Manhattan Associates, Inc. (MANH) Q4 2010 Earnings Report, Transcript and Summary

Good afternoon. My name is Simon and I will be your conference operator today. At this time, I would like to welcome everyone to the Manhattan Associates fourth quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. (Operator Instructions). As a reminder, ladies and gentlemen, this call is being recorded today, Tuesday, February 1st, 2011. I would now like to introduce Dennis Story, Chief Financial Officer of Manhattan Associates. Sir, you may begin your conference.

Thank you, Simon, and good afternoon, everyone. Welcome to Manhattan Associates 2010 fourth 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, 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.

Good afternoon, everyone. Overall, 2010 was a very successful year for Manhattan Associates. Financial results were good, our competitive position improved, customer satisfaction increased, and we are well positioned for the future. For the fourth quarter, we posted total revenue of $71.5 million, up 15% over last Q4. And, for the year, we posted total revenue of $297.1 million, up 20% over 2009. Adjusted earnings per share was $0.32 in the quarter, up 4% over Q4 of 2009, and for the year with $1.38, up 44%. License revenue in Q4 was lower than we expected at $12.7 million, as caution returned to the segment of the software market we serve, but we were still able to post solid Q4 results. Our competitive win rate remains strong all year. In head-to-head sales cycles against our major competitors, we won 75% of the time. I’m particularly pleased with the market’s excitement over our platform-based suite of solutions. Our win rate for our new release of warehouse management on our platform was exceptional during 2010. And, I believe, we are very well positioned for 2011 and beyond. We are not expecting the economy to improve in the first half of 2011, with only modest improvement over the second half. But even in that scenario, we are optimistic about our financial outlook for 2011. We’ll talk more about that later in the call. But first, I’ll turn the call back over to Dennis, to provide details about our financial results.

Thanks Pete. Q4 marked our fourth consecutive quarter of double-digit revenue growth, as Manhattan delivered $71.5 million in total revenue and $0.32 in adjusted earnings per share. For the full year, we grew total revenue 20% to $297.1 million, delivering adjusted EPS of $1.38 to match our 2008 record adjusted EPS year. As Pete mentioned, the 2010 mid-cycle economic slowdown dampened license revenue in the second half of 2010. The good news is customers and prospects are active in planning supply chain capital investment. The challenge remains forecasting large deal timing as management’s investment decisions continue to be hedged by global economic caution. Some financial highlights for the fourth quarter and full year are: One, Q4 license of $12.7 million, decreased from $14.3 million in Q4 ’09, and is up modestly on a sequential basis from $12.1 million in Q3 2010. Full-year license revenue increased 57% to $54.4 million in 2010, off of a weak 2009 comparison. Secondly, Q4 services revenue increased 22% year-over-year led by 34% growth in consulting revenue as services demand continues to exceed capacity. Full-year 2010 services revenue increased 13% with consulting revenue growing 17%. Adjusted earnings per share of $0.32 increased 4% over $0.31 reported in 2009. Full-year adjusted EPS of $1.38 increased 44% over 2009’s $0.96. And, on a GAAP basis, we delivered record earnings per share of $1.25. We continued to maintain our meaningful strategic investments in R&D, investing $0.13 of every revenue dollar. Operating cash flow continues to be strong at $14.6 million in Q4 and $50 million year-to-date. And, finally, our balance sheets strength continues to support long-term strategic flexibility with cash increasing to $127 million, up $10 million over Q3 2010. Our cash-to-asset ratio is 45% and we have no debt. Finally, we invested $21 million in common stock buybacks during Q4, with our Board raising our buyback authority to $50 million in January 2011. That covers the key highlights. On to the details; Q4 total revenue performance of $71.5 million increased 15% over the prior year quarter on the strength of services revenue growth. All of our GO segments posted total revenue growth for the quarter and full year. Our Americas segment continued its momentum, posting its fourth consecutive quarter of double-digit revenue growth of 13%, totaling $59.6 million. Internationally, EMEA totaled revenue of $7.3 million for the quarter, increased 10% over Q4 2009, and APAC posted the strongest revenue quarter for the year at $4.6 million, up 65% over 2009 on strong license growth. For license revenue in the quarter, Americas recognized $10.3 million, down from $13.1 million in Q4 2009, and up 3% sequentially over Q3 2010. A positive signpost in the Americas for Q4 and full year is the favorable year-over-year trend in mid-sized deal activity, meaning those deals in the $250,000 to $900,000 range. EMEA’s Q4 license revenue totaled $407,000, posting its weakest quarter of the year, as the Western European economy continues to experience a sluggish recovery. And, finally, our APAC team delivered strong Q4 license revenue totaling $1.9 million. Services revenue of $52 million in the quarter increased 22% over Q4 2009, and was down 3% sequentially from Q3 2010, due to the Q4 seasonal holiday period. Our consulting services continued to experience solid demand with revenues of $30.2 million, increasing 34% over Q4 of 2010. Q4 2010 maintenance revenue totaled $21.8 million, increasing 8% over the prior year. 2010 full-year maintenance revenue of $81.9 million grew 6% over 2009, on strong license revenue growth, solid cash collections, and retention rates of 90% plus. As a reminder, we recognize maintenance renewal revenue on a cash basis, so the timing of cash collections can cause inter-period lumpiness from quarter-to-quarter and maintenance revenue recognition. Consolidated services margins continue to be strong as we posted 51.8% for the quarter and 54% for the full-year 2010. Sequentially, Q4 margins are down from Q3 2010 on the combination of Q4 seasonal holidays and hiring to fulfill demand. As you know, the year-over-year margin comp is not meaningful due to the macroeconomic dislocation. We expect 2011 services margins to be in the 53% to 54% range, slightly lower than 2010, with the on-boarding of new hires driven by strong demand. That being said, we are targeting our cost of services to increase by about 5% sequentially in Q1 2011 versus Q4 2010, due to the on-boarding of new hires, the partial reinstatement of our 401(k) match and the seasonally high FICA expense, offsets somewhat by the refresh of bonuses to target. In comparing year-over-year services margins in Q1, do not forget the $2 million of deferred services revenue that we recognized in Q1 of 2010. That had no associated direct expense impact. Moving on to adjusted operating income, Q4 adjusted operating income totaled $10.1 million with strong operating margin of 14.1%. On a full-year basis, we delivered operating margins of 15.7%, a 230-basis point improvement over 2009 margins of 13.4%. As we discussed in our Q3 2010 earnings call, since we introduced restricted stock as a component of our equity compensation program in 2007, we have consistently included restricted stock expense and adjusted earnings, which is inconsistent with the practice of other software companies. As we shared in our last call, our research of other publicly-traded software companies, including all of our comparison companies for our 10-K and proxy filings, confirm that prevalent practice is to exclude all stock-based compensation, that’s stock options and restricted stock from adjusted earnings. If you exclude restricted stock expense from our adjusted earnings, 2010 adjusted operating margin is 18%, which is the more accurate comparison against our software peers. For historical comparisons, the same analysis shows adjusted operating margins in 2009 of 14.8%, 2008 was 14.2%, and 2007 was 15.6%. To provide you with a more meaningful software comp as reference, we’ve added a detailed break out of our restricted stock expense by quarter and full year for 2007 through 2010 in item 10 to our supplemental schedule in today’s earnings release. In addition, we added item 11 which provides the total equity based compensation expense, that’s options plus restricted stock. And earnings per share impact for years 2007 through 2010. So, with all that said, starting in 2011, we will begin reporting adjusted earnings in accordance with the prevalent practice in the technology sector, excluding 100% of all equity based compensation expense. Our 2011 earnings per share guidance will reflect this change, timely to assist you with year-over-year comparisons of financial performance for our revised reporting, we added item 12 in our supplemental schedule, which reconciles from our historically reported adjusted results to the revised adjusted results, excluding restricted stock for the following adjusted P&L lines of the operating profit, operating margin percentage, net income, and diluted adjusted EPS. Moving on to a discussion around Q4 operating expenses for 2010, our adjusted operating expenses which includes sales and marketing, R&D, G&A, and depreciation were $29.3 million for Q4 2010, down 2% sequentially from Q3 2010, and up 18% over Q4 2009, due to an abnormal comp. As previously discussed, this increase was planned to absorb performance-based compensation tied to improved results, restoration of normalized based compensation, following short-term reduction initiatives executed in 2009, and higher restricted stock expense associated with the change in our equity incentive program. On a sequential basis from Q4 2010 to Q1 2011, we expect our operating expense run rate to increase about 4%, driven by the previously mentioned incremental FICA, 401(k), partial reinstatement, and headcount additions to address R&D capacity and attrition replacement, somewhat offset by the refresh of bonuses to target levels. Regarding income tax expense, our adjusted effective tax rate for the quarter was 30.4% and 33.5% for the full year, compared to a 2009 effective tax rate of 33.2%. The lower Q4 rate was driven by congressional approval of the R&D tax credit legislation that was passed in December of 2010. For 2011, we are currently estimating an effective tax rate of 34.5%. Transitioning to diluted shares, for the quarter, diluted shares totaled 22,350,000 up from 22.1 million shares in Q3 2010, driven by option exercise activity and higher common stock equivalent associated with the higher Q4 average stock price. During the quarter, we repurchased 680,000 shares of Manhattan common stock at an average share price of $30.92, totaling $21 million. For the full year, we repurchased 2.7 million shares at an average price of $28.15, totaling $76.5 million. Option exercises for the year totaled 1.6 million shares, generating net cash proceeds of $36.4 million to the company. As mentioned earlier, in January of 2011, our Board approved raising our share repurchase authority limit to a level of $50 million. For 2011, we are estimating full-year diluted shares to total about 22.5 million shares. We currently estimate Q1 2011 diluted shares to be the same as our exit in Q4 2010 at 22,350,000 shares, with the balance of the year rising to an average of 22.5 million shares per quarter. Our estimates do not assume any common stock repurchases and depend on a number of variables such as stock price, option exercises, forfeitures, and share repurchases, which can significantly impact our estimate. On a GAAP basis, Q4 2010 GAAP diluted earnings per share of $0.29 increased 12% over $0.26 in Q4 of 2009. 2010 GAAP diluted earnings per share of $1.25 was a record year best in 2007’s record of $1.13. Our GAAP performance is driven by the strength of adjusted 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. Now, moving on to cash flow and balance sheet metrics; for the quarter, we delivered cash flow from operations of $14.6 million, bringing our full-year 2010 total operating cash flow to $50 million, down from $58.3 million in 2009, primarily driven by working capital build and trade receivables. Our accounts receivable balance has increased about $10 million from December of 2009 on license and services revenue growth, our DSOs continue to be solid at 61 days, compared to Q3 DSO of 60 days. Capital expenditures were $1.5 million in the quarter and $5.9 million for the year. For 2011, we estimate capital expenditures to be about $6 million to $8 million. Our cash and investments at December 31, 2010 totaled a $127 million, compared to September 30, 2010 cash of a $117 million. Deferred revenue which consists primarily of maintenance revenue build in advance of performing the maintenance services was $45 million at December 31, 2010, compared to $37 million at December 31, 2009. As discussed in Q3, 2010 as part of our $1 million plus license deal with very large global information technology provider, we agreed to certify our solution on that client’s technology platform for the next five years. We will recognize the revenue ratably over the term of the contract beginning with our delivery of certified software to the client at the end of Q1 2011. Our deferred revenue balance as of December 31, includes $700,000 that has been collected from this client. Additionally, we have collected and deferred $2.4 million of revenue associated with customer commitments to provide certain product functionality. We anticipate that these commitments will be fulfilled and revenue will be recognized in 2011 beginning in Q2. So to recap as we close the chapter on 2010, we posted a fine rebound year, of course off of an aberrant 2009 comp. We grew total revenue 20% and adjusted earnings per share 44%, by delivering an operating margin of 15.7%. But before I turn the call back to Pete, let me cover 2011 guidance. We are restating guidance on an annual basis only, providing total revenue and earnings per share guidance for non-GAAP adjusted EPS and GAAP EPS. Here is our rationale on this. While economic risk seems to have diminished, global turbulent still exist, and we expect it to persist in 2011. On the positive side, conditions are seemingly improving for meaningful large deal investments with the cost of money being quite low, inflation pressuring commodity such as cotton, food, and fuel prices, and corporate balance sheet strengthening, particularly with $2 trillion plus of cash excluding the non-financials. Meanwhile, we’ve continued to invest in innovation to take market share and deliver consistent earnings growth and margin expansion. So for 2011 revenue, we are forecasting to grow total revenue at roughly 2x the market growth rate of 5%. Our current annual guidance for total revenue is to deliver $325 million to $330 million, which represents 10% to 11% growth. With our view of economic risk concentrated in the first part of the year, we expect Q1 total revenue to grow in the low single digits, against Q1 2010 revenue, which I’ll remind you included about $2 million of recognized deferred services revenue from 2009. So apples-to-apples, excluding that $2 million of deferred revenue from the Q1 2010 base revenue, we are assuming Q1 2011 year-over-year growth to be about 5%. For the balance of the 2011 year, we are forecasting our quarterly revenue to be about equal on a quarter-to-quarter basis, adjusting for slightly lower Q3 license revenue and Q4 traditional services revenue decline, driven by seasonal holidays. And, finally, once again as a reminder, the $2 million of deferred revenue recognized in Q1 2010 dropped straight to the bottom line, generating $0.05 of EPS benefit that will not recur in Q1 2011. So for 2011 adjusted earnings per share, we expect to deliver $1.77 to $1.82, representing 12% to 15% growth over 2010 adjusted diluted EPS of $1.58, which has been revised to exclude all equity-based comp. Based on our full-year revenue guidance and entry year planning assumptions, we expect adjusted EPS to be about flat with Q1 of 2010, and quarterly EPS for quarters two through four to be roughly equal. For 2011 GAAP earnings per share, we expect to deliver $1.45 to $1.50, representing 16% to 20% growth over 2010 GAAP diluted EPS of $1.25. The $0.32 full-year EPS difference between GAAP and non-GAAP adjusted EPS represents equity-based compensation, that’s options plus restricted stock expense, and intangible asset amortization expense from previous acquisitions. The per quarter EPS impact of these items is estimated evenly at about $0.08 per quarter. I spoke to our adjusted operating margin goals in the Q3 call. For 2011, we continue to focus on year-over-year adjusted operating margin expansion, and are targeting a 100-basis point improvement over 2010. So that covers the 2011 guidance. Now, I’ll turn the call back to Pete, for the business update.

Thanks Dennis. First, a bit of color on the deals we closed in Q4. Our one large deal in the quarter was with an existing customer, for our warehouse management solution. We had and continue to have a strong pipeline of large deals we’re working. But we’ve been challenged getting clients across the goal line. The current environment doesn’t provide much of an opportunity cost to putting off decisions, so several large deals continue to wait in the balance. The good news is, we’ve been selected in many cases and simply wait the client’s final decision to close the contract. Hopefully, we’ll see a stronger push to move forward over the balance of 2011. While mid-sized deals continue to move along well, we need the larger deals to fuel the kind of results we think we can achieve over a multiyear period. For comparison, in 2007, we closed 16 deals of $1 million or more in recognized license revenue, 15 in 2008, five in 2009, and nine in 2010. We’re confident the markets we serve will bounce back to levels exceeding previous years and we are poised to capture a greater share of that activity. In the near term, we’re very focused on closing large deals, but acknowledge, we must work with our clients on their timelines. Overall, about 70% of license fees in the quarter were tied to warehouse management solutions and 30% tied to our other solutions. Similarly, existing customers made up about 70% of license sales in the quarter and new customers about 30%. The one large WMS deal to an existing customer in the quarter had a meaningful impact on these statistics. For the year, about 60% of license revenue was for our WMS software and 40% for the rest of the solutions in our portfolio. Similarly, 60% of the year’s license revenue was from existing customers and 40% from new clients. Together, the retail, consumer goods, and logistics service provider verticals were once again strong contributors to our license fees and made up more than half of license revenues for both the quarter and the year. We had a successful quarter adding new clients and extending our relationship with existing clients. The companies that have permitted us to share their names with the public are included in our press release. As you may recall, we rolled out our warehouse management solution on our supply chain process platform early in 2010 and offered it only in the Americas, where it was very well received during the year. We won 12 new clients for our platform-based WMS solution, essentially all of the key competitive of the WMS deals in the Americas in 2010. Of course, we won additional business with our iSeries and Microsoft-based warehouse solutions as well. Today, we have three clients live on our platform-based WMS solution and expect to have several more live by our next quarterly earnings call. I’m very pleased with the strong year we’ve had helping clients, utilize the power of our solutions. For the quarter, we had more than 60 customer sites go live with our software, and for the year, more than 300 successes. Following the successful rollout in the Americas of our warehouse management solution on our platform, in 2011, we will rollout that solution to our Europe, Middle East, and Africa geographies as well, and expect to have similar success winning key deals in that region. For the year, we invested about $40 million in research and development, which is about 13% of our total revenue. And, because we house about two-thirds of our R&D team in India, where costs are lower, we are able to dedicate over 600 people or about one-third of Manhattan’s overall staff to research and development. I’m quite pleased that in all product areas, we delivered new, more robust, more efficient solutions to our markets in 2010. I believe our significant investment in our supply chain process platform clearly distinguishes us from all other competitors and positions us for a strong future. For 2011, we’ll continue to invest about 13% of revenue in R&D, as we push to further distance ourselves from other solution providers. At the end of the year, we had about 1,925 employees around the globe. That’s about 50 more than we had at the end of the third quarter and just over 100 more than at the end of 2009. Essentially, all of the headcount growth during the year and the quarter was in our professional services group. We finished the year with 66 people in sales and sales management, with 56 of those quota carrying sales reps, that’s down two sales reps from the Q3 figure and up two sales reps from the Q4 2009 figure. In early January, we announced the promotions of Dennis Story to Executive Vice President and Chief Financial Officer; and Eddie Capel to Executive Vice President and Chief Operating Officer. Both men do an outstanding job for Manhattan Associates. While Dennis responsibilities are unchanged for 2011, Eddie picks up responsibility for our Europe, Middle East and Africa, and Asia-Pacific regions, as well as our Americas professional services operations. He also retains responsibilities he had in 2010 for R&D, customer support, and product management. Our Americas sales operation under Jeff Mitchell continue to report to me. Eddie’s new role aligns operational responsibilities worldwide and allows us to further improve the quality and efficiency in our solutions and services. Turning our sights now to 2011, we’re planning for a relevant and stable global sales environment, with the global supply chain market growing at about 5%. While we know how to perform well in that type of climate, we’re also confident that when the market economy begins to heat up and the late projects get mobilized, we will continue to capture significant market share and drive even further improvements in our financial results. With an attractive pipeline for both large deals and mid-sized deals and a strong and improving competitive run rate, we look forward to 2011 and beyond. As we did in 2010, we remain focused on delighting our customers, delivering market-leading innovations in our software and extending our sustainable competitive advantage to our platform-based approach to supply chain excellence. With that, operator, we’ll now take questions.

(Operator Instructions). Your first question comes from the line of Terry Tillman with Raymond James. Your line is open. Terry Tillman – Raymond James: Yes, good afternoon, guys. Thanks for taking my questions. Pete, I guess, the first question is just around the license business in the fourth quarter. You gave a lot of color there, but, maybe, you can help us reconcile what is seemingly a pretty solid budget flush situation for many companies. And also assuming that if some of these large deals had slipped the retail, or part of retail focus, your sweet spot, I would think that they’d want to sign those in the quarter so they can get going on the implementations and be done before the holiday season in ’11. So can you maybe help us understand a little bit more on the weakness if there is any common corollaries between these deals that flipped?

Yes, sure, Terry. We’ll be happy to. It’s a great question. And we were disappointed, but the overall closed license revenue result in the fourth quarter. But, pleased frankly with the activity we had particularly in the Americas. The large deal activity level was quite good and we believe we have preference in many deals that just weren’t – we weren’t able to close in Q4. I guess one of the differences between Manhattan Associates and probably other companies that participate in the technology space and the software space is a majority of our deals are for our warehouse management software. And, Terry, as I think you know well, in many cases for larger deals in the WMS space, the overall capital requirement for clients is in many cases considerably greater than the software price they purchase from Manhattan. I’ll give you one example of a deal in the quarter, I can’t give you too many particulars, but we had one deal that we thought could close in Q4, that was more than $1 million in license revenue for Manhattan Associates. But, because its a well-known prospect is transforming their supply chain, the total capital required for their Board to approve the supply chain transformation program was closer to $50 million in total. And so – and that’s one example. They’re not always that dramatic, but that was certainly an example, that impacted us in Q4. And, in this current environment, I think people are taking their time before those kind of capital commitments. As you’ve noticed over the last couple of quarters, we’ve had good success in our mid-sized deals that generally don’t require that kind of a capital commitment. But in the larger deals, particularly the supply chain transformation deals, there is often a bigger capital commitment than just the commitment to Manhattan Associates. So while we were disappointed in the Q1 close rate, we were quite pleased with the activity level. And, as I suggested, pleased with the number of instances where we believe we’ve been chosen or preferred, and confident when the client is ready to make the decision to move forward and sign a contract, we will be the provider of choice. Terry Tillman – Raymond James: When we look at the top line growth guidance for 2011, and if I’m operating under an assumption that’s accurate that license revenue could be similar to, or at least in the ballpark of the total revenue growth, it sounds like large deals though will be an important swing factor, I guess, what gives you confidence in kind of 10%-ish type growth in license revenue. I mean is the pipeline for the larger deals and/or the medium-sized deals notably better or at least better than heading into 2010 the levels were?

Yes, actually, Terry, their pipe is quite strong, certainly compared to – heading into 2010. I’ll tell you the one challenge we have in some regards it’s larger than we’d like frankly, because of our – the timing of closing deals, we would have liked some of those deals in the pipeline have closed in Q4 and frankly Q3. Having said that, we’re pleased with the large deal activity in the pipeline as well as mid-sized deal. So we’re optimistic that activity level in our space is going to be good over the next couple of years, and the question becomes how much of that will close in the near term. Terry Tillman – Raymond James: Okay, I appreciate the color. And then, just one last question, I guess, just relates to – when the folks are moving to WMS on the platform, I know it’s still early and we’ve got a small sample size, three live and a couple more going live. I know it’s hard, because it’s just only about five so far customers. But any early signs of when they’re upgrading, clearly there is probably service revenue attached to it. But did you see with those customers, the conversation that was provoked in around other products add-on sales, and have you seen any kind of up-selling that has occurred with those first five and/or do you think that is the phenomena that will happen with, maybe, let’s say, the next wave of upgrades to the platform? Thank you.

Sure, Terry, it’s a very good question, thanks. It is, as you suggested, a little early to be drawing major conclusions. But I am quite optimistic about our ability to sell additional solutions to clients that move to the platform. We’ve had several of the early adopters of the platform. As mentioned, one of the key things that encourage them to move to the platform is their ability to get more of their supply chain solutions on their common technology stack. So I’m cautiously optimistic that will happen in the near term, but quite confident over the intermediate term that we’ll see significant additional activity because of the strength of our platform offering.

Your next question comes from the line of Yun Kim with Gleacher & Company. Your line is open. Yun Kim – Gleacher & Company: Thank you. Hi Pete, can you talk about just a overall – just quality of your sales force, maybe the turnover rate, if you had any? And then, also, the level of experience and the maturity level of your sales force. Do you feel comfortable with the level of sales experience that you have currently within your sales force right now?

Yes, Yun, sure. Be happy to answer that question. I would say – the first comment I would make is, I would certainly not draw any conclusion about our slight disappointment in our license revenue result in Q4, with the quality of our sales force. I’m very pleased with the strength and depth of our sales team. A couple of specifics to reinforce that, we probably have the most tenured experienced application software sales force in the world. The average tenure for our sales team is – with Manhattan Associates is about 10 years. Now, the reason that we have such good tenure and strength in our sales team is we do grow several of our sales associates up to the ranks of professional services. So our sales team have more skilled sales or experienced executives have in many cases worked for us for several years in things like professional services, customer services, product management, solution consultants, and have evolved into market leading sales reps. So we’ve had very, very low attrition this year in our sales team that have a lot of a grade domain knowledge and experience in our sales team, and I’m highly confident when customers are ready to putting to paper, a lot of that ink will be on Manhattan Associates contracts. Yun Kim – Gleacher & Company: Okay, good to hear, thanks. And then, in terms of your hiring plans for your services organization this year, can we expect the – obviously you mentioned that the demand is outpacing capacity right now, can we still expect Q1 to be the low point in terms of services margin for the year, even though you’re still hiring? And then, also, can you confirm that the services revenue in Q1 will be up sequentially?

Hi Yun, it’s Dennis Story. Of course, services revenue will be up sequentially. Just pretty typical of traditional trends and the company key four seasonal holiday period services revenues declined as clients are not doing implementations in their busy. So we’ll see a sequential increase there. In terms of margins, my full-year guidance was 53% to 54%. Typically, Q1 and – Q1’s pretty good margin wise, because you’re getting the ramp. Generally, Q4 is your lower services margin profile. Yun Kim – Gleacher & Company: Okay. And then, you mentioned that, in Q1, you expect the cost of services to be up five basis points.

Yes, that’s right. That’s right. Yun Kim – Gleacher & Company: Okay. So the question is would that be the low point for the year in terms of services margin?

No. Yun Kim – Gleacher & Company: Okay.

Q4 will be our low point. Yun Kim – Gleacher & Company: Okay, got it. Thank you, Dennis. And then, while I have you’re here, I want to make sure that I got the flow out of deferred revenue balance in Q1 and Q2 correct. You said you expect to see $700,000 in Q1 from that large deal that you closed in Q3.

Yes. Yun Kim – Gleacher & Company: Did you say – what?

The $700,000 will be – it will be recognized ratably over the five-year period of the contract, and that amortization will likely start in Q2 or that recognition. Yun Kim – Gleacher & Company: Okay, great, thanks.

And, just for clarification, Yun, that $700,000 was not the entire cash that client will pay us for software, that was the first payment and that was what Dennis is relating to, it was a larger deal than that, and that larger deal in total we recognized over five years. Yun Kim – Gleacher & Company: Okay, great. And then, what’s the $2.4 million of revenue that you also referred to within the deferred revenue balance that, then you said, you expect to start recognizing in Q2?

Yes, that’s – some clients, there is some business that we closed in 2010, with promised functionality that didn’t exist in the base software. So were prevented or precluded from recognizing revenue until we deliver that to the customers. And that will come sometime in Q2, and we’ve already factored that into our overall revenue guidance. Yun Kim – Gleacher & Company: So, the whole on that will be recognized in Q2 then?

It will begin in Q2. Yun Kim – Gleacher & Company: Begin in Q2. All right, great, thanks for the clarification. That’s it. Thanks.

Thanks Yun.

Your next question comes from the line of Mark Schappel with The Benchmark Company. Your line is open. Mark Schappel – The Benchmark Company: Hi, good evening.

Hi Mark. Mark Schappel – The Benchmark Company: Dennis, starting with you, I didn’t catch your comments regarding your 2011 operating expenses in your prepared remarks. I was wondering if you could just repeat those comments.

Yes, the – what we talked about is, is a 4% increase sequentially from Q4 2010 to Q1, which is pretty typically, you have your FICA, you have myriad promotion increases, we’ve got a 401(k) restatement, and then some of that’s partially offset by our bonus reset for the new year. Mark Schappel – The Benchmark Company: That’s only applicable to Q1 then.

That’s correct, that’s correct. Mark Schappel – The Benchmark Company: Okay. And then, also, on your tax comments, with respect – I think, Q1 you mentioned it was going to be 34.5%, is that just for Q1, or is that for the year?

No, we’re forecasting 34.5% for the year right now. Mark Schappel – The Benchmark Company: Okay, great. And, then, Pete, is it – moving on you, Pete –

And, Q1 as well, Mark. Mark Schappel – The Benchmark Company: Thank you. And, Pete, is it fair to assume that you have enough sales capacity for probably the next 12 months or so in your view?

Yes, the 66 in total I mentioned headcount that we’ve gotten about 56 of those quota carrying reps, I think is fully capable of delivering out our license revenue expectations for the year. Mark Schappel – The Benchmark Company: Okay, thanks. And, I guess, if I go back to a couple of quarters ago, there was a lot of comments regarding multichannel merchandizing, kind of, some of the changes there driving some of what – some of the demand in the WMS market in particularly. I was wondering if you’re still seeing that or if that’s still a factor of your business?

Sure, Mark. Yes, it is. It’s a big push of a lot of activity that we have going on within our sales channel at the moment. Very true in the Americas, but also becoming a bigger factor in Europe as well, and we’re optimistic that that will continue to grow in each of those markets, and ultimately also become a meaningful factor in Asia-Pac. We had a couple of nice deals close in Q4 that qualify in that mid-size range that the multi – our multi-channel expertise and solutions were – be competitive differentiator, separating ourselves with some competitors for those deals, so that is an important growth opportunity for us over the next couple of quarters and years. Mark Schappel – The Benchmark Company: Okay, and then finally, I think a couple of quarters ago, you came out with a product called FieldSCOUT, which was basically a mobile solution. And I was wondering if you could just give us an update on that product, and were there was any meaningful traction you’re getting in that yet?

Yes, yes, it’s still early in its evolution, Mark. So we really don’t have any market success that we point to at the moment, but we’re quite optimistic about some of our mobile technology abilities to help our customers turn their businesses into mobile supply chains, whether that’s store workers, warehouse workers, anyone within their supply chain to enable their supply chain to be more flexible, adaptable and that create a visibility. So we’re enthusiastic about FieldSCOUT and the way we can deploy that over the next couple of quarters and years. But it’s very early in its existence with Manhattan. Mark Schappel – The Benchmark Company: Thank you. That’s all from me.

Thanks Mark.

(Operator Instructions). And your next question comes from the line of Alan Weinfeld with Kern Suslow. Your line is open. Alan Weinfeld – Kern Suslow: Hi. Have –

Hi Alan.

Hello Alan. Alan Weinfeld – Kern Suslow: Hi guys. Glad to see you’ve had so many meetings with, hopefully, those large deals you’re talking about at the National Retail Federation, and also would like to really good job on the promotions. I know people aren’t on the conference hall, but I did talk to them earlier in the month and well deserved.

Great, thank you, Alan. We thought the National Retail Federation show was a great success for ourselves and optimistic that will help build real opportunities for us, but thanks for stopping by the booth while you were there. Alan Weinfeld – Kern Suslow: So I remember when your company – maybe updating myself – had 20% operating margins. Is that an unrealistic goal for the future or can we get back there in a few years when you say we’re going to have an economy that’s back to normal or growing say 3% instead of 1.5%?

Sure, sure. Alan, we’ve had a goal of getting to a 20% operating margin, three year goal of getting to a 20% operating margin that we continue to strive for. Dennis had mentioned earlier in his comments about our change in the way we publish adjusted earnings per share to exclude the impact of restricted stock. That adds about 2 percentage points to the adjusted operating margin, because we are going to continue to operate on an apples-to-apples basis that revises our three year goal from a 20% operating margin to a 22% operating margin goal. So we certainly think that’s possible and that’s what we’re trying to strive for. I will think if you’ve looked over the last couple of years, absent that major dip in macro economy, we’ve made good progress and we’re optimistic we’re on the right path to get to a 22%-ish operating margin in the next few years. Alan Weinfeld – Kern Suslow: And you’ve made some acquisitions in the past, in replenishment even some of that has gotten you closer to the inside of the store. I know you bought back some stock at, I think, attractive price, and it looks you’ve been authorized for another 50 million. But do you think there is also opportunity to get more inside the store where you clearly own the market as far out of the store as you can be. Is there too much competition in there? I don’t see Oracle or SAP as terrible competition in the store. What do you think about that with the $127 million of cash?

Thanks for asking that question, Alan. It’s a great question. We probably should have thought about including more comments in our prepared remarks. It was also a question that Mark alluded to in his question about our multichannel retail strategy, and that’s our ability to be able to help our clients do more wherever they’re distributing product from, whether their customers are buying online, shipping from a warehouse, buying online want to pickup at the store, buy online return to the store, any of those different permutations. The multichannel retail strategy is an important part of our competitive differentiator. And frankly, also, coming back to Mark’s question, FieldSCOUT, our mobility solution will give us additional capability to help store employees, help clients throughout the retail chain, so we’re quite excited about that, and very excited about our distributed order management solution that helps clients manage distribution of product through all of their different channels. So we certainly think we have a real opportunity to extend further into the supply chain out to the store shelf, and we’re making some important investments to be able to do that well. We haven’t made an acquisition. I think you know, Alan, in a few years, it’s not that we are not looking, we are trying, we are looking very hard for to find the best use of our cash to improve shareholder value. And if the opportunity present itself to make a strategically important acquisition, we’re very much inclined to do that. In the interim period of time, we have bought back shares to give our shareholders back from awards we’re getting from the market performance. And with the authorization from our Board this quarter, at $50 million, we’ll look for opportunities to continue to do that. But we’re excited about the possibilities for our company. We think we’re well positioned, we think the R&D investments we’ve made over the past couple of years are really paying off, and believe our competitive position gives us a great opportunity to capture share. Little disappointed that the Q4 license revenue was better than it turned out, but continue to be quite optimistic about our ability to drive a very strong financial performance and shareholder return over the next couple of years. Sorry folks, we’re running a little long this evening, we look forward to speaking with you in about 90 days. And if you have any questions, certainly reach out to Dennis and myself, we’ll be happy to grab you. But thanks very much for participating in our Q4 conference call. Look forward to speaking in 90 days. Thank you.

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.