Open Text Corp Q1 2012 Earnings Conference Call Summary

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

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : The contribution for partners, 44%, is obviously pretty strong versus the last quarter, for sure. Just any color as to whether -- as you said SAP is still about 10%, whether that uptick is related to more so for Microsoft or Oracle?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : And that uptick, is that related to primarily to the Global 360 acquisition?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : And then the similar question on the new name customers, 47% is a higher number than we've seen in some while. Any color as to what these new customers are interested in? 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/Waterhouse Securities - Analyst : Paul, do you have the contributions from Metastorm and Global 360 handy there?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : And then I was also going to ask about the cash impact of both the deferred revenue write- down and then the cash impact from charges in the quarter?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : And that charge of $15 million, will that pretty much clear out what you expected?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Just lastly John, any comments around seasonality for Q2 over to Q1, which has typically been a pretty big quarter? What would you say about it?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Right. So 5% to 10% down in Q3 and then, sorry, John, Q4 would be?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Just on the last point regarding the license, the seasonality for next quarter, does that factor in the fact that Global 360 should be down?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : And I realize this is probably pretty small, but what was the contribution of Operatel in the quarter?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Europe looks like it performed well, what are you hearing in Europe from the field as far as your pipeline there, just given the current macro environment?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : And on a related question, are you seeing any weakness at all in the public sector of financial services segments?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : No, just globally. It looks like public sector did well in the quarter, financial services seems like it may have been a bit down as a percentage. Going forward, how is the pipeline looking there?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : And then last 1 for me, can you apply some more color as to the Global 360 and Metastorm integrations are proceeding. I believe last quarter you talked about how it might take 2 of 3 quarters to fully integrate at which point license growth should resume. Is that still the expectation, is integration there fully on track.

Question: Michael Abramsky - RBC Capital Markets - Analyst : The number of large deals is jumping out. Can you talk a little bit about what's going on there. Is some of that some of the deals that might have slipped from the last quarter, are there some big deals in there of size, are they multi-year, different types of opportunities? Can you give us a little bit of color on that please?

Question: Michael Abramsky - RBC Capital Markets - Analyst : And how do you feel about a revenue lumpiness risk and/or deal slippage risk, given the environment?

Question: Michael Abramsky - RBC Capital Markets - Analyst : When you talk about expected seasonality, there could be some upside to your outlook in the sense that you're being conservative about trying to include some of those larger deals?

Question: Michael Abramsky - RBC Capital Markets - Analyst : When you still call for the margin impact coming off and synergies coming in on your acquisitions over the next 2 or 3 quarters, and starting to get back to normal model of 2013, what are some of the assumptions on that? Do you have good visibility into that?

Question: Richard Tse - Cormark Securities - Analyst : John, just following up on the integration question on 360 and Meta. Can you give some specifics in terms of how you plan on attacking the current installed base?

Question: Richard Tse - Cormark Securities - Analyst : Would your existing salespeople be selling the entire Open Text product line then? Or is it going to be a special group for these BPM products?

Question: Richard Tse - Cormark Securities - Analyst : And when you look at the core base, what you figure the penetration rates for these type of applications? Is it next to nothing?

Question: Richard Tse - Cormark Securities - Analyst : Yes. There's not a lot of overlap to that. So we've identified about 10 key accounts in Europe and 10 in North America, and we feel the initial interest from our core base has been very positive. And then just one last question on this Oracle partnership. Looks like 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. they've been ramping up efforts in content management again recently. Can you give us a bit an update on that partnership that you have with them and whether it has changed in any way?

Question: Stephanie Price - CBC World Markets - Analyst : Can you talk a bit about acquisitions Your cash flow in the quarter was strong again. Are you planning on taking a bit of breather while you integrate Metastorm and Global 360, or what should be thinking there?

Question: Stephanie Price - CBC World Markets - Analyst : And in terms of geography, you talked a bit about Europe, can you talk about where you're seeing the most momentum right now, and if you have any concerns in any particular Region?

Question: Stephanie Price - CBC World Markets - Analyst : And in terms of the pipeline, can you talk about it by vertical? In terms of where you are seeing strengths and weaknesses?

Question: Tom Liston - Versant Partners Inc. - Analyst : Just picking up on, I think it was Richard's question, on Oracle. Certainly in vendor invoice management, other areas, you will do well, but they are definitely being aggressive in the Web center offering that they have, specifically going after Documentum. Didn't seem nearly as broad [as ECM], but can you comment on they're trying to work the Web center. And some of the commentary from some of the industry participants worry about pricing pressure evolving over the whole ECM sector because they're making some noise and racket trying to capture those Documentum customers. Can we get some more color on that?

Question: Tom Liston - Versant Partners Inc. - Analyst : Is it too early to see if there's any pricing pressure as a result of there the noise they're are making?

Question: Tom Liston - Versant Partners Inc. - Analyst : And moving over to services line. Certainly it was pretty robust, seemingly ahead of most expectations, and certainly margins improved as I think you had previous commitments with some of the acquisitions that were lower-margin. Can you just walk through what was going on in the services side and obviously you've seen an improvement there?

Question: Tom Liston - Versant Partners Inc. - Analyst : Finally, Paul, just on deferred revenue year-over-year, and it certainly changed sequentially. Can you walk through that? It obviously looks weakish, but I suspect a lot of it's with Global 360 and timing around collections. Can you walk through that and then just remind us of your renewal rate 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.

Question: Tom Liston - Versant Partners Inc. - Analyst : And so Global 360 would be a similar collection period? Seasonality.

Question: Kris Thompson - National Bank Financial - Analyst : Just in your guidance, John or Paul, can you talk about the revenue you expect from the big deals, do expect that to go up or down sequentially?

Question: Kris Thompson - National Bank Financial - Analyst : No, I mean the total revenue from the large transactions. Do you think that is going to go up or down sequentially?

Question: Kris Thompson - National Bank Financial - Analyst : What I'm try to get that here, is I'm just wondering if some companies that you are dealing with are flushing out their calendar year-end budgets a bit early this year because they might get them cut right off next year if the economy still looks kind of crummy.

Question: Kris Thompson - National Bank Financial - Analyst : Just on the market here with HP finally closing this Autonomy deal. I'm just wondering if your getting inbound calls from prospective customers wondering if there's going to be some distraction there, if there's an opportunity for you guys with that whole integration going on?

Question: Kris Thompson - National Bank Financial - Analyst : And just a couple updates here on the CapEx. I think you guys are almost through you're CapEx for the Waterloo facility. What did you spend in the quarter and how much is left, if you don't mind?

Question: Kris Thompson - National Bank Financial - Analyst : And on the credit facility, I missed that. You said LIBOR-plus, you're on a scale up to 275 basis points?

Question: Kris Thompson - National Bank Financial - Analyst : I think last call you said you expected to be around 4.5% with your interest rate swap. Is that your target? 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: Kris Thompson - National Bank Financial - Analyst : And just last, the average deal size, is it still around $300,000?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : From emerging markets, what were the drivers of growth in terms of product offerings? Was it more on the compliance side or the other areas?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : And what percentage of license sales is from the emerging markets? I'm just wondering how that compares to a year ago.

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : So the increase, the 44%, the percentage of revenues from partners, was the increased more related to the partnership relationship with Microsoft and others relative to the emerging markets?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : And earlier you mentioned that there were some areas we you are already at capacity, is that on the professional service and training area, or are there other areas where you are feeling pinched?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : More for clarification, sounds like you have some good visibility and there's some larger deals that are in the pipeline. Is this business that's already been booked and already firm commitments, so it just a matter of deploying and recognizing the revenue at that point, or is there still potential that things can get delayed?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : And in terms of your pipeline, are you still continuing to see growth in the productivity-related and the newer social applications, or has the demand gone back to more compliance-related stuff?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Can you give a breakdown compliance versus productivity?

Question: Pardeep Sangha - PI Finanical - Analyst : If I could get some color on the competitive landscape. You did make a few comments already about not seeing much of the economy, but what else are you seeing in the market right now, and who are you seeing when you're doing RFPs and things like that?

Question: Pardeep Sangha - PI Finanical - Analyst : And another question with regards to cloud-based solutions, and can you add a bit more color there in terms of what you are seeing in industry and customer demand for that? Or is it really quite a bit of your demand seems to be on-premise offers still, are you seeing a shift there at all?

Question: Eyal Ofir - Canaccord Genuity - Analyst : I want to touch base again on emerging markets. We talked about have a total of 425 sales execs across the company, how many of those are actually not in America and emerging markets?

Question: Eyal Ofir - Canaccord Genuity - Analyst : I just gave the total, but I am wondering how many of your sales execs are sitting in -- 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: Eyal Ofir - Canaccord Genuity - Analyst : How has that changed over the last year? Have you had less than year ago or is it about the same?

Question: Eyal Ofir - Canaccord Genuity - Analyst : In your pipeline you talked about having some momentum in the emerging markets, is more than 4% to 5% of your pipeline from emerging markets?

Question: Eyal Ofir - Canaccord Genuity - Analyst : So it is the same level as recurring revenue? Maybe growing a little bit, if we looked a year back, it was 6%, 7%, and now we are looking at 8%. And I would see that growing. So it's about 8%?

Question: Eyal Ofir - Canaccord Genuity - Analyst : So it's basically all the emerging markets lumped into --

Question: Eyal Ofir - Canaccord Genuity - Analyst : That the trends are still positive. So you have 8% of your pipeline emerging, and about 4% to 5% of your revenue is from emerging markets?

Question: Eyal Ofir - Canaccord Genuity - Analyst : And just touching back on BPM, obviously the you hired a fairly well-seasoned exec to manage that business for you. What was the thought process to go external of Metastorm and Global, and can you just give us some feedback of what the customers have said so far with the decision and what the reaction has been internally?

Question: Eyal Ofir - Canaccord Genuity - Analyst : And he's only been there a little while, so has he given you having any feedback yet in terms of what the team looks like and the capabilities that he's got? Is he couple with it as is, or do you guys need to make some changes, not internally but also since you're looking externally to maybe acquire additional capabilities?

Question: Eyal Ofir - Canaccord Genuity - Analyst : And in terms of the technical capabilities, you've got everything you need in-house? You don't need to go and do another acquisition.

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : John, could you just provide us some with more color on what your seeing with your social media products? In particular, are you selling this more into your existing base or is this actually helping to draw in new customers to the business? We've obviously seen a couple of the headlines about this picked up in government areas, but I'm looking for a little more broad-based color on it.

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Did social drive any of the Q1 deals over $500,000?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : And Paul, just a quick one or you. Can you just clarify on the service revenue this quarter, I wasn't sure if I heard it right. Was there any 1-time increase in their service revenue this quarter and was there any hardware in the quarter?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Are you looking to add to your service base?

Question: Ralph Garcea - Northland Capital Partners Inc. - Analyst : 2 quick ones, if I may. First, do see Microsoft over time being a bigger contributor than SAP, just given all the leverage they get on their products, selling your products alongside SharePoint, Exchange, etc?

Question: Ralph Garcea - Northland Capital Partners Inc. - Analyst : It is a good problem to have. And then just lastly, when IBM took over FileNet, you saw some incremental benefit from it on the services side. Do you think you'll see that on the Autonomy as the service guys that were helping them, seeing that HP has EDS, maybe cross the floor and join you guys?

Question: Mike Anderson - Morgan, Keegan & Company - Analyst : This is Mike Anderson for Michael today. Just a couple quick questions for you. With respect to the number of deals that you were closing in more large deals, can you just give an idea of what the ASP was in the quarter? I think last quarter you said it was $300,000.

Question: Mike Anderson - Morgan, Keegan & Company - Analyst : And with respect to the services and having doing some subcontracting, I didn't see in the release, and maybe I missed it, you used split out the margins for each of those lines. Can you just give an idea of where those landed?

Question: Mike Anderson - Morgan, Keegan & Company - Analyst : And one last question, just with respect the talent, when you guys have been in the market have you found the recruiting environment tough or have you been able to pretty much source what you need in terms of people?