Open Text Q1 2010 Earnings Conference Call Transcript

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

Question: Scott Penner - TD Newcrest - Analyst : Just on the license revenue, first of all. I think it's fair to say it was below what most people were expecting. You said soft relative to your own expectations. I know you don't normally go to this level of detail, but last quarter you had expressed some concern with the state of the pipeline in the Vignette business when you were in the midst of acquiring it. Did that revenue come in line with the 30 to 40% attrition or was it basically below that for 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: Scott Penner - TD Newcrest - Analyst : And do you have any -- in talking to your customers, do have expectations that once this roadmap is unveiled at the user conference and gets discussed that that backlog will clear up or any sense of how long it's going to be until people are comfortable?

Question: Scott Penner - TD Newcrest - Analyst : Okay, that's helpful. But, Paul, on the cash flow statement, there's a couple of line items that I just want to be clear of. I think the release -- let me make sure I phrase this right. The $4.4 million release of unrealized gain?

Question: Scott Penner - TD Newcrest - Analyst : Where is the income item on the income statement?

Question: Scott Penner - TD Newcrest - Analyst : Okay and the realized gain on the financial instrument, that is in reference to the collar?

Question: Scott Penner - TD Newcrest - Analyst : Fair enough. And just, John, lastly, any more details on the -- you talked about the European government deal. Just what exactly they are -- what exactly they are rolling out and how much of a reference customer this could be?

Question: Tom Liston - Versant Partners Inc. - Analyst : Hi, thank you and good afternoon. John, just with the SAP and extended ECM, could you give us some -- the details are a little bit sparse I guess right now, at least what we have come across. Can you tell us a little bit more about what that involves? Is it similar to your other agreements in the past with SAP? Is there anything specific in terms of geographies and such that maybe (inaudible) conflict and the like?

Question: Tom Liston - Versant Partners Inc. - Analyst : Okay and sorry to make you go through it again, Paul, but in my mind, there's a few things missing from the cash flow between the four and a half-ish or whatever it was quarter to the 27 you have got to. Obviously there's the Vignette peace. But Vignette, they are -- I think it was only in the $20 million range. Can you kind of walk through how you got the 27 normalized type number?

Question: Tom Liston - Versant Partners Inc. - Analyst : And the rest of special charges, are they -- of 18.6 -- are they related to Vignette as well? Or are some of those Captaris and other things that you are doing? 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 : In terms of Scott's question earlier, is this going to involve sunsetting of the existing WCM products that you're going to talk about over the next few days or -- in terms of the roadmap, can you give us a bit of color at least before the event starts?

Question: Richard Tse - National Bank Financial - Analyst : Okay and then when you talked about you're comfortable with the First Call numbers and then you sort of look at the pickup potentially from the WCM side of the business, I am assuming that is in your numbers or that would be sort of over and above here?

Question: Richard Tse - National Bank Financial - Analyst : Okay, so you're assuming (technical difficulty) pickup in Q3?

Question: Richard Tse - National Bank Financial - Analyst : Right and in terms of the partnerships, there's been some chatter here that you're looking to sort of replicate what you're doing with SAP on the Oracle side. Can you give us some maybe commentary on that 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: Richard Tse - National Bank Financial - Analyst : Just one final one with respect to the government of Ontario win recently. When can we expect to see some revenue pickup from that side?

Question: Paul Steep - Scotia Capital - Analyst : Really hard to hear you with the static, so I will make it fast. The first one is just, John, if I heard you right here, on the maintenance support, it sounded like you expected just a small hit on Vignette. That sounds different than prior deals where you have had a bigger impact and it also sort of goes to the question to Paul. I thought I heard a $9 million purchase price adjustment in the quarter but I want to make sure that's right too.

Question: Paul Steep - Scotia Capital - Analyst : Sorry, $400,000 in the next three? You literally broke up on the last bit there.

Question: Paul Steep - Scotia Capital - Analyst : No problem. 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, perfect. So that covers that one. The last one for you and then I will move in is just around the tax pools for Vignette. Those are pretty substantive. Has there been any sort of resolution on that as to how you might be able to value those and bring them on maybe as a tax asset or utilize those?

Question: Michael Abramsky - RBC Capital Markets - Analyst : Yes, thanks very much. Again I apologize as well because I couldn't really hear much on the line. John, what gives you confidence to resume revenue guidance now? Are there macro issues or specific issues? And could you specifically give us some sense of what is the risk given it's now sort of been a couple of quarters in a row that you've seen some deal slowdown in WCM that the pickup could be pushed out a bit?

Question: Michael Abramsky - RBC Capital Markets - Analyst : Okay (multiple speakers) 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: Michael Abramsky - RBC Capital Markets - Analyst : The other question was what the risk was of the expected pickup in WCM coming being delayed.

Question: Michael Abramsky - RBC Capital Markets - Analyst : Okay, so you feel you've got good coverage on your outlook.

Question: Michael Abramsky - RBC Capital Markets - Analyst : And you are -- it looks like -- and again, perhaps this question has been asked. I apologize, just couldn't hear. But your G&A was a little bit higher than expected. It was about 10% of revenue versus 9.4% in 2009. Can you give us an indication, was that near-term Vignette related or how do we think about the trend going forward? I know you did mention your business model earlier but I just couldn't hear everything.

Question: Michael Abramsky - RBC Capital Markets - Analyst : So are you assuming that that [GM] would return to your normal business model levels in order to achieve the Street EPS guidance?

Question: Dushan Batrovic - Canaccord Adams - Analyst : Is it fair to assume with the commentary that the Vignette side is looking to pick up in Q3 and Q4 with the release of the new products? And sounds like from a macro spending standpoint, again seems to be a little more back end weighted. I know you also said seasonality is going to be typical but could we see a bit of a weaker Q2 then just based on the commentary around more of a resurgence in the second half?

Question: Dushan Batrovic - Canaccord Adams - Analyst : And so you did say that so far, Q2 was shaping up to be reasonable based on historic standards?

Question: Dushan Batrovic - Canaccord Adams - Analyst : On the geography side, it seems like on a quarterly basis, we haven't seen much of a trend between Europe and the US. Is there anything we can say that you have seen longer term that would suggest one region is starting to respond to I guess the recession and spending rebound differently from another region or is it pretty typical based on what you've seen in the past?

Question: Scott Penner - TD Newcrest - Analyst : Just a follow-up. John, I think you had mentioned the releases on Vignette. I think you said V8 of the Content Management and Version 8 of the Portal. In the second half of -- what was it? This 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: Scott Penner - TD Newcrest - Analyst : Just to be clear on the strategy here, I mean you mentioned and talked about some problems that Vignette customers were having with previous releases and how that was starting to get a little bit stabilized and now you have the new release coming out. I can recall with Hummingbird, the strategy was to go in and basically fix up the most recent of the old releases before moving people. Is this similar or is this a different strategy just trying to get people to upgrade?

Question: Dushan Batrovic - Canaccord Adams - Analyst : Sorry, 10 -- you mean Version 8?

Question: Scott Penner - TD Newcrest - Analyst : Okay, is it a costless migration for Version 5 and 6 customers to move either to 7.7 or straight to 8?

Question: Paul Lechem - CIBC World Markets - Analyst : Thank you and good evening. Just on the restructuring activities around Vignette, I was wondering could you give us some of the details in terms of when you expect to record further charges and the outlay of cash associated with them? 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 Lechem - CIBC World Markets - Analyst : Sorry, the first part you said, the charges, you expect to record similar charges for Q1 in the next two quarters?

Question: Paul Lechem - CIBC World Markets - Analyst : In terms of the workforce reductions, where are you at in that activity and when do you expect to be completed by?

Question: Paul Lechem - CIBC World Markets - Analyst : So when do you hope to be at the $40 million annual cost savings run rates?

Question: Paul Lechem - CIBC World Markets - Analyst : On the salesforce, I believe, John, you mentioned you were at 345 reps versus 269, if my notes are correct, at the end of last quarter.

Question: Paul Lechem - CIBC World Markets - Analyst : Is that -- it sounds like a big delta in terms of the number of reps. Is there something you expect to do on the salesforce side? Where would you expect to be? Is there still work to be done in terms of reworking the salesforce? 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 Lechem - CIBC World Markets - Analyst : On the SAP agreement, the latest expanded agreement, when would you expect to start to see actual benefits from that? When would you expect to see your revenue pick up from that agreement?

Question: Paul Lechem - CIBC World Markets - Analyst : Is their salesforce fully trained now or is that ongoing?

Question: Paul Lechem - CIBC World Markets - Analyst : Okay and lastly just on your comments on your Web content management, you haven't given out any granularity in terms of product breakdown. But I am just trying to get a sense -- you've always -- well not always -- for the last several years, you've talked about e-mail archiving and records management has been the mainstay of business and that's really the driver. And yet it seems that from your comments now that Web content management is actually quite a significant part of business. Can you give us any sense of magnitude of Web content management versus sort of the core document management, record management, e-mail, archiving that kind of (multiple speakers)

Question: Paul Lechem - CIBC World Markets - Analyst : So is Web content management now -- it's a growing part of your business or how should we think about it in terms of magnitude of the business? 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 Lechem - CIBC World Markets - Analyst : How was your core -- license sales from your core ECM business? How would that have been in the quarter? Would that have been down also in the magnitude of the 6% number or was that actually a more stable business in the quarter?

Question: Gabriel Leung - Paradigm Capital - Analyst : Just two quick housekeeping questions for you, Paul. First on the tax rate, do you still expect that to sort of end the year at around 26%?

Question: Gabriel Leung - Paradigm Capital - Analyst : Secondly, can you talk about how much of the $50 million in cost savings you've realized thus far?

Question: Gabriel Leung - Paradigm Capital - Analyst : Lastly, John, can you talk about how the -- I guess there was some management transition or restructuring after John Wilkinson departed last quarter. How has that worked out for the Company thus far? 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 : So you wouldn't say any of the recent license shortfalls related to some of the management transitions that you had?