MANHATTAN ASSOCIATES INC - Quarter Report: 2010 June (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

     [Mark One]

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-23999

MANHATTAN ASSOCIATES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Georgia (State or Other Jurisdiction of Incorporation or Organization)		58-2373424 (I.R.S. Employer Identification No.)
2300 Windy Ridge Parkway, Suite 1000 Atlanta, Georgia (Address of Principal Executive Offices)		30339 (Zip Code)

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). Yes o No o

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.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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 28, 2010, the latest practicable date, is as follows: 22,074,740 shares of common stock, $0.01 par value per share.

 

 

MANHATTAN ASSOCIATES, INC.
FORM 10-Q
Quarter Ended June 30, 2010

TABLE OF CONTENTS

		Page
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009			3
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009 (unaudited)			4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009 (unaudited)			5
Notes to Condensed Consolidated Financial Statements (unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.			28
Item 4. Controls and Procedures.			28
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.			29
Item 1A. Risk Factors.			29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			29
Item 3. Defaults Upon Senior Securities.			30
Item 5. Other Information.			30
Item 6. Exhibits.			30
Signatures.			31
EX-31.1
EX-31.2
EX-32

PART I

Item 1. Financial Statements.

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

		June 30,				December 31,
		2010				2009
		(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents		$	117,663			$	120,217
Accounts receivable, net of allowance of $6,379 and $4,943 in 2010 and 2009, respectively			46,747				37,945
Deferred income taxes			5,793				5,745
Income taxes receivable			1,038				—
Prepaid expenses and other current assets			5,573				4,847
Total current assets			176,814				168,754
Property and equipment, net			14,951				15,759
Long-term investments			2,532				2,797
Goodwill, net			62,251				62,280
Acquisition-related intangible assets, net			2,196				3,473
Deferred income taxes			9,831				9,826
Other assets			2,165				1,822
Total assets		$	270,740			$	264,711
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	7,747			$	4,434
Accrued compensation and benefits			17,552				12,855
Accrued and other liabilities			15,094				15,430
Deferred revenue			38,632				37,436
Income taxes payable			—				796
Total current liabilities			79,025				70,951
Other non-current liabilities			10,422				10,395
Shareholders’ equity:
Preferred stock, no par value; 20,000,000 shares authorized, no shares issued or outstanding in 2010 or 2009			—				—
Common stock, $.01 par value; 100,000,000 shares authorized; 22,167,568 and 22,467,123 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively			222				225
Additional paid-in capital			—				2,892
Retained earnings			183,412				182,387
Accumulated other comprehensive loss			(2,341	)			(2,139	)
Total shareholders’ equity			181,293				183,365
Total liabilities and shareholders’ equity		$	270,740			$	264,711

See accompanying Notes to Condensed Consolidated Financial Statements.

Item 1. Financial Statements (continued)

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
		(unaudited)								(unaudited)
Revenue:
Software license		$	15,485			$	4,126			$	29,692			$	9,048
Services			54,780				49,422				108,241				100,265
Hardware and other			7,376				4,861				13,657				9,921
Total revenue			77,641				58,409				151,590				119,234
Costs and expenses:
Cost of license			1,611				1,035				3,160				2,459
Cost of services			24,906				21,319				48,970				44,476
Cost of hardware and other			6,205				4,177				11,274				8,298
Research and development			10,334				9,188				20,774				19,415
Sales and marketing			12,073				9,026				22,541				19,105
General and administrative			8,177				7,251				16,638				15,213
Depreciation and amortization			2,318				3,010				4,733				6,175
Restructuring charge			—				3,829				—				3,892
Total costs and expenses			65,624				58,835				128,090				119,033
Operating income (loss)			12,017				(426	)			23,500				201
Other income (expense), net			304				(404	)			(194	)			(637	)
Income (loss) before income taxes			12,321				(830	)			23,306				(436	)
Income tax provision (benefit)			4,132				(274	)			7,922				(142	)
Net income (loss)		$	8,189			$	(556	)		$	15,384			$	(294	)
Basic earnings (loss) per share		$	0.38			$	(0.02	)		$	0.70			$	(0.01	)
Diluted earnings (loss) per share		$	0.36			$	(0.02	)		$	0.68			$	(0.01	)
Weighted average number of shares:
Basic			21,718				22,391				21,837				22,687
Diluted			22,776				22,391				22,655				22,687

See accompanying Notes to Condensed Consolidated Financial Statements.

Item 1. Financial Statements (continued)

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		Six Months Ended
		2010				2009
		(unaudited)
Operating activities:
Net income (loss)		$	15,384			$	(294	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			4,733				6,175
Stock compensation			5,087				4,018
Loss on disposal of equipment			(6	)			12
Tax benefit (deficiency) of stock awards exercised/vested			1,237				(1,088	)
Excess tax benefits from stock based compensation			(342	)			(9	)
Deferred income taxes			(25	)			386
Unrealized foreign currency loss			24				723
Changes in operating assets and liabilities:
Accounts receivable, net			(9,299	)			25,082
Other assets			(1,122	)			2,342
Accounts payable, accrued and other liabilities			8,285				(9,872	)
Income taxes			(1,837	)			(2,944	)
Deferred revenue			1,743				(986	)
Net cash provided by operating activities			23,862				23,545
Investing activities:
Purchase of property and equipment			(2,706	)			(1,360	)
Net maturies of investments			98				80
Net cash used in investing activities			(2,608	)			(1,280	)
Financing activities:
Purchase of common stock			(41,022	)			(20,540	)
Proceeds from issuance of common stock from options exercised			17,445				544
Excess tax benefits from stock based compensation			342				9
Net cash used in financing activities			(23,235	)			(19,987	)
Foreign currency impact on cash			(573	)			(49	)
Net change in cash and cash equivalents			(2,554	)			2,229
Cash and cash equivalents at beginning of period			120,217				85,739
Cash and cash equivalents at end of period		$	117,663			$	87,968

See accompanying Notes to Condensed Consolidated Financial Statements.

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
June 30, 2010
(unaudited)

1. Basis of Presentation

     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, 2010, the results of operations for the three and six months ended June 30, 2010 and 2009 and cash flows for the six months ended June 30, 2010 and 2009. The results for the three and six months ended June 30, 2010 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, 2009.

2. Principles of Consolidation

     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.

3. Revenue Recognition

     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 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. Revenue recognition for software with multiple-element arrangements 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 other applicable revenue-recognition criteria for software revenue recognition, 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 Company allocates revenue to customer support and software enhancements and any other undelivered elements of the arrangement based on vendor specific objective evidence, or VSOE, of fair value of each element and such amounts are deferred until the applicable delivery criteria and other revenue recognition criteria have been met. The balance of the revenue, net of any discounts inherent in the arrangement, is recognized at the outset of the arrangement using the residual method as the product licenses are delivered. If the Company cannot objectively determine the fair value of each undelivered element based on the VSOE of fair value, the Company defers revenue recognition until all elements are delivered, all services have been performed, or until fair value can be objectively determined. The Company must apply judgment in determining all elements of the arrangement and in determining the VSOE of fair value for each element, considering the price charged for each product on a stand-alone basis or applicable renewal rates.

     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 conditions of customers deteriorate, 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

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2010
(unaudited)

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 other presentation matters within the Revenue Recognition Topic of the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification, the Company recognizes amounts associated with reimbursements from customers for out-of-pocket expenses as revenue. Such amounts have been classified as hardware and other revenue. The total amount of expense reimbursement recorded to revenue was $2.3 million and $4.1 million for the three and six months ended June 30, 2010, respectively, and $1.9 million and $3.8 million for the three and six months ended June 30, 2009, respectively.

4. Investments

     The Company measures its investments based on 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:

•

Level 1—Quoted prices in active markets for identical instruments.

•

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

•

Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

     The Company’s investments are categorized as available-for-sale securities and recorded at fair market value. 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.

     At June 30, 2010, the Company’s cash balance was $84.0 million and the cash equivalent balance was $33.7 million. Cash equivalents primarily consist of highly liquid money market funds and certificates of deposit with remaining maturities of less than three months when purchased.

     The Company has invested $6.4 million in auction rate securities with original maturities ranging from 2025 to 2040, but which had auctions to reset the yield every 7 to 35 days. The fair values of these auction rate securities considered the credit worthiness of the counterparty, estimates of interest rates, expected holding periods, and the timing and value of expected future cash flows. Changes in the assumptions of the Company’s valuation could have a significant impact on the value of these securities, which may cause losses and affect the Company’s liquidity specifically for these

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2010
(unaudited)

securities potentially requiring us to record an impairment charge on these investments in the future. Certain auctions failed during 2008 and the underlying securities were not called by the issuer. During 2008, the Company recorded an other-than-temporary impairment charge of $3.5 million on one of these investments. The Company reduced the carrying value to zero due to credit downgrades of the underlying issuer and the bond insurer as well as increasing publicly reported exposure to bankruptcy risk by the issuer. From 2008 to 2010, the Company also recorded temporary impairment charges of $0.4 million on these investments, of which $0.2 million was recorded during the second quarter of 2010, resulting in $2.5 million in total auction rate securities investments on the balance sheet at June 30, 2010. The unrealized loss is included as a separate component of shareholders’ equity and in total comprehensive income. The $2.5 million of auction rate securities held by the Company at June 30, 2010 were issued by state or regional educational loan authorities and are collateralized by federally insured student loans. These investments consequently have high credit ratings, and the Company intends and has the ability to hold these securities until maturity or until redeemed. 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 Company uses quoted prices from active markets which are classified at level 1 as a highest level observable input in the disclosure hierarchy framework for all other available-for-sale securities.

     The following table set forth the assets carried at fair value measured on a recurring basis at June 30, 2010 (in thousands):

		Fair Value Measurements at June 30, 2010 Using
						Significant
						Other				Significant
						Observable				Unobservable
		Quoted Prices				Inputs				Inputs
		(Level 1)				(Level 2)				(Level 3)				Total
Money market funds		$	27,622			$	—			$	—			$	27,622
Auction rate securities			—				—				2,532				2,532
Total available-for-sale securities		$	27,622			$	—			$	2,532			$	30,154

5. Stock-Based Compensation

     In January 2010 the Compensation Committee approved certain changes to the Company’s historical equity incentive grant practices, with the objective to optimize its performance and retention strength while managing program share usage to improve long-term equity overhang. The changes eliminate stock option awards in favor of 100% restricted stock grants, which for the 2010 awards contain vesting provisions that are 50% service-based and 50% performance-based for employee awards and 100% service based for outside Board of Directors (“Outside Directors”). The equity compensation program change for employees was effective January 2010 and for Outside Directors was effective May 2010. The employee awards have a four year vesting period, with the performance portion tied to annual revenue and earnings per share targets. The awards to Outside Directors have a one year vesting period.

     During the three months ended June 30, 2010 and 2009, the Company recorded stock option expense of $0.9 million and $1.0 million, respectively. During the six months ended June 30, 2010 and 2009, the Company granted options to purchase 17,500 shares and 573,075 shares of common stock, respectively. The Company recorded stock option expense of $2.1 million and $2.4 million during the six months ended June 30, 2010 and 2009, respectively.

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2010
(unaudited)

     A summary of changes in outstanding options for the six months ended June 30, 2010 is as follows:

		Number of Options
Outstanding at December 31, 2009			5,768,961
Granted			17,500
Exercised			(797,958	)
Forfeited and expired			(34,248	)
Outstanding at June 30, 2010			4,954,255

     The Company also granted 37,485 shares and 6,681 shares of restricted stock during the three months ended June 30, 2010 and 2009, respectively. The Company recorded restricted stock expense of $1.6 million and $0.7 million during the three months ended June 30, 2010 and 2009, respectively. During the six months ended June 30, 2010 and 2009, the Company granted 417,428 shares and 189,252 shares of restricted stock, respectively. The Company recorded restricted stock expense of $3.0 million and $1.6 million during the six months ended June 30, 2010 and 2009, respectively.

     A summary of changes in unvested shares of restricted stock for the six months ended June 30, 2010 is as follows:

		Number of Shares
Outstanding at December 31, 2009			388,560
Granted			417,428
Vested			(122,244	)
Forfeited and expired			(8,974	)
Outstanding at June 30, 2010			674,770

6. Income Taxes

     The Company’s effective tax rate was 34.0% and 32.5% for the six months ended June 30, 2010 and 2009, respectively. The increase in the effective tax rate is principally due to the mix of foreign profits compared to U.S. profits, partially offset by a tax benefit from the disqualifying disposition of incentive stock options that were previously expensed.

     For the six month period ended June 30, 2010, 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 U.S. Federal or significant state, local or non-US jurisdiction income tax examinations for the years before 2006.

7. Comprehensive Income

     Comprehensive income includes net 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 for the three and six months ended June 30, 2010 (in thousands):

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2010
(unaudited)

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
Net income (loss)		$	8,189			$	(556	)		$	15,384			$	(294	)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment			(739	)			1,268				(95	)			556
Unrealized loss on investments			(107	)			(86	)			(107	)			(86	)
Other comprehensive (loss) income			(846	)			1,182				(202	)			470
Comprehensive income		$	7,343			$	626			$	15,182			$	176

8. Net Earnings (Loss) Per Share

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

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
		(in thousands, except per share data)								(in thousands, except per share data)
Net income (loss)		$	8,189			$	(556	)		$	15,384			$	(294	)
Earnings (loss) per share:
Basic		$	0.38			$	(0.02	)		$	0.70			$	(0.01	)
Effect of CESs			(0.02	)			—				(0.02	)			—
Diluted		$	0.36			$	(0.02	)		$	0.68			$	(0.01	)
Weighted average number of shares:
Basic			21,718				22,391				21,837				22,687
Effect of CESs			1,058				—				818				—
Diluted			22,776				22,391				22,655				22,687

     Weighted average shares issuable upon the exercise of stock options that were not included in the calculation of diluted earnings per share were 949,508 shares and 2,245,599 shares for the three and six months ended June 30, 2010, respectively. Such shares were not included because they were anti-dilutive. 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.

9. Contingencies

     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

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2010
(unaudited)

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.

10. Operating Segments

     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 $0.7 million and $0.4 million for the three months ended June 30, 2010 and 2009, respectively, and $1.4 million and $0.7 million for the six months ended June 30, 2010 and 2009, 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 income (loss) by reporting segment for the three and six months ended June 30, 2010 and 2009 (in thousands):

		Three Months Ended June 30,
		2010																2009
		Americas				EMEA				APAC				Consolidated				Americas				EMEA				APAC				Consolidated
Revenue:
License		$	12,792			$	1,428			$	1,265			$	15,485			$	2,352			$	1,071			$	703			$	4,126
Services			44,959				6,955				2,866				54,780				40,386				6,553				2,483				49,422
Hardware and other			7,124				204				48				7,376				4,634				194				33				4,861
Total revenue			64,875				8,587				4,179				77,641				47,372				7,818				3,219				58,409
Costs and Expenses:
Cost of revenue			26,064				4,542				2,116				32,722				20,268				4,101				2,162				26,531
Operating expenses			26,770				2,446				1,368				30,584				21,961				2,278				1,226				25,465
Depreciation and amortization			2,205				69				44				2,318				2,590				295				125				3,010
Restructuring charge			—				—				—				—				2,960				20				849				3,829
Total costs and expenses			55,039				7,057				3,528				65,624				47,779				6,694				4,362				58,835
Operating income (loss)		$	9,836			$	1,530			$	651			$	12,017			$	(407	)		$	1,124			$	(1,143	)		$	(426	)

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2010
(unaudited)

		Six Months Ended June 30,
		2010																2009
		Americas				EMEA				APAC				Consolidated				Americas				EMEA				APAC				Consolidated
Revenue:
Software license		$	23,899			$	2,872			$	2,921			$	29,692			$	6,178			$	1,516			$	1,354			$	9,048
Services			89,734				13,267				5,240				108,241				82,559				12,955				4,751				100,265
Hardware and other			13,131				437				89				13,657				9,462				377				82				9,921
Total revenue			126,764				16,576				8,250				151,590				98,199				14,848				6,187				119,234
Costs and Expenses:
Cost of revenue			50,019				9,130				4,255				63,404				42,847				8,084				4,302				55,233
Operating expenses			52,105				5,324				2,524				59,953				46,909				4,444				2,380				53,733
Depreciation and amortization			4,471				174				88				4,733				5,571				438				166				6,175
Restructuring charge			—				—				—				—				3,019				20				853				3,892
Total costs and expenses			106,595				14,628				6,867				128,090				98,346				12,986				7,701				119,033
Operating income (loss)		$	20,169			$	1,948			$	1,383			$	23,500			$	(147	)		$	1,862			$	(1,514	)		$	201

     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, 2010 and 2009 are as follows (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
Professional services		$	34,349			$	30,767			$	68,309			$	63,112
Customer support and software enhancements			20,431				18,655				39,932				37,153
Total services revenue		$	54,780			$	49,422			$	108,241			$	100,265

     License revenues related to the Company’s warehouse and non-warehouse product groups for the three and six months ended June 30, 2010 and 2009 are as follows (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
Warehouse		$	8,633			$	2,947			$	15,355			$	5,850
Non-Warehouse			6,852				1,179				14,337				3,198
Total software license revenue		$	15,485			$	4,126			$	29,692			$	9,048

11. Restructuring charge

     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 consisted of employee severance and outplacement services. In the first quarter of 2009, the Company also recorded additional employee severance expense of

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2010
(unaudited)

$63,000 pre-tax, or $42,000 after-tax, related to the restructuring action taken in the fourth quarter of 2008. The restructuring charges are classified in “Restructuring charge” in the Company’s Condensed Consolidated Statements of Operations.

     The following table summarizes the segment activity in the restructuring accrual for the six months ended June 30, 2010:

		Americas				EMEA				APAC				Consolidated
						(in thousands)
Restructuring accrual balance at December 31, 2009		$	255			$	—			$	—			$	255
Cash payments			(127	)			—				—				(127	)
Restructuring accrual balance at June 30, 2010		$	128			$	—			$	—			$	128

     The balance at June 30, 2010 is included in “Accrued compensation and benefits” in the Company’s Condensed Consolidated Balance Sheets. The majority of the remaining balance is expected to be paid during 2010.

12. New Accounting Pronouncements

     In January 2010, the FASB issued an Accounting Standard Update to improve disclosures about fair value measurements. This guidance requires enhanced disclosures regarding transfers in and out of the levels within the fair value hierarchy. Separate disclosures are required for significant transfers in and out of Level 1 and 2 in the fair value hierarchy and the reasons for the transfers. This guidance also requires disclosures relating to the reconciliation of fair value measurements using significant unobservable inputs (Level 3) investments. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009 except Level 3 reconciliation disclosures which are effective for the fiscal years and interim periods beginning after December 15, 2010. The Company adopted the enhanced disclosures for Level 1 and 2 in its first quarter of 2010 reporting. The Company does not expect the Level 3 reconciliation disclosures to have a material impact on its financial statements.

     In February 2010, the FASB issued an Accounting Standards Update to amend certain recognition and disclosure requirements related to subsequent events. The new guidance clarifies that management must evaluate, as of each reporting period, events or transactions that occur after the balance sheet date through the date that the financial statements are issued. Management must perform its assessment for both interim and annual financial reporting periods. This update also exempts SEC filers from disclosing the date through which subsequent events have been evaluated. The adoption of this amended standard did not have an impact on the Company’s consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

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, 2009. 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, 2010 and 2009, 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, 2009. 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.

Business Overview

     We are a leading developer and implementer of supply chain software solutions that help organizations optimize their supply chain operations from planning through execution. Our platform-based supply chain software solution portfolios — Manhattan SCOPE^® and Manhattan SCALE^TM — are designed to deliver both business agility and total cost of ownership advantages to customers. Manhattan SCOPE (Supply Chain Optimization, Planning through Execution) leverages our Supply Chain Process Platform (SCPP) to unify the full breadth of the supply chain, while Manhattan SCALE (Supply Chain Architected for Logistics Execution) leverages Microsoft’s .NET^® platform to unify logistics functions.

     Early in the Company’s history, our offerings were heavily focused on warehouse management solutions. As the Company grew in size and scope, its offerings expanded across the entire supply chain. As a result of the Company’s historical beginnings however, we still enjoy significant presence in, and a relatively strong concentration of revenues from, warehouse management solutions, which are a component of our distribution management solution suite. Over time, as our non-warehouse management solutions have proliferated and increased in capability, the Company’s revenue concentration in its warehouse management solutions has correspondingly decreased, a trend we expect to see continue.

     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:

•

license revenue generated from the sales of our supply chain software;

•

professional services derived from implementing our solutions along with customer support services and software enhancements (services); and

•

hardware sales and other revenue.

     In the three and six months ended June 30, 2010, we generated $77.6 million and $151.6 million in total revenue, respectively, with a revenue mix of: license revenues 20%; services 71%; and hardware and other revenue 9% for both periods.

     We manage our business based on three geographic regions: North America and Latin America (Americas), Europe, Middle East and Africa (EMEA), and Asia Pacific (APAC). Geographic revenue is based on the location of the sale. Our international revenue was approximately $19.5 million and $41.6 million for the three and six months ended June 30, 2010, respectively, which represents approximately 25% and 27% of our total revenue for the three and six months ended June 30, 2010, respectively. International revenue includes all revenue derived from sales to customers outside the United States. At June 30, 2010, we employed approximately 1,850 employees worldwide, of which about 920 employees are based in the Americas, approximately 140 employees in EMEA, and approximately 800 employees in APAC and India. 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 Economic Trends and Industry Factors

     Global macro economic trends, technology spending and supply chain management market growth are important barometers for our business. In the second quarter of 2010, approximately 75% of our total revenue was generated in the United States, 10% in EMEA and the balance in APAC, Canada and Latin America. In addition, industry analysts project 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.

     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 current and prospective customers have had an adverse impact on our ability to sell our solutions, largely we believe 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 continues to affect customers and

prospects decisions regarding timing of strategic capital spend. Timing of deals closed can have a material adverse impact on our business and is likely to further intensify competition in our already highly competitive markets.

     In July 2010, the International Monetary Fund (IMF) provided a World Economic Outlook (WEO) update raising its previous 2010 world economic growth forecast from April 2010. The update noted, “World growth is projected at about 4¹/2 percent in 2010 and 4¹/4 percent in 2011. Relative to the April 2010 WEO, this represents an upward revision of about ¹/2 percentage point in 2010, reflecting stronger activity during the first half of the year. At the same time, downside risks have risen sharply amid renewed financial turbulence. In this context, the new forecasts hinge on implementation of policies to rebuild confidence and stability, particularly in the euro area.” Advanced economies are projected to expand sluggishly through much of 2010 with annual growth of about 2.6%, following a contraction of 3.2% in 2009. The U.S. economy contracted about 2.5% in 2009 and is projected to grow 3.3% in 2010.

     Our license revenues in the first half of 2009 totaled $9.0 million, down 76% over the first half of 2008 as we closed no license deals with revenue recognized greater than $1.0 million. In contrast, we generated $25.6 million in total license revenue in the second half of 2009 recognizing five license deals greater than $1.0 million. In the first half of 2010, we recognized six license deals greater than $1.0 million and view this as a sign the economy is continuing to stabilize and customers and prospects are beginning to invest more in improving their supply chains. While our results over the past several quarters seem to be a clear signal of improving demand, we and our customers still remain cautious regarding the global economic recovery as noted by IMF’s World Economic outlook.

Revenue

     License revenue. License revenue, a leading indicator of our business, is primarily derived from software license fees that customers pay for supply chain solutions. License revenue totaled $15.5 million, or 20% of total revenue, with gross margins of 89.6% and $29.7 million, or 20% of total revenue, with gross margins of 89.4% in the three and six months ended June 30, 2010, respectively. Our typical license revenue percentage mix of new to existing customers is approximately 50/50. However, for the three and six months ended June 30, 2010, the percentage mix was approximately 25/75 and 40/60, respectively, of new to existing customers.

     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 the second quarter of 2010 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 Enterprise Resource Planning (ERP) and Supply Chain Management 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. Services revenue totaled $54.8 million, or 71% of total revenue, with gross margins of 54.5% and $108.2 million, or 71% of total revenue, with gross margins of 54.8% in the three and six months ended June 30, 2010, respectively. Professional services accounted for approximately 65% of total services revenue and approximately 45% of total revenue in the second quarter and the first half of 2010. 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, 2010, our services business totaled approximately 925 employees, accounting for approximately 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 are 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 $20.4 million and $39.9 million in the three and six months ended June 30, 2010. CSSE represented approximately 35% of services revenue and approximately 25% of total revenue in the second quarter and the first half of 2010. 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 revenue 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 $7.4 million representing 9% of total revenue with gross margins of 15.9% and $13.7 million representing 9% of total revenue with gross margins of 17.4% in the three and six months ended June 30, 2010, 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.

     Other revenue represents amounts associated with reimbursements from customers for out-of-pocket expenses. The total amount of expense reimbursement recorded to hardware and other revenue was $2.3 million and $4.1 million for three and six months ended June 30, 2010, respectively.

Product Development

     We 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, 2010 were $10.3 million and $20.8 million, respectively. At June 30, 2010, our R&D organization totaled approximately 625 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. 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.

Cash Flow and Financial Condition

     For the six months ended June 30, 2010, we generated cash flow from operating activities of $23.9 million. Our cash, cash equivalents and investments at June 30, 2010 totaled $120.2 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, 2010, we completed the $25.0 million stock repurchase program approved by our Board in April 2010. In July 2010, our Board of Directors approved the repurchase of up to an additional $25.0 million of Manhattan Associates outstanding common stock. In 2010, 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 2010 for general corporate purposes.

Results of Operations

     The following table summarizes our consolidated results for the three and six months ended June 30, 2010 and 2009.

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
		(in thousands, except per share data)
Revenue		$	77,641			$	58,409			$	151,590			$	119,234
Costs and expenses			65,624				58,835				128,090				119,033
Operating income			12,017				(426	)			23,500				201
Other income (loss), net			304				(404	)			(194	)			(637	)
Income (loss) before income taxes			12,321				(830	)			23,306				(436	)
Net income (loss)		$	8,189			$	(556	)		$	15,384			$	(294	)
Diluted earnings (loss) per share		$	0.36			$	(0.02	)		$	0.68			$	(0.01	)
Diluted weighted average number of shares			22,776				22,391				22,655				22,687

     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 expenses include 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, 2010 and 2009, 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:

		Three Months Ended June 30,												Six Months Ended June 30,
										% Change vs. Prior												% Change vs. Prior
		2010				2009				Year				2010				2009				Year
		(in thousands)												(in thousands)
Revenue:
Software license
Americas		$	12,792			$	2,352				444	%		$	23,899			$	6,178				287	%
EMEA			1,428				1,071				33	%			2,872				1,516				89	%
APAC			1,265				703				80	%			2,921				1,354				116	%
Total software license		$	15,485			$	4,126				275	%		$	29,692			$	9,048				228	%
Services
Americas		$	44,959			$	40,386				11	%		$	89,734			$	82,559				9	%
EMEA			6,955				6,553				6	%			13,267				12,955				2	%
APAC			2,866				2,483				15	%			5,240				4,751				10	%
Total services		$	54,780			$	49,422				11	%		$	108,241			$	100,265				8	%
Hardware and Other
Americas		$	7,124			$	4,634				54	%		$	13,131			$	9,462				39	%
EMEA			204				194				5	%			437				377				16	%
APAC			48				33				45	%			89				82				9	%
Total hardware and other		$	7,376			$	4,861				52	%		$	13,657			$	9,921				38	%
Total Revenue
Americas		$	64,875			$	47,372				37	%		$	126,764			$	98,199				29	%
EMEA			8,587				7,818				10	%			16,576				14,848				12	%
APAC			4,179				3,219				30	%			8,250				6,187				33	%
Total revenue		$	77,641			$	58,409				33	%		$	151,590			$	119,234				27	%
Operating income (loss):
Americas		$	9,836			$	(407	)			2517	%		$	20,169			$	(147	)			13820	%
EMEA			1,530				1,124				36	%			1,948				1,862				5	%
APAC			651				(1,143	)			157	%			1,383				(1,514	)			191	%
Total operating income (loss)		$	12,017			$	(426	)			2921	%		$	23,500			$	201				11592	%

Financial Summary of Second Quarter 2010 Condensed Consolidated Financial Results

	•		We reported diluted earnings per share of $0.36 in the second quarter of 2010, compared to a loss per share of $0.02 in the second quarter of 2009.
	•		Consolidated revenue for the second quarter of 2010 was $77.6 million, compared to $58.4 million in the second quarter of 2009. License revenue was $15.5 million in the second quarter of 2010, compared to $4.1 million in the second quarter of 2009.
	•		Operating income for the second quarter of 2010 was $12.0 million compared to operating loss of $0.4 million in the second quarter of 2009. Operating income for the second quarter of 2010 includes $0.8 million of recoveries of previously recorded state sales tax associated with expiring sales tax audit statutes while the operating loss for the second quarter of 2009 includes a pre-tax restructuring charge of $3.8 million.
	•		Cash flow from operations was $10.0 million in the second quarter of 2010, compared to $10.8 million in the second quarter of 2009. Days Sales Outstanding were 55 days at June 30, 2010, compared to 53 days at March 31, 2010.
	•		Cash and investments on-hand at June 30, 2010 was $120.2 million compared to $123.1 million at March 31, 2010.

•

We repurchased approximately 869,000 common shares totaling $25.0 million at an average share price of $28.77 in the second quarter of 2010, completing our $25.0 million repurchase program approved in April 2010. In July 2010, the Board of Directors approved the repurchase of up to an additional $25.0 million of Manhattan Associates outstanding common stock.

Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009

     The results of our operations for the second quarter of 2010 and 2009 are discussed below.

Revenue

		Three Months Ended June 30,
										% Change vs.				% of Total Revenue
		2010				2009				Prior Year				2010				2009
		(in thousands)
Software license		$	15,485			$	4,126				275	%			20	%			7	%
Services			54,780				49,422				11	%			71	%			85	%
Hardware and other			7,376				4,861				52	%			9	%			8	%
Total revenue		$	77,641			$	58,409				33	%			100	%			100	%

     Our revenue consists of fees generated from the licensing and hosting of software; fees from professional services, customer support services and software enhancements; hardware sales of complementary radio frequency and computer equipment; and other revenue representing amounts associated with reimbursements from customers for out-of-pocket expenses.

     License revenue. License revenue increased $11.4 million, or 275%, in the quarter ended June 30, 2010 over the same period in the prior year primarily, we believe, driven by the continued stabilization of the global economy resulting in customers and prospects beginning to invest more capital to improve their supply chains.

     The license sales percentage mix across our product suite in the quarter ended June 30, 2010 was approximately 55/45 of warehouse management solutions to non-warehouse management solutions, respectively.

     Services revenue. Services revenue increased $5.4 million, or 11%, in the second quarter of 2010 compared to the same quarter in the prior year due to a $3.6 million increase in professional services revenue and a $1.8 million increase in customer support and software enhancements. The increase in services revenue is primarily due to improved license sales beginning in the second half of 2009 and continuing into the first half of 2010 combined with customer upgrade activity largely driven by the improving macroeconomic conditions. Services revenue for the Americas, EMEA and APAC segments increased $4.6 million, $0.4 million and $0.4 million, respectively, in the second quarter of 2010 compared to the second quarter of 2009.

     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. Our services revenue growth has been and will likely continue to be affected by the mix of products sold. Further, the individual engagements involving our non-warehouse management solutions typically require less implementation services; however, the number of engagements continues to grow.

     Hardware and other. Hardware sales increased by $2.1 million, or 69%, to $5.1 million in the second quarter of 2010 compared to $3.0 million in the second quarter of 2009. 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 $2.3 million and $1.9 million for the quarters ended June 30, 2010 and 2009, respectively.

Cost of Revenue

		Three Months Ended June 30,
										% Change vs. Prior
		2010				2009				Year
Cost of software license		$	1,611			$	1,035				56	%
Cost of services			24,906				21,319				17	%
Cost of hardware and other			6,205				4,177				49	%
Total cost of revenue		$	32,722			$	26,531				23	%

     Cost of software license. Cost of software 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 software license increased by $0.6 million, or 56%, in the second quarter of 2010 compared to the same quarter of 2009.

     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 $3.6 million, or 17%, increase in cost of services in the quarter ended June 30, 2010 compared to the same quarter in the prior year was principally due to a $3.4 million increase in performance based bonus expense and a $0.4 million increase in salaries and other personnel-related expenses.

     Services gross margin decreased 240 basis points to 54.5% in the second quarter of 2010 from 56.9% in the second quarter of 2009. The decrease in margin is primarily attributable to the increase in professional services costs during the quarter.

     Cost of hardware and other. Cost of hardware increased $1.6 million to approximately $3.9 million in the second quarter of 2010 compared to the same quarter of 2009 as a direct result of increased hardware sales. Cost of hardware and other includes out-of-pocket expenses to be reimbursed by customers of approximately $2.3 million and $1.9 million for the quarters ended June 30, 2010 and 2009, respectively.

Operating Expenses

		Three Months Ended June 30,
										% Change vs. Prior
		2010				2009				Year
		(in thousands)
Research and development		$	10,334			$	9,188				12	%
Sales and marketing			12,073				9,026				34	%
General and administrative			8,177				7,251				13	%
Depreciation and amortization			2,318				3,010				-23	%
Restructuring charge			—				3,829				-100	%
Operating expenses		$	32,902			$	32,304				2	%

     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, 2010 increased to $10.3 million from $9.2 million in the same quarter of the prior year. This $1.1 million increase was mainly attributable to the increase of $1.3 million in performance based bonus expense, partially offset by a decrease of $0.3 million in employee-related costs such as salary, benefits and payroll taxes resulting from lower headcount.

     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 through Execution. The Manhattan SCOPE Platform provides not only a

sophisticated service-oriented architecture-based application framework, but a platform that facilitates integration with ERP and other supply chain solutions. For the quarters ended June 30, 2010 and 2009, 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 increased by $3.0 million, or 34%, in the second quarter of 2010 compared to the same quarter of the prior year. This increase was mainly attributable to the increase in performance based bonus and commission expense of $2.1 million related to higher software license revenue, a $0.6 million increase in stock compensation expense, and a $0.4 million increase in travel expenses.

     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 $0.9 million, or 13%, increase in general and administrative expenses during the quarter ended June 30, 2010 compared to the same quarter in the prior year were primarily attributable to (1) an increase of $1.0 million in performance based bonus expense, (2) a $0.4 million increase in professional services and contract labor, and (3) partially offset by a $0.8 million recovery of previously recorded state sales tax.

     Depreciation and amortization. Depreciation expense amounted to $1.7 million and $2.3 million for the quarters ended June 30, 2010 and 2009, respectively. Amortization of intangibles associated with various acquisitions totaled $0.6 million and $0.7 million for the quarters ended June 30, 2010 and 2009, 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 Income (Loss)

     Operating income for the second quarter of 2010 was $12.0 million, an increase of $12.4 million as compared to operating loss of $0.4 million in the second quarter of 2009. Operating margins improved to 15.5% for the second quarter of 2010 up from 0.7% operating loss margin for the second quarter of 2009. Operating income and margins increased primarily due to an increase in license revenue in the second quarter of 2010.

Other Income (Expense) and Taxes

		Three Months Ended June 30,
										% Change vs. Prior
		2010				2009				Year
Other income (expense), net		$	304			$	(404	)			175	%
Income tax provision (benefit)			4,132				(274	)			1608	%

     Other income (expense), net. Other income (expense), net principally includes interest income, foreign currency gains and losses and other non-operating expense. Other income (expense), net increased $0.7 million in the second quarter of 2010 compared to the second quarter of 2009 primarily due to the fluctuation of the U.S. dollar relative to foreign currencies, principally the Indian Rupee, the British Pound, and the Euro. We recorded a net foreign currency gain of $0.2 million during the second quarter of 2010 and a net foreign currency loss of $0.5 million during the second quarter of 2009.

     Income tax provision (benefit). Our effective income tax rate was 33.5% and 33.0% for the quarter ended June 30, 2010 and 2009, respectively. The increase in the effective tax rate is principally due to the mix of foreign profits compared to U.S. profits, partially offset by a tax benefit from the disqualifying disposition of incentive stock options that were previously expensed.

Financial Summary for the First Half of 2010 Condensed Consolidated Financial Results

•

We reported diluted earnings per share of $0.68 in the first half of 2010, compared to a loss per share of $0.01 in the first half of 2009.

	•		Consolidated revenue for the six months ended June 30, 2010 was $151.6 million, compared to $119.2 million for the six months ended June 30, 2009. License revenue was $29.7 million for the six months ended June 30, 2010, compared to $9.0 million in the six months ended June 30, 2009.
	•		Operating income was $23.5 million for the six months ended June 30, 2010, compared to $0.2 million for the six months ended June 30, 2009, which included a restructuring charge of $3.9 million. The first half of 2010 operating income includes $1.2 million of recoveries of previously recorded state sales tax associated with expiring sales tax audit statutes.
	•		For the six months ended June 30, 2010, the Company repurchased approximately 1.5 million common shares under the share repurchase program authorized by the Board of Directors at an average share price of $27.33, for a total investment of $40.0 million.

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

     The results of our operations for the first half of 2010 and 2009 are discussed below.

Revenue

		Six Months Ended June 30,
										% Change vs.				% of Total Revenue
		2010				2009				Prior Year				2010				2009
		(in thousands)
Software license		$	29,692			$	9,048				228	%			20	%			8	%
Services			108,241				100,265				8	%			71	%			84	%
Hardware and other			13,657				9,921				38	%			9	%			8	%
Total revenue		$	151,590			$	119,234				27	%			100	%			100	%

     License revenue. License revenue increased $20.6 million, or 228%, in the six months ended June 30, 2010 over the same period in the prior year primarily, we believe, driven by the continued stabilization of the global economy resulting in customers and prospects beginning to invest more capital to improve their supply chains.

     The license sales percentage mix across our product suite for the six months ended June 30, 2010 was approximately 50/50 of warehouse management solutions to non-warehouse management solutions, respectively.

     Services revenue. Services revenue increased $8.0 million, or 8%, in the first half of 2010 compared to the same period in the prior year due to a $5.2 million and $2.8 million increase in revenue from professional services and customer support and software enhancements, respectively. The increase in services revenue is primarily due to improved license sales beginning in the second half of 2009 and continuing into the first half of 2010 combined with customer upgrade activity largely driven by the improving macroeconomic conditions. Services revenue for the Americas, EMEA and APAC segments increased $7.2 million, $0.3 million and $0.5 million, respectively in the first half of 2010 compared to the first half of 2009.

     Hardware and other. Hardware sales increased by $3.5 million, or 58%, to $9.6 million in the first six months of 2010 compared to $6.1 million in the first half of 2009. 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 $4.1 million and $3.8 million for the six months ended June 30, 2010 and 2009, respectively.

Cost of Revenue

		Six Months Ended June 30,
										% Change vs. Prior
		2010				2009				Year
Cost of software license		$	3,160			$	2,459				29	%
Cost of services			48,970				44,476				10	%
Cost of hardware and other			11,274				8,298				36	%
Total cost of revenue		$	63,404			$	55,233				15	%

     Cost of software license. Cost of software 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 software license increased by $0.7 million, or 29%, in the first half of 2010 compared to the same period of 2009.

     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 $4.5 million, or 10%, increase in cost of services in the six months ended June 30, 2010 compared to the same period in the prior year was principally due to a $5.8 million increase in performance based bonus and commission expense. This increase was partially offset by a $0.8 million decrease in employee-related costs such as salary, benefits and payroll taxes resulting from lower services headcount.

     Services gross margin decreased 80 basis points to 54.8% in the first half of 2010 from 55.6% in the first half of 2009. The decrease in margin is primarily attributable to the increase in professional services costs.

     Cost of hardware and other. Cost of hardware increased $2.8 million to approximately $7.2 million in the first six months of 2010 compared to the same period of 2009 as a direct result of increased hardware sales. Cost of hardware and other includes out-of-pocket expenses to be reimbursed by customers of approximately $4.0 million and $3.8 million for the six months ended June 30, 2010 and 2009, respectively.

Operating Expenses

		Six Months Ended June 30,
										% Change vs. Prior
		2010				2009				Year
		(in thousands)
Research and development		$	20,774			$	19,415				7	%
Sales and marketing			22,541				19,105				18	%
General and administrative			16,638				15,213				9	%
Depreciation and amortization			4,733				6,175				-23	%
Restructuring charge			—				3,892				-100	%
Operating expenses		$	64,686			$	63,800				1	%