Open Text Q1 2013 Earnings Conference Call Transcript

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

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Yes, kick it off with a quick two partner and that is, just if you could flesh out a little bit any commentary on the linearity in the quarter, whether you saw any change in buyer behavior really at the end of the quarter. And then just looking at the numbers in a little bit more detail, relative to your comments last quarter on seasonality, it looks like there was about an $11 million shortfall for license revenue? I'm just wondering if that -- if we can look at it and say that $5 million to $6 million of that has since closed in Q2, thanks.

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay, just maybe one more quick one, that is just, Paul, the charge in the quarter of $9 million, almost $10 million was higher than I think you'd indicated it would likely be in the first quarter when you commented last quarter. I was just wondering whether it's still aimed to be $10 million to $15 million in total and how that should look over the next couple quarters?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay, thanks, I'll pass it on. 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 : Hi, thank you, good evening. Mark just a question on the role of R&D investment and how might that lead to increased license growth. And by way of example, reviewing the BPM market forecast or positioning by Gartner, and it certainly had you in the niche category and you had a lot of product offerings there and had IBM certainly leading category. It feels to me that given the comments that an R&D investment would be the easier path to new license growth, if you can get up towards that leader quadrant in that situation and just maybe broadly speaking. And then R&D was down, the most in many quarters, and EasyLink was part of that. So, just some commentary if you're shifting R&D investment or if there's a role to play in driving license growth there.

Question: Tom Liston - Versant Partners Inc. - Analyst : Great, thank you.

Question: Richard Tse - Cormark Securities - Analyst : Yes, thanks, so Mark, you explained the License side of business. Can you help us give us a bit of confidence that the strategy is working here by talking about some other metrics? Perhaps talk about your pipeline today versus what it was last year before you came in and started moving on some of these strategies? And related to that, what gives you that confidence that that Q2 is going to be better than Q1? And I guess in terms of Paul, you talked about unusual short-term savings. Can you give us a bit more color on that side as well? Thanks.

Question: Richard Tse - Cormark Securities - Analyst : Great, thank you.

Question: Paul Steep - Scotiabank - Analyst : Great, thanks. Mark one for you and one clarification for Paul. On the Cloud side, I think you've articulated pretty strong vision here. Where do you see and how do you see it progressing maybe through just this fiscal year, without it going too far out in terms of exiting and either a target to revenue or total and how you originally go to that, to the existing original OpenText account base using some of the EasyLink tools? And then the clarification for Paul is just, it would be worthwhile, I think, to remind at least me, and maybe others, on deferred revenue, how that's going to build back in with lapping some of the acquisitions, as well as the impact on EasyLink as we think about 2014. Thanks.

Question: Paul Steep - Scotiabank - Analyst : Got it, thanks, Paul.

Question: Paul Trieber - RBC Capital Markets - Analyst : Thanks, the margins this quarter were very surprising, and beyond R & D, which you touched on, the OpEx -- your OpEx this quarter is below even Q1 last year despite the addition of EasyLink. Can you provide some more color on what drove the short-term savings in commissions and other costs? And is that related to the license -- the soft license, or is there something else in there?

Question: Paul Trieber - RBC Capital Markets - Analyst : Thanks, and one more. You've been in the market promoting your EIM vision for the last six months or so now. Can you provide some color on the feedback from customers on that strategy to date? And then are you finding that that strategy is engaging more C level executives than maybe you have done in the past?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Thanks very much. Paul, just a quick question for you. On the EasyLink revenues reported here just under $45 million, is that pure EasyLink or is there any legacy OpenText revenue in that line?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Would that have been in Captaris?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Okay and that was $1.4 million, was it?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Okay, and what lines would that have come out of, Paul?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Out of customer support, okay, great. Second question actually for you actually again. Just on -- can you give us some -- your thoughts on your debt position at this point and whether you are -- should we be starting to factor in maybe taking some of this down over the next couple of years from cash flow, or what's your thoughts on your balance sheet? 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: Stephanie Price - CIBC World Markets - Analyst : Good evening, gentlemen. I was hoping that we could go back to the pipeline. Other software firms have also called out a slow end of the quarter, giving concerns around the US election and the fiscal cliff. Are you seeing it now pick up in the US, or is the US still a bit weak here?

Question: Brian Freed - Wunderlich Securities, Inc - Analyst : Thanks for taking my call. You guys talked about public sector a little bit it, I think it was 90% in the quarter. I know you guys were part of an announcement for a very large deal for the US interior. Was any revenue or material revenue associated with that in the quarter, and what do you see as the timing and opportunity there?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Mark, you recently brought James Mackey on board into the organization. Can you provide some color on his role on the executive team and how the addition of James might shape your M&A strategy going forward? 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 : Okay, thank you. Thanks for taking my question, guys. Can I just ask about the SAP revenue in the quarter, how much there was of license? And then also when you look out into Q2, you talked about, obviously, the sequential growth should be higher than the traditional 40%. Is there a number you guys can give us? Is it north of 50% or 60% in terms of sequential license revenue growth? Thanks.

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Thanks very much. Mark, just wanted to ask you a little bit more about your sales force changes you put in in terms of both management and then also increasing the number of feet on the street. Can you just give us a sense of where -- how far along are you at in that process? And when do you think or when do you feel this is going to be stabilized?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Great. Thanks very much.

Question: Gabriel Leung - Paradigm Capital - Analyst : Hi, just two quick questions for Paul. First, just on the operating margins. I think the last time you'd sort of guided to where you think operating margins are going to come in for the current fiscal year, you had suggested perhaps flat year-over-year. Just given the Q1 performance in some of

Question: Gabriel Leung - Paradigm Capital - Analyst : All right, and then secondly, in response to a previous question, I just want to confirm something here. In the past, I think your seasonal guidance, I guess, for the December quarter was, I believe up 20% to 30% quarter-over-quarter, and I think you just said 10% to 20%. Can you just confirm your comments there? 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 : All right, that's great. Thank you.

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Mark, just a quick one relative to one of your comments in the prepared remarks, and that is some of the effect of getting more web-based applications over time into the cloud model. I think most people view your cloud model as essentially hosting, so I wanted to just sort of clarify whether there's any thought at this point to more of a SaaS model or really what you really meant by that.

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay, thanks.