Open Text Q2 FY2005 Preliminary Results Transcript

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

Question: Tom Liston - Dlouhy Merchant - Analyst : John, could you just touch on any major themes in the quarter? I know it's early days, but at a high level, was there any positive impact from some of the changes in sales leadership or a year-end budget flush or even increasing fed to (ph) win rates that you can point to?

Question: Tom Liston - Dlouhy Merchant - Analyst : And you said there was 4 -- if I could call it bundling deals over $1 million in the quarter?

Question: Tom Liston - Dlouhy Merchant - Analyst : And just quickly, obviously, there is some strength in the bundling product. But is there any specific strength from the Livelink product set, or IXOS, or any material license deals from Vista Plus or Artesia in the quarter?

Question: Tom Liston - Dlouhy Merchant - Analyst : Understood. A quick comment on the Q3 pipeline?

Question: Mike Abramsky - RBC Dominion Securities - Analyst : Congratulations. Could you just comment -- how contributive were some of the license deals that might have been delayed from Q2 -- for example, SunCor -- into this quarter from Q1? And also, did you say whether or not there was customer concentration? Like were any of the customers greater than 10 percent?

Question: Paul Steep - Scotia Capital - Analyst : Could you maybe just talk a little bit about the strength in maintenance that you saw? Obviously, heading into the December year-end it looked particularly good. Was there any catch-up on the IXOS base you guys managed to capture?

Question: Paul Steep - Scotia Capital - Analyst : And then just -- either you or John, about the cost reductions you implemented. You talked a little bit -- what you'd achieved in the quarter. I missed that. And then, if you could say how much more there is potentially to come in the Q3 and beyond periods?

Question: Robert Schwartz - Jefferies & Company - Analyst : Yes; congratulations. What was the contribution in the quarter from Vista and Artesia?

Question: Robert Schwartz - Jefferies & Company - Analyst : And in the quarter, are you guys going to be taking any more deferred liabilities associated with restructuring or additions? You indicated in the Q you might. I didn't know if you did this quarter.

Question: Ed Maguire - Merrill Lynch - Analyst : Can you break out what the contribution is from the IXOS licenses?

Question: Ed Maguire - Merrill Lynch - Analyst : Fair enough. Could you talk about the linearity in the quarter? Was it typically more back-end loaded or less than you might normally see in a December quarter?

Question: Ed Maguire - Merrill Lynch - Analyst : Okay. And can you comment on -- just kind of a quick cut at where deferred revenues might trend?

Question: Howard Lis - JMP Securities - Analyst : A number of my questions have been answered. I have just one other 1. Can you tell us how much stock, if any, was repurchased in the quarter, please, and how much money you spent (ph)?

Question: Richard Tse - National Bank Financial - Analyst : I just wanted to ask you about the quarter, given it's above expectations. Does this not imply that your full year guidance may have to be revised upward?

Question: Richard Tse - National Bank Financial - Analyst : Right. And in terms of the effective tax rate, it seems a little bit higher than the 25 percent that you guys have been really focusing on. Is this a rate that we should kind of perceive going forward here?

Question: Martin Cecchetto - UBS - Analyst : I just wondering if you can comment on the percentage of overall exposure you have to the e-mail archiving and records management --?

Question: Martin Cecchetto - UBS - Analyst : Yes, revenue exposure. How much revenue from those 2 product areas in particular?

Question: Martin Cecchetto - UBS - Analyst : And just on operating margins, I'm not sure if there was a comment on that. Any idea where those ended up 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. JANUARY 05, 2005 / 10:00PM, OTEX.TO - Open Text Q2 FY2005 Preliminary Results

Question: David Wright - BMO Nesbitt Burns - Analyst : Congratulations here. Could you comment -- were there sort of more deals in the quarter, or were the deals that you expected to close larger than you expected?

Question: David Wright - BMO Nesbitt Burns - Analyst : So it sounds like the environment is a little better than you expected. Is there also competitive wins that you're expecting?

Question: David Wright - BMO Nesbitt Burns - Analyst : Okay. And if I go back, I don't know, 6 or 9 months or so -- at one time, I had 112 million forecast for this quarter, and have brought it down because of the issues of the last 6 months. So would you say -- are things better now than what you had expected 6 to 9 months ago? Or is this just that you had a weak quarter last quarter and now you have got a stronger quarter this quarter, and things are about the same? 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. JANUARY 05, 2005 / 10:00PM, OTEX.TO - Open Text Q2 FY2005 Preliminary Results

Question: David Wright - BMO Nesbitt Burns - Analyst : And seasonality -- if you could comment on that --? I think at one time, Tom put up a number that suggested that Q3 would be flat to somewhere down a little bit. Do you still think that, or is the environment better, that maybe it would be -- flat (multiple speakers) up?

Question: David Shore - Desjardins Securities - Analyst : Are you seeing anything competitively from some of the smaller competitors in pricing environments?

Question: Brandon Osten - Sprott Securities - Analyst : On the acquisition, the Artesia and Vista acquisitions -- did you say that added 5 million in total revenues in the quarter?

Question: Brandon Osten - Sprott Securities - Analyst : And could you tell us how much of that might have been licensed?

Question: Brandon Osten - Sprott Securities - Analyst : So like 25 percent license or 30 percent licensed?

Question: Brandon Osten - Sprott Securities - Analyst : And just an upper (ph) question here. If I were to add up -- like, last year in Q3, IXOS did about 21.1 million in license revenues. And you guys did about 28 million. So it's like 49 million, plus you have the currency. Is it just that IXOS had some unprofitable businesses that you guys have sort of siphoned off, because you're kind of 43 million versus -- if I added the 2 together, 49 million last year. What's the reasoning behind that?

Question: Brandon Osten - Sprott Securities - Analyst : Could you just give me 1 example of an unprofitable type of deal?

Question: Andrey Glukhov - Southwest Securities - Analyst : First, I'd just like to clarify. How many $1 million transactions did you guys have 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. JANUARY 05, 2005 / 10:00PM, OTEX.TO - Open Text Q2 FY2005 Preliminary Results

Question: Andrey Glukhov - Southwest Securities - Analyst : And secondly, since e-mail management is getting a lot of attention, how much help are you getting from some of your storage partners who partnered with you around those products?

Question: Andrey Glukhov - Southwest Securities - Analyst : So then in how many -- what percentage of deals would you say the storage vendors are involved?

Question: Andrey Glukhov - Southwest Securities - Analyst : And lastly, since you pretty much cut down a lot of the IXOS sales force in North America and installed new management, is IXOS in North America performing to your expectations as well?

Question: Ralph Garcia - Credit Suisse First Boston - Analyst : Great quarter. I'm just wondering; on the product roadmap side, if you can just give us an update on what you see coming out in calendar Q1 to sort of set up a nice license revenue line for your fiscal Q4?

Question: Ralph Garcia - Credit Suisse First Boston - Analyst : So there is no slippage on the schedule that you laid out?

Question: Ralph Garcia - Credit Suisse First Boston - Analyst : And then, I guess for Alan -- I don't know if you can give us any color on utilization rates on the services inside -- if that has improved at all or how that's performed in this quarter?

Question: Greg Smith - Haywood Securities - Analyst : You provided a range of adjusted guidance, EPS guidance for 2005. I was wondering if you could let me know what that is on a net income GAAP basis. I'm having just trouble reconciling the tax-affected amortization. Or should I be just using 4.6 million for the remaining 2 quarters? 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. JANUARY 05, 2005 / 10:00PM, OTEX.TO - Open Text Q2 FY2005 Preliminary Results

Question: Greg Smith - Haywood Securities - Analyst : Yes. What's that on a GAAP basis?

Question: Greg Smith - Haywood Securities - Analyst : I'm just having trouble getting to my adjusting number using -- you use, I guess, 4.6 million of tax-affected amortization, which you added back to your GAAP --

Question: Barbara Coffey - Brean Murray - Analyst : I had a question about whether or not particular industry verticals were fueling this nice growth, or if you were seeing strength across the board.

Question: Blair Abernethy - Paradigm Capital - Analyst : A couple of things. First of all I just want to clarify, Allen, on your large deals, can you just define for us again -- the greater than $1 million -- is that license, or is that license plus first-year maintenance? 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. JANUARY 05, 2005 / 10:00PM, OTEX.TO - Open Text Q2 FY2005 Preliminary Results

Question: Blair Abernethy - Paradigm Capital - Analyst : Okay. And on the geographic breakout you gave, is that on due (ph), or was that on license revenue?

Question: Blair Abernethy - Paradigm Capital - Analyst : And what was the cash balance at the end of the quarter and the cash flow during the quarter?

Question: Blair Abernethy - Paradigm Capital - Analyst : Positive? Okay. Positive -- do you think, up from last quarter, or --?

Question: Blair Abernethy - Paradigm Capital - Analyst : And just in terms of the for-ex impact year-over-year on license (ph) -- do you have that number?

Question: Blair Abernethy - Paradigm Capital - Analyst : Yes.

Question: Blair Abernethy - Paradigm Capital - Analyst : So $1 million to the positive?

Question: Blair Abernethy - Paradigm Capital - Analyst : And finally, just on -- I'm wondering, John, if you can give us an update on how things are going with some of the channel partners, particularly Deloitte, in terms of your pursuit of Sarbanes-Oxley opportunities?

Question: Blair Abernethy - Paradigm Capital - Analyst : And what about just -- IXOS had a relationship with EMC, had done some work with them prior to Documentum being brought into the fold. What's going on their?

Question: Damian Wojcichowsky - Credit Suisse First Boston - Analyst : Just quickly, if we take your 110 to 113 total, and we look at your 40 to 43 million in license revenue, we end up with a license mix of 36 to 38 percent, roughly. Year over year, that's down from the 45 percent you guys had last year. And also Q1 was down compared to last year. Are we moving into a more maintenance- and service-oriented mix? Or could we be expecting a license bump as you start selling some of your integrated products and rolling out some of your new products in early part of '05? 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. JANUARY 05, 2005 / 10:00PM, OTEX.TO - Open Text Q2 FY2005 Preliminary Results

Question: Stephen Li - Raymond James - Analyst : John, can you talk about how effective you are competing against Microsoft SharePoint?

Question: Stephen Li - Raymond James - Analyst : And for Alan, if you do about 110 revenues in Q3, should we expect adjusted EPS to be in the same range, or are their other synergies to be had?