Open Text Q1 2005 Earnings Conference Call Transcript

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

Question: Andrey Glukhov - Southwest Securities - Analyst : Two questions. First, John, could you please quantify the amount of the deal -- the dollar amount that actually closed following the end of the quarter?

Question: Andrey Glukhov - Southwest Securities - Analyst : The second question real quick. Again, on the services margin, I think that remains one of the focus for you. Where do you think it can trend up from these levels?

Question: Andrey Glukhov - Southwest Securities - Analyst : Thank you.

Question: Tom Liston - Dlouhy Merchant - Analyst : Good afternoon. Do you have any other metrics around the cross-selling opportunities between the two product groups, perhaps what part of the pipeline consists of cross-selling opportunities? The second part, have you made any changes to the incentives for traditional Livelink salesperson, for example, to bring in an IXOS rep and help close the deal?

Question: Tom Liston - Dlouhy Merchant - Analyst : Okay, thanks.

Question: Scott Penner - TD Newcrest - Analyst : Maybe just in light of the new management, could you just give for both the senior guy in Europe and North America a bit about their background and why it is an improvement on what was in place before.

Question: Scott Penner - TD Newcrest - Analyst : 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.

Question: Paul Steep - Scotia Capital - Analyst : John, can give us a quick update on IXOS with the data archiving product, the relationship with SAP, if there's been any changes and where the status is in that market? Thanks.

Question: Paul Steep - Scotia Capital - Analyst : Thank you.

Question: Mike Abramsky - RBC Capital Markets - Analyst : Hi, John. You talked about that SunCor one being a highly competitive win. Was this a competition that perhaps caused -- if that was the deal, that was one of those that was delayed -- a delay? And who were you competing against in that deal and just generally right now?

Question: Mike Abramsky - RBC Capital Markets - Analyst : And if it is executive timing, do you see those kinds of circumstances coming in on the larger deals? Normally, you are able to make your quarter on a large number of smaller deals.

Question: Mike Abramsky - RBC Capital Markets - Analyst : Thanks very much.

Question: Howard Lis - Griffiths, McBurney & Partners - Analyst : Good evening. In terms of the guidance you've got for Q2, could you just put that into context of how conservative that is, how much you have possibly taken into account other potential slippages and that sort of thing? Thanks.

Question: Howard Lis - Griffiths, McBurney & Partners - Analyst : Were there any either repricing of options that have been granted to key IXOS people or any new grants to any senior management of the companies you've recently acquired, including IXOS, since October 5?

Question: Howard Lis - Griffiths, McBurney & Partners - Analyst : Thank you.

Question: Steven Li - Raymond James - Analyst : John, what was the license contribution from IXOS?

Question: Steven Li - Raymond James - Analyst : How much remains of the excess restructuring charge on your balance sheet?

Question: Steven Li - Raymond James - Analyst : Thank you.

Question: David Shore - Desjardins Securities - Analyst : Could you talk about the integration of the newer acquisitions, Vista and Artesia, specifically on the product side and how that is progressing?

Question: David Shore - Desjardins Securities - Analyst : Thank you.

Question: Martin Cecchetto - UBS - Analyst : Could you talk about what your organic growth in the quarter was and what your expectations going forward are for your organic growth? 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.

Question: Martin Cecchetto - UBS - Analyst : Also, if I could add -- can you talk about how you're going to market with IXOS products right now? Are you selling them still direct or are you depending more on the channel for sales of IXOS products?

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

Question: Brandon Osten - Sprott Securities Ltd. - Analyst : Boy, a million questions. I wouldn't mind talking to you after the conference call. But for starters, sales and marketing expenses really came down a lot, and G&A expenses were really way ahead of my expectations. Can you maybe explain what happens there?

Question: Brandon Osten - Sprott Securities Ltd. - Analyst : And on the G&A fronts, that's not related, and why was that (multiple speakers) jumped like 4 million from Q4?

Question: Brandon Osten - Sprott Securities Ltd. - Analyst : Like back to 7 percent, 7.5 percent?

Question: Brandon Osten - Sprott Securities Ltd. - Analyst : Okay, thanks.

Question: Blair Abernethy - Paradigm Capital - Analyst : Just following on Brandon's question, what were the onetime items in G&A this quarter?

Question: Blair Abernethy - Paradigm Capital - Analyst : Okay. And I noticed your CapEx was up quite a bit this quarter. What was causing that and what are you looking at for a run rate for fiscal '05?

Question: Blair Abernethy - Paradigm Capital - Analyst : That's about $20 million?

Question: Blair Abernethy - Paradigm Capital - Analyst : And that is going to run through the year? 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.

Question: Blair Abernethy - Paradigm Capital - Analyst : And just in terms of acquisitions, Artesia and Vista, I would like to know what the contribution was in the quarter on revenues. And also what are you doing with the back office with these companies and also with IXOS in terms of your accounting systems? Are they harmonized? Is IXOS harmonized now, or what can you tell us on that side?

Question: Blair Abernethy - Paradigm Capital - Analyst : Okay. And what is the ForEx impact in the quarter?

Question: Blair Abernethy - Paradigm Capital - Analyst : So what was the impact on the top line in the quarter?

Question: Blair Abernethy - Paradigm Capital - Analyst : Okay, thanks.

Question: David Wright - BMO Nesbitt Burns - Analyst : Maybe I could just stay with that, on the Canadian dollar expenses, if that is going to cost you a little more, you said that that's factored into your guidance, but obviously it is going to cost you, so -- or does that just mean that you expect to now come in at the low end of your guidance?

Question: David Wright - BMO Nesbitt Burns - Analyst : Thanks. It sounded like you mentioned a change or a new title in the product development side in your opening comments. And I just was wondering what was driving that?

Question: David Wright - BMO Nesbitt Burns - Analyst : Okay, so there was no departures.

Question: David Wright - BMO Nesbitt Burns - Analyst : Thank you.

Question: Ed Maguire - Merrill Lynch - Analyst : Yes, first of all, could you quantify or just provide a little bit of color around what your license mix expectations would be for the December quarter?

Question: Ed Maguire - Merrill Lynch - Analyst : So kind of back to where you had been over the last few quarters?

Question: Ed Maguire - Merrill Lynch - Analyst : Could you also talk a bit -- it sounds like there's been some organizational changes in the sales force. Can you quantify the extent of layoffs or put a little bit more color around -- with new people stepping in, what type of new procedures or new pipeline scrubbing processes have you implemented? And again, how long do you think it will take time for the sales force to absorb this?

Question: Richard Tse - National Bank Financial Technology Group - Analyst : There seemed to be a little bit of an anomaly some of the things you were saying versus some of the calls we've heard in this ECM market. Are you saying that the environment is, I guess, decent, given that you are pricing aggressively. Or what are your win rates like to your competitors? I am just trying to reconcile what you're seeing versus the rest of the group here.

Question: Richard Tse - National Bank Financial Technology Group - Analyst : Has that increased or decreased? They say that they are not seeing you at all.

Question: Richard Tse - National Bank Financial Technology Group - Analyst : Okay, thanks.

Question: Barbara Coffey - Brean Murray - Analyst : Thank you. Can you speak a bit about the differences you are seeing by geography? Is the U.S. being constrained by regulations versus Europe, and if there are any dynamics that are different across geographies?

Question: Barbara Coffey - Brean Murray - Analyst : Interesting. And is there any catalyst that you see that might spark a little bit more action in the rest of world/Asian market? 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.

Question: Barbara Coffey - Brean Murray - Analyst : Thank you.

Question: Paul Lechem - CIBC World Markets - Analyst : Thank you. Could you talk a little bit about turnover in the company and specifically in the acquired IXOS operations?

Question: Paul Lechem - CIBC World Markets - Analyst : And is that 200 in addition to the layoffs they did before you did the acquisition?

Question: Paul Lechem - CIBC World Markets - Analyst : Okay. And could you talk a little bit about deal sizes? You had it remain around the 250,000 level for awhile. With the acquisition of IXOS, do you see that changing through time?

Question: Paul Lechem - CIBC World Markets - Analyst : Okay, thank you.

Question: Greg Smith - Haywood Securities - Analyst : Your guidance is based on 57.5 million shares. Can you just remind me the exercise price and expiry of those purchase warrants?

Question: Greg Smith - Haywood Securities - Analyst : Yes.

Question: Greg Smith - Haywood Securities - Analyst : And the date?

Question: Greg Smith - Haywood Securities - Analyst : Thank you.

Question: Paul Steep - Scotia Capital - Analyst : Hi. Alan, just to go back to what you or John had said about a new platform being announced. Incrementally in R&D, what we look for into the next fiscal year in terms of spend on 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.

Question: Paul Steep - Scotia Capital - Analyst : Okay.

Question: Tom Liston - Dlouhy Merchant - Analyst : A couple small follow-ups. What was in other income in the quarter --, other expense, I mean?

Question: Tom Liston - Dlouhy Merchant - Analyst : No small restructuring reversals or anything like that?

Question: Tom Liston - Dlouhy Merchant - Analyst : Can you remind me what the additional purchase consideration for prior period acquisitions would be? It's about 2.7 million.

Question: Tom Liston - Dlouhy Merchant - Analyst : Just on the cash-flow statement, it would be -- line item would be the additional purchase consideration for prior period acquisitions. Would that be additional buying of IXOS shares in the market or some type of earnout on a prior 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.

Question: Tom Liston - Dlouhy Merchant - Analyst : And final question, is there any changes to your cash tax assumption for this current year?

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

Question: Rajiv Das - Westwind Partners - Analyst : Can you tell us how much revenue contribution is included from Artesia and Vista in the Q2 guidance please?

Question: Rajiv Das - Westwind Partners - Analyst : Okay. And just in terms of the direct sales force headcount, can you give us a sense of what it was in Q4, where you are at at Q1 and what you think you'll finish the year at?

Question: Rajiv Das - Westwind Partners - Analyst : And what was it at the end of last year, please?

Question: Rajiv Das - Westwind Partners - Analyst : So you said there were a number of changes and cuts in sales and marketing organization.

Question: Rajiv Das - Westwind Partners - Analyst : I'm just trying to understand what the net reduction was.

Question: Tom Liston - Dlouhy Merchant - Analyst : Thank you very much.

Question: Robert Schwartz - Jefferies & Co. - Analyst : Thanks. Most of my questions have been answered. I was wondering about -- you mentioned platform revenues, maybe you could give some color about how important they were in the quarter and where you see them going as a part of your revenue.

Question: Robert Schwartz - Jefferies & Co. - Analyst : When you say three to four, three to four deals in total?

Question: Robert Schwartz - Jefferies & Co. - Analyst : Were they typical size or how do we think about -- were they average size deals?

Question: Robert Schwartz - Jefferies & Co. - Analyst : Got you. Thank you very much.

Question: Lawrence Rhee - Loewen, Ondaatje, McCutcheon, Ltd. - Analyst : Just wondering what stage you're in in terms of acquiring the remaining interest in IXOS, I guess the remaining 11 percent. And does your guidance of $1.10 to $1.30 for fiscal '05 assume that IXOS portion remains at 89 percent?

Question: Lawrence Rhee - Loewen, Ondaatje, McCutcheon, Ltd. - Analyst : Thanks.

Question: Howard Lis - Griffiths, McBurney & Partners - Analyst : Just a follow-up on the organic growth question that was asked earlier. You commented that you're comfortable with the kind of the future organic growth of 10 to 15. I think there was also a question on what was it in the quarter. Could you provide us with that? Thanks.

Question: Howard Lis - Griffiths, McBurney & Partners - Analyst : Okay, great, thanks a lot.

Question: Martin Cecchetto - UBS - Analyst : Just a couple of quick ones. What do you expect cash flow from operations, how do you expect that to trend over the next few quarters?

Question: Martin Cecchetto - UBS - Analyst : Can you talk about just expectations just generally in the market for companies to go through a Q4 budget flush?

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

Question: Nate Swanson - ThinkEquity Partners - Analyst : Maybe going back to the organic growth question one more time. If you were to strip out all of the license revenue from the acquisitions that you've done over the past year, what would your core license number be for this quarter?

Question: Nate Swanson - ThinkEquity Partners - Analyst : Okay, based upon your earlier comments it sounds like IXOS's license revenue was about 9 million this quarter. Is that a good number to use? 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.

Question: Nate Swanson - ThinkEquity Partners - Analyst :

Question: David Shore - Desjardins Securities - Analyst : Just following up on Nate's question there, what might be helpful then is if you could provide us, Tom, number of deals more than 50K, more than 250, and then the more than million, so we can see how those -- maybe the trend as it starts to develop on the platform side. 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.

Question: David Shore - Desjardins Securities - Analyst : Actually, I just had a follow-up question. Any changes as far as the verticals go? Are you still seeing strength in pharma, financial? Any changes in the mix there?

Question: David Shore - Desjardins Securities - Analyst : Sorry. Did you say financial was up or down?

Question: David Shore - Desjardins Securities - Analyst : Okay, thank you.

Question: David Wright - BMO Nesbitt Burns - Analyst : If I think back to the prerelease conference call, I think you mentioned that about three deals had slipped, and you said that one or two was IXOS. And then I asked at the time about how is Livelink and you said it was great. So it made me think that maybe there was another product line that none of us were asking, perhaps the Centrinity product line or something like that that missed. So I was just wondering on those deals that slipped, what was the product line and should we be asking questions around that?

Question: David Shore - Desjardins Securities - Analyst : You have many different product lines. I just wanted to --.

Question: David Shore - Desjardins Securities - Analyst : Okay. And many companies define new customers differently. Could you remind us how you define -- I think you said 59 percent of business came from new customers. Is that a new ship-to address of a new product, or is it totally new to you, or does an old IXOS customer count as new to Open Text?

Question: David Wright - BMO Nesbitt Burns - Analyst : So it is kind of a new ship-to address is a new customer. So then I'm surprised that the number is over 50 percent, if your cross-selling is the big story.

Question: David Wright - BMO Nesbitt Burns - Analyst : Okay, thanks.

Question: Scott Penner - TD Newcrest - Analyst : Just on the 10 to 15 percent kind of long-term organic growth, if you look across -- certainly the larger competitors in your space we hear from, the year-over-year growth rate is nowhere near that number right now. I'm just curious whether you had any comments as to what the industry analysts are seeing or what are you seeing that leads you to believe that growth may be getting stronger over time?

Question: Scott Penner - TD Newcrest - Analyst : Okay, thanks, Tom.

Question: Blair Abernethy - Paradigm Capital - Analyst : Just a couple of tag-ins. The IXOS stake, what is that percentage today?

Question: Blair Abernethy - Paradigm Capital - Analyst : 91 today. And that was 91 at the end of September, is (multiple speakers)?

Question: Blair Abernethy - Paradigm Capital - Analyst : Alan, what is your total cash flow expectation for 2005?

Question: Blair Abernethy - Paradigm Capital - Analyst : Okay. And just back to Artesia and the Vista acquisition, what dates did those two acquisitions close?

Question: Blair Abernethy - Paradigm Capital - Analyst : Alan, one more thing on the cash statement. Acquisition costs of $3.7 million in a quarter, what did that relate to and are we going to see that again in the next few quarters or is that done?

Question: Blair Abernethy - Paradigm Capital - Analyst : It is not restructuring? You've defined it as acquisition costs, so I'm just wondering how --

Question: Blair Abernethy - Paradigm Capital - Analyst : So you would put what in there, legal?

Question: Blair Abernethy - Paradigm Capital - Analyst : Okay, thank you.

Question: Robert Schwartz - Jefferies & Co. - Analyst : I just wanted to follow up again on the G&A. You mentioned a couple of programs and some work on Sarbanes-Oxley that sounded like that would be labor, but it looks like G&A is up about $3 million from where we thought it would be, and that's a whole lot of bodies for a quarter. I'm trying to reconcile that thinking. And maybe I misunderstand what it represents.

Question: Robert Schwartz - Jefferies & Co. - Analyst : Now, that's not headcount. That's actually consulting fees, right? So it is not an expansion to headcount that you are going to see long-term.

Question: Robert Schwartz - Jefferies & Co. - Analyst : It just looks like something like 80 bodies to me, if I think about how they work for (indiscernible) a month.

Question: Robert Schwartz - Jefferies & Co. - Analyst : Okay, thank you.

Question: Mike Abramsky - RBC Capital Markets - Analyst : John, typically, when you make sales changes of the kind that you're making and new executives come in, there is some ramp-up period. And also, I realize these folks have been working within the company, but clearly, they are now responsible for the number that was previously committed before they came into that role. I'm just wondering how you have accounted for that in terms of your guidance.