OpenText Corp Q1 2015 Earnings Call Transcript

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

Question: Kris Thompson - National Bank Financial - Analyst : Great, thanks. Mark, last quarter you said that over 50% of your customer base were upgrading to Version 10. Do have any updates for us there?

Question: Kris Thompson - National Bank Financial - Analyst : Okay, that's helpful. And of the base that's upgraded to 10, what's the percentage that have gone through to 10.5?

Question: Kris Thompson - National Bank Financial - Analyst : Okay, appreciate it. And one for John. Welcome, and did you mention how much revenue or license revenue GXS contributed 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. OCTOBER 22, 2014 / 9:00PM, OTEX.TO - Q1 2015 OpenText Corp Earnings Call

Question: Kris Thompson - National Bank Financial - Analyst : Just one more thing that we used to get is the FX impact on EPS. I don't know if you have that handy.

Question: Kris Thompson - National Bank Financial - Analyst : Got it. Missed that. Thanks, guys. Appreciate it.

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Hi. Welcome to John as well. And maybe it's not a fair question since you're the new guy, but I'll ask it. I realize you're not updating the operating model at this point, but if we were to go by the model that would assume a significant ramping in OpEx. Just to clarify, do you have plans to ramp up your hiring at this point, or is that not something we should expect to see near term?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Okay. Now OpEx fell of quite a bit sequentially, even though I think you said headcount was relatively flat. Other than commissions and year-end bonuses, what were the other dynamics? Was there a lot of costs you took out in terms of overhead at GXS?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Great. Just one last one for you, Mark. It seems like the sequential drop-off was more pronounced in the Americas than in other regions. Anything especially going on there, or was that just more reflective of the fact that Q4 was exceptionally strong?

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

Question: Scott Penner - TD Securities - Analyst : Thanks. Mark, just two topics, if I could. First of all the GXS business, if you could give an update on whether the OpenText and GXS sales force are fully now up to speed for cross-selling, and what has been the initial reaction in the field about any additional application areas that you would like to get into, or feedback from customers on that?

Question: Scott Penner - TD Securities - Analyst : Thanks. The second question really is more just, Mark, as you well see, you guys see, we are seeing some enterprise vendors now that being hit really in the capital markets as the license, perpetual licenses shift towards SaaS and term, to some extent. Just hoping you could address head-on the notion that this transition dynamic is still yet to come for OpenText.

Question: Scott Penner - TD Securities - Analyst : Thank you. Appreciate the answer. 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. OCTOBER 22, 2014 / 9:00PM, OTEX.TO - Q1 2015 OpenText Corp Earnings Call

Question: Richard Tse - Cormark Securities - Analyst : Mark, you were really bullish after last quarter on the license side, and rightly saw you guys had a great quarter, and certainly can appreciate the economic backdrop. But what were you tracking on the licenses before the economy softened there? Can you give us a sense, were you [given] -- looking at a $65 million, $75 million license number? Just trying to get a sense of what that would have been.

Question: Richard Tse - Cormark Securities - Analyst : Okay. I guess related to the economy, does it improve the market for acquisitions now in terms of the opportunities out there? And maybe you can talk a little bit about what you are doing there right now, how active it is, and some of the valuations in the market.

Question: Richard Tse - Cormark Securities - Analyst : Just one last question on cloud. Who do you guys see as the prominent players on the cloud side in your market, or the market that you designate as EIM here? Is it Alfresco, or is there any other players out there?

Question: Richard Tse - Cormark Securities - Analyst : That's great. Thanks, Mark.

Question: Michael Nemeroff - Credit Suisse - Analyst : Hey, guys. Thanks for taking my questions. Welcome aboard, John. First question for John, and then one for Mark, if I may. You mentioned there was a $0.02 FX impact to EPS. By my calculations that's about $10 million in revenues. Is it fair to assume that the distribution of that FX effect on revenue follows the target model, so about $1.5 million or $2 million of license on that FX effect?

Question: Michael Nemeroff - Credit Suisse - Analyst : That's helpful. And then Mark, last quarter you had a very strong showing on the ELA sales, took up the ASPs quite meaningfully. Could you tell us, describe for us what the environment is for those ELA sales? Are people waiting for SP1 before they buy in on the ELA? Give us a sense for what happened. I know the macro was an impact, but were there any other things that customers were saying that they were pausing for?

Question: Michael Nemeroff - Credit Suisse - Analyst : Do think that the economy is -- has it affected the way that you are thinking about the results for the fiscal year? Or is it still too early, given that it's only Q1?

Question: Michael Nemeroff - Credit Suisse - Analyst : Great. Thanks for taking my questions.

Question: Stephanie Price - CIBC World Markets - Analyst : Hi, Mark.

Question: Stephanie Price - CIBC World Markets - Analyst : In terms of SAP, I was wondering if you could spend a few minutes on them. They've talked about a couple of bad quarters here and license revenue moving to the cloud. Can you talk a bit about the partnership and how that is going, and the percentage of license revenue you are seeing from them these days?

Question: Stephanie Price - CIBC World Markets - Analyst : Great. John, welcome.

Question: Stephanie Price - CIBC World Markets - Analyst : Wondering if you could elaborate a bit on CapEx. It was a bit higher than we were expecting this quarter. Can you talk about that, and also maybe a full-year run rate expectation?

Question: Stephanie Price - CIBC World Markets - Analyst : Okay. And then just in terms of the services margin, it was lower than we expected as well. I think you mentioned some costs being deferred. How should we think about that going forward?

Question: Stephanie Price - CIBC World Markets - Analyst : Yes.

Question: Stephanie Price - CIBC World Markets - Analyst : Sorry, lower than expected. Did I say -- yes, lower than expected.

Question: Stephanie Price - CIBC World Markets - Analyst : Perfect. Thanks so much.

Question: Paul Treiber - RBC Capital Markets - Analyst : Thanks very much for taking my question. Just in regards on, since we're in the margin topic, on gross margins for cloud services. It looks like it's been slightly above the target model for the last several quarters. What has been driving that over the last several quarters, and should we expect it to continue to be sustained above the targets?

Question: Paul Treiber - RBC Capital Markets - Analyst : And I think when the GSX acquisition originally closed, I think the goal was for it to be onboarded within 18 months or so. In light of the cost coming down, does it seem like it's running, or the integration is going at a faster pace than what you originally thought?

Question: Paul Treiber - RBC Capital Markets - Analyst : Great. I will pass on. Thanks very much.

Question: Paul Steep - Scotiabank - Analyst : Great, thanks. Mark, maybe you can clarify or provide some context around this. I'm trying to get a sense of -- I think we've all seen the headlines and the economic comments out there. You've got a fairly broad-based network with EasyLink and GXS. Are some of your comments driven by what you're seeing transactionally there, or is this driven more off of sentiment out of the license side? Has there been a marked change over the networks in terms of you deliver a broad-based set of transactions?

Question: Paul Steep - Scotiabank - Analyst : Okay. The second one from me. In terms of how we want to think about GXS in terms of the managed service penetration and the opportunity there over the coming quarters? Thanks.

Question: Paul Steep - Scotiabank - Analyst : Perfect. Thanks, 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. OCTOBER 22, 2014 / 9:00PM, OTEX.TO - Q1 2015 OpenText Corp Earnings Call

Question: Eyal Ofir - Clarus Securities - Analyst : Thanks for taking my question. Hi, guys. First off, just Mark, on the obviously you talked about the macro, but it seems like you are also having the SP1 as potentially helping demand here. Is there also function in the license number, [though as potential headwind] by clients delaying deploying -- deployment until they see SP1 come out, and obviously go with the latest product?

Question: Eyal Ofir - Clarus Securities - Analyst : Would you be willing to size up -- one of your other questions was about potential deals getting slipping through, and you mentioned that there were a few. Would you be able to size that up for us from a license standpoint?

Question: Eyal Ofir - Clarus Securities - Analyst : Perfect, thanks. And just for John, last question from me. In terms of the actual OpEx, obviously seasonality plays in here, but is there anything we should be normalizing for in one of the OpEx lines? Thanks. I'll pass the line from there.

Question: Eyal Ofir - Clarus Securities - Analyst : Okay, thanks. I'll 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. OCTOBER 22, 2014 / 9:00PM, OTEX.TO - Q1 2015 OpenText Corp Earnings Call

Question: Rakesh Kumar - Susquehanna Financial Group - Analyst : Great. Thanks for taking my question. This is a question for John. Over the past couple of weeks there have been some talk about EU looking into Luxembourg tax arrangements. I was hoping you could elaborate your thoughts on the development.