Open Text Q1 2014 Earnings Conference Call Transcript

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

Question: Richard Tse - Cormark Securities - Analyst : Yes. Thanks, Mark. With your comments on the government shutdown, I just want to get a sense of in post that shutdown today where your sales stand. Have things noticeably turned around? I have got a related to question to that after.

Question: Richard Tse - Cormark Securities - Analyst : So related to that, I think in the past you have broadly talked about growth expectations in the order of 10% on licenses. You know given that turnaround in terms of the pipeline, should we expect that, that is a pretty good bogie that we are shooting for this 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: Richard Tse - Cormark Securities - Analyst : And then one last question on Red Oxygen. Given that you are consolidating the portfolio, I'm guessing that the price points are going to be higher. So can you give us what your ASP was for this quarter and your expectation for the ASP's of each module looking out into Red Oxygen?

Question: Richard Tse - Cormark Securities - Analyst : Okay. Thank you.

Question: Scott Penner - TD Newcrest - Analyst : Thanks, Mark. I would just like to ask a bit about the capital allocation strategy as it stands right now. As you have pointed out the license revenue has been a bit disappointing the last two quarters and yet if you look, at as you mentioned, the cash, even net of acquisitions, is up over $50 million in the last couple of quarters. So what can you do -- what is the plan for that cash going forward? Is it to secure additional acquisitions and then assuming that is probably the answer, what kind of comments can you give us on the outlook for the deal environment right now?

Question: Scott Penner - TD Newcrest - Analyst : And just on the valuation of deals as you look out right now, even the past -- you repeated that you want to be a value buyer. What have you seen in terms of the valuations of targets you may be approaching? Are they in the ballpark of what you are willing to pay or are they creeping up?

Question: Scott Penner - TD Newcrest - Analyst : One question for Paul, the special charges were expected to be $5 million to $6 million. They are little bit below that. Can you give us an outlook of the next couple the quarters on that?

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

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Hello. Good afternoon. Mark, can you comment on the level of sales turnover in the quarter? We saw a higher level than typical during the last September quarter. I was wondering if it was more consistent with historical average this quarter or if there was any difference in that regard?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : On a year-over-year basis we should still think about you guys being 20% higher in terms of sales headcount than you were last year?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Okay. A question for Paul. Paul, can you break out the contribution from ICCM and Cordys in the quarter?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Okay. That is helpful. And just one last one for me. Mark, can you clarify the professional service line? That was down year-over-year and

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Okay. Thanks guys. I'll pass the line.

Question: Paul Steep - Scotia Capital - Analyst : Thanks. Mark, maybe you could talk a little bit about the metrics you are thinking about and the Board is thinking about in terms of measuring success for Red Oxygen when it launches. How are we going to determine when you have won or when we are there? And that is the first one.

Question: Paul Steep - Scotia Capital - Analyst : So on that same topic again, just a last one for me, it would be. What is the plans or maybe you can remind us what the stance is toward customer support or migration towards Red Oxygen and what the expectation would be in terms of when you think you want to move the base over? Thanks. 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 : Sorry. Just to clarify. It was not so much about pricing, I just wanted to see what is the policy on end of license legacy products? What is the force or the push to migrate people more quickly. I should have been more clear.

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

Question: Eyal Ofir - Clarus Securities - Analyst : Thanks. Just to follow-up on the gross margin line, Paul, I think you mentioned on the early part of the call that cloud services was in 51% without the reversal? Is that correct

Question: Eyal Ofir - Clarus Securities - Analyst : Oh, 61% okay. Perfect. And then, Mark, you talked about how you're starting to see some of demand in the quarter but, noting the release of Red Oxygen could that also create a drag for you in the current quarter as well as people anticipate the general release?

Question: Eyal Ofir - Clarus Securities - Analyst : Okay. And then you expect Red Oxygen to be a positive impact in the fiscal third quarter.

Question: Eyal Ofir - Clarus Securities - Analyst : And also in the fiscal fourth?

Question: Eyal Ofir - Clarus Securities - Analyst : Okay. And then just on the pipeline of opportunities you guys are chasing. Its a pretty healthy pipeline. Some of the software vendors that have missed in the quarter as well have also talked about the same thing. Where is that pipeline coming from and in terms of execution, obviously we had some issues over the last two quarters. What gives you confidence you can turn this ship around from an execution standpoint?

Question: Eyal Ofir - Clarus Securities - Analyst : Okay. Perfect. And last question for me before I pass the line. The government shutdown, is there any way you can give us some form of a metric to figure out what kind of an impact this had on you?

Question: Eyal Ofir - Clarus Securities - Analyst : Okay. Thanks. I will pass the line. 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 Treiber - RBC Capital Markets - Analyst : Thank you for taking my questions. You've made a number of changes to your sales force and expanded your reach into new geographies and channels over the last year. Has the ramp-up of these new channels met your expectations?

Question: Paul Treiber - RBC Capital Markets - Analyst : Okay. And then with Jonathan Hunter on board as your head of sales, do you anticipate any major changes to your direct sales strategy or do you expect to continue the existing one?

Question: Paul Treiber - RBC Capital Markets - Analyst : Okay. Thanks. I will pass along.

Question: Rakesh Kumar - Susquehanna International - Analyst : Great. Thank you. This is Rakesh Kumar for Derrick Wood. So I have a question, the last quarter you talked about execution issues in North America and the lower (technical difficulty) and the western US. This quarter it's basically macro. I just wanted to understand how much are the execution improved and how much is the weakness coming from macro in this quarter?

Question: Rakesh Kumar - Susquehanna International - Analyst : And if I could just add one more -- if you could talk about your SAP channel business? Any color on revenue contribution from SAP relationship? Any changes out there?

Question: Rakesh Kumar - Susquehanna International - Analyst : Thank you.

Question: Mike Anderson - Credit Suisse - Analyst : Hello. This is Mike Anderson on behalf of Michael. Thanks for taking our questions. First, can you just comment on the competitive environment that you experienced in the quarter and maybe the win rates and the large deals that you did win?

Question: Mike Anderson - Credit Suisse - Analyst : Okay. That is colorful. Thanks. With respect to partner driven license revenue, it looks like it did grow a little bit year-over-year. Would you say that, that is from SAP -- driven by SAP or other partners that you have?

Question: Mike Anderson - Credit Suisse - Analyst : And then just one last one and this is for Paul. Paul, can you just comment on the FX impact in revenue in the quarter as well as where the support renewal rates fell in?

Question: Mike Anderson - Credit Suisse - Analyst : Okay. Thanks for taking our questions.

Question: Varun Choyah - CIBC World Markets - Analyst : Good afternoon, gentlemen. Just one quick question on acquisition strategy. Can you provide a bit more color onto the types of targets you could potentially look at? Is it going to be complementary to your EIM strategy and can you provide some color on that?

Question: Varun Choyah - CIBC World Markets - Analyst : So would big data be a new pillar or would that fall under the analytics bucket?

Question: Varun Choyah - CIBC World Markets - Analyst : Okay. That is all I got. Thank you for the color.

Question: Eyal Ofir - Clarus Securities - Analyst : Thanks. Just a quick follow-up. I know you guys are going through a big migration right now with the end of support of LiveLink [9.51]. How is the migration going into CS 10 and maybe give us a little more information on what customers are saying in terms of that migration path and what it has led to in terms of new customer wins or new engagement?

Question: Eyal Ofir - Clarus Securities - Analyst : Yes. And then I imagine that the whole premise here is then you would be able to not only migrate them over and reduce costs from a support standpoint, but potentially also get them to upgrade the feature set and get a new license within the different pillars within that software release.

Question: Eyal Ofir - Clarus Securities - Analyst : Okay. I got you. Okay. So do new pillars in the cloud versus on-premise. 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 - Clarus Securities - Analyst : Okay, sounds good. I will pass it along.

Question: Scott Penner - TD Newcrest - Analyst : Just to follow-up. Number one, Mark, can you just remind us what application will be released on top of SAP HANA and what the timeline is for that?

Question: Scott Penner - TD Newcrest - Analyst : Okay. Second question is just the BPM assets that were in place for Cordys, is that still a growing business or did you really feel the need to go out and buy a hosted version?

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

Question: Mike Anderson - Credit Suisse - Analyst : Hello, Mike Anderson again. One more quick question for Paul. Can you comment on, based on the acquisitions in the past that you have done, some acquisitions sometimes that affects your operating margin due to the expenses that are related to that. Can you quantify any impact that the recent acquisitions that you have done might have in fiscal '14?

Question: Mike Anderson - Credit Suisse - Analyst : Okay. Thank you.