Open Text Q1 2008 Earnings Conference Call Summary

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

Question: Scott Penner - TD Newcrest - Analyst : Thanks. John now that you've owned Hummingbird for the full year, you've obviously made the decision to continue to refrain from providing guidance. Maybe you could just give us some of the considerations that went into that decision?

Question: Scott Penner - TD Newcrest - Analyst : Okay and just on that last quarter you gave some ranges per quarter I guess on sequential growth and if I have it right the Q2 was normally up 10 to 15% on the license side. Is that still -- have a range that you're comfortable with?

Question: Scott Penner - TD Newcrest - Analyst : Okay and it's also normally a very good quarter for services sequentially. Maybe you could just give us some color on the growth that you're expecting in the services business and then any update on I guess dealing with some of the problem contracts that you've mentioned over the past couple of quarters.

Question: Scott Penner - TD Newcrest - Analyst : Okay.

Question: Scott Penner - TD Newcrest - Analyst : Great. And then it's lastly on the verticals, there's obviously a lot of press about weakness in the financial services spending. Maybe you could just give us an update from your perspective and your business whether you're seeing any of that and what the strong verticals looks like from a pipeline standpoint?

Question: Scott Penner - TD Newcrest - Analyst : Great. Thank you.

Question: Paul Steep - Scotia Capital - Analyst : Great. John, maybe you can just help me reconcile something. I'm just working through on sort of the license growth on a year-on-year basis, on an organic basis. I get sort of a -11% number when you pull back in the Hummingbird. I'm just trying to understand obviously there's some product line in there that is having a little difficulty or a little weakness and a number of the changes you've made have addressed that hopefully. What's sort of the moving parts in here that are changing maybe in this quarter? Just for us to help think about it.

Question: Paul Steep - Scotia Capital - Analyst : Okay and just none of it was likely connectivity, maybe a little connectivity. I guess is there anything I don't know anecdotally you can provide us just in terms of sort of pipeline or number of clients that are sort of out there waiting. Cause I know yes, the DM6 was pretty broken when you bought it, to say the least.

Question: Paul Steep - Scotia Capital - Analyst : Okay to just key on that and finish up on it, just to clarify what you'd said before, you expected a ramp in Q3 and Q4. Were you referring to your fiscal year or the calendar year as to when the Hummingbird base would (inaudible) the new products?

Question: Paul Steep - Scotia Capital - Analyst : That makes sense. Alright, the last one then and I'll pass it on. Just it's actually for Paul or for you, just in terms of the long-term debt you've done a good job in drilling that down. What's sort of the target or the thoughts around it? I know every quarter you reevaluate but are you comfortable carrying any debt in the maybe the acquisition environment or buyback?

Question: Paul Steep - Scotia Capital - Analyst : Fair enough. I'll leave it there. Thanks guys.

Question: Tom Liston - Versant Partners - Analyst : Hi, thanks and good afternoon. Just along that theme, Paul what was the main criteria if you -- let's for example -- well, let's talk about acquisitions, but if you didn't have a tuck-in acquisition on the horizon, are you trying to maintain that about a $150 million. Is that a good criteria in terms of deciding whether to pay down the long-term debt? Is there any type of criteria that we can use to model this out?

Question: Tom Liston - Versant Partners - Analyst : And the other variable would largely be what the acquisition pipeline would look like?

Question: Tom Liston - Versant Partners - Analyst : And on that John what would you say now that we have Hummingbird reasonably integrated and fairly done and behind you. Do you feel that you have an ability to make another reasonable sized acquisition or how would you characterize the environment out there?

Question: Tom Liston - Versant Partners - Analyst : And would that be companies sort of in the $20 million or less type of revenue range or would you even go beyond that?

Question: Tom Liston - Versant Partners - Analyst : Okay and just on the -- to fall back on the question around the strength in Europe, was that largely just on the services side or because of SAP with the branded solutions and their sales force motivation was there a bit of pickup on that side as well in Europe?

Question: Tom Liston - Versant Partners - Analyst : And was there anything particularly that you can nail down that drove that performance?

Question: Tom Liston - Versant Partners - Analyst : Okay great. 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 - Versant Partners - Analyst : And finally I think you touched -- well you did touch on it but just on the maintenance renewals can you give us sort of an overall number at least you're not going to break it out but give us a bit of what you think the Hummingbird renewals will be coming in at or have come in at?

Question: Tom Liston - Versant Partners - Analyst : That's the overall business and Hummingbird's in around there as well?

Question: Tom Liston - Versant Partners - Analyst : Great. Thank you.

Question: Richard Tse - National Bank Financial - Analyst : Hey guys, a couple quick questions here. First on the operating cash flow this quarter, you know seasonally this tends to be a pretty slow quarter in cash and you guys did a huge number here. Should we think of the sort of the seasonal ramp like in past years that strengthens in Q2 and Q3 you've got sort of the big strong quarter or is this sort of changing the trend here?

Question: Richard Tse - National Bank Financial - Analyst : Okay and then with respect to the current competitive environment, one of your competitors said recently that they've been winning a number of existing Hummingbird clients off of you. Any commentary surrounding that as well as the broad environment and with FileNet and Documentum? 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: Richard Tse - National Bank Financial - Analyst : Okay and then finally on your partner channel, we had a chance to talk to some of them down at the -- your recent user conference and you're targeting 40% but given some of the enthusiasm around the partner channel, it sounds almost a bit conservative. Are you guys being conservative on that number or what do you think there?

Question: Richard Tse - National Bank Financial - Analyst : Okay great. Thanks,

Question: Mike Abramsky - RBC Capital Markets - Analyst : Thanks very much. The -- just wanted to go back on a couple numbers to make sure that I understand you clearly because normally your Q1 and I know this was asked previously but it is probably something to reiterate, is down 15% and you're down only 6% now. So what you're saying is though that wouldn't affect your normal Q2 seasonality being up 15%, the model you previously discussed from Q1?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. And on the organic growth, if we were to assume anywhere between 16 to 20% Hummingbird contraction, that would be about 13 to 15% organic growth for you. Is that correct? 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: Mike Abramsky - RBC Capital Markets - Analyst : Okay is that in line with some of the numbers that you had cited, which seem a little bit more -- which seem in line with that. So you're basically saying that you're comfortable on a forward 12-month basis with this kind of organic growth level. What are some of the key assumptions you're making to drive that? Because you've got Hummingbird base up sell, the existing and new customer growth. You've got partner leverage and then of course tuck-ins. Which are the biggest drivers of the assumptions for that forward organic growth?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Yes sorry.

Question: Mike Abramsky - RBC Capital Markets - Analyst : Great. Can you give us some sense of the scope of that and why, since you're taking conservative stance, like what is the potential opportunity within the Hummingbird base or the partner channel opportunity there or the farming of your base? Is there some examples you could cite or scope that you could illustrate?

Question: Mike Abramsky - RBC Capital Markets - Analyst : And okay, and then on the acquisition side, I know you did talk about tuck-ins of sort of 20 to 50. I just want to go back to the statement you were making on larger acquisitions cause I think that's probably what people might be a little bit anxious about shall we say is 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. whether you'll embark upon a larger acquisition? What the potential impacts might be? Can you tell us particularly given industry consolidation, can you tell us how people are thinking? How you're thinking about that?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay and would you -- what having gone through the IXOS and Hummingbird experiences now, what perspective do or parameters or limits do you bring to looking at the larger opportunities?

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

Question: Laurence Rulleau - Blackmont Capital - Analyst : Yes, thank you. Great quarter guys. Can you just add some color around your average sales prices. It looks like they're staying pretty well flat for the past few quarters. Now that the Hummingbird integration's pretty well complete, do you sense is that going to start to trend upwards over time? 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: Laurence Rulleau - Blackmont Capital - Analyst : I see and is there a range that you would expect this average deal size to get to over the next 12 to 18 months?

Question: Laurence Rulleau - Blackmont Capital - Analyst : Okay great. And obviously you've had great success on the partner channel. Obviously I guess with SAP specifically. Is there any more additional movement or color that you can add with respect to Oracle and what you're doing with them?

Question: Laurence Rulleau - Blackmont Capital - Analyst : Interesting. And lastly just with respect to one of your smaller competitors, Interwoven, obviously you saw the acquisition they made of I think it's a company called Optimost. Is that a company that you've seen in the past and how does that impact just the competitive environment I guess more in the web based management side?

Question: Laurence Rulleau - Blackmont Capital - Analyst : Great, great quarter guys. Thanks.

Question: Robert Schwartz - Jefferies & Company - Analyst : Thanks so much. One quick question for John then a couple on the cash flow. Just following up on this Oracle deal. Was that one done with their applications side of their business? And was there a system integrator involved or was it done with their database side of the business?

Question: Robert Schwartz - Jefferies & Company - Analyst : Great. Paul let me ask you, you get great cash flow in the quarter and a lot of that was tremendous collections. You had the lowest Q1 DSO in a long time. Should we expect the trend down in DSOs?

Question: Robert Schwartz - Jefferies & Company - Analyst : Okay and then maybe you can help explain a couple of things I see on the cash flow statement. It's purchase of assets constituting a business? What is that? It's about a $2.2 million charge?

Question: Robert Schwartz - Jefferies & Company - Analyst : Was that revenue in the quarter?

Question: Robert Schwartz - Jefferies & Company - Analyst : Can you tell us roughly how much it is? 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: Robert Schwartz - Jefferies & Company - Analyst : Okay thanks. And the other one was the acquisition related charges of $8 million. Are those related to Hummingbird and why are they continuing so far after the acquisition?

Question: Robert Schwartz - Jefferies & Company - Analyst : Okay. Thank you very much.

Question: David Wright - BMO Capital Markets - Analyst : Thank you very much. The connectivity business, which you operate separately from the other businesses, is there -- could you break that out for us? To tell us what the revenue was for that division?

Question: David Wright - BMO Capital Markets - Analyst : Okay. Just because it has different trends than the other businesses, so it's helpful to, yes and there's been no merging of assets that I can figure out so. 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 Wright - BMO Capital Markets - Analyst : Okay great. Thanks that's helpful. On the direct services and support expenses line, it was down sequentially in the quarter. I guess you've been doing some restructuring. But how was that achieved that through operations or just fewer people supporting?

Question: David Wright - BMO Capital Markets - Analyst : Yes. Should we expect it down a little further in Q2 or is it pretty much all in the third quarter?

Question: David Wright - BMO Capital Markets - Analyst : Okay, okay great. On the renewals I think you mentioned with Hummingbird 92, 93 so there is a little bit of slippage. Looking at who is not renewing, is there anything there that you see like would offering price incentives get them to renew or are they switching platforms or what do you see there?

Question: David Wright - BMO Capital Markets - Analyst : Okay. 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 Wright - BMO Capital Markets - Analyst : Okay yes.

Question: David Wright - BMO Capital Markets - Analyst : Okay. That's great. Thanks. One last thing is on your share count, how should we think about the diluted share count going forward? Now that you're quite a bit larger with the Hummingbird I would think that they'll be options set aside for more employees. You seem to be holding your absolute -- your basic share count fairly flat. But should we see the number rise throughout the year?

Question: David Wright - BMO Capital Markets - Analyst : Yes.

Question: David Wright - BMO Capital Markets - Analyst : So for this fiscal year?

Question: David Wright - BMO Capital Markets - Analyst : Okay. Thank you very much. Congratulations on 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.

Question: Brian Freed - Morgan Keegan - Analyst : Thanks for taking my call. Hey as we kind of look at the OpEx number going forward, you guys have done a good job driving leverage over the past year or so as you integrated Hummingbird, do you feel like there are still segments of your operating structure where there's additional leverage? And can you kind of elaborate what those might be?

Question: Brian Freed - Morgan Keegan - Analyst : Okay and should we look on the OpEx side? Would that be primarily G&A type things? Or do you think there's from a line item perspective or just --?

Question: Brian Freed - Morgan Keegan - Analyst : Okay thanks.

Question: Gabriel Leung - Paradigm Capital - Analyst : Thanks. A couple of questions. First on the partner front, obviously SAP has been a very good partner for you and probably one of your closest in terms of sales and marketing initiatives. When do you think Microsoft or Oracle or Accenture might also reach that level of intimacy with you guys? 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: Gabriel Leung - Paradigm Capital - Analyst : Do you think that's ultimately going to lead to a more formal agreement between the Microsoft Oracle parties similar to what you have with SAP?

Question: Gabriel Leung - Paradigm Capital - Analyst : Okay.

Question: Gabriel Leung - Paradigm Capital - Analyst : Secondly I just want to focus on I guess your seasonality guidance for a second -- assuming you guys do the 10 to 15% quarter-on-quarter growth in licenses. That would get you to around call it $51 million in licenses based on what you did this quarter. And I think last year you did $51 million as well and that's an apples-to-apples comparison. Given what you're seeing in terms of the industry growth, i.e. the 8 to 13% growth, would you guys be disappointed if you only hit that $51 million license revenue line?

Question: Gabriel Leung - Paradigm Capital - Analyst : Okay last question for you Paul, can you give us a sense of what you expect in terms of remaining cash restructuring charges as it relates to Hummingbird over the course of the fiscal 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: Gabriel Leung - Paradigm Capital - Analyst : Okay great, thanks guys.

Question: Gabriel Leung - Paradigm Capital - Analyst : Okay great. Thanks.

Question: David Wright - BMO Capital Markets - Analyst : Thanks very much. With the new products coming out, are they most likely to be recorded as upgrades and therefore in support or will they actually get recorded as new licenses?

Question: David Wright - BMO Capital Markets - Analyst : Very good. Thank you very much. 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.