Manhattan Associates - 10-Q quarterly report FY

 

 

(Exact Name of Registrant as Specified in Its Charter)

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares of the Registrant’s class of capital stock outstanding as of July 29, 2009, the latest practicable date, is as follows: 22,509,449 shares of common stock, $0.01 par value per share.

 

 

          The accompanying unaudited condensed consolidated financial statements of Manhattan Associates, Inc. and its subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, these condensed consolidated financial statements contain all normal recurring adjustments considered necessary for a fair presentation of the Company’s financial position at June 30, 2009, the results of operations for the three and six months ended June 30, 2009 and 2008 and cash flows for the six months ended June 30, 2009 and 2008. The results for the three and six months ended June 30, 2009 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the Company’s audited consolidated financial statements and management’s discussion and analysis included in the Company’s annual report on Form 10-K for the year ended December 31, 2008.

          The accompanying condensed consolidated financial statements include the Company’s accounts and the accounts of its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

          The Company’s revenue consists of revenues from the licensing and hosting of software, fees from implementation and training services (collectively, “professional services”), plus customer support and software enhancements, and sales of hardware and other revenues (other revenues consists of reimbursements of out-of-pocket expenses incurred in connection with its professional services). All revenue is recognized net of any related sales taxes.

          The Company recognizes license revenue under Statement of Position No. 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended by Statement of Position No. 98-9, “Software Revenue Recognition, With Respect to Certain Transactions” (“SOP 98-9”), promulgated by the American Institute of Certified Public Accountants, specifically when the following criteria are met: (1) a signed contract is obtained; (2) delivery of the product has occurred; (3) the license fee is fixed or determinable; and (4) collection is probable. SOP 98-9 requires recognition of revenue using the “residual method” when (a) there is vendor-specific objective evidence of the fair values of all undelivered elements in a multiple-element arrangement that is not accounted for using long-term contract accounting; (b) vendor-specific objective evidence of fair value does not exist for one or more of the delivered elements in the arrangement; and (c) all revenue-recognition criteria in SOP 97-2, other than the requirement for vendor-specific objective evidence of the fair value of each delivered element of the arrangement, are satisfied. For those contracts that contain significant customization or modifications, license revenue is recognized using contract accounting.

          The accounting related to license revenue recognition in the software industry is complex and affected by interpretations of the rules which are subject to change. Judgment is required in assessing the probability of collection, which is generally based on evaluation of customer-specific information, historical collection experience and economic market conditions. If market conditions decline, or if the financial condition of our customers deteriorates, the Company may be unable to determine that collectibility is probable, and the Company could be required to defer the recognition of revenue until the Company receives customer payments.

          The Company’s services revenue consists of fees generated from professional services and customer support and software enhancements related to the Company’s software products. Fees from professional services performed by the Company are generally billed on an hourly basis, and revenue is recognized as the services are performed. Professional services are sometimes rendered under agreements in which billings are limited to

contractual maximums or based upon a fixed-fee for portions of or all of the engagement. Revenue related to fixed-fee based contracts is recognized on a proportional performance basis based on the hours incurred on discrete projects within an overall services arrangement. Project losses are provided for in their entirety in the period in which they become known. Revenue related to customer support services and software enhancement is generally paid in advance and recognized ratably over the term of the agreement, typically 12 months.

          Hardware and other revenue is generated from the resale of a variety of hardware products, developed and manufactured by third parties, that are integrated with and complementary to the Company’s software solutions. As part of a complete solution, the Company’s customers periodically purchase hardware from the Company in conjunction with the licensing of software. These products include computer hardware, radio frequency terminal networks, radio frequency identification (“RFID”) chip readers, bar code printers and scanners and other peripherals. Hardware revenue is recognized upon shipment to the customer when title passes. The Company generally purchases hardware from the Company’s vendors only after receiving an order from a customer. As a result, the Company does not maintain significant hardware inventory.

          In accordance with the Financial Accounting Standard Board’s (“FASB’s”) Emerging Issues Task Force (“EITF”) Issue No. 01-14, “Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred” (“EITF No. 01-14”), the Company recognizes amounts associated with reimbursements from customers for out-of-pocket expenses as revenue. Such amounts have been classified to hardware and other revenue. The total amount of expense reimbursement recorded to revenue was $1.9 million and $3.8 million for the three and six months ended June 30, 2009, respectively and $3.4 million and $6.4 million for the three and six months ended June 30, 2008, respectively.

          Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”) establishes a fair value hierarchy disclosure framework that prioritizes and ranks the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is impacted by a number of factors, including the type of asset or liability and their characteristics. This hierarchy prioritizes the inputs into three broad levels as follows:

          The Company’s investments in marketable securities consist principally of debt instruments of state and local government agencies and U.S. corporate commercial paper. These investments are categorized as available-for-sale securities and recorded at fair market value, as defined by SFAS No. 157. Investments with maturities of 90 days or less from the date of purchase are classified as cash equivalents; investments with maturities of greater than 90 days from the date of purchase but less than one year are generally classified as short-term investments; and investments with maturities of greater than one year from the date of purchase are generally classified as long-term investments. Unrealized holding gains and losses are reflected as a net amount in a separate component of shareholders’ equity until realized. For the purposes of computing realized gains and losses, cost is determined on a specific identification basis.

          The Company’s long-term investments consist of corporate or U.S. government debt instruments with maturities between one year and five years. At June 30, 2009, the Company’s cash balance was $30.8 million and the Company’s cash equivalent and investments balance totaled $60.0 million. $88.0 million of its total cash and investments is liquid. The remaining investments totaling $2.8 million are invested in auction rate securities with original maturities greater than one year. Previously, auctions were held for these securities that reset their yield

every 7 to 35 days. During 2008 and the first half of 2009 however, auctions for these securities failed to attract sufficient buyers, resulting in the Company continuing to hold these securities. Accordingly, the Company began classifying these securities as long-term investments in marketable securities in the consolidated balance sheet due to uncertainty surrounding the timing of a market recovery. In determining the fair values of auction rate securities, the Company considered the credit worthiness of the counterparty, estimates of interest rates, expected holding periods, and the timing and value of expected future cash flows. The Company uses quoted prices from active markets which are classified at level 1 as a highest level observable input in the disclosure hierarchy framework as defined by SFAS No. 157 for all other available-for-sale securities. The $2.8 million of auction rate securities held by the Company at June 30, 2009 were issued by state or regional educational loan authorities and are collateralized by federally insured student loans. These investments have high credit ratings, and the Company intends and has the ability to hold these securities until maturity or until redeemed. However, due to liquidity concerns rather than creditworthiness, the Company has recorded an unrealized loss of $0.2 million as of June 30, 2009 for the temporary decline in the fair value of these investments. The unrealized loss is included as a separate component of shareholders’ equity and in total comprehensive income. The Company will continue to evaluate the fair value of its investments in auction rate securities each reporting period for a potential other-than-temporary impairment.

          The following table set forth the assets and liabilities carried at fair value measured on a recurring basis at June 30, 2009 (in thousands):

          During the three months ended June 30, 2009 and 2008, the Company granted options to purchase 20,050 shares and 32,600 shares of common stock, respectively. The Company recorded stock option expense of $1.0 million and $1.4 million during the three months ended June 30, 2009 and 2008, respectively. During the six months ended June 30, 2009 and 2008, the Company granted options to purchase 573,075 shares and 621,336 shares of common stock, respectively. The Company recorded stock option expense of $2.4 million and $2.7 million during the six months ended June 30, 2009 and 2008, respectively.

          A summary of changes in outstanding options for the six months ended June 30, 2009 is as follows:

          The Company also granted 6,681 and 10,864 shares of restricted stock during the three months ended June 30, 2009 and 2008, respectively. The Company recorded restricted stock expense of $0.7 million and $0.9 million during the three months ended June 30, 2009 and 2008, respectively. The Company granted 189,252 and 198,571 shares of restricted stock during the six months ended June 30, 2009 and 2008, respectively. The Company

recorded restricted stock expense of $1.6 million and $1.7 million during the six months ended June 30, 2009 and 2008, respectively.

          A summary of changes in unvested shares of restricted stock for the six month ended June 30, 2009 is as follows:

          The Company’s effective tax rate was 32.5% and 34.75% for the six months ended June 30, 2009 and 2008, respectively. The reduction in the effective tax rate is principally due to the mix of foreign profits to U.S. profits and a tax benefit associated with a foreign exchange loss on the repatriation of cash from a foreign subsidiary.

          The Company adopted the provisions of FASB Interpretation No 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), on January 1, 2007. For the six month period ended June 30, 2009, there were no material changes to unrecognized tax benefits. Further, there were no material changes to interest and penalties for the six month period. There has been no change to the Company’s policy that recognizes potential accrued interest and penalties to unrecognized tax benefits within its global operations in income tax expense.

          The Company conducts business globally and, as a result, files income tax returns in the United States Federal jurisdiction and in many state and foreign jurisdictions. The Company is no longer subject to US Federal or significant state, local or non-US jurisdiction income tax examinations for the years before 2005.

          Comprehensive income includes net (loss) income, foreign currency translation adjustments and unrealized gains and losses on investments that are excluded from net income and reflected in shareholders’ equity.

          The following table sets forth the calculation of comprehensive income (in thousands):

          Basic net (loss) earnings per share is computed using net (loss) income divided by the weighted average number of shares of common stock outstanding (“Weighted Shares”) for the period presented. Diluted net (loss)

earnings per share is computed using net (loss) income divided by the sum of Weighted Shares and common equivalent shares (“CESs”) outstanding for each period presented using the treasury stock method.

          The following is a reconciliation of the net (loss) income and share amounts used in the computation of basic and diluted net (loss) earnings per common share:

          Weighted average shares issuable upon the exercise of stock options that were not included in the calculation of diluted earnings per share for the three and six months ended June 30, 2008 were 3,515,818 and 3,816,752, respectively because they were anti-dilutive. However, all outstanding options and shares of unvested restricted stock were anti-dilutive for the three and six months ended June 30, 2009 because the Company recorded a net loss in these periods.

          From time to time, the Company may be involved in litigation relating to claims arising out of its ordinary course of business. Many of the Company’s installations involve products that are critical to the operations of its clients’ businesses. Any failure in a product could result in a claim for substantial damages against the Company, regardless of its responsibility for such failure. Although the Company attempts to limit contractually its liability for damages arising from product failures or negligent acts or omissions, there can be no assurance that the limitations of liability set forth in the Company’s contracts will be enforceable in all instances. The Company is not presently involved in any material litigation. However, it is involved in various legal proceedings. The Company believes that any liability that may arise as a result of these proceedings will not have a material adverse effect on its financial condition, results of operations or cash flows. The Company expenses legal costs associated with loss contingencies as such legal costs are incurred.

          The Company operates its business in three geographical segments: the Americas (North America and Latin America), Europe, Middle East and Africa (“EMEA”) and Asia Pacific (“APAC”). The information for the periods presented below reflects these segments. All segments derive revenue from the sale and implementation of the Company’s supply chain execution and planning solutions. The individual products sold by the segments are similar in nature and are all designed to help companies manage the effectiveness and efficiency of their supply chain. The Company uses the same accounting policies for each operating segment. The Chief Executive Officer and Chief Financial Officer evaluate performance based on revenue and operating results for each region.

          The Americas segment charges royalty fees to the EMEA and APAC segments based on software licenses sold by those operating segments. The royalties, which totaled approximately $0.4 million and $1.0 million for the three months ended June 30, 2009 and 2008, respectively, and $0.7 million and $2.2 million for the six months ended June 30, 2009 and 2008, respectively, are included in cost of revenue in EMEA and APAC with a corresponding reduction in the Americas cost of revenue. The revenues represented below are from external customers only. The geographical-based costs consist of costs of personnel, direct sales and marketing expenses, and general and administrative costs to support the business. There are certain corporate expenses included in the Americas region that are not charged to the other segments including research and development, certain marketing and general and administrative costs that support the global organization and the amortization of acquired developed technology. Included in the Americas costs are all research and development costs including the costs associated with the Company’s India operations.

          The following table presents the revenues, expenses and operating (loss) income by reporting segment for the three and six months ended June 30, 2009 and 2008 (in thousands):

          The Company’s services revenues, which consist of fees generated from professional services and customer support and software enhancements related to its software products, for the three and six months ended June 30, 2009 and 2008 are as follows (in thousands):

          License revenues related to the Company’s warehouse and non-warehouse product groups for the three and six months ended June 30, 2009 and 2008 are as follows (in thousands):

          During the quarter ended June 30, 2009, the Company committed to and initiated plans to reduce its workforce by approximately 140 positions along with other expense reduction initiatives to realign its capacity based on the revenue outlook for 2009. This action was based on continued deterioration of the global macro-economic environment in the first quarter as reflected by downward revisions by most economists of Global GDP growth rates, which resulted in lower than planned first quarter 2009 license revenue results and a revised revenue

outlook for the remainder of 2009. As a result of this initiative, the Company recorded a pre-tax restructuring charge of $3.8 million ($2.6 million after-tax or $0.12 per fully diluted share) in the second quarter of 2009. The restructuring charge primarily consists of employee severance and outplacement services. In the first quarter of 2009, the Company recorded additional employee severance expense of $63,000 pre-tax, or $42,000 after-tax, related to the restructuring action taken in the fourth quarter of 2008. The restructuring charge is classified in “Restructuring charge” in the Company’s Condensed Consolidated Statements of Operations. The Company estimates that the majority of related payments will be completed by the end of 2009.

          The following table summarizes the segment activity in the restructuring accrual for the three and six months ended June 30, 2009:

          The balance at June 30, 2009 is included in “Accrued compensation and benefits” and “Accrual and other liabilities” in the Company’s Condensed Consolidated Balance Sheets. The majority of the remaining balance is expected to be paid during 2009.

          In June 2009, the FASB issued SFAS No. 168, The “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles. SFAS No. 168 replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles, and establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and nonauthoritative. The FASB Accounting Standards Codification (the “Codification”) will become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other nongrandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. SFAS No. 168 is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. The Company will begin to use the new guidelines and numbering system prescribed by the Codification when referring to GAAP in the third quarter of fiscal 2009. As the Codification is not intended to change or alter existing GAAP for public companies, it will not have any impact on the Company’s consolidated financial statements.

          In May 2009, the FASB issued SFAS No. 165, Subsequent Events. SFAS No. 165 is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, SFAS 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS No. 165 is effective for fiscal years and interim periods ended after June 15, 2009. The Company adopted this standard effective June 15, 2009 and has evaluated any subsequent events through the date of this filing. The adoption of SFAS 165 did not have an impact on its consolidated results of operations or consolidated financial position.

          In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R) will significantly change the accounting for business combinations. Under SFAS No. 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141(R) will change the accounting treatment for certain specific acquisition-related items including expensing acquisition-related costs as incurred and expensing restructuring costs associated with an acquired business. SFAS No. 141(R) also includes a substantial number of new disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is to be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The Company expects that SFAS No. 141(R) will have an impact on its accounting for future business combinations once adopted but the extent of the impact is dependent upon the number, size, and complexity of acquisitions that the Company makes in the future.

          In September 2006, FASB issued SFAS No. 157, Fair Value Measurements, which establishes a framework for reporting fair value and expands disclosures required for fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. However, in February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157,” which delayed for one year the applicability of SFAS No. 157’s fair-value measurements to non-financial assets and liabilities recognized or disclosed at fair value on a non-recurring basis. The Company partially adopted SFAS No. 157 on January 1, 2008 related to all financial assets and liabilities and non-financial assets and liabilities recognized or disclosed at fair value on a recurring basis. The Company has adopted SFAS No. 157 for non-financial assets and liabilities measured at fair value on a nonrecurring basis at January 1, 2009 and will continue to apply its provisions prospectively from January 1, 2009. The application of SFAS No. 157 for non-financial assets and liabilities did not have a significant impact on earnings nor the financial position in the first or second quarter 2009.

          Certain statements contained in this filing are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to statements related to plans for future business development activities, anticipated costs of revenues, product mix and service revenues, research and development and selling, general and administrative activities, and liquidity and capital needs and resources. When used in this report, the words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” and similar expressions are generally intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this quarterly report. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. For further information about these and other factors that could affect our future results, please see “Risk Factors” in Item 1A of our annual report on Form 10-K for the year ended December 31, 2008. Investors are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. The following discussion should be read in conjunction with the condensed consolidated financial statements for the three and six months ended June 30, 2009 and 2008, including the notes to those statements, included elsewhere in this quarterly report (the “Condensed Consolidated Financial Statements”). We also recommend the following discussion be read in conjunction with management’s discussion and analysis and consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2008.

References in this filing to the “Company,” “Manhattan,” “Manhattan Associates,” “we,” “our,” and “us” refer to Manhattan Associates, Inc., our predecessors, and our wholly-owned and consolidated subsidiaries.

          We are a leading developer and implementer of supply chain software solutions that help organizations optimize their supply chain operations from planning through execution. We call our portfolio of supply chain software solutions Manhattan SCOPE^TM(Supply ChainOptimization from Planning through Execution). Built on a common Supply Chain Process Platform, SCOPE combines Planning and Forecasting, Inventory Optimization, Order Lifecycle Management, Transportation Lifecycle Management and Distribution Management to enable full-range supply chain optimization. Our business model is singularly focused on the development and implementation of complex supply chain software solutions that are designed to optimize supply chain effectiveness and efficiency for our customers. We have three principal sources of revenue:

          We manage our business based on three geographic regions: Americas (North America and Latin America), EMEA (Europe, Middle East and Africa), and APAC (Asia Pacific). Geographic revenue is based on the location of the sale. Our international revenue was approximately $15.3 million and $25.3 million for the quarters ended June 30, 2009 and 2008, respectively, which represents approximately 26% and 28% of our total revenue for the quarters ended June 30, 2009 and 2008, respectively. Our international revenue was approximately $28.9 million and $44.2 million for the first half of 2009 and 2008, respectively, which represents approximately 24% and 25% of our total revenue for the six months ended June 30, 2009 and 2008, respectively. International revenue includes all revenue derived from sales to customers outside the United States.

          At June 30, 2009, we employed 1,871 employees worldwide, of which 965 employees are based outside the United States. Of the 965 international employees, approximately 75%, or nearly 750 employees, are located in our India Development Center. We have offices in Australia, China, France, India, Japan, the Netherlands, Singapore and the United Kingdom, as well as representatives in Mexico and reseller partnerships in Latin America.

          Global macro economic trends, technology spending and supply chain management market growth are important barometers for our business. Historically, about 75% of our total revenue is generated in the United States and 25% from our International operation. In addition, industry analysts estimate that approximately two-thirds of every supply chain software solutions dollar invested is spent in the United States; consequently, the health of the U.S. economy has a meaningful impact on our financial results.

          On July 8, 2009, the International Monetary Fund (“IMF”) provided a World Economic Outlook Update revising its growth estimates for 2009 and 2010 upward approximately ¹/2 percentage point stating “the global economy is beginning to pull out of a recession unprecedented in the post-World War II era, but stabilization is uneven and recovery is expected to be sluggish. Financial conditions have improved more than expected, owing mainly to public intervention, and recent data suggest that the rate of decline in economic activity is moderating, although to varying degrees among regions. Despite these positive signs the global recession is not over, and the recovery is expected to be slow, as financial systems remain impaired, support from public policies will gradually diminish, and households in countries that suffered asset price busts will rebuild savings.” The world economy is now projected to shrink 1.4% in 2009 and grow 2.5% in 2010. Overall, advanced economies are now forecasted to shrink 3.8% in 2009. The U.S. economy is now projected to contract 2.6% in 2009 and grow 0.8% in 2010.

          In July 2009, leading Supply Chain Industry Analyst, AMR Research (“AMR”), published its Global Enterprise Application Market Sizing Report, 2008 — 2013 and for the Supply Chain Management Market in 2009,

AMR is forecasting negative growth of 6% and is expecting positive, albeit conservative growth in 2010. For software application markets in general, AMR is forecasting a 2% to 6% decline in 2009 based on budget lockdowns and general reluctance by corporations to spend.

          Given the current global economic recession, we believe companies are seeking to protect their balance sheets by reducing debt and hoarding cash, which in turn drives capital spending such as information technology spending. Consequently, our timing of closing software transactions has been significantly impacted as evidenced in our license revenue trends since the second half of 2008, which in turn affects our revenue and earnings per share. In the first half of 2009, our license revenues declined 76% compared to the first half of 2008 as demand was well below our plans.

          We sell technology-based solutions with total pricing, including software and services, in many cases exceeding $1.0 million. Reductions in capital budgets of our customers and prospective customers have had an adverse impact on our ability to sell our solutions largely as a result of the global economic recession. The deterioration in the current business climate within the United States and geographic regions in which we operate, continued delays in capital spending, and the timing of deals closed will continue to have a material adverse impact on our business and our ability to compete and is likely to further intensify competition in our already highly competitive markets.

           License revenue. License revenue, a leading indicator of our business, is primarily derived from software license fees that customers pay for supply chain solutions. In the three and six months ended June 30, 2009, license revenue totaled $4.1 million, or 7% of total revenue, with gross margins of 74.9% and $9.0 million, or 8% of total revenue, with gross margins of 72.8%, respectively. Our typical license revenue percentage mix of new to existing customers is approximately 50/50. However, due to lower license revenue for the quarter ended June 30, 2009, the percentage mix was approximately 30/70 of new to existing customers, respectively.

          License revenue growth is influenced by the strength of general economic and business conditions and the competitive position of our software products. Our license revenue generally has long sales cycles of which the timing of the closing of a few large license transactions can have a material impact on our quarterly license revenues, operating profit and earnings per share. For example, $1.0 million of license revenue in 2009 equates to approximately $0.03 of diluted earnings per share impact.

          Our software solutions are singularly focused on the supply chain planning and execution markets, which are intensely competitive, rapidly consolidating and characterized by rapid technological change. We are a market leader in the supply chain management software solutions market as defined by industry analysts such as AMR, ARC and Gartner. Our goal is to extend our position as a leading global supply chain solutions provider by growing our license revenues faster than our competitors. We do anticipate facing increased competition in the future from ERP and SCM applications vendors and business application software vendors that may broaden their solution offerings by internally developing or by acquiring or partnering with independent developers of supply chain planning and execution software. Increased competition could result in price reductions, fewer customer orders, reduced gross margins and loss of market share.

          Services revenue. Our services business consists of professional services (consulting and training) and customer support services and software enhancements. In the second quarter of 2009, our services revenue totaled $49.4 million, or 85% of total revenue, with gross margins of 56.9%. For the six months ended June 30, 2009, our services revenue totaled $100.3 million, or 84% of total revenue, with gross margins of 55.6%. Professional services accounted for approximately 60% of total services revenue and approximately 50% of total revenue in the second quarter and the first half of 2009. When comparing our operating margins to other technology companies, our operating margin profile can be lower due to our large services revenue mix as a percentage of total revenue. While we believe our services margins are very strong, they do lower our overall operating margin as services margins are lower than license revenue margins.

          At June 30, 2009, our consulting services business totaled approximately 900 employees, nearly 50% of our total employees worldwide. Our professional services organization provides our customers with expertise and assistance in planning and implementing our solutions. To ensure a successful product implementation, consultants assist customers with the initial installation of a system, the conversion and transfer of the customer’s historical data onto our system, and ongoing training, education and system upgrades. We believe our professional services enable customers to implement our software rapidly, ensure the customer’s success with our solution, strengthen our customer relationships, and add to our industry-specific knowledge base for use in future implementations and product innovations.

          Although our consulting services are optional, the majority of our customers use at least some portion of these services for the implementation and ongoing support of our software solutions. Consulting services are typically rendered under time and materials-based contracts with services typically billed on an hourly basis. Professional services are sometimes rendered under fixed-fee based contracts with payments due on specific dates or milestones.

          Typically, our consulting services lag license revenue by several quarters, as implementation services are performed after the purchase of the software. Services revenue growth is contingent upon: 1) license revenue growth, which is influenced by the strength of general economic and business conditions and the competitive position of our software products, 2) customer multiple site implementation timelines and upgrades , which is influenced by the strength of general economic and business conditions specifically impacting our customers, 3) competitive exposure to offshore providers and other consulting companies, 4) price pressure due to competition and general economic and business conditions, and 5) fluctuations in currency rates . All of these factors potentially create the risk of pricing pressure, fewer customer orders, reduced gross margins and loss of market share.

          For customer support services and software enhancements (CSSE), we offer a comprehensive program that provides our customers with software upgrades, when and if available, that offer additional or improved functionality and technological advances incorporating emerging supply chain and industry initiatives. We offer 24 hour customer support every day of the year plus software upgrades for an annual fee that is paid in advance.

          Our CSSE revenues totaled $18.6 million and $37.2 million in the three and six months ended June 30, 2009, respectively. CSSE represents approximately 40% of services revenue and approximately 30% of total revenue in the second quarter and the first half of 2009. The growth of CSSE revenues is influenced by: 1) new license revenue growth, 2) annual renewal of support contracts, 3) increase in customers through acquisitions, and 4) fluctuations in currency rates. Substantially all of our customers renew their annual support contracts. Over the last three years, our annual renewal rate of customers subscribing to comprehensive support and enhancements has been greater than 90%. CSSE revenue is generally paid in advance and recognized ratably over the term of the agreement, typically 12 months. CSSE renewal revenue is not recognized unless payment is received from the customer.

          Hardware and other revenue. Our hardware and other revenues totaled $4.9 million representing 8% of total revenue with gross margins of 14.1%, and $9.9 million representing 8% of total revenue with gross margin of 16.4%, in the three and six months ended June 30, 2009, respectively. In conjunction with the licensing of our software, and as a convenience for our customers, we resell a variety of hardware products developed and manufactured by third parties. These products include computer hardware, radio frequency terminal networks, RFID chip readers, bar code printers and scanners, and other peripherals. We resell all third-party hardware products pursuant to agreements with manufacturers or through distributor-authorized reseller agreements pursuant to which we are entitled to purchase hardware products at discount prices and to receive technical support in connection with product installations and any subsequent product malfunctions. We generally purchase hardware from our vendors only after receiving an order from a customer. As a result, we do not maintain significant hardware inventory.

           We intend to continue to invest significantly in research and development (R&D), which historically has averaged about $0.14 of every revenue dollar, to provide market leading solutions that help global manufacturers, wholesalers, distributors, retailers and logistics providers successfully manage accelerating and fluctuating demands as well as the increasing complexity and volatility of their local and global supply chains. Our research and development expenses for the three and six months ended June 30, 2009 were $9.2 million and $19.4 million, respectively, and for the three and six months ended June 30, 2008 were $11.7 million and $24.4 million, respectively. At June 30, 2009, our R&D organization totaled approximately 660 employees, located in the U.S. and India, representing about 35% of our total employees worldwide.

          We will continue to focus our R&D resources on the development and enhancement of supply chain software solutions. We offer what we believe to be the broadest solution portfolio in the supply chain solutions marketplace, to address all aspects of planning and forecasting, inventory optimization, order lifecycle management, transportation lifecycle management and distribution management. The underpinning of our product portfolio is the services-based Supply Chain Process Platform, which provides the foundation for ensuring that all our solutions reside on a common architecture, leverage common master and transaction data and utilize the same business services to accomplish tasks common to multiple solutions, enabling our customers to lower their total cost of ownership while optimizing their supply chain effectiveness and efficiency.

          We also plan to continue to provide enhancements to existing solutions and to introduce new solutions to address evolving industry standards and market needs. We identify further enhancements to existing solutions and opportunities for new solutions through our customer support organization, as well as through ongoing customer consulting engagements and implementations, interactions with our user groups, association with leading industry analysts and market research firms, and participation on industry standards and research committees. Our solutions address the needs of customers in various vertical markets, including retail, consumer goods, food and grocery, logistics service providers, industrial and wholesale, high technology and electronics, life sciences and government.

           For the six months ended June 30, 2009 and 2008, we generated cash flow from operating activities of $23.5 million and $27.1 million, respectively. Our cash and investments at June 30, 2009 totaled $90.8 million, with no debt on our balance sheet. We currently have no credit facilities. During the past three years, our primary uses of cash have been funding of R&D investment, operations to drive earnings growth and repurchases of common stock.

          At June 30, 2009, we had approximately $15.0 million remaining in share repurchase authority. In 2009, we anticipate that our priorities for the use of cash will be similar to prior years, with our first priority being continued investment in product development and profitably growing our business to extend our market leadership. We will continue to evaluate acquisition opportunities that are complementary to our product footprint and technology direction. We will also continue to weigh our share repurchase options against cash for acquisitions and investing in the business. We do not anticipate any borrowing requirements in 2009 for general corporate purposes.

          The following table summarizes our consolidated results for the three and six months ended June 30, 2009 and 2008.

          We manage our business based on three geographic regions: the Americas, EMEA, and APAC. Geographic revenue information is based on the location of sale. The revenues represented below are from external customers only. The geographical-based costs consist of costs of personnel, direct sales and marketing expenses, and general and administrative costs to support the business. There are certain corporate expenses included in the Americas region that are not charged to the other segments including research and development, certain marketing and general and administrative costs that support the global organization and the amortization of acquired developed technology. Included in the Americas costs are all research and development costs including the costs associated with the Company’s India operations. During the three and six months ended June 30, 2009 and 2008, we derived the majority of our revenues from sales to customers within our Americas region. The following table summarizes revenue and operating profit by region:

          The results of our operations for the second quarter of 2009 and 2008 are discussed below.

          Our revenue consists of fees generated from the licensing and hosting of software, fees from professional services and customer support and software enhancements, and sales of computer equipment.

          License revenue. License revenue decreased $15.2 million, or 79%, in the quarter ended June 30, 2009 over the same period in the prior year primarily driven by the current global economic recession which has decreased sales and lengthened sales cycles in the global market in 2009. Our Americas, EMEA and APAC license revenues decreased $12.9 million, $1.4 million and $1.0 million, respectively, compared to the same period in the prior year.

          Typically, our license sales mix across our product suite is approximately 60% of sales in the Company’s historically preeminent warehouse management solutions and 40% in non-warehouse management solutions. However, the license revenue in the quarter ended June 30, 2009, the percentage mix was approximately 70/30 of warehouse management solutions to non-warehouse management solutions, respectively. Our warehouse management solutions decreased $7.6 million, or 72%, in the second quarter of 2009 compared to the same quarter in the prior year and non-warehouse management solutions decreased $7.7 million, or 87%, compared to the same quarter in the prior year.

          Services revenue. Services revenue decreased $12.9 million, or 21%, in the second quarter of 2009 compared to the same quarter in the prior year due to a $12.1 million and $0.8 million decrease in revenue from professional services and customer support and software enhancements, respectively, primarily due to decreased license sales over the past four quarters. Services revenue for the Americas, EMEA and APAC segments decreased $9.8 million, $2.6 million and $0.5 million, respectively, in the second quarter of 2009 compared to the second quarter of 2008.

          Over the last four quarters, our services revenue decline has primarily been impacted by declining license revenues and delayed or suspended multiple site implementations and/or upgrades, which we believe is due to the global economic recession which in turn has severely impacted our customer’s capital investment levels, prioritization and timing. Additionally, over the past several years, our services revenue growth and margins have been affected by some pricing pressures. We believe that the pricing pressures are attributable to global macroeconomic conditions and competition.

          Hardware and other. Hardware sales decreased by $2.4 million, or 45% to $3.0 million in the second quarter of 2009 compared to $5.4 million in the second quarter of 2008. Sales of hardware are largely dependent upon customer-specific desires, which fluctuate from quarter to quarter. Reimbursements for out-of-pocket expenses are required to be classified as revenue and are included in hardware and other revenue. Reimbursements by customers for out-of-pocket expenses were approximately $1.9 million and $3.4 million for the quarters ended June 30, 2009 and 2008, respectively.

          Cost of license. Cost of license consists of the costs associated with software reproduction; hosting services; funded development; media, packaging and delivery, documentation and other related costs; and royalties on third-party software sold with or as part of our products. Cost of license decreased by $0.6 million, or 37%, in the second quarter of 2009 compared to the same quarter of 2008.

          Cost of services. Cost of services consists primarily of salaries and other personnel-related expenses of employees dedicated to professional and technical services and customer support services. The $8.5 million, or 29% decrease in cost of services in the quarter ended June 30, 2009 was principally due to (i) a $5.8 million decrease in employee-related costs such as salary, benefits and payroll taxes resulting from an 18% decrease in the number of personnel dedicated to the delivery of professional services due to the headcount reduction initiative in the second quarter of 2009 and fourth quarter of 2008, (ii) a $1.9 million decrease in bonus expense due to headcount reductions as well as lower achievement of performance based compensation, and (iii) a $0.9 million decrease in travel expenses due to fewer service projects.

          Services gross margin increased 4.8 percentage points to 56.9% in the second quarter of 2009 from 52.1% in the second quarter of 2008. The increase in margin is primarily attributable to the decrease in professional services costs in the second quarter of 2009 driven by our actions to lower headcount to align capacity with demand.

          Cost of hardware and other. Cost of hardware decreased $1.6 million to approximately $2.3 million in the second quarter of 2009 from approximately $3.9 million in the second quarter of 2008. Cost of hardware and other includes out-of-pocket expenses to be reimbursed by customers of approximately $1.9 million and $3.4 million for the quarters ended June 30, 2009 and 2008, respectively.

          Research and development. Research and development expenses primarily consist of salaries and other personnel-related costs for personnel involved in our research and development activities. Research and development expenses for the quarter ended June 30, 2009 decreased $2.5 million, or 22%, compared to the same quarter of the prior year. This decrease was mainly attributable to the decrease of $1.4 million in employee-related

costs such as salary, benefits and payroll taxes resulting from lower headcount and to a $0.9 million decrease in bonus expense caused by the decline in total revenue and earnings per share.

          Our principal research and development activities have focused on the expansion and integration of new products acquired and new product releases and expanding the product footprint of our supply chain optimization solutions called Supply Chain Optimization from Planning throughExecution. The Manhattan SCOPE Platform provides not only a sophisticated service-oriented architecture-based application framework, but a platform that facilitates integration with Enterprise Resource Planning (ERP) and other supply chain solutions. For the quarters ended June 30, 2009 and 2008, we did not capitalize any research and development costs.

          Sales and marketing. Sales and marketing expenses include salaries, commissions, travel and other personnel-related costs and the costs of our marketing and alliance programs and related activities. Sales and marketing expenses decreased by $5.7 million, or 38% in the second quarter of 2009 compared to the same quarter of the prior year. This decrease was mainly attributable to a reduction in headcount of 24% and decline in license revenue which resulted in (i) a $2.4 million decrease in employee-related costs such as salary, benefits, payroll taxes and stock compensation expense, (ii) a $2.4 million decrease in bonus and commission, and (iii) a $1.0 million decrease in travel expense.

          General and administrative. General and administrative expenses consist primarily of salaries and other personnel-related costs of executive, financial, human resources, information technology and administrative personnel, as well as facilities, legal, insurance, accounting and other administrative expenses. The $1.6 million, or 18% decrease in general and administrative expenses during the quarter ended June 30, 2009 was primarily attributable to (i) a decrease of $0.7 million of employee-related expenses such as salary benefits and payroll taxes, and (ii) a $0.4 million decrease in bonus expense caused by the decline in total revenue and earnings per share.

          Depreciation and amortization. Depreciation expense amounted to $2.3 million for both quarters ended June 30, 2009 and 2008. Amortization of intangibles associated with various acquisitions totaled $0.7 million and $0.9 million for the quarters ended June 30, 2009 and 2008, respectively.

          Restructuring charge. During the second quarter of 2009, we committed to and initiated plans to reduce our workforce by approximately 140 positions to realign our capacity with demand forecasts. As a result of this action, we recorded employee severance and outplacement services of $3.8 million in the second quarter of 2009.

          Operating loss for the second quarter of 2009 of $0.4 million decreased by $13.7 million, or 103%, as compared to operating income of $13.3 million in the second quarter of 2008. Operating margins decreased 15.4% to an operating loss margin of 0.7% for the second quarter of 2009 from operating profit margin of 14.7% for the second quarter of 2008. Operating income and margins declined primarily due to lower license revenues and the restructuring charge of $3.8 million in the current year quarter.

     Other (expense) income, net. Other (expense) income, net principally includes interest income and foreign currency gains and losses. Other (expense) income, net decreased $1.1 million in the second quarter of 2009 compared to the second quarter of 2008 due to the fluctuation of the U.S. dollar relative to foreign currencies and the decrease in interest income. We recorded a net foreign currency loss of $0.5 million and a net foreign currency gain of $0.3 million during the three months ended June 30, 2009 and 2008, respectively. The foreign currency gains and losses principally resulted from gains or losses on intercompany balances with subsidiaries and foreign-denominated accounts receivable due to the fluctuation of the U.S. dollar relative to other foreign currencies, principally the Indian Rupee, the British Pound, and the Euro. Interest income decreased $0.3 million for the second quarter of 2009 from $0.4 million for the second quarter of 2008 due to the lower average interest rate earned in the second quarter of 2009. The weighted-average interest rate earned on cash and investment securities during the three month periods ended June 30, 2009 and 2008 was less than 1% in both periods.

and the decrease in interest income. We recorded a net foreign currency loss of $0.5 million and a net foreign currency gain of $0.3 million during the three months ended June 30, 2009 and 2008, respectively. The foreign currency gains and losses principally resulted from gains or losses on intercompany balances with subsidiaries and foreign-denominated accounts receivable due to the fluctuation of the U.S. dollar relative to other foreign currencies, principally the Indian Rupee, the British Pound, and the Euro. Interest income decreased $0.3 million for the second quarter of 2009 from $0.4 million for the second quarter of 2008 due to the lower average interest rate earned in the second quarter of 2009. The weighted-average interest rate earned on cash and investment securities during the three month periods ended June 30, 2009 and 2008 was less than 1% in both periods.

     Income tax (benefit) provision. Our effective income tax rate was 33.01% and 34.75% for the quarters ended June 30, 2009 and 2008, respectively. The reduction in the effective tax rate is principally due to the mix of foreign profits compared to U.S. profits and a tax benefit associated with a foreign exchange loss on the repatriation of cash from a foreign subsidiary.

     The results of our operations for the first half of 2009 and 2008 are discussed below.

     License revenue. License revenue decreased $28.6 million, or 76% to $9.0 million in the six months ended June 30, 2009 over the same period in the prior year, primarily driven by the current global economic recession which has decreased sales and lengthened sales cycles in the global market in 2009 as customers and prospects have constrained capital spending. Our Americas, EMEA and APAC license revenue decreased $22.5 million, $4.5 million, and $1.6 million respectively, compared to the same period in the prior year.

     Typically, our license sales mix across our product suite is approximately 60% of sales in the Company’s historically preeminent warehouse management solutions and 40% in non-warehouse management solutions.

However, the license revenue in the six months ended June 30, 2009, the percentage mix was approximately 65/35 of warehouse management solutions to non-warehouse management solutions, respectively. Our warehouse management solutions decreased $13.8 million, or 70%, in the first half of 2009 compared to the same period in the prior year and non-warehouse management solutions decreased $14.8 million, or 82%, compared to the same period in the prior year.

     Services revenue. Services revenue decreased $21.9 million, or 18%, in the first half of 2009 compared to the same period in the prior year principally due to a $21.5 million, or 25%, decrease in professional services revenue due to decreased license sales and a $0.4 million decrease in revenue from customer support and software enhancements. The Americas, EMEA and APAC segments decreased $16.8 million, $4.2 million, and $0.9 million, respectively, for the first half of 2009 compared to the first half of 2008.

     Hardware and other. Hardware sales decreased by $6.5 million, or 52%, to $6.1 million in the first half of 2009 compared to $12.6 million in the first half of 2008. Sales of hardware are largely dependent upon customer-specific desires, which fluctuate from year to year. Reimbursements for out-of-pocket expenses are required to be classified as revenue and are included in hardware and other revenue. For the six months ended June 30, 2009 and 2008, reimbursements by customers for out-of-pocket expenses were approximately $3.8 million and $6.4 million, respectively.

     Cost of license. Cost of license consists of the costs associated with software reproduction; hosting services; funded development; media, packaging and delivery, documentation and other related costs; and royalties on third-party software sold with or as part of our products. Cost of license decreased 12%, or $0.3 million, in the first half of 2009 compared to the first half of 2008, primarily due to a 76% decrease in license revenue.

     Cost of services. Cost of services consists primarily of salaries and other personnel-related expenses of employees dedicated to professional and technical services and customer support services. Cost of services decreased $16.7 million, or 27%, in the six months ended June 30, 2009 compared to the same period in the prior year principally due to (i) a $10.8 million decrease in employee-related costs such as salary, benefits and payroll taxes resulting from an 15% decrease in the number of professional services personnel, due to headcount reduction initiatives in fourth quarter 2008 and second quarter 2009 to align capacity with demand, (ii) a $3.5 million decrease in bonus expense caused by headcount reductions as well as lower achievement of performance based compensation, and (iii) a $2.0 million decrease in travel expenses due to fewer services projects.

     Services gross margin increased 5.7 percentage points to 55.6% in the first half of 2009 from 49.9% in the first half of 2008. The increase in services margin is attributable to the decrease in professional services costs in the current year driven by our actions to lower headcount to align capacity with demand.

     Cost of hardware and other. Cost of hardware decreased $4.9 million to approximately $4.5 million in the first half of 2009 from approximately $9.4 million in the first half of 2008. Cost of hardware and other includes out-of-pocket expenses to be reimbursed by customers of approximately $3.8 million and $6.2 million for the six months ended June 30, 2009 and 2008, respectively.

     Research and development. Research and development expenses primarily consist of salaries and other personnel-related costs for personnel involved in our research and development activities. The decrease of $5.0 million, or 20%, in research and development expenses for the first half of 2009 compared to the same period of the prior year was mainly attributable to (i) a decrease in employee-related costs such as salary, benefits and payroll taxes of $2.8 million resulting from lower headcount and other expense reduction initiatives, (ii) bonus expense of $1.5 million caused by the decline in total revenue and earnings per share, and (iii) reduction in travel expense of $0.4 million.

     Sales and marketing. Sales and marketing expenses include salaries, commissions, travel and other personnel-related costs and the costs of our marketing and alliance programs and related activities. The $9.1 million, or 32%, decrease in sales and marketing expenses in the six months ended June 30, 2009 compared to the same period of 2008 was attributable to a reduction in headcount of 21% and decline in license revenue which resulted in: (i) a $4.0 million decrease in employee-related costs such as salary, benefits, payroll taxes and stock compensation expense, (ii) a $3.9 million decrease in bonus and commission expense, and (iii) a $1.6 million decrease in travel expenses. These decreases were partially off-set by an increase of $0.6 million in marketing programs.

     General and administrative. General and administrative expenses consist primarily of salaries and other personnel-related costs of executive, financial, human resources, information technology and administrative personnel, as well as facilities, legal, insurance, accounting and other administrative expenses. The net decrease of $2.7 million, or 15%, in general and administrative expenses during the six months ended June 30, 2009 compared to the six months ended June 30, 2008 was primarily attributable to a $0.8 million decrease in employee-related expense and a $0.9 million reduction in bonus expense due to the decline in total revenue and earnings per share.

     Depreciation and amortization. Depreciation expense amounted to $4.7 million for both of the six months ended June 30, 2009 and 2008. Amortization of intangibles associated with various acquisitions totaled $1.5 million and $1.7 million for the six months ended June 30, 2009 and 2008, respectively.

     Restructuring charge. During the second quarter of 2009, we committed to and initiated plans to reduce our workforce by approximately 140 positions to realign our capacity with demand forecasts. As a result of this action, we recorded employee severance expense and outplacement service fees of $3.8 million related to the restructuring action taken in the second quarter of 2009. We also recorded additional employee severance expense of $63,000 in the first quarter of 2009 related to the restructuring action taken in the fourth quarter of 2008.

     Income from Operations. Operating income for the six months ended June 30, 2009 decreased by $22.2 million based on a consolidated revenue decline of 33%. Operating margins were 0.2% and 12.5% for the first half of 2009 and 2008, respectively. Operating income in the Americas, EMEA and APAC segments for the six months ended June 30, 2009 decreased by $17.9 million $2.4 million and $1.9 million, respectively.