Hummingbird Q2 2005 Earnings Conference Call Transcript

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

Question: Paul Steep - Scotia Capital - Analyst : Barry, maybe you could give us, I guess, first, your outlook for what you are expecting for Q3 in terms of the top and the bottom line across the business?

Question: Paul Steep - Scotia Capital - Analyst : In terms of the deals that slipped on the ECM front, has there been any big news in terms of closing some of those deals? You obviously said some smaller ones had closed in the pre announcement call.

Question: Paul Steep - Scotia Capital - Analyst : Okay. And then finally, I guess Inder, on the free cash flow side could you just clarify since that was negative for, I guess, the first time in like 12 quarters, what the retirement benefit and the severance amounts were in there and if those were sort of extraordinary items forcing those numbers down this quarter?

Question: Paul Steep - Scotia Capital - Analyst : Yes, the restructuring and then the retirement benefit for Fred as well. I am assuming that would have been in this quarter.

Question: Howard Lis - Gmp Securities Ltd. - Analyst : Barry, did you have any guidance for the full year or just the upcoming quarter?

Question: Howard Lis - Gmp Securities Ltd. - Analyst : Okay, great and couple of housekeeping items. Any deals over $1 million?

Question: Howard Lis - Gmp Securities Ltd. - Analyst : And, average deal size, what was that Inder?

Question: Howard Lis - Gmp Securities Ltd. - Analyst : And in terms of the deals in both business lines, it did slip. Can you provide some color on sort of what has closed since the end of last quarter?

Question: Howard Lis - Gmp Securities Ltd. - Analyst : Okay, and in terms of your share buyback, you talked previously that you intend to remain sort of accurate in that regard yet. You haven't bought stock now for 2 quarters. Can you comment on that especially given where the stocks are?

Question: Scott Penner - TD Newcrest - Analyst : Barry, could you talk about on the productivity side. I guess now if -- had some time since the pre-announcement. What was the split of the short fall between the product revenue and on the support side?

Question: Scott Penner - TD Newcrest - Analyst : And you mentioned during your presentation that the enterprise product revenue in Q2 was higher or sequentially in year-over-year. Could you put some numbers to exactly what the growth rate was?

Question: Scott Penner - TD Newcrest - Analyst : Okay, if you look at the product revenue year-over-year, it looks like it's down about 2.1 million. I am just looking at the productivity year-over-year drop, looks like it's down about $1.7. So I am just trying to get a little bit more on, why there was growth on the product side on the ECM?

Question: Scott Penner - TD Newcrest - Analyst : On the vertical side, can you just divulge as you do quarterly, what the exposure was to the legal and government side?

Question: Scott Penner - TD Newcrest - Analyst : Okay, it looks like the combination of legal and government seems to be pretty consistent quarter-over-quarter, when you give the break down. May be you could just give us some metrics that we can use or that you are using to talk anecdotally about the increased traction on the other side of business.

Question: Scott Penner - TD Newcrest - Analyst : Okay, then just finally Inder, Paul was talking a little bit about free cash flow there. There seems to be some pretty wild swings in some of the tax accounts. Is there any way for you to just give a quick description, what's going on there?

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

Question: Scott Penner - TD Newcrest - Analyst : Okay. So I can read your comment by saying that the restructuring, structuring charges that we have seen, have all been paid out? 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 : Okay, how much remains in the payable?

Question: Scott Penner - TD Newcrest - Analyst : Okay. Thanks, guys.

Question: Richard Tse - National Bank Financial - Analyst : Just wanted to follow up on Scott's question here. Is there any chance that you can maybe break down the pipeline by vertical and kind of giving us some percentages here by legal, government, and financial, and other?

Question: Richard Tse - National Bank Financial - Analyst : Okay. And I guess, on the competitive side, one of your competitors, Interwoven, last week basically made a couple of claims that they wanted 9 replacements of you on the legal side and that some of the partners have deflected over to Interwoven. Can you kind of add, I guess, your perspective on that?

Question: Richard Tse - National Bank Financial - Analyst : Okay. And finally on the enterprise side, I don't know if you gave these numbers, but do you have a split between new and existing sales on the license side?

Question: Richard Tse - National Bank Financial - Analyst : Okay, great. Thank you.

Question: Blair Abernethy - Clarus Securities. - Analyst : Just a couple of questions for Inder. Just on the $3.4 million restructuring charges this quarter. I just want to clarify, is the 3 million that you are referring to in the accrued liabilities relating to the 3.4 or is it more to come there?

Question: Blair Abernethy - Clarus Securities. - Analyst : Okay. What is your amortization of intangibles are, is this the level we should expect for the rest of the year, your 4.5 million quarter?

Question: Blair Abernethy - Clarus Securities. - Analyst : And Barry just on the UK Government announcement, can you just fill out a little more on that recognition as the standard for selection of the standard and sort of what you see the potential is down the road there?

Question: David Wright - BMO Nesbitt Burns. - Analyst : Do you have a shipment date for Enterprise 2005?

Question: David Wright - BMO Nesbitt Burns. - Analyst : Should we see a boost in revenues on shipment, does the timing matter in terms of our model?

Question: David Wright - BMO Nesbitt Burns. - Analyst : So your guidance doesn't really change based on when you ship '05? 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: David Wright - BMO Nesbitt Burns. - Analyst : And going a bit into the product offering itself, you talked about the content drive a number of times, and I think at the analyst meeting down at Summit you were talking about there were 6 or 7 kind of prospects, I think, that may not have been the exact number but I think it was around there for that. How have the prospects on the content drive changed. Are there more and more customers looking at this thing, I really want that feature or is it--?

Question: David Wright - BMO Nesbitt Burns. - Analyst : So this will become -- you expected this will become a significant reason for people to look at your product?

Question: David Wright - BMO Nesbitt Burns. - Analyst : Okay sounds good. And on the contract management, the deal management you are talking about, you are getting some success, but first of all, who are you competing directly against in that area and is there any way you can give us some kind of indication of how important is this to your overall revenues?

Question: David Wright - BMO Nesbitt Burns. - Analyst : Okay, incremental, I guess. In their back on the restructuring though I think you said that it involved eight people with also facilities involved there or were these fairly seeing your people? The number was just a bigger number than I would expect which is just eight people?

Question: David Wright - BMO Nesbitt Burns. - Analyst : Does it at all lower year expenses going forward? Because I know it is like the total headcount hasn't really changed quarter-to-qurater?

Question: David Wright - BMO Nesbitt Burns. - Analyst : Okay, and I guess my last question is a broader one, but it has to do with your guidance and the various product lines, your profitability level is lower than I would have expected considering that in Q1 you had $0.35 earnings on just under $54 million of revenues. Now, is this an issue of where you lowered your guidance is on the Connectivity side, I mean are you on the ECM side you had about 4% revenue growth? So, is there any change in the outlook of the growth rate for ECM? Are you expecting it's going to continue to grow and you have just seen more weakness on Connectivity here? What is driving your overall top line guidance in the effect on profitability?

Question: David Wright - BMO Nesbitt Burns. - Analyst : But you see, so do you expect continued growth in the Enterprise business next 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: David Wright - BMO Nesbitt Burns. - Analyst : Okay, so effectively the weakness is on the Connectivity side that the numbers are coming in lower than you expected six months ago, let's say?

Question: David Wright - BMO Nesbitt Burns. - Analyst : Right.

Question: David Wright - BMO Nesbitt Burns. - Analyst : Okay, thank you very much.

Question: Chuck Goblin - Emancipation Capital - Analyst : Thanks so much. Just a few a questions. Inder, did you give out a number for support revenue, maintenance revenue for the quarter?

Question: Chuck Goblin - Emancipation Capital - Analyst : Do you give out that number just on the maintenance support line, i.e., excluding professional services? 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: Chuck Goblin - Emancipation Capital - Analyst : Can you give an indication on maybe a percentage range it typically winds at?

Question: Chuck Goblin - Emancipation Capital - Analyst : And there is no reason to think that materially differ from that now?

Question: Chuck Goblin - Emancipation Capital - Analyst : Okay. On the connectivity space there has been a lot of consolidation with WRQ and mail Attachmate. Can you talk about how maybe competitive, how the environment has changed or how you expect maybe the change going forward with the new players involved?

Question: Chuck Goblin - Emancipation Capital - Analyst : Okay. And I guess seeing the short form of connectivity side, I guess, is in contrast to folks over at NetManage who actually had a good Q1. Is it just such a fragmented space that it is hard to drive any conclusions from that or do you have any comment 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: Chuck Goblin - Emancipation Capital - Analyst : How big the big deals are getting the connectivity space, it seems like a lot of the deals are quite low on the ASP side.

Question: Chuck Goblin - Emancipation Capital - Analyst : Okay. I guess last question is, first of all no comment on -- obviously you guys connectivity remaining piece of the business and is an important cash generator and with the rollup stuff that WRQs doing, you guys don't have interest in anything like that. That 's correct right?

Question: Chuck Goblin - Emancipation Capital - Analyst : Okay. On the acquisition side, you guys had talked about on previous calls making acquisition of something in the $80 million range revenue wise. How's that -- can you give us some update on it?

Question: Paul Lechem - CIBC World Markets - Analyst : Just basically go back to the restructuring again and understanding the timing opportunity. You mentioned it is in relation to some acquisitions over that from some of the acquisitions you did, but looking back it seems that the acquisitions were done in mid '03, so it's a couple of years later. Why do you take so long to get around to doing this kind of round of restructuring? 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 : Okay, so does this mean that some of the acquisitions have not performed to expectations?

Question: Paul Lechem - CIBC World Markets - Analyst : Are all those earn outs are now paid?

Question: Paul Lechem - CIBC World Markets - Analyst : Which acquisition is that related to?

Question: Paul Lechem - CIBC World Markets - Analyst : Okay, and for the remainder of this, I mean obviously you can't say definitively, but at this point in time for the remainder of this fiscal year are there any other restructuring funds in places?

Question: Paul Lechem - CIBC World Markets - Analyst : Okay, just turn back to the revenues outlook here. For the last couple of quarters, the content management business appeared to be in growing in the low double-digits on an organic basis. This quarter now your going for mix seems to indicate that it is now expected to grow in the low single-digits. So, I am just wondering is that just your caution coming through here or has something fundamentally changed in the growth rate of that business?

Question: Paul Lechem - CIBC World Markets - Analyst : And last question just in relation to your spending, it seems like R&D was up in Q2 versus the Q1, is anything going on there, was that related to the product release of Enterprise 2005?

Question: Paul Lechem - CIBC World Markets - Analyst : We should see the current level continue through Q3 and Q4?

Question: David Shore - Desjardins Securities - Analyst : What tax rate are you assuming for the Q3 guidance?

Question: David Shore - Desjardins Securities - Analyst : What tax rate are you assuming for Q3?

Question: David Shore - Desjardins Securities - Analyst : And then just on pricing, excluding the legal requirements with whatever Interwoven might be doing there but generally excluding that area, what's your price environment like on the fusion side?

Question: David Shore - Desjardins Securities - Analyst : Okay. Thanks for answering my questions, and thank you.

Question: Steven Li - Raymond James - Analyst : Hi, it's for Steven Li. Inder, the gross margins came in better than we had expected, was that because that there were just margins were coming up and as well, do you expect them to be in 87% to 88% range?

Question: Steven Li - Raymond James - Analyst : All right. And then, I got a quick question on the cost structure. OpEx this quarter is roughly 43 million, how should we think about it for the rest of the 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: Steven Li - Raymond James - Analyst : All right. Thanks.

Question: Rob Moses - RGM Capital - Analyst : Just two quick questions. One on -- if we're to assume that revenue is say roughly flat in the third quarter and potentially that carries for the next couple of quarters, will there be a point where you will need to pull back on R&D and SG&A -- the percentage levels I think that in quite some time, because to benchmark those numbers, and should we see those come down if we get into a period where it seems like it's going to be a longer-term issue as opposed to short term?

Question: Rob Moses - RGM Capital - Analyst : The second question just on cash restructuring. I didn't hear your comments under on the first half. In terms of -- did you say $10 million, or what was the number that you're thinking kind of cash restructuring in the first half that influence the cash flow statement?

Question: Rob Moses - RGM Capital - Analyst : Okay. So, you were influenced -- your cash flow from operations influenced by about 7 million bugs, is that correct?

Question: Rob Moses - RGM Capital - Analyst : Okay. Thank you.

Question: Gabriel Long - Paradigm Capital - Analyst : Thanks. Barry, just wondering if you can provide us some qualitative comments on what the demand environment is looking like in Europe? And second question was, if you are expecting some other reasons, senior headcount reductions to causing disruptions in your operations are in the sales cycle. Thanks a lot.

Question: Gabriel Long - Paradigm Capital - Analyst : Thank you.

Question: Scott Penner - TD Newcrest - Analyst : Thanks. Just a -- Barry, just a confirm. Did you say that you think that the Connectivity business should again be around 70 million this year or is that not more of a normalized statement that you were filling out?

Question: Scott Penner - TD Newcrest - Analyst : Okay. And on the deal that you mentioned with the , how was that actually priced. Is this an existing customer that wanted the application or it was just somebody that was pitched on the Deal Management and wanted them?

Question: Scott Penner - TD Newcrest - Analyst : Okay. And both the Content Drive and the Outlook Client has features of Hummingbird 2005, are they priced separately?

Question: Scott Penner - TD Newcrest - Analyst : Okay. So they are included as maintenance for existing customers is that?

Question: Scott Penner - TD Newcrest - Analyst : Okay. So the revenue opportunity there as you mentioned to David is on the kind of a larger new customer to form?

Question: Scott Penner - TD Newcrest - Analyst : Okay. Thanks a lot.