Manhattan Associates, Inc. (MANH) Q2 2008 Earnings Report, Transcript and Summary

Good afternoon. My name is Abigail, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manhattan Associates second quarter 2008 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). As a reminder, ladies and gentlemen, this call is being recorded today, July 22, 2008. I would now like to introduce Mr. Dennis Story, Chief Financial Officer, and Mr. Peter Sinisgalli, Chief Executive Officer, of Manhattan Associates. Mr. Story, you may begin your conference.

Thank you, Abigail, and good afternoon, everyone. Welcome to Manhattan Associates' 2008 second quarter earnings call. Before we launch into the results discussion, 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 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 2007, 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 insights 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 disclosures 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 will turn the call over to Pete.

Thanks, and welcome to our call. I'll start the call by taking you through some of the highlights from the quarter and the first half. Dennis will then get into details of our financial results. I will follow with additional details about our business and provide an overview of our outlook for the balance of 2008 and our financial guidance, and then we'll both be happy to answer your questions. As you've seen our press release issued today, our second quarter earnings per share was in line with our guidance, and we are on plan to deliver full year EPS growth of 18% to 23% over 2007. All things considered, we're pleased with our performance across key metrics and functions. From a license revenue growth perspective, sales cycles have lengthened somewhat, and as a result, license revenue for the quarter was down about 17% versus Q2 of the prior year. However, from a sales execution perspective, our competitive win rate in Q2 was quite strong with a few deals being delayed, but not lost. We also have an attractive pipeline going into Q3, and for the second half of the year. From a consolidated revenue perspective, solid services revenue, showing 12% growth versus the prior year, combined with license revenue growth to show 1% revenue growth overall versus Q2 of 2007. From a margin perspective, while it is quite a challenge to offset the reduction of 90% gross margin license revenue, we were able to do so largely through a strong services margin and operating expenses lower than the prior year. As a result, we were able to report an operating margin for Q2 of just over 17%, which was flat with Q2 of last year. Operating profit and net income were up over Q2 of last year, and adjusted earnings per share, due in part to a lower share count, was up 17% versus Q2 of '07. Looking at our performance over the first six months of 2008, compared to the first six months of 2007, we delivered growth across the board as follows: 1% license revenue growth, 7% total revenue growth, 8% operating income growth, 15% net income growth and 31% adjusted EPS growth. I believe good companies take advantage of tough economic conditions by staying focused on their strategies and capturing market share. During the first half of '08, Manhattan Associates has done a solid job of executing our plans, taking market share, and further distancing ourselves from all of our competitors. We continue to be optimistic about the balance of 2008, and energized by opportunities emerging in the supply chain market and our ability to capitalize on them. And now let me turn the call back over to Dennis.

Thanks, Pete. Manhattan delivered record revenue, operating profit, and earnings per share performance in the second quarter. Before I cover the he details, here are a few key takeaway points, summarized. First, record EPS. We reported record Q2 2008 adjusted EPS of $0.42 today representing a 17% increase over Q2, 2007 adjusted EPS of $0.36. Second, record revenue: We delivered record consolidated revenue of $90.5 million, or 1% growth, as record services revenue performance offset lower license and hardware revenue growth. Third, record international performance: On a combined basis, our EMEA and APAC regions delivered record revenue and operating profit. Fourth, strong operating margins: Despite lower license revenues on a tough year-over-year comp, we delivered operating margins of 17.1%. We experienced no margin erosion and have, in fact, posted a 20 basis-point improvement for the first half of 2008. And fifth, outstanding cash flow in the quarter. We delivered cash flow from operations of $21 million, representing a 58% increase for the quarter. Year-to-date cash flow from operations is up 67%. In summary, despite a tough quarter for license revenue, we exited Q2 with strong underlying core metrics in our business and a very solid pipeline leading into Q3. Now for more specific details, starting with EPS and net income highlights: As I mentioned, the $0.42 in adjusted EPS we reported for the second quarter represents a 17% increase over Q2 2007. Adjusted net income in the second quarter increased 4% over Q2 2007, to $10.5 million. Year-to-date adjusted EPS was a record $0.77, representing a 31% increase over the prior year first half on adjusted net income of $19.2 million, a 15% increase over net income in the first half 2007. Diluted shares for the quarter were 24.8 million shares, down 11% over Q2 2007, and flat sequentially. We did not execute any share repurchases in the quarter, leaving us with $12.6 million in remaining share repurchase authority. As you may recall, our adjusted EPS performance in Q1 2008 exceeded the consensus EPS estimate of $0.27 for the quarter by $0.08, reflecting very strong operating results combined with non-operational FX gains. FX gains, which are reported in other income, totaled $1.6 million in Q1 2008, accounting for $0.04 of the $0.08 above consensus in Q1. In Q2 2008, FX gains reported in other income equaled about $300,000, impacting adjusted earnings per share by less than a penny. Overall, currency impact to earnings for the quarter were not meaningful. The details are included in the supplemental information schedule we provided in today's earnings release. And finally, on a GAAP basis, we reported record GAAP EPS of $0.37 in Q2, an increase of 16% compared to Q2 2007. Year-to-date 2008 GAAP EPS increased 29% to $0.66 compared to $0.51 in 2007. Now on to revenue and operating results: As Pete noted, we delivered record Q2 consolidated revenue totaling $90.5 million representing 1% growth over the prior year quarter. Record services revenues offset lower license and hardware revenues, each of which was a tough comp over Q2 of last year. Excluding hardware revenue, on an apples-to-apples basis, revenue was up 3% year-over-year. Lastly, top-line currency impact was a favorable one percentage point on the quarter. Year-to-date consolidated revenues of $178.8 million are up 7% over the comparable period a year ago. The Americas posted its second best ever total revenue quarter, second only to Q2 2007, delivering revenue of $73.6 million, which declined 3% over Q2 2007, on lower license and hardware revenues. Excluding hardware revenue, America’s revenue growth was flat in the quarter. EMEA and APAC operations delivered a record combined Q2 total revenue of $16.9 million, representing a 21% increase over Q2 2007. EMEA posted another strong quarter, delivering record Q2 revenue and operating profit. Q2 revenues increased 22% to $12 million despite lower license revenue. And Asia-Pacific reported Q2 total revenues of $5 million, increasing 18% over Q2 2007 on record license revenue performance. License revenues for the quarter were $19.4 million, down 17%, or $4 million, compared to $23.4 million in Q2 2007. As Pete mentioned, in spite of the fact that a number of significant deals slipped in the quarter, due to somewhat lengthened sales cycles, overall we still posted our third best license quarter in company history. On a year-to-date basis, license revenues are up 1% as our 33% Q1 license growth was tempered by the Q2 decline. In a tight economy, the Americas region posted license revenue for the quarter of $15.3 million, up 14% sequentially, but down $3.7 million or 19%, over the prior year quarter. We are encouraged by the fact that while we expect macroeconomic challenges to persist, our 2008 deal pipeline continues to look solid in the Americas and, in fact, across all geographies. In EMEA, license revenue totaled $2.4 million, in line with our forecast, but down against and off the chart $4 million license quarter in Q2 2007. APAC delivered an all time record license revenue quarter in Q2 of $1.7 million, up $1.2 million year-over-year. This marks the second consecutive quarter of $1 million plus in license revenues delivered in APAC, and the fifth consecutive quarter of sequential license revenue growth showing positive momentum in the region. Now moving on to services revenue: Consolidated services revenue in the quarter was a record $62.3 million, increasing 12% over Q2 2007. Year-to-date services revenue growth is 10%. Both Americas and EMEA posted record results, while APAC services revenue declined year-over-year largely, because license sales, which drive services revenues were lower from mid-2006 to mid-2007, and we completed our work through the go-live of a large client in the region. Sequentially, APAC services revenue grew a positive 13%. The Americas segment continues to show strong services revenue performance and delivered record Q2 services revenue of $50.2 million, growing 7% over the prior year quarter. EMEA also delivered record Q2 services revenue of $9.1 million, or 67% growth over Q2 2007, reflecting the license revenue growth momentum we have experienced over the past five quarters. As a component of services revenues, our maintenance revenue for the quarter increased 21% over Q2 2007 to $19.4 million. For the first half, maintenance revenues of $37.5 million grew 17% over the prior year. Our double-digit growth and maintenance revenue stems from new license deals and maintenance renewals, and our maintenance retention rates continue to track at a healthy 90 plus%. On to services margins: For the quarter consolidated services margins were 52.3%, up 90 basis points compared to 51.4% in Q2 2007, and up 440 basis points sequentially from Q1 2008. Margin expansion over the prior year was driven by geo mix, as record services revenue in EMEA contributed favorably to margins. On a sequential basis Americas and EMEA revenue growth, and improved utilization across all geographies, contributed to the improvement with Americas accounting for about two-thirds of the gain, with the balance from EMEA and APAC. Headcount in our services organization was down about 20 heads, or 2% sequentially from Q1 2008. Year-to-date services margins were 50.1%, compared to 52% for the first six months of 2007. Fueled by strong license growth and prior quarters and our commitment to customer satisfaction, our services headcount is up 13% year-over-year. As in prior quarters, we continued to expect some margin pressure to reflect the more intricate services work requires as our sales mix shifts from our heritage system I platform to our open systems platform. In addition, we expect to see more moderate downward pressure on services revenue growth as a result of lumpy Americas’ license revenue growth, combined with potential slowing and upgrade activity given the global economic climate. Overall, we continue to be pleased with our services business performance and demand outlook. For Q3 and full-year 2008, we expect services margins to range from 49% to 51% consistent with our Q2 estimate. On to adjusted operating income: Our operating leverage in the quarter and year-to-date has been very solid despite a $4 million license revenue decline year-over-year. We delivered adjusted operating income of $15.5 million, up 1% over Q2, 2007 with operating margins of 17.1%. Again, strong services margins, EMEA and APAC profit contribution, and operating expense control resulted in a zero year-over-year margin erosion. For the first half, adjusted operating income was $26.5 million, growing 8% over 2007. With operating margins of 14.8%, improving 20 basis points over the 2007 first half margins of 14.6%. We are very pleased with our Q2 2008 operating margin performance and first half expansion by 20 basis points. We continue to target a 50 to 100 basis point improvement in operating margin for full year 2008. Our adjusted operating expenses which includes sales and marketing R&D, D&A and depreciation, or $36.3 million for Q2 2008, down 2% over the prior year quarter, and down 1% sequentially. The decrease year-over-year was due to slightly lower headcount and tight expense control. Operating expenses were 40.1% of total revenue, compared with 41.2% in Q2 2007. That covers the operating results. So let's go through a few below the line items. We reported other income of about $650,000 in the quarter, of which $300,000 was from FX gains noted earlier. The balance was interest income. Our estimate of other income for the remaining quarters of the year is about $300,000 per quarter, which considers only interest income. Barring further weakening of the US dollar, we are not forecasting any significant FX gains or losses. We also are currently evaluating strategies to mitigate FX volatility going forward by reducing our inter company payables and receivables. This strategy does not contemplate any hedging initiatives. Our effective income tax rate for the quarter was in line with our forecast of 34.75% and down versus 35.5% a year ago. For the remainder of 2008, we expect our diluted shares to be approximately 25.25 million per quarter, which lowers our previous full year estimate by 500,000 shares. These estimates depend on a number of variables such as stock price, option exercises, forfeitures, and share repurchases that can significantly impact our estimates. The current forecast estimate does not assume any common stock repurchases for the remainder of 2008. Now on to cash flow: For the quarter, we delivered strong cash flow from operations of $21 million, up 58% over Q2 2007. Our DSOs for the quarter decreased four days from Q1 2008 to 78 days on strong collections performance in the quarter. Our capital expenditures for the quarter totaled $2.8 million, down from our Q2 2007 spend of $3.5 million. We continue to estimate capital expenditures to be in the range of $9 million to $11 million for the full year 2008. Our cash and investments at June 30, 2008, is $83.5 million, compared to $64.4 million at March 31, 2008, increasing on our strong cash flow from ops performance. Deferred revenue, which consists mainly of maintenance revenue, built an advance of performing the maintenance services was approximately $34.6 million at June 30, 2008, up 7% from $32.4 million at June 30, 2007. The increase is driven by our strong business growth and our continued 90% plus maintenance retention rate. We continue to carry a strong balance sheet with nearly 70% of our net operating assets in cash and investments and zero debt, complimenting our strong earnings and cash flow profile. That covers the financial results. Now I'll turn the call back to Pete for the business update and outlook for the remainder of 2008.

Thanks, Dennis. We continue to be pleased by our ability to extend our success and optimizing supply chain beyond our heritage in warehouse managing systems. Of the $19.4 million in license revenue for the quarter about half was attributable to sales of warehouse management solution and half to our other solutions. While W M.S. license revenue in the quarter was flat with the prior year, transportation life cycle management more than doubled, while our planning and forecasting, and inventory optimization solutions grew more than 10%. Offsetting growth from these solutions were declines in trading partner management and performance management, solutions now replace with enhanced offering an extended enterprise management and supply chain intelligence, both released in June. Labor management also showed a slight decline after several quarters that have placed the solution in a leading market share position. We are particularly excited about our opportunities in transportation life cycle management. With the price of oil at an all-time high, making transportation more efficient is top of mind for most supply chain executives. And our market leading TLM solution could help them achieve that. About 60% of second quarter license fees were generated from new customers and the remaining 40% came from our existing customer base. The retail, consumer goods, and logistics service provider verticals once again combined for more than half of license revenue in the quarter. We recorded three deals in the quarter with recognized license revenue of $1 million and more, two of them with new customers, two were for transportation life cycle management and one was for distribution management. Also notable in the quarter was our first meaningful license sale in India. Our professional services organizations around the globe continued to perform well. In addition to posting strong financial results, the teams continue to drive improvements in customer satisfaction. In the first half of 2008, our global services teams helped customers go live with our solutions in more than 170 sites. Our ability to help customers create and execute sophisticated supply chain strategy continues to strengthen this quarter as we issued new releases of several products in June. These include warehouse management for open systems, warehouse management for system I, inventory optimization, supply chain intelligence, and billing management. Our R&D teams around the world did an exceptional job of meeting our objectives for these releases, delivering quality software on time and on budget. Headcount at the end of the quarter was about 2,250, about flat with the end of March and modestly above the headcount at the end of 2007. We increased our direct sales rep headcount by six during the quarter from 65 to 71. Five reps were added in the United States and one overseas. We expect these additions to enable us to take advantage of our solid pipeline and strong competitive market position. Let me now shift to our view of the third quarter and full year. While our third quarter has historically been seasonally soft, we expect to post a good third quarter in 2008. Our license revenue pipeline for the quarter is quite encouraging. No guarantees on what we will close, but we're optimistic when viewing the in-quarter pipeline. Moreover, the other parts of our business continue to perform well. As a result, for the quarter we expected adjusted earnings per share to be in the range $0.34 to $0.42. We posted $0.34 in the third quarter of 2007, so our guidance reflects EPS growth of between zero and 24%. For the full year, we are confirming our EPS guidance. We continue to expect adjusted EPS in the range of $1.54 to $1.60 per share. The annual guidance range represents growth over 2007 of between 18% and 23%. The supply chain management competitive landscape continues to evolve, and we believe we are uniquely positioned in this space. Over the past six months, and realistically over the past 24 months, perhaps even longer, we believe no competitor has closed ground on our lead in the supply chain solutions market and we believe we have further distanced ourselves from essentially everyone. Moreover, we believe the optimization of supply chains is gaining importance as an operating imperative. In the United States, in 2007, transportation cost rose 6%, and inventory costs rose 9%. Logistics cost in the US last year totaled $1.4 trillion, or just over 10% of our entire growth domestic product, and continue to rise in the first half of 2008. The rapid rise in the price of oil is putting tremendous pressure on all parts of the supply chain. When oil, and therefore transportation, was cheap, our off shoring made sense to leverage lower labor cost. But as transportation cost rise, the fundamental benefits of off shoring are being called into question. These questions have important implications for where to locate manufacturing facilities, where to locate warehouses, how much inventory to carry at each node of the supply chain, how best to manage company-owned trucks and common carriers, how to manage labor, and most important, how to optimize all of these supply chain components simultaneously, while also improving customer service levels and satisfaction. Managing supply chains in these changing times will require companies to significantly adjust their supply networks, and they will be turning to experts for help. We believe the more supply chains change, the better for Manhattan Associates. We believe no company is better positioned than we are to help organizations adjust and realign functions across their supply chains to increase their market competitiveness. Our complete suite of supply chain optimization solutions on our common business process platform, which we refer to as supply chain optimization, planning through execution or SCOPE creates a sustainable competitive advantage for Manhattan Associates. So to summarize, we had a respectable second quarter and a solid first half of 2008. We are executing well and have confidence in our second half outlook. We believe we are very well positioned to continue to lead the supply chain management market, and intend to capitalize on that opportunity. With that, operator, we'll now take questions.

(Operator Instructions). Your first question comes from Michael Huang of ThinkPanmure. Your line is open.

Thanks very much. Hey, guys.

Hey, Mike.

Few questions. So, in terms of the large deals that slipped out of the quarter, just wanted to get a perspective on, was this similar to what happened in Q4, or was this something different?

Generally speaking, it was pretty similar. I would suggest to you, in this particular quarter, with a difficult macro environment, companies wanted to make sure they're making capital expenditures with prudence. I think there was a little bit greater emphasis on the overall economy in the June quarter than, perhaps, in the December quarter. But I would suggest overall, it was fairly similar number of important business prospects and partners making sure they are prepared to make the capital investments.

Okay. And then, given what you saw with sales cycles and close rates in Q2, I'm assuming that you've delved that back somewhat for Q3 and through the rest of the year. But if sales cycles and close rates are what you saw in Q2, would that imply the midpoint of EPS guidance?

More or less. A large deal in our company makes meaningful difference in earnings per share. So I would suggest our assessment at the moment is sales cycles in Q3 will probably not be similar to the sales cycles we experienced in Q2. So we're not expecting an acceleration in close rates, nor a lengthening of sales cycles, so I would say it would be comparable to what we saw in Q 2. And we believe that with the magnitude of a in-quarter pipeline we have in front of us, we are comfortable with the guidance range we've provided.

Okay. And then, just in terms of the momentum user conference, we were there. It seemed pretty successful. What was the biggest take-away from that user event, and how does that impact Q3, do you think?

Well, actually, we were quite pleased with both the turnout at the conference, as well as the energy at the conference. We thought the feedback from our customers and the prospects was quite positive. One of the takeaways we had coming out of that meeting was, we were even more optimistic about the balance of 2008 for our financial performance, and importantly, the outlook for '09 and beyond. So, I would say we were quite enthusiastic about how that conference. And in particular, the enthusiasm our customers showed for solutions beyond our market leading W M.S. solution. The energy around our transportation solution, planning solutions, forecasting solutions and so forth was quite encouraging, and the support for the overall scope, initiative, I thought was quite good. So we were quite pleased with the conference and we're glad you could make it.

Thanks very much.

Thanks, Michael.

Your next question comes from Brad Reback with Oppenheimer. Your line is open.

Hey, guys. How are you?

Good, Brad.

Hey, Brad.

How early in the quarter did it become evident that sales cycles were lengthening and people were taking a step back?

Now, it is pretty typical, Brad, to any quarter. More activity than we'd like, as always is coming down towards the end of the quarter, so we really felt pretty good about the quarter, all the way down to the last day or two of the quarter. But I would tell you, we also felt confident in what we reported for Q2. While license revenue was disappointing, down 17% year-over-year, we were quite pleased with the way the rest of our business performed. Frankly, we had anticipated challenges in this environment, and we are managing expenses aggressively, with the license revenue in the neighborhood of what we did post. We would still post a strong EPS result, and as Dennis went through in some of his comments, cash flow from ops was particularly strong. We’re pleased with the DSOs and our services margin, overall margin. Frankly, we think all the metrics, with the exception of license revenue for the quarter, were quite strong. But it did come down to that last couple of weeks of the quarter before the lengthening sales cycle became apparent. But I would imagine any software company with perpetual license sales would give you a similar story almost every quarter of almost any year.

Have the first few weeks of July been successful in closing up some of those slipped deals?

As you know, Brad, we don't comment on that. We do provide our perspective on what the quarter will look like, but we don't provide a specific comment on what's closed and so forth. But I will say that we are quite optimistic about the in-quarter pipeline we have, and know our sales teams around the world are working very hard to close what can be closed, and importantly, deepening our relationship with both customers and prospects. So, as they are ready to make that decision, they'll choose Manhattan Associates as their partner.

On a percent basis, Pete, how much bigger is the 3Q pipeline versus the 2Q in-quarter pipeline.

I am sorry, Brad, but we don’t disclose that as well. Historically, Q2 has been about our strongest license revenue quarter, but I will tell you that we do think Q3 should be a good quarter for us. Typically, it's seasonally slower than Q2, but because of the timing of sales cycles and so forth, we believe Q3 would be a solid quarter for us this year. But we don't disclose the specific pipeline by quarter.

Okay. And on the expense front, R&D as a percent of revenue is the lowest it's been since 2002. Is this a change in level of investment in the product? Was this a one-time issue related to performance and maybe bonus payments? Help us understand that.

Sure. I’d say it's more timing, but only by a percentage or so. We continue to expect to invest somewhere in that 14% of revenue number in R&D. This quarter, we did have some recalibration of some of incentive compensation programs that also helped us in our services marginally. So, those were timing issues, but we do continue to invest meaningfully in our next-generation product. As I mentioned in June, we had the release of five products that we were quite pleased about. There are some, we think, ground breaking new solutions, in particular supply chain intelligence. We think is a very attractive new solution for Manhattan with robust capability, and we will continue to invest in the SCOPE platform in our suite of solutions. So, I do think the somewhat lower R&D, as a percent of overall revenue, in Q2 was more of a timing issue than any specific long-term plan.

Great, thanks a lot.

Thanks, Brad.

Your next question comes from Yun Kim with Pacific Growth. Your line is open.

Thank you. I think, Pete and Dennis, you said that headcount in services was down by 20 sequentially. What drove that, and what is your headcount growth planned for that organization for the year?

Sure, we will be happy to share that with you. In general, we plan to grow headcount in our services business inline with revenue growth for the services business. So, you should expect as our services business grows somewhere in that, I guess, the second quarter, we grew about 12%, for the first half about 10%. We'd expect reasonable growth in our services business for the balance of the year. So, we generally would expect headcount to grow in about that pattern. Candidly, what we did in the first half of 2008, we had hired a few additional people anticipating the opportunity for perhaps some acceleration in our services business. That didn't happen quite in the time line that we expected, so we were able to over the second quarter, work down some of that capacity that we had stepped up in the first quarter. So, that was essentially the reason for the reduction in about 20 heads in the second quarter versus the first quarter. We did staff up in the first quarter to make sure we could drive high levels of customer satisfaction. We believe we can continue to do that with the 20 fewer heads in Q2, and we're quite pleased with performance there. And I expect if you look over the second half of the year, for services headcount to grow about inline with our expectation for services revenue.

So, you were able to improve margin in services, while you actually saw some people on the bench, or you able to account for that before you took a hit in the margin?

Yes, actually, so what happened in the quarter, Yun, as services revenue grew, we had some attrition, which every services organization is going to have. We chose not to replace the attrition during the quarter, which resulted in about 20 fewer heads, but we did have capacity within the organization to fully staff for this project. So, we were able to deliver on the revenue potential in the quarter with 20 fewer heads.

Okay, great, thanks. And then also, in terms of seven-figure deals in your sales pipeline, can you just talk about how much you have in those deals in the second half, and whether you need to be more reliant or less reliant on those big deals in second half, versus first half? And then also, if you can just talk about the general trend regarding the deals in your sweet spot range. I believe that's like 250 to 750 K range. How that been trending? It seems like that area has also performing well.

Yes, we’re happy to. As I mentioned to Brad, we don't provide specific details on dollar amounts or what's in the pipeline. But I will tell you we have a very nice Q3 pipeline for million plus deals, particularly in the United States. I think the market for our solutions in the US continues to be very strong, although Q1 and Q2 were a little behind what we had hoped for. Overall, pipeline in the Americas is quite strong, and in particular, what we call double comma deals, or million plus deals in the Q1 look quite, in third quarter, and for the second half of the year, look quite good. And we're encouraged that those deals are across multiple products. So, we expect to continue to have great success with warehouse management, as people upgrade and realign their entire supply chain network, but in particular, we think transportation will be a very nice opportunity for us over the second half of '08 and going into 2009. One of the things we're particularly pleased about is that, with the change in the macroeconomic environment, but the increase in the price of oil, with the implications that has for all components of the supply chain, as I mentioned in my prepared remarks, we think supply chain transformations will become even more important and companies will look at all components of their supply chain to re-optimize the way they go to market. We think that impetus will drive very good performance for Manhattan over the next several years. So, we're quite excited about that long-term prospect as well as the outlook for Q2 and Q4.

Great and then quickly, Dennis, cash flow, the strong cash flow from operations mainly coming from the receivables and accounts payable, accrued liabilities. I'm assuming those are more than one quarter events, or is there more leverage there, or is there leveraging other balance sheet items that we can get squeeze out extra cash flow in the second half?

The leverage primarily comes from managing aggressively managing receivable collection, Yun.

Okay, alright. Thanks very much.

Your next question comes from Mark Schappel with Benchmark. Your line is open.

Hi, good evening. Pete, regarding the deals that slipped in the quarter, would you characterize these deals mid-size transactions, or would these be some of the larger million plus dollar type deals?

Yes, I’d be happy to give some general color on that. We had a couple deals slip in the quarter. But I will tell you we have a number of deals slip every quarter like every other software company. It's one of the exciting challenges of enterprise software, perpetual license enterprise software trying to move deals along at a fair pace, but also establish great working relationships with your customers and prospects to make sure over the long run you have a terrific relationship. So, we always have a few deals that slip out of the quarter, and every once in a while we get surprised that there's some other deals that come into the quarter that we hadn't expected. I would suggest to you in Q2 we had a number of larger deals, particularly in the US that did not close in the quarter, that we thought could close in Q2. I believe in each of those deals they were merely delayed, don't believe anything was lost, and we're optimistic that over the next couple of months we'll see those come to provision. I know our sales team is quite excited about the second half of the year. We had our midyear sales conference about two weeks ago, where we had the teams together and the enthusiasm about the product suite, the technology platform, pipeline and so forth was quite positive. So, myself and the other executives, who are at the meeting left, that meeting feeling quite good about the long-term health of the company. So, a number of the deals that did slip were larger deals, and we're cautiously optimistic that they will be able to close in the near-term.

Okay. And could you also give us a little bit of an update on the supply chain and planning module, and how that product is coming along, the former Evant product?

Sure, I’ll be happy to. Generally, there are three products within the suite of solutions we acquired from Evant, supply chain planning, supply chain forecasting, and inventory optimization. Those are the three categories of products. When we acquired Evant, they had a solid offering and inventory optimization you may remember that product previous called replenishment, but they had solid product in that area. Over the past couple of years, we have invested in that solution to build out some future capability. That was not resident, the product that would allow us to compete more effectively with the market leaders in that area. And we believe over the past two years we have made some very good progress with our inventory optimization solutions. Now we still have a lot of work to do, to convince the world that we deserve to be in every deal, and finalists in every deal, and that global brand recognition within the supply chain planning space is evolving for us, but I believe we're making good progress there. As it was evident at the Momentum Conference, Mark, that you attended as well, down in Orlando. I believe that hopefully that senses progress there was visible. In terms of forecasting and planning,