Manhattan Associates, Inc. (MANH) Q4 2011 Earnings Report, Transcript and Summary

Good afternoon. My name is Jessica, and I will be your conference facilitator today. At this time, I'd like to welcome everyone to the Manhattan Associates' Fourth Quarter 2011 Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, January 31, 2012. I would now like to introduce Dennis Story, Chief Financial Officer of Manhattan Associates. Mr. Story, you may begin your conference.

Thank you, Jessica, and good afternoon, everyone. Welcome to Manhattan Associates' 2011 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're 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 in our annual report on Form 10-K for fiscal 2010 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.

Thanks, Dennis, and good afternoon, everyone. Overall, 2011 was a very successful year for Manhattan Associates. Financial results were good. Our competitive position improved. Customer satisfaction increased and we're well-positioned for the future. For the fourth quarter end of year, we posted double-digit revenue growth and considerably faster income growth. Dennis will go into the details in just a moment. Importantly, we posted software license revenue of $16.6 million in Q4, up 31% versus Q4 of 2010. After a disappointing first quarter this year, the license revenue over the final 3 quarters of the year, we posted 15% of license revenue growth. In Q4, we closed 5 deals with license revenue of $1 million or more. All 5 were in the United States. 4 of the 5 were with new customers and 4 of the 5 were retailers. All included our platform-based Warehouse Management system as well as other Manhattan solutions. In addition to purchasing our warehouse solution, 2 of the companies also purchased our Order Lifecycle Management solution to help drive their multi-channel retail businesses. Two purchased our Extended Enterprise Management solution to collaborate with their supply chain partners. And one also purchased our Transportation Management solution. All in all, we had a solid quarter closing large deals. Our competitive win rate for the year was strong. In head-to-head sales cycles against our major competitors, we won 75% of the time. In addition, we had a very successful year driving improvements in customer satisfaction and delivering innovative new software solutions. And I'll comment more on these areas following Dennis' financial review. As we look ahead, I believe we are well-positioned for 2012 and beyond. We're not expecting the global economy to improve much in 2012. But nonetheless, we're optimistic about our financial outlook for the year ahead. Dennis?

Thanks, Pete. I'm going to cover our non-GAAP results for Q4 and full-year 2011 and hit GAAP EPS performance then review our guidance for 2012 and then turn the call back to Pete for the business update. As you can see, we delivered solid Q4 and full-year financial performance, led by double-digit organic revenue growth with record operating profit and earnings per share for both adjusted and GAAP results. In a global macro environment that continues to struggle with growth recovery, our financial results reflect strong execution and demonstrate the power of acquiring market share through R&D investment in supply chain software innovation to serve our target markets. We posted Q4 total revenue of $83.5 million, increasing 17% over Q4 2010 on double-digit growth in license and services revenue of 31% and 17%, respectively. On a regional basis, Americas grew total revenue, 16%; EMEA, 21%; and APAC, 17% over Q4 of last year. Full-year 2011 total revenue of $329.3 million grew 11% despite flat year-over-year license revenue growth as services demand continues to expand. On a regional basis, Americas grew total revenue of 10%; EMEA, 19%; and APAC, 13% over full-year 2010. While cautious, we are continuing to experience solid activity in our target markets, and the demand environment continues to remain quite positive. On strong revenue and operating earnings leverage performance, we delivered record Q4 adjusted earnings per share of $0.60, representing 58% growth over prior year. Full-year 2011 adjusted earnings per share of $2.32 grew 47% over our 2010 full-year performance of $1.58. As mentioned in our prior 2011 earnings call, 2011 full-year adjusted EPS results include a one-time $2 million tax benefit, or $0.09 per share resulting from the release of a valuation allowance due to a change in India tax law. So apples to apples, excluding the India income tax benefit, 2011 adjusted EPS of $2.23 grew 41% over 2010. License revenue for the quarter totaled $16.6 million, up 31%, compared to the $12.7 million we delivered in Q4 2010. From a regional perspective, Americas posted license revenue of $14.7 million; EMEA, $1.2 million and APAC, $720,000. Our license performance continues to depend heavily on the number of relative value of large deals we close in any quarter, and as Pete mentioned, we had a solid Q4 with 5 $1-plus million dollar deals closed. With Q4 solid license performance, 2011 full-year license revenue totaled $54.2 million, essentially flat with 2010 license revenue of $54.5 million. Our weak Q1 2011 license revenue of $7.8 million masked a 15% year-over-year license growth rate over the last 3 quarters of 2011. We believe global economic swings continue to shape buying decisions and estimating sales cycles for large deals still remain somewhat less predictable than pre-2009. But overall, large-sized deal activity has been solid for the past 3 quarters. Q4 services revenue of $60.6 million grew 17% year-over-year and as previewed on our Q3 2011 call, was down 5% sequentially due to the seasonal holiday period. Full-year 2011 services revenue of $244.1 million increased 14% over 2010. And as you know, our services revenue is comprised of 2 distinct streams: Consulting and Maintenance. Consulting revenue for Q4 and full-year 2011 totaled $38.1 million and $156.8 million, respectively, growing 26% for Q4 and 19% full year over 2010 comparable periods. Consulting revenue growth year-over-year for the last 3 quarters of 2011 totaled 24% on strong demand, which continues to exceed our hiring pace for billable IT professional services personnel. We increased our global services headcount 20%, or 200 heads in 2011. About 60 of these heads were added in Q4 2011, and our Q1 2012 budgeted hiring plan is to add 100-plus personnel to better align billable capacity with demand and meet our 2012 growth objectives. Q4 2011 maintenance revenue totaled $22.6 million, increasing 3% over the prior year, and 2011 full-year maintenance revenue of $87.3 million grew 7% over 2010. 2011 license revenue, cash collections and retention rates of 90-plus percent contributed to the year-over-year growth. As a reminder, we recognize maintenance renewal on a cash basis. So the timing of cash collections can cause some inter-period lumpiness from quarter-to-quarter and maintenance revenue recognition. Consolidated services margins for the quarter were 55.9% compared to 56.5% in Q3 2011 and 52.3% in Q4 2010. As expected, Q4 margins were down from Q3 2011 due primarily to the Q4 seasonal holidays. For full-year 2012, we expect services margins to normalize into the 53.5% to 54.5% range as we continue to align billable capacity to support business book and capture additional pipeline opportunity, while maintaining customer satisfaction and avoiding burnout of our professionals through non-sustainable utilization. For Q1 2012, we expect services margins to be in the 52.5% to 53.5% range, reflecting the full cost of the 60 new hires in Q4 2011 and in an aggressive Q1 2012 hiring plan, aimed at adding 100-plus billable heads. The investment of on-boarding new staff in Q1 2012, combined with annual salary increases, which apply to all global employees on a January 1 cycle and seasonally high FICA payroll tax expense, will raise our cost of services sequentially from Q4 2011 to Q1 2012 by about 14%. With full-year services margins in the 53.5% to 54.5% range, we expect Q2 through Q4 services margins to increase as billability and utilization ramp for our Q1 hires. Now turning to operating earnings leverage. Through strong license and services revenue growth, exceptional services productivity and operating expense control, we delivered record Q4 adjusted operating income of $19.3 million and $70.4 million record full-year operating income. We closed out 2011 with full-year operating profit growth of 32% over 2010 and operating profit margin of 21.4%. As I mentioned in our Q3 call, our full-year performance exceeded our 2011 margin expansion objective of 100 basis points, or 19% and has marked 2 consecutive years of 300-plus basis point improvement. This acceleration reflects the confluence of 2 broad events. First, a multi-year recovery from the 2009 global macroeconomic collapse; and second, our commitment to investing in innovation through the downturn. In 2009, during the global economic collapse, we stayed the course with R&D investment in our platform-based strategy and in January 2010, we launched our Warehouse Management Solution on our supply chain process platform. As the global macro environment started to improve exiting 2009, our 2010 margin expansion of 300 basis points was largely driven by license revenue growth of 57%, representing a $20 million increase over 2009. In 2011, despite the license revenue being flat due to Q1 performance, strong services demand outstripped capacity contributing to significant 2011 earnings leverage, substantially driven by platform-based deals. I believe our win rates Pete discussed earlier offer further confirmation of the markets alignment with our platform-based strategy. Bottom line, we continue to be committed to operating margin expansion in 2012. But 300-plus basis points expansion annually is not sustainable. We are planning to deliver a full year 50 basis point improvement for 2012 just as we discussed in our previous earnings call. And while we remain cautiously optimistic about the 2012 global macro demand picture, we expect our 2012 full-year financial results will begin to normalize across license and services revenue growth and margin contribution to earnings leverage. For Q1 2012, we expect operating margins to be in the 19.5% to 20% range versus Q1 2011 operating margin of 14.5%. The improvement will largely be driven by license revenue growth, partially offset by aggressive hiring, primarily for services professionals and other sequential cost increases associated with annual compensation, FICA payroll taxes and full reinstatement of our 401(k) match program. We expect Q2 through Q4 operating margins to range between 22.5% and 23% adjusted for quarterly license and services revenue mix due to seasonality. Now onto other income. Other income, which includes net interest income, net gains or losses on asset disposals and the net impact of realized and unrealized foreign exchange gains or losses, was a positive $650,000 in Q4 2011 and a positive $1.9 million for full-year 2011. For the full year, interest income accounted for $1.1 million and FX gains, $800,000. Volatility in second-half foreign exchange rates resulted in a net foreign exchange gain impact totaling $0.03 in unexpected incremental EPS benefit for the year, as we do not forecast FX gains and losses. Consistent with prior years, we also do not budget for FX gains and losses and other income. So the 2011 $0.03 EPS benefit negatively impacts our 2012 adjusted EPS growth. Our 2012 interest income forecast is $500,000, down from 2011 on lower average cash balances. So in total, the 2012 decline in other income equates to a $0.05-drag on 2012 adjusted EPS growth. On taxes, our adjusted effective income tax rate for 2011 was 31.1%, which represents an underlying rate, effective rate of 34%, less discrete tax items we recorded during the year, including additional tax reserves in Q4 2011 for potential transfer pricing tax contingencies in certain international markets. For 2012, our effective tax rate estimate remains at 34%. So now I'm going to transition to diluted shares. We continue to efficiently manage our capital structure with our share buyback program, which has been highly accretive to our shareholders. For the quarter, diluted shares totaled 20.9 million shares, down from 21.125 million shares in Q3 2011, driven by 2011 cumulative share buyback activity net of option exercises. For the full year, we reduced our common shares outstanding 6%, buying back 3.6 million shares totaling $131 million, against option exercises of 2.1 million shares generating net cash proceeds of $53 million. In Q4, we repurchased 857,000 shares of Manhattan common stock totaling $37 million against option exercises of 856,000 shares, generating net cash proceeds of $22.5 million for a total buyback investment in Q4 of a net $15 million. You may recall in January 2010, our comp committee approved the redesign of Manhattan's long-term equity incentive plan, eliminating stock option awards in favor of 100% restricted stock grants. The objective was to optimize program performance, retention strength and manage program share usage to improve long-term equity overhang. At January 1, 2010, the company had $5.8 million option grants outstanding totaling 26% overhang on common shares outstanding. So since January 2010, option grants outstanding have declined 4.2 million options, or 72% primarily on option exercises of 3.7 million shares and option expirations of 500,000 shares, substantially lowering our option overhang to 8% of common shares with no earnings dilution to shareholders. Our buyback program mitigated about $0.50 of earnings dilution impact from these exercises, while achieving a cumulative net reduction of 9% in common shares outstanding over the past 2 years. And just as important, 100% of our buyback program was self-funded from operating cash flow and cash proceeds from option exercises. And on that note, last week, our Board approved raising our share repurchase authority limit to a total of $50 million. So for 2012, we are estimating full-year diluted shares of 21.1 million shares. We currently expect Q1 2012 diluted shares to be about 21 million shares even, with the balance of the year rising to an average of about 21.150 million diluted shares per quarter, that's Q2 through Q4. Our estimate does not assume any common stock repurchases and depends on a number of variables including stock price, option exercises, forfeitures and share repurchases, which can significantly impact our estimates. So that covers adjusted results. On GAAP earnings per share, Q4 2011 GAAP diluted earnings per share of $0.50 increased 72% over $0.29 in Q4 2010. 2011 GAAP diluted earnings per share of $2.09 was a record year, significantly higher than 2010's previous record of $1.25. Results for the 12 months of 2011 include a positive impact of $0.12 per share for the recovery of an auction rate security investment, which had been impaired in a prior period and the $2 million India tax benefit, or $0.09 per share discussed as part of the adjusted results commentary. Overall, our GAAP performance was driven by the strength of adjusted operating results. A detailed description of GAAP and non-GAAP adjustments can be found in the supplemental schedules reconciling selected GAAP to non-GAAP measures that we published with our earnings release today. Turning to cash flow. For the quarter, we delivered cash flow from operations of $14.8 million, bringing our year-to-date total to $55.8 million, an increase of 12% over 2010 cash flow from operations of $50 million. Capital expenditures were $1.4 million in the quarter and $5.1 million year-to-date. And for 2012, we estimate CapEx to be about $6 million to $8 million. Our balance sheet continues to support long-term strategic flexibility and stability with cash and investments at December 31, 2011, totaling $99 million compared to $102 million at the end of Q3 2011 and $127 million at December 31, 2010. Our cash-to-asset ratio is 38% and we have $0 in debt. The company has never borrowed money in its history. The net decrease in cash from December of 2010 is attributable to our share buyback investment. That closes the chapter on 2011. Now we'll cover our 2012 guidance and then hand off to Pete for the business update. So I gave a lot of color commentary throughout the 2011 coverage. But for 2012, we expect global macroeconomic growth to continue to be sluggish with some risk of potential deceleration in global activity in the first half. Year of sovereign debt, Washington gridlock and projected advanced economy growth rates of 1.5% will keep unemployment rates high, elongating, unfortunately, a multi-year global recovery cycle. For our targets, we are cautiously optimistic that investment activity is going to continue. We expected 2011 with 3 solid quarters -- or we exited 2011 with 3 solid quarters of momentum and so far sales activity continues to be quite positive. Given the macro, our 2012 growth thesis is similar to what we put forth at the start of 2011. We expect to grow top line revenue in the low-double digits, 10% to 12%, with operating profit growth of 13% to 15%, while expanding operating margin 50 basis points to 21.9% and adjusted EPS increasing 15% to 17% on an apples-to-apples basis, excluding 2011's $0.09 nonrecurring India tax benefit and $0.05 of other income declined associated with FX gains and lower interest income impacts that I discussed previously. So a few details. For 2012 revenue, we are forecasting to grow total revenue at roughly 2x the market growth rate, which we pegged at about 5%. Our current annual guidance for total revenue is to deliver full year $363 million to $370 million, which represents 10% to 12% growth. Overall, we expect our full-year total revenue split to be about 48% in the first half, 52% in the second half. We're assuming Q1 2012 total revenue growth to be about 20% over a modest Q1 2011 comp. We expect to return to a more historical seasonal pattern with Q1 and Q3 license revenue being lower than Q2 and Q4 license revenue, and services revenue lower in Q4, as always, due to seasonal holidays. So let me repeat that Q1, we are assuming Q1 2012 total revenue growth to be about 20% over a modest Q1 2011 comp. For 2012 adjusted earnings per share, we expect to deliver $2.50 to $2.55, which compared against $2.32 that we closed out 2011, represents an 8% to 10% growth over $2.32. Excluding India's one-time income tax benefit of $0.09 and the $0.05 of other income decline, we expect underlying EPS growth to be between 15% and 17%. Beginning of the year salary increases for our worldwide staff, full reinstatement of our 401(k) match and headcount additions to support continued strong services demand, we expect Q1 2012 EPS to decline sequentially from Q4. But similar to revenue, we expect full-year EPS to have about the same first half, second half spread of 48%, 52%. With the exception of Q1 2012 being down sequentially from Q4 2011, we expect the remaining 3 quarters of 2012 to average adjusted EPS of about $0.66-plus-or-minus, reflecting typical patterns for license and services quarterly seasonality. So that covers adjusted EPS. For 2012 GAAP earnings per share, we expect to deliver $2.22 to $2.27, representing 6% to 9% growth over 2011 GAAP diluted EPS of $2.09. On an apples-to-apples basis, excluding the $0.21 of EPS combined benefit of the 2011 auction rate security recovery and the India income tax benefit, our GAAP EPS growth range is 18% to 21%. Now you might notice on a full-year basis, there's a $0.28 EPS difference between GAAP and non-GAAP adjusted EPS. This represents the impact of our equity-based compensation program, which is options plus restricted stock. We expect that EPS impact to be spread evenly across the year at $0.07 per quarter. And as I mentioned, the company is no longer granting options. This is just the runout of previously granted option expense. Regarding adjusted operating margins, we continue to focus on year-over-year adjusted operating margin expansion. And as I said earlier, we're targeting a 50 basis point improvement over 2011. Q1 2012 operating margins are expected to be in the 19.5% to 20% range versus Q1 2011 operating margin of 14.5%. The improvement will largely be driven by license revenue growth, partially offset by the aggressive hiring, primarily for billable services professionals and other sequential cost increases that I've discussed earlier. We expect Q2 through Q4 operating margins to range between 22.5% and 23%, adjusted for quarterly license and services revenue mix due to seasonality. So that about covers the gamut. And now I'll turn the call back to Pete for the business update.

Thanks, Dennis. For those of you that have followed us for years, you'll recall that each year on the first call, Dennis provides ample financial data. The goal there is to help you with your models for the upcoming year. Hopefully, you found that information quite useful. So let me jump into my comments. First, a bit of color on the deals we closed in the fourth quarter. As I mentioned in my opening comments, we closed 5 large deals in the quarter, 4 with new customers. Overall, half of our Q4 license revenue was with new customers. For the year, we also derived 50% of license revenue from new customers. We're quite pleased to be able to capture half of our license fees from new customers. That's quite a bit higher than most participants in the application software space, and I believe this metric is an important leading indicator of a successful future for our company. While we're thrilled to sell additional solutions to our existing customers, we're even more encouraged by our ability to win new business with platform-based solutions, which generates new opportunities for cross-selling additional solutions to these customers in the future. Overall, about 70% of license fees in the quarter were tied to our Warehouse Management solution and 30% to our other solutions. For the year, about 60% of license fees were tied to WMS. 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 revenue for both the quarter and the year. We saw a strong success in the retail vertical in Q4 and for the full year. After delaying some projects in earlier years, retailers are investing again for long-term strategic advantage and we're participating in that cycle. The push to integrate stores, web, mobile and other customer channels in what many are calling an omni-channel strategy, plays well with our advanced capabilities in our solutions suite. One of our solutions particularly designed to support the omni-channel strategy, our Order Lifecycle Management Solution, had license revenue growth of more than 50% in 2011. We had a successful quarter adding new clients and expanding our relationships with existing clients. So far, license wins with new customers that have permitted us to share their names include Alliant Techsystems, Charming Shoppes, Freight Mark, Jeanswest, Karmaloop, Schneider Electric Industries, Shanghai Boshiwa Group, Stella & Dot, S.F. Express and The Container Store. Expanding partnerships with existing customers include A.N. Deringer, Belk, Brown Shoe, Chanel, Coach, Fasteners for Retail, GSI Commerce, Heineken, Holiday Classic, Jack Link's Beef Jerky, Legrand, Leisure Arts, MARR Russia, Mulberry Group, MWI Veterinary Supply Co., LeSaint Logistics, Northern Tool, Performance Team Freight Systems, Petco, Simplehuman, Sara Lee, Southern Wine and Spirits, Speed Global and The Jones Group. We're quite pleased to have so many new customers and great brands extending their relationships with Manhattan. Our key goal for 2011 was to expand the number of live clients with our platform-based Warehouse Management solution. As you know, we launched this solution at early 2010. At the end of 2010, we had 2 live clients at a total of 3 sites. We're very happy to report that at the end of 2011, we had 12 clients live at 28 sites. Moreover, today we have more than 20 additional clients at various stages of the implementation process for this solution. We're quite encouraged by our success in this area. Including all of our solutions, for the quarter, we had more than 60 customer sites go live with our software and for the year, about 300 successes. Dennis mentioned in his comments, our Services business posted very strong financial results in 2011. I suggest that even more important than the strong financial results delivered by our teams was the continued high marks achieved for customer satisfaction. For the year, we invested more than $40 million in research and development. And because we house about 2/3 of our R&D team in India where costs are lower, we're able to dedicate over 600 people, or about 1/3 of our overall staff to R&D. I'm quite pleased that in all product areas, we delivered new, more robust, more efficient solutions to our markets in 2011. I believe our significant investment in our supply chain process platform suite of solutions clearly distinguishes us from all other competitors. For 2012, we plan to once again invest more than $40 million in R&D as we push to further distance ourselves from all other solution providers. At the end of year, we had a little more than 2,100 employees around the globe, that's about 50 more than at the end of Q3 and just over 200 more than at the end of 2010. Essentially, all of the headcount growth during the quarter and the year was in our professional services group. We finished the year with 63 people in Sales and Sales Management, with 54 of those quota-carrying sales reps. That's down 2 sales reps from Q3 and down 4 from Q4 2010. The decline in the quarter and the year was in Europe and Asia. We're looking to add about 10 sales reps this year with the majority in the Americas. Now turning our sights to 2012, we remain cautiously optimistic. Our pipelines are substantial and active and we expect to maintain our competitive win rate. Moreover, we recently completed our 2012 sales kickoff meeting and the team's enthusiasm is quite high. However, potentially offsetting our momentum and our optimism, Gartner recently conducted a survey of global CIOs and concluded that IT spending in 2012 will be about flat with 2011. In addition, a couple of other enterprise software companies reported challenges closing deals at the end of last year. So that raises some concerns. Nonetheless, we expect to post another strong financial year in 2012. As we did in 2011, we remain focused on delighting our customers, delivering market-leading innovations in our software and extending our sustainable competitive advantage through our platform-based approach to supply chain excellence. Operator, we'll now take questions.

[Operator Instructions] Your first question comes from the line of Terry Tillman with Raymond James. Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division: And one question for you, Dennis. I didn't catch it earlier. I wasn't writing fast enough. Other income for 2012, I think you said the EPS effect of it being lower of $0.05, but can you tell me the absolute dollar number we should be assuming for other income?

$500,000 equally across quarters. Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division: Okay. And then in terms of the 60 services people that you hired in the fourth quarter, I know the challenge has been keeping up with the demand. But how do that 60 compare to what the plan was? And then furthermore, 100 hiring in first quarter, I mean that seems aggressive. How good do you feel about that go?

Yes. Terry, 60 was about in line with what we had planned. We would have liked to be able to hire more people in Q4, but our expectation was something along those lines. In terms of the 100 for Q1, that is a large number, obviously larger than the 60 in Q4. We're optimistic we'll be able to make a big dent in that 100. One of the benefits we have in January, we added quite a few recent college grads -- December grads that began their careers at Manhattan in January so we're off to a good start towards that 100. But we still have quite a bit of wood to chop over the balance of the next 2 months. We'll be working very hard all year long to continue to be diligent about the type of people we hire, the capability of those people, to build continued strength in our Services business. So we believe we're on a solid track to be able to add to staff, much as we did in 2011 where we added 200 people in Services. In total, we think we're on track to be able to have a similarly successful year in 2012. Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division: Okay. Well, Pete, and to keep you on the spot, in terms of the 5 deals of $1 million-plus in license value, that seems like the most in quite some period of time. Either you were just providing us additional color on some of the details and the additional products they license beyond WMS, or maybe it's a more recent phenomena driven by platform. So I guess, what I'm curious is with those 5 deals over $1 million, is the average selling price of those deals tending to be larger than million-dollar deals in the past because there's multiple modules more often involved than in the past? Or am I putting words in your mouth?

Yes. No, Terry, I would suggest they were comparable to what they've been in the past. One of the reasons we highlighted the 5 deals and the additional products, we're quite excited about winning 5 $1 million-plus platform Warehouse Management deals. As I mentioned in my comments, 4 were with new clients. Particularly excited, 3 of the 5 were replacing legacy systems so that whole WMS refresh cycle is powerful to get people who built the WMS systems in the '80s and '90s to 2000's to move to a package solution. So we're excited about that, that 2 were competitive takeaways to older WMS providers. But the key point in pointing out that 5 were all WMS platform-based. We believe there is a real momentum building for Manhattan's platform suite of solutions, and to be able to start off with our global leading WMS solution, I believe, gives us a lot of room to sell additional solutions over time. And we started off with a nice additional benefit. Each one of those 5 picked up at least one other Manhattan application. So we're quite excited about the potential to do that. As I mentioned in my prepared comments, we're very excited about our success in the retail area, where multi-channel or omni-channel is very important. 2 of the 5 picked up our Order Lifecycle Management solution as part of the initial buy as well so we're enthusiastic about that direction. Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division: Yes. Well, and as it relates to -- you're talking about some cautionary language in the Gartner IT spending assumptions and some mixed messages from other enterprise software vendors, yet we see your fourth quarter result. We see your guidance. I guess, really, as it relates the first quarter, what gives you confidence on really that swing factor which is the license revenue? Is it just the extent of the pipeline or early indications, because that seems like that's the real wild card, as it always is I guess?

Sure. That's always the -- the license revenue is always the component that swings the strength of the quarter. As we've mentioned the last couple of quarters, Dennis had in his comments, last 3 quarters on average, we've been growing 15% over the prior year. And we've had a nice pipeline of deals for quite some time. And as I suggested, momentum is building. We feel very good about the activity level, the momentum in the quarter. There can always be a macroeconomic shock that could cause some challenges for us. But at the moment, the sales teams are excited. Momentum is solid and we feel good about the deal pipeline for Q1, feel good about the large deal opportunity as well as the mid-sized deal opportunity, as well.

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

So can you share with us what is your secret in your success on landing these 7 secret deals with new customers, which typically are more difficult to do than with existing customers? I think your success with new customers so far this year has been the key driver behind your success this year. Is the pipeline for large deals skewed towards new customers for fiscal year '12? And then also, how much -- I think you mentioned just now that some of those deals were legacy replacement deals. How much of your deals are legacy replacement deals in your pipeline?

Yun, so I think one of the key reasons why we're having good success -- I mentioned this on the last call. We've noticed over the past couple of quarters, our win rate has improved noticeably over the past couple of quarters. And I believe it's all tied back to the significant $250 million cumulative investment we've made over the past 5 years or so to develop the next generation of supply chain solutions on a common technology platform. I think that has a number of great benefits to the marketplace. I think that message, the integrated suite of solution message resonates well with folks that have been building their own solutions for many of these supply-chain applications over the years. And I think the opportunity to both get a higher customer satisfaction level, as well as a total cost of ownership, is giving us a real opportunity to compete well in our market space. One of the things that we're quite excited about is the markets we serve continue to wrestle with new challenges. I mentioned omni-channel in earlier comments. But continued stress on globalization, cost efficiencies and so forth continue to put additional focus on supply-chain optimization and we think that is certainly helping the pipelines that we deal with. And the energy folks are investing around supply chain. And I do think the key critical difference between our success at the moment and maybe the previous year or 2 all resonates around our long-term investment in research and development and bringing forward to the marketplace innovative next-generation solutions.

Your next question comes from the line of Alan Weinfeld with David Securities.

I was just curious. Have you guys benefited from a term that I heard a few weeks ago at the NRF called show-rooming by a lot of customers, where Amazon has given a 5% discount. If you'd take a picture of any product in a department store, even the discount store and they beat that price and -- by 5% even, which is a substantial thing. And I think it really helped Amazon and helped the whole multi-channel thing kind of woke up a lot of retailers who maybe were asleep at the switch in the fourth quarter. And maybe are starting to talk to you guys who, if they didn't get the whole multi-channel thing, it was only 5% or at the top 10% of the revenue. Next season, it's going to be double or triple that, if they want to compete with everyone who's online because their stores are turning into a "showroom." What do you think of that concept?

Yes. Well, look, I think, Alan, we clearly benefit by that broad category of the need for retailers and those that ship to retail to have an integrated customer plan. So showrooming is one factor that is certainly part of that and Amazon and Best Buy is usually the example that most folks talk about where that really became a problem for Best Buy where shoppers were using Best Buy as a showroom but buying from Amazon at a discount. But that whole concept of trying to have that omni-channel, that integrated customer experience, buy online, pick-up in store; buy online, return to store; ship from store, those capabilities are all, I believe, as you rightly pointed out, important imperatives for the entire retail consumer goods industries. Now this is not something that just popped up in the last 24 hours or so. This is something that's been building over the last several years and we've invested for many years in our Order Lifecycle Management solution particularly targeted to those business needs, as well as the integrated platform solution that can combine some of the requirements for the omni-channel with the ability to execute in an optimized fashion to deliver those customer experiences with very high customer satisfaction and improving operating margins. So little question in my mind that we certainly are benefiting from that focus on improving the experience across all channels. I certainly expect that will continue to be a top-of-mind topic throughout the industry, and I would believe that's going to contribute to success for Manhattan Associates in 2012.

And another question, not to name any names but there's another company talking at the same time that pre-announced the exact opposite results you had and talked about kind of freezing up of budgets as they said retailers saw markdowns did really build as the quarter came to the close. And I guess from your results, you didn't see that at all. I guess, the answer is clear. Going into the first quarter that your pipeline is as strong as ever and you didn't have any "frozen" anything, that you're concerned about in the last week or 2 in the quarter. And possibly, the best thing that happened is Manugistics and i2 went somewhere and possibly during the last 7 or 8 quarters, you've really eaten some of the bulk of their business. Is that true?

Yes, Alan. As you can imagine, I do think that company and Manhattan are different companies with different factors affecting their performance. For one, we had very nice success in Q4 with our Warehouse Management solution and they do not compete in that space. So that certainly can be part of the answer, but I think they're probably in better position to answer why their results were what they were. I'm certainly very upbeat about Manhattan's results and the opportunities we have going forward. But certainly believe that the activity level from Manhattan is solid and we didn't see that hesitation in Q4. Now the flip side to that, Oracle saw it and Oracle is pretty influential company. So we do take that with great seriousness and working doubly hard to make sure that we work through our deal flow in Q1. Operator, we have time for one last question.

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

Pete, you mentioned that some of the large deals in Q4 were driven by legacy replacement deals. I'm not sure you talked about this particular trend before. But it sounds like a low-hanging fruit opportunity. Is that reflected in your sales pipeline?

I'm sorry, yes, you did ask that before, Yun. And I passed by that question. A couple of things. I know one of the things that has had us excited about the potential of our market space for several years, when you listen to most of the forecast for the market, they project spends with companies like Manhattan and our competitors but they exclude the money invested by companies to support legacy systems. Most estimate legacy spent to be equal to the spend on package software. So we've been optimistic for quite a period of time that the replacement of older systems that are supported in house with the advanced capabilities like ours, and others, would be quite compelling. We do have quite a bit of legacy system replacement opportunity in our pipeline and we're quite excited about that. In addition, we do have some pretty good competitive replacement opportunities in the pipeline. And that kind of motivates us as well. But there's some pretty good balance in the pipeline to both replace legacy systems and take some market share directly from competitors.

Okay, great. And Dennis, sales and marketing costs can be much lower than what I was expecting. Can you give us some insight into what drove that, especially given a strong license revenue performance in the quarter? Was there any one-time item that drove the cost down or not?

Yes, not at all. Actually, they came in about where we expected them to come in, Yun. So from a quality of earnings point of view, a very solid quarter up and down across all expense lines.

Okay. And then, Pete, it's been a while since you have done a major acquisition or any acquisition for that matter. Can you give us any update on terms of acquisition strategy going forward? For instance, given your success with your new customers, are you open to making some acquisitions just simply to acquire new customer base to sell into? Or do you continue to be focused around complementary products and such?

Yes. Our strategy there, Yun, is unchanged. We would look to acquire only complementary solutions. We believe there's a real space for companies to roll up supply chain assets but that's not Manhattan Associates. Our intent is to continue to be a strategic solution provider, adding complementary functionality in an integrated technology plan and would look to acquire companies that fit that description. Not a whole lot of mouth there, as you well know, but we continue to look and we would love to be able to find additional ways to improve shareholder value and if one of those ways is an important strategic acquisition, we'd be quite open-minded to pursuing that. But it would be consistent with our strategy of the past couple of years, product expansion within the supply chain space with complementary technologies. And thank you everyone else for joining us. We look forward to speaking with you again in about 90 days. Have a good night. So long.

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