customers, and the broad platform messaging that was apparent throughout all the sessions, was big positive and continued to expand our pipeline. I think it had limited impact on Q2 closes, obviously with the conference being in May, but I do believe the very positive responses we have gotten from the conference will have a positive influence on pipeline expansion and closure in Q3 and Q4, and looking out into 2011.

Okay. In May, I believe the Company released what you call the Field Scout, which is basically your mobile solution, and I believe that was giving you some access to move into the stores. I was just wondering if there's any other solutions, at least in your mind, or the Company is working on, to help you guys move a little bit further into the retail store area?

Great question, Mark. Yes, Field Scout has the potential for future implementations in stores to help with inventory management and best allocation of inventory. We also have other solutions that can help in that regard, as well. In some case we have clients that are using warehouse management capability to help better manage parts of their store inventory management, store operations, and we are optimistic that between our order life cycle management solutions and some of our inventory optimization solutions, we can have a greater impact on store effectiveness. Those solutions won't be used specifically in the store, or just the store operations, but can be used as a complement to other solutions they have in place.

But in particular, we are quite excited about our order life cycle solutions' ability to make stores more effective for our clients. I think you probably, Mark, were exposed to our solution discussion at the conference in Hollywood, where we talked about buy online, pick up in store, ship from store, some of the more advanced capabilities that our all-in solution can allow some of our retail clients to leverage in their multi-channel operations. So we certainly think order life cycle management and its advanced functionality and capability will be a big opportunity for Manhattan to assist our retail customers with improved efficiency at the store level.

Okay. Finally, Dennis, a question for you. With respect to the financial guidance, you've given a lot of guidelines but again you haven't reinstated your formal financial guidance, and given two good quarters that you've had, are you still seeing some things that kind of unnerve you a little bit as far as getting -- giving formal financial guidance to the Street?

I'm not seeing a lot that is unnerving me. We are still concerned about the economy, and you hear quite a bit of negative pessimism, and we took a pretty dramatic turn going into the first half of 2009. So we are pretty cautious. And frankly, just with the quality of the parameters that we are providing, Mark, for now we are going to stand down on providing EPS guidance.

Thank you.

Your next question comes from the line of Terry Tillman from Raymond James. Your line is now open.

Thanks guys, nice job, and thanks for the detail. Pete, the first question relates to -- because you had a lot of highs and lows here, peaks and valleys in terms of demand, what is going to take to get back to like what you were doing in late 2007 or first half of 2008, where it was kind of $18 million to $22 million per quarter license numbers? Is it you just frankly need more opportunities to work with, or you need larger scope of deals, or you just need better close rates? Can you help us with what would cause the next step, and another step up into even greater license revenue?

Terry, we are pretty confident in our market position and the overall market's need for advanced solution like ours, and we believe in time we will see the kind of license revenue success quarterly that we did experience in 2007 and first part of 2008. I think the thing that ties back to the comment that Dennis just made Mark's question about guidance, I think one of the things we would still like to see happen is a little bit more stability in the global economy, and a little more enthusiasm and confidence in the global economy, and I think that would be an important catalyst to getting some clients and prospects to make the decision to sign and move a little bit more quickly.

What we are seeing right now in my opinion is that customers that are very strong in their marketplaces are confident to go ahead and make decisions that advance their supply chain capability. Those that are doing very well also have the confidence to move forward, but there still are a lot of companies that would really benefit by advances in their supply chain capability that I think are still hesitant. The velocity of the pipeline close rates hasn't improved dramatically in the last year; I think it's certainly better clearly by our results, but we think a more stable, more confident marketplace would allow us to accelerate our license revenue results.

Okay. Thanks, Pete. And Pete, just a follow-up, it relates to -- and I know this [comes] around each quarter, but looking at metrics, and 75% of business from existing customers, and there were two deals over $1 million versus four last quarter. I mean, is this just a prime example where we shouldn't read into this, and the rest of the year we can see more of a balance of new versus existing, or do you see something different maybe in the back half of the year on that front?

Terry, I think it's more timing than anything else. I think we were quite pleased to be able to convince two existing customers to sign up for large deals in the quarter, so we think that's a great long-term advantage for us. I would suspect over the next several years, as we continue to penetrate the market, the shift will gradually go to a higher percentage, obviously because of a broader install base, of install base wins versus net new wins, but certainly in the next couple of quarters, next couple of years, we think that 50/50 balance is something that we can achieve, and are excited about. So I wouldn't read too much into this quarter's 75%-25%.

Okay. And just my last one relates to, for Peter or Dennis, just on a philosophical basis and going forward, it's one thing for us to ask you for guidance for the second half, not even to talk about next year, but are you committed to on an ongoing basis driving margin expansion? So as we look into 2011, could we see a scenario where the margins can expand? The reason why I am asking is, if you are adding a hundred more heads towards the back half of this year, is that something that can get in the way of you all continuing to improve on the margin side? Thank you.

So I'll take it and let Pete add some color. Yes, we are absolutely committed to margin expansion. We are in the early stages of planning 2011, so I'm not going to give you any parameters, Terry, but we are committed to margin expansion.

One thing we are quite bullish about, we have good visibility into our services pipelines and so forth, and good pipelines for license sales, and we believe the second half of this year will be a good opportunity to continue to strengthen ourselves to take market share and be able to -- Terry, as you were saying earlier, get to those higher levels of quarterly license revenue fees and strong services business as well, and I think it's a very attractive time for us to be investing for the next couple of years, as well as delivering very strong current period financial results.

Okay thank you.

Your next question comes from the line of Yun Kim from Gleacher & Company. Your line is now open.

Thank you. So I noticed that there were only two seven-figure deals in the quarter, but you guys almost did $15 million, or actually above $15 million in license revenue. Typically, you do about three to four to get there. Was one of the two $1 million-plus deals unusually large, or did you have just much higher [levels] in the quarter?

Yun, as you know, we don't give the specifics of the $1 million deals, so I won't speak specifically to that, but I will tell you one of the things that we were quite pleased about in the quarter was the mix of the mid-size deals that we had in the quarter. We saw, and I think this is encouraging, for the back half of the year in 2011 wee saw some of the Tier 2-type companies getting more confident that it was time to get off the sidelines and upgrade their supply chain. So a very nice mix and very nice growth in the mid market size or the mid-tier, less than $1 million but, frankly, bigger than the $250,000 to $500,000 range. It was a good quarter for that level of activity.

Good to hear. Obviously, good to see the positive trends in your consulting business. In terms of second half plan, your plan to add 100 additional headcount, mostly in the consulting organization, how much of that planned increase is driven by service backlog that you already have, and how much of that is driven by expected deal signings?

I would suggest the majority, probably vast majority of that is visibility we have into work we need to perform over the next 12 months. I would not call it backlog necessary, because we are not behind, but it is work through deals we signed in Q1 and Q2, upgrades we're starting to see and additional roll-outs. We are confident, with a stable global economy, that the work we see in front of us will be there for us to deliver for customers. And one of the things we are quite focused on is making sure we continue to maintain a very high level of customer satisfaction. Over the last couple of years I think we've made some good progress in further extended the satisfaction of our customer, and we want to make sure we maintain that as our market opportunities continue to improve.

Great. Lastly, you guys signed a -- one large deal in the life sciences vertical. Are there any other opportunities of a large deal that size outside of your retail [CPG] vertical in your second half pipeline, and maybe you can just talk about your plan to expand outside of the core retail CPG verticals, whether you want to accelerate that plan or you want to keep focusing on your core verticals at least in the near term? Thanks.

Sure. In the second half of the year, we have a couple of deals in the pipeline that would be outside of our core retail, ship to retail vertical markets. So we are cautiously optimistic the investments we've made to play in other verticals will continue to pay off. Obviously, we'll continue to focus a lot of energy in the core verticals where we've had success, since we have a very meaningful, I believe, competitive advantage in those areas, and we certainly don't want to do anything to neglect those areas, but we'll look for opportunities over the next couple of quarters, next couple of years, to continue to advance our success rates and verticals outside of those that we've traditionally had very good success. So we are thrilled with the success we had in the second quarter, particularly that one large deal, and believe we can leverage that and others going forward.

Great. Thank you so much.

Thanks, Yun.

(Operator Instructions) There are no further questions at this time. I will turn the call back over to Management.

Very good. Thank you for joining us for the second quarter update. As always, we look forward in speaking with you in about 90 days. Good night.

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