Hummingbird Announces Agreement to Acquire RedDot Solutions Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Scott Penner - TD Newcrest - Analyst : Thanks. Barry, I guess, first of all, could you give us some idea of the revenue level of RedDot?

Question: Scott Penner - TD Newcrest - Analyst : 15 euros?

Question: Scott Penner - TD Newcrest - Analyst : Okay. Is there any -- what is the net cash position?

Question: Scott Penner - TD Newcrest - Analyst : Okay, profitable?

Question: Scott Penner - TD Newcrest - Analyst : And what, Inder, what has been the growth profile of the business? I saw some mention of them gaining steam in North America, but maybe you could just talk about the growth and kind of where their revenues are geographically.

Question: Scott Penner - TD Newcrest - Analyst : And can you talk about the -- there's not a whole lot of mention in the press release about any cost synergies. Can you just talk about what the immediate benefits are?

Question: Scott Penner - TD Newcrest - Analyst : okay. I'll let others, maybe, dig into that a little bit more. Just one other question and that is, on the actual structure of the deal who are the shareholders of RedDot?

Question: Scott Penner - TD Newcrest - Analyst : Was there any thought to giving shares as part of the consideration?

Question: Scott Penner - TD Newcrest - Analyst : Yes, I'm just -- I'm a little bit let's say confused about -- if you give them -- buyout the Company for 15 million U.S., plus the earnout, I'm just having -- struggling to see, given that the founder is the major shareholder, what his or their motivation is beyond the earnout period to continue growing their Company.

Question: Scott Penner - TD Newcrest - Analyst : Okay, thank you. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 21, 2005 / 2:00PM, OTEX.TO - Hummingbird Announces Agreement to Acquire RedDot Solutions

Question: Howard Lis - GMP Securities - Analyst : Can you give us a better sense of the revenue profile of the Company, specifically how much of the revenue is sort of ongoing maintenance revenue and how much of that 15 million euro number for '04 was software licenses?

Question: Howard Lis - GMP Securities - Analyst : So would maintenance be kind of 10% of revenues?

Question: Howard Lis - GMP Securities - Analyst : I'm sorry, was your initial comment it would be less than 10% of revenue?

Question: Howard Lis - GMP Securities - Analyst : Of their total revenue?

Question: Howard Lis - GMP Securities - Analyst : So it is a fairly significant number of their revenue base. Okay. And just in terms of getting a better understanding of the increased focus of your sales force to sort of sell their solution, you've got a reseller agreement already in place as you described earlier. What do you envision? Is this going to allow you to target sort of different size companies with your enterprise solution, or is this sort of an incremental revenue per deal type of thing on the customers you've been signing up? For example, you can go back to them and -- . without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 21, 2005 / 2:00PM, OTEX.TO - Hummingbird Announces Agreement to Acquire RedDot Solutions

Question: Howard Lis - GMP Securities - Analyst : And what is the number of employees in the Company right now?

Question: Howard Lis - GMP Securities - Analyst : In terms of inter-company sales, of the 15 million euro what did Hummingbird represent of that to RedDot?

Question: Howard Lis - GMP Securities - Analyst : You were selling some of theirs, so how much revenue did they garner from you, in the 15 million?

Question: Howard Lis - GMP Securities - Analyst : So sort of straight reselling would be maybe a million dollars at most? Million euro, sorry?

Question: Howard Lis - GMP Securities - Analyst : Much less than that? Okay. In terms of geographic emphasis, it sounds like RedDot has been focusing mainly on growing their business, as you said earlier, in the U.S.

Question: Howard Lis - GMP Securities - Analyst : And when do you expect the deal to close?

Question: Howard Lis - GMP Securities - Analyst : All right, great. Thank you very much.

Question: Blair Abernethy - Clarus Securities - Analyst : Just want to clarify a couple of things. Inder, did you say that the U.S. revenues last year from RedDot were 40, 4-0%?

Question: Blair Abernethy - Clarus Securities - Analyst : Okay. And the --

Question: Blair Abernethy - Clarus Securities - Analyst : North American. Okay, great. And the -- was there any service revenues in their revenue mix?

Question: Blair Abernethy - Clarus Securities - Analyst : Very small. Okay. And the -- just in terms of some of the joint deals that you've worked on so far in the last three years, I'm wondering if you can just sort of highlight some of those and give us some idea of has it been one or two deals you guys have done together or are we talking several dozen?

Question: Blair Abernethy - Clarus Securities - Analyst : And what's their average selling price today?

Question: Blair Abernethy - Clarus Securities - Analyst : 70 to 80,000?

Question: Blair Abernethy - Clarus Securities - Analyst : Okay. That's great. Thank you.

Question: David Shore - Desjardins Securities - Analyst : Sorry, did you say they had 160 people?

Question: David Shore - Desjardins Securities - Analyst : How many of those would be sales people?

Question: David Shore - Desjardins Securities - Analyst : Are there any particular vertical markets that they're strong in?

Question: David Shore - Desjardins Securities - Analyst : Okay. That's it for me. Thanks.

Question: David Wright - BMO Nesbitt Burns - Analyst : Which competitor would you say you're much stronger against now?

Question: David Wright - BMO Nesbitt Burns - Analyst : Yes. Now that you have this product line, who would you expect you're going to impact the most?

Question: David Wright - BMO Nesbitt Burns - Analyst : Okay. And the revenue growth, is your sense that the strength in North America, particularly, I guess, is it that the pricing in this area has been -- was falling a couple of years ago, so it's probably stabilized by now, but is their revenue growth because they're expanding geographically or because they've introduced a new module, or they're able to raise prices? What's your sense there?

Question: David Wright - BMO Nesbitt Burns - Analyst : Okay. Do you see yourself having sort of two major product lines, the -- you know, the RedDot Solutions and building those out and yours, or will ultimately this become one extent of product line with modules?

Question: David Wright - BMO Nesbitt Burns - Analyst : Did you license just a portion of their WM?

Question: David Wright - BMO Nesbitt Burns - Analyst : Okay, great. Thank you very much. My other question has been answered.

Question: Boris Butik - Penn & Capital - Analyst : Good morning. Could you just tell me what the revenues for the first six months this year will be for RedDot?

Question: Boris Butik - Penn & Capital - Analyst : First five months, then?

Question: Boris Butik - Penn & Capital - Analyst : Okay. What was the growth rate from last year, 2004 over 2003?

Question: Boris Butik - Penn & Capital - Analyst : What are the metrics -- could you walk me through some of the financial metrics you used to evaluate this deal in terms of returns? Can you just walk me through what analysis you guys did to establish this as a fair value?

Question: Boris Butik - Penn & Capital - Analyst : I understand that but you're spending a significant amount of cash and you should be able to estimate what those synergies will be. So, I assume that you guys did that and figured out that there was significant positive return on the capital. Could you share some of that, either what metrics we should measure this by through enhanced revenue synergy or, more specifically, you know, what return metrics you used when you modeled it out? Why was this the right price? Why wasn't it something less than that? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 21, 2005 / 2:00PM, OTEX.TO - Hummingbird Announces Agreement to Acquire RedDot Solutions

Question: Boris Butik - Penn & Capital - Analyst : Can you then at least just give us a sense of you guys are talking about it sounds like revenue synergies are pretty important here based on the new customers and up-selling of the product, et cetera. Can you give us some metrics that we can kind of follow over the next couple of quarters to see the success of this deal?

Question: Boris Butik - Penn & Capital - Analyst : Shall we continue to see sort of 20% growth rate in their business and then additional revenue synergies on your side?

Question: Boris Butik - Penn & Capital - Analyst : Thank you very much.

Question: Darren Faint - CIBC World Markets - Analyst : Just a quick question. Do you have any idea what the revenues or what you expect from this deal for revenues in Q4? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 21, 2005 / 2:00PM, OTEX.TO - Hummingbird Announces Agreement to Acquire RedDot Solutions

Question: Darren Faint - CIBC World Markets - Analyst : Okay. And I guess the thing is, too, probably just from the last question, no estimate, then, on cost synergies, then?

Question: Darren Faint - CIBC World Markets - Analyst : I was just wondering, is there any estimate on the cost synergies? I know the last caller tried to drill into that. I was just wondering, there's no estimate, then?

Question: Darren Faint - CIBC World Markets - Analyst : Okay. Thank you.

Question: Scott Penner - TD Newcrest - Analyst : Thanks. Just the one other thing I wanted to touch on is the development of the RedDot products. I would assume that takes place in Germany. Is that the plan to continue that?

Question: Scott Penner - TD Newcrest - Analyst : And just to remind me, Barry, do you right now manage a worldwide development? Do you have development centers in different countries?

Question: Scott Penner - TD Newcrest - Analyst : Okay, no, that's fine. Thank you.

Question: Trey Snow - Priority Capital - Analyst : The last few times, I believe, you've spoken about acquisitions you've said that you were going to focus on looking at acquiring perhaps in vertical markets or geographic markets and not so much product or technology, that Hummingbird enterprise had been pretty much built out. Had your thinking changed? Was there something timing-wise with RedDot that made you go ahead? And, as a second question, are you still looking at possibly acquiring something in the -- acquiring a vertical or a geographic market?

Question: Trey Snow - Priority Capital - Analyst : And any sense as to what their share is in sort of their target markets? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 21, 2005 / 2:00PM, OTEX.TO - Hummingbird Announces Agreement to Acquire RedDot Solutions

Question: Kevin Orem - Presidium Investment Management - Analyst : Just going back just a little bit more from the questions a couple calls ago. I realize from the strategic -- from a strategic standpoint what -- I think I understand what you guys are thinking there. But just in terms of deciding what price is the right price to pay, I have to believe there's some way to think about this in terms of this is the right price and, you know, if they ask for $100 million, I doubt you would have paid 100 million. So how do you know that this is the right price? The second question, related to the synergies, I know you can't really quantify the synergies, but can you give us any idea in terms of cost synergies? Is it small, large, relative to a typical software acquisition?

Question: Kevin Orem - Presidium Investment Management - Analyst : I see. So, 5 to 10%, even as a standalone Company, in otherwards without any synergies, that you think that they could have -- if they were just a standalone Company, you never bought them, you think they could do 5 to 10% next year?

Question: Kevin Orem - Presidium Investment Management - Analyst : Okay. All right, good. Thanks. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 21, 2005 / 2:00PM, OTEX.TO - Hummingbird Announces Agreement to Acquire RedDot Solutions

Question: David Klein - Raymond James - Analyst : Just going back to the EBITDA at a 5 to 10%, is that for 2005 or 2006?

Question: David Klein - Raymond James - Analyst : 2006, okay. And then when you're talking about breakeven what revenue level are you guys assuming?

Question: David Klein - Raymond James - Analyst : Okay. And then just going on the small and medium sized business market for ECM, how much faster do you see that growing relative to the overall market?

Question: David Klein - Raymond James - Analyst : Nobody has quantified it, though?

Question: Boris Butik - Penn & Capital - Analyst : I had a follow-up. What's the seasonality in the business? Is it, again, kind of typical of strong fourth quarter or -- and what percent is the revenue break down typically in the -- ?

Question: Boris Butik - Penn & Capital - Analyst : And so through the first five months, the 6 to 7 million you quoted, that is tracking 20% above the year before?

Question: Boris Butik - Penn & Capital - Analyst : Okay. Thank you.