Open Text Announces Preliminary First Quarter 2005 Financial Results Transcript

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

Question: Tom Liston - Dlouhy Merchant - Analyst : Hi good afternoon. Could you comment just further on where - - I assume the license portion of the revenue could you just confirm that the maintenance renewals were reasonable in the quarter and just talk about linearity in the quarter? 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. OCTOBER 05, 2004 / 9:00PM, OTEX.TO - Open Text Announces Preliminary First Quarter 2005 Financial Results

Question: Tom Liston - Dlouhy Merchant - Analyst : Were the any very, very large deals that were missed at the end? I know you said varying sized deals but --

Question: Tom Liston - Dlouhy Merchant - Analyst : Okay. Thank you.

Question: Andre Guca - Southewest Securities - Analyst : Yes, thanks. John since the most recent quarterly call was relatively late into the quarter. Are you doing any changes to your forecasting methodology? And on a related note, are we going to see any changes to your sales force?

Question: Andre Guca - Southewest Securities - Analyst : So I just to dwell on that, are you suggesting that the majority of the miss is coming from the IXOS side of the equation?

Question: Andre Guca - Southewest Securities - Analyst : All right. Thank you.

Question: Scott Kessler - Standard & Poor's - Analyst : Thanks very much. I guess what I'm curious about is you indicate that the competitive environment has not changed much, that the fundamental demand for ECM solutions remains intact. How do you know that? How do you know that these deals didn't necessarily slip for reasons that exclude, say, just bureaucracy? If you can comment on that, it would be appreciated.

Question: Scott Kessler - Standard & Poor's - Analyst : Okay. Fair enough. If I can just follow up. What degree of confidence do you have that these deals will in fact be signed? I'm not necessarily asking for, you know, an indication that they will be signed but I would ask if you can comment on, you know, some of the circumstances underlying some of the slippages, for example.

Question: Scott Kessler - Standard & Poor's - Analyst : Okay. Thank you.

Question: Ed Maguire - Merrill Lynch Canada - Analyst : Yes, just a question about your maintaining guidance for the year. With a shortfall like this, kind of coming after you saw softness in the core business in the last quarter, I mean, what - - you know, what is the rationale behind you know maintaining fiscal year '05 expectations? Wouldn't it be more prudent to lower the bar a little bit and, you know, does this assume that, you know, acquisitions might be necessary to fill in any gaps?

Question: Ed Maguire - Merrill Lynch Canada - Analyst : And then -- Sorry, go ahead.

Question: Ed Maguire - Merrill Lynch Canada - Analyst : Just whether acquisitions might be necessary. The need to achieve the original guidance.

Question: Ed Maguire - Merrill Lynch Canada - Analyst : One just final follow-up is in U.S. Federal vertical, I was getting feedback that things were difficult in September, spending and delay due to the Iraq war. Was there any impact?

Question: Ed Maguire - Merrill Lynch Canada - Analyst : Okay.

Question: Justin Wu - Desjardins Securities - Analyst : Hi, guys, quick question. I know this is really early in the quarter but have any of the deals that slipped, have any of them closed, yet?

Question: Justin Wu - Desjardins Securities - Analyst : I know you'll talk about it on the 28 but in terms of, I mean, the top line was, you know, kind of, you know, quite reasonable, but on the bottom line the guidance, compared to guidance, it was chopped down by quite a bit. Can you give us some color on that?

Question: Justin Wu - Desjardins Securities - Analyst : Thank you.

Question: Mark Abramsky - RBC Dominion Securities - Analyst : Hi guys. I just still having a bit of trouble understanding, maybe John you can just give us a bit more comfort around why you believe that, you know, you're not going to see the same kind of things going forward in terms of a bit of a surprise for yourself on deals closing? Is this just kind of a risk that investors will need to take or are there dynamics that happen in this situation that you feel comfortable you're not going to be repeating?

Question: Mark Abramsky - RBC Dominion Securities - Analyst : Does that sort of imply some of this miss was related to some potential cross-selling or synergy that you were expecting between the two teams at this stage? 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. OCTOBER 05, 2004 / 9:00PM, OTEX.TO - Open Text Announces Preliminary First Quarter 2005 Financial Results

Question: Mark Abramsky - RBC Dominion Securities - Analyst : Okay. But I thought earlier you said it was IXOS was related.

Question: Mark Abramsky - RBC Dominion Securities - Analyst : Okay. And was there any event, - - you know, last quarter you said that you were basically building guidance now on a very, very conservative basis.

Question: Mark Abramsky - RBC Dominion Securities - Analyst : I guess on that basis, you know, you had visibility into what you had, but now going forward do you think that that working together is really the primary issue that's going to, you know, give you confidence and give us confidence that you're actually seeing what you're going to be able to deliver?

Question: Mark Abramsky - RBC Dominion Securities - Analyst : Okay. Thanks.

Question: Brandon Austin - Dupont Securities - Analyst : Hi, guys, I know it is early and just from a much more esoteric, philosophical point of view, for lack of a better term, is this a miss on top of, you know, what was generally seen as weak guidance here? If I had IXOS and Open Text last year on the license side, I believe license revenues would be down about 20%, organically, you know, I know you guys say you have the same opinion of the sectors you had 3 months ago. Maybe you can talk about what your opinion of the sector is relative to 6 months ago or maybe when you made the decision to buy IXOS, what is really changed 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. OCTOBER 05, 2004 / 9:00PM, OTEX.TO - Open Text Announces Preliminary First Quarter 2005 Financial Results here that's really stalled out the growth and seemingly created a bit of shrinkage, I mean even if FileNET made their quarter paying on their license revenues would still be down year-over-year slightly. So maybe if you can comment on that end from a market point of view.

Question: Brandon Austin - Dupont Securities - Analyst : Okay. Thanks John.

Question: Howard Lis - Gmp Securities Ltd. - Analyst : Yes. Good afternoon thanks. Just wanted to go back to understanding what you guys consider to be conservative guidance. When I would think of providing guidance that is conservative, I would assume there is a buffer built in there for unexpected delays, such as people being out of the country, deals that you - - sales that you are quite confident will close but for some reason or other won't. That to me would define conservative guidance. The fact that you provided what you call conservative guidance, yet these factors happened and you missed, sort of makes me question what is it that you're building by way of buffer into your guidance and what in fact you do consider conservative?

Question: Howard Lis - Gmp Securities Ltd. - Analyst : Okay. And now the large deals that didn't close in the quarter, were those - - sorry, were those IXOS or Open Text's transactions?

Question: Howard Lis - Gmp Securities Ltd. - Analyst : Right. And is it your sense that any of the larger deals have to be toned down as opposed to size to get them at least partially over the goal?

Question: Howard Lis - Gmp Securities Ltd. - Analyst : Okay. And you've maintained the guidance for the year. Is there any guidance for the next quarter, though, that you wanted to update on?

Question: Howard Lis - Gmp Securities Ltd. - Analyst : Okay. Great. Thank you.

Question: David Wright - BMO Nesbitt Burns - Analyst : Thanks, very much. Tom, you made a presentation last week and you provided some seasonal guidance. And if I kind of take the mid-range of what was offered as guidance for Q1 and use your seasonal guidance, it would suggest 400 million in revenues, plus the acquisition that you have done and whatever it contributes to this year, whether it is $15 or $20 million. So that gets you to the low end of the guidance range. So, I guess I'm wondering if you are remaining your 420 to 450 range. How much of that is planned acquisition? 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. OCTOBER 05, 2004 / 9:00PM, OTEX.TO - Open Text Announces Preliminary First Quarter 2005 Financial Results

Question: David Wright - BMO Nesbitt Burns - Analyst : So you should end up where? Approximately half-way in the midpoint?

Question: David Wright - BMO Nesbitt Burns - Analyst : On the deals that missed which John you just mentioned were 3 sort of deals, is there a geographic location that's a theme here, or is it all U.S.?

Question: David Wright - BMO Nesbitt Burns - Analyst : Okay. And I guess you've broadly generalized this as an Open Text mix and an IXOS but within Open Text, you know, are there various product

Question: David Wright - BMO Nesbitt Burns - Analyst : But the miss was on the on the Livelink product line itself?

Question: David Wright - BMO Nesbitt Burns - Analyst : So it was a non Livelink product line? 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. OCTOBER 05, 2004 / 9:00PM, OTEX.TO - Open Text Announces Preliminary First Quarter 2005 Financial Results

Question: David Wright - BMO Nesbitt Burns - Analyst : Okay. Thanks very much.

Question: Martin Cecchetto - UBS - Analyst : Yes. Thank you. I was hoping first of all if you could talk about any success or lack thereof that you've had with generating new customers versus just leveraging your install base?

Question: Martin Cecchetto - UBS - Analyst : And to follow on with that, you say you haven't seen the market change but do you think it's possible that customers are taking a closer look and now than they have been before with companies like, you know, large providers like IBM and EMC and that could be causing the lengthening of the cycle that you saw in your missed deals.

Question: Martin Cecchetto - UBS - Analyst : Okay.

Question: Martin Cecchetto - UBS - Analyst : Okay. Also just a follow on. You've talked about these execution issues, is it possible that we could expect some personnel changes to try to prevent these execution issues from happening again in the future? 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. OCTOBER 05, 2004 / 9:00PM, OTEX.TO - Open Text Announces Preliminary First Quarter 2005 Financial Results

Question: Martin Cecchetto - UBS - Analyst : If I could follow on as well, specifically on records management from the channel, there has been some focus on demand in that particular application.

Question: Martin Cecchetto - UBS - Analyst : Have you been effective in selling that application separate from the Livelink platform?

Question: Martin Cecchetto - UBS - Analyst : Okay. Thank you.

Question: Richard Tse - National Bank Financial - Analyst : Yeah, just wanted to follow up on the execution issues. Is it possible that, and we addressed this on the previous call, but is it possible that the management team here is a little thin? And if you're going to have to hire to build up the ranks, obviously that's going to have an impact in your operating costs. No?

Question: Richard Tse - National Bank Financial - Analyst : Okay. And with respect to your margins going forward, assuming the revenues come in line with what you're expecting, can you give us a sense of kind of your operating margin ramp by quarter? Because if you kind of used a number of consistent with last year's margin, and it's tough actually getting to your guidance number in the earnings line. So if you could give us some color, that would help out.

Question: Richard Tse - National Bank Financial - Analyst : Okay. And finally, I don't know if you can answer this, had you made these deals over the last quarter, can you give us a sense of where you would have been on the revenue side, you know, I guess in terms of your range? Your range here was 87 and 93 and would you have been at the bottom end or top end or what? You know, just one of the deals John is talking about would have put us at the low end of the guidance.

Question: Richard Tse - National Bank Financial - Analyst : Okay. Great. Thank you.

Question: Andre Guca - Southewest Securities - Analyst : Yes. Thank you. Could you comment on whether the 2 acquisitions that you made at the end of last quarter contributed anything this quarter?

Question: Andre Guca - Southewest Securities - Analyst : Okay. And then a quick follow-up on the margin question. I think one of the primary goals for this quarter was to fix the services margin in IXOS. Where do you guys stand on that in overall services margin?

Question: Andre Guca - Southewest Securities - Analyst : All right. Thank you.

Question: Barabara Coffey - Brean Murray & Co. - Analyst : Yes, you did say a couple of deals had slipped. But are you seeing any real change in sales price? Are they because of these additional sign-offs, have you therefore adjusted your pipeline analysis?

Question: Barabara Coffey - Brean Murray & Co. - Analyst : Thank you.

Question: David Kwan - Raymond James - Analyst : Actually it is David Kwan for Steven Link. Just a quick question for you guys. You guys mentioned that the paperwork is in place for deals that slipped and just need to be signed off. So would it be fair to say that you expect to make up the miss this quarter?

Question: David Kwan - Raymond James - Analyst : Okay. Great. Thanks.

Question: Mark Schappel - Keybanc Capital Mkts/Mcdonald - Analyst : Hi, just want to make sure I touched the license revenue that it was mentioned, was that 23 or 25 million? Did I catch that right?

Question: Mark Schappel - Keybanc Capital Mkts/Mcdonald - Analyst : And Alan, how do you see the license service mix going forward for the rest of the year here? Maybe a better question is how should we view it?

Question: Mark Schappel - Keybanc Capital Mkts/Mcdonald - Analyst : Thanks.

Question: Blair Abernathy - Paradigm Capital Inc. - Analyst :

Question: Blair Abernathy - Paradigm Capital Inc. - Analyst : Okay. So one new one on the missed side. And then on the 2 million-plus deals you did close? 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. OCTOBER 05, 2004 / 9:00PM, OTEX.TO - Open Text Announces Preliminary First Quarter 2005 Financial Results

Question: Blair Abernathy - Paradigm Capital Inc. - Analyst : Okay. One on one?

Question: Blair Abernathy - Paradigm Capital Inc. - Analyst :

Question: Blair Abernathy - Paradigm Capital Inc. - Analyst : Do you think it was favorable or unfavorable?

Question: Blair Abernathy - Paradigm Capital Inc. - Analyst :

Question: Blair Abernathy - Paradigm Capital Inc. - Analyst : Okay. Thanks.