Logistics.com Becomes The Newest Of Manhattan Associates




Event Summary

On October 23, Logistics.com, Inc. (www.logistics.com ), a provider of transportation procurement, planning and execution technology for shippers and carriers, announced that it has signed a letter of intent for the acquisition of its assets by Manhattan Associates, Inc. (NASDAQ: MANH, www.manh.com ), a global leader in extended supply chain execution (SCE) solutions. Logistics.com's team members should bring breadth and depth of expertise in the transportation industry with, and the anticipated acquisition should extend Manhattan's SCE leadership with Logistics.com's transportation execution and procurement solutions for shippers as well as optimization technology for carriers. The companies expect to conclude the transaction by the end of 2002, subject to various closing conditions. The purchase price is expected to be approximately $20 million, and Manhattan Associates does not expect the acquisition to dilute its future earnings. No revenue from the Logistics.com acquisition is included in the company's Q3 2002 results.

Incidentally, the acquisition was a part of Manhattan Associates' announcement of record results for core revenues in the third quarter ended September 30, 2002. These results mark the twelfth consecutive quarter that the company has met or exceeded the First Call consensus earnings per share estimates of the financial analysts covering the company, with a net income of $6 million on total revenue of $42.9 million. Cautiously optimistic for the quarter ending December 31, 2002, Manhattan Associates still expects to achieve earnings, excluding the amortization of acquisition-related intangibles and the Kmart recovery (and possible revenue revival for licensing Manhattan's software), in the range of $0.20 to $0.26 per fully diluted share. These expectations assume that the current general economic environment will improve modestly over the balance of the year.

Core revenue drivers, which include software licenses and services revenue, were a record $38.4 million for the quarter, up 13% from $33.9 million for Q3 2001. Total revenue for the quarter was $42.9 million, an increase of 8% over revenue of $39.7 million a year ago, while software licenses were $10 million, an increase of 9% over Q3 2001. International revenues reached a record 20% of total revenues in the quarter. Total cash and short-term investments were a record $130 million at September 30, 2002, up 25% from December 31, 2001, while Days Sales Outstanding (DSOs) remained also strong at 67 days.

During the quarter, the company announced the release of PkCost 2002R1, a dynamic billing solution that captures information from SCE systems to enable third-party logistics (3PL) providers to track and bill clients for inventory handling, storage, fulfillment and transportation activities.

Market Impact

This might be a fairytale marriage, albeit many can point out ill-fated marriages of the sort in the past, both within and outside the IT industry. Manhattan Associates' ability to prudently expand its traditional warehouse management system (WMS) and supply chain execution (SCE) expertise to address increasingly required customers' order fulfillment management has played well to its enduring strong performance. In today's depressed market, the message of quick and proven return on investment (ROI) and its direct impact on customer satisfaction (i.e., top and bottom line) echoes loudly enough to nonetheless keep customers deploying Manhattan's modules.

In addition to attributing to this recently emerged industry-wide pragmatic buying approach, these unappealing applications during the market infatuation with e-strategies of fancy web storefronts and exchanges of the late 1990s, have lately also benefited from breaking away from formerly insulated spheres of a four-walls nitty-gritty, and consequently expanding into collaboration. As a result, Manhattan Associates has gradually surpassed once seemingly invincible and flamboyant supply-chain planning (SCP) leaders, i2 Technologies and Manugistics, both in market capitalization and other crucial financial measurements. Not to mention a massive dozen times greater market value than the nearest publicly held SCE vendors, EXE Technologies or Industry-Matematik International (IMI).

The pragmatic approach the company has taken for the last few years after a major restructuring in 1999, to judiciously expand its footprint while ensuring consistent growth, although sometimes then criticized as lagging in web-enablement, an Internet strategy and in functional breadth (see Transition for Manhattan Associates Necessary for Long Term Growth), appears to have now set the company apart from the majority of embattled software vendors.

Possibly even defying the recent notions that size really matters' and the more, the better' with its not too much, not too little, just right solution' approach, Manhattan has become a poster child, improving quarter over quarter in nearly every benchmark, which even several times larger competitors cannot boast. Continued global expansion, increases in research and development (R&D) investment, and a notable portion of revenue coming from new product initiatives and new markets, have long been refuting even some experts' claims that Manhattan was a short-lived irregularity that would disappear as soon as large enterprise applications providers notice it.

Well, the fact remains that Manhattan's areas of focus still largely remain out of ERP giants' reach, as opposed to their annexation of SCP or customer relationship management (CRM) areas. Market wide, the growth of industry specific, vertical solutions continues with concurrent internal development, acquisitions and partnerships, and the notion of an "end-to-end" solution continues to evolve. When it comes to transportation procurement and execution, however, most ERP vendors, even those with strong native transportation planning capabilities (e.g., J.D. Edwards) have had to turn to the partnership option.

While many WMS suppliers have lately added transportation and order management to their core products, and others have developed optimization or value-added service options, the most regular and justifiable enhancement has been Web-based order-fulfillment modules, which typically include real-time event management, alert messaging, order tracking, and complicated workflow management.

Investing in Technology

Spending increasingly on R&D in an effort to develop enhanced products is one of the key tenets that have led to the continued success of Manhattan Associates. The vendor has so far focused most of its R&D on enhancing execution capabilities for specific industry requirements, on real-time collaboration of the extended supply chain, and on delivering more functionality from its suite of optimization products, which take the raw data from WMS and transform it into useful information. Harnessing this technology should lead to the so-called "self-healing" or adaptive supply chain -- when an engine monitors all the numerous events taking place supply-chain-wide, identifies and escalates exceptions, sends notification, and reacts appropriately to those exceptions, ideally without human intervention.

As a proof of concept, the other vendors still doing well in the segment are those that enable companies to efficiently manage trading relations and fulfillment processes. Companies such as RedPrairie (former McHugh Software), Prescient Systems, Escalate, SoftChain, webplan, VCommerce, Ortems, SeeCommerce, and Teadec in supply chain event management (SCEM), visibility, and performance monitoring are able to connect disparate systems to provide all the parties with near-real-time information on current movements and trends.

While the WMS market is expected to continue to grow modestly and faster than many other applications, it appears the customer fulfillment process management as an add-on solution to WMS will grow much higher. Furthermore, ROI for WMS has improved steadily over the past few years. To that end, particularly Manhattan's lighter version of its flagship Pickticket Management System (PkMS) warehouse and transportation management (WMS/TMS) system, Pronto, offers small to mid-sized warehouses a full-featured system that can be implemented in an easier, less complicated fashion. That ease of implementation should be bolstered through a phased approach, as the company will deliver user-installable service packs, which contain upgrades and fixes, every few weeks. Besides delivering these functions in an add-as-you-go manner, Manhattan will still deliver full-fledged new releases, which will include all of the functions and fixes that have been launched between releases.

This concludes Part One of a two-part analysis of the Logistics.com acquisition.

Part Two will discuss the Challenges this acquisition presents and make User Recommendations.

 
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