Open Text Q2 2008 Earnings Conference Call Summary

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

Question: Tom Liston - Versant Partners Inc. - Analyst : Just on a same topic, John, given the Q1 to Q2 was up seasonally about 25% and the typical range is 10% to 15%, was there anything a bit abnormal where you might have had some deals or that came in ahead of time that suggest that the Q3 to Q3 might be maybe down perhaps a little bit more?

Question: Tom Liston - Versant Partners Inc. - Analyst : Was there a few highlights you could give us on the license revenue, why that was above the range that's typically seen from Q1 to Q2?

Question: Tom Liston - Versant Partners Inc. - Analyst : Okay. And Paul, just on the target margin model. When you said you expected to be at the other end of the range, was that on the operating margin? Because if we look through the Q2 quarter, the cost side of the equation, you're at the very low end or even below those ranges. Do you expect that to continue? Or do you see some investment in the second half?

Question: Tom Liston - Versant Partners Inc. - Analyst : Okay. And Paul, Q3's -- cash flow in Q2 was quite good but Q3's, again, typically the strongest with maintenance renewals and that's consistent when you enter Hummingbird into the fold?

Question: Tom Liston - Versant Partners Inc. - Analyst : Okay. And your maintenance renewals now as a blended corporate entity?

Question: Tom Liston - Versant Partners Inc. - Analyst : Great. Okay, thanks. I'll pass (multiple speakers) --

Question: Tom Liston - Versant Partners Inc. - Analyst : Yes. Okay, great. Thanks. I'll pass the line.

Question: Paul Steep - Scotia Capital - Analyst : Great. John, I guess the first one would be for you. You mentioned about the DMX upgrade cycle. Obviously, it's pretty early days, but maybe you can give us a little bit of feedback as to what you have seen there so far. And then I've got a quick follow-up for Paul.

Question: Paul Steep - Scotia Capital - Analyst : Okay. And then maybe, I guess next quarter hopefully will be the time where we can maybe get some data since it's pretty early, but you'll have a sense at that point of how much of the base will have started to maybe move or contemplated it.

Question: Paul Steep - Scotia Capital - Analyst : Quick follow-ups for Paul. First off, on the free cash usage. It looks like the cash continues to build at a great pace here. You didn't say anything about the debt repayment this time. 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 : Okay. Fair enough. Last quick one was just other income, since there wasn't any note there, it sort of popped up out of nowhere. Was there anything unusual there to read into it going forward? Or not?

Question: Paul Steep - Scotia Capital - Analyst : That's what I thought. Okay, thanks.

Question: Richard Tse - National Bank Financial - Analyst : John, just wanted to get a bit more color on the status of the partnerships. Could you, I guess, address SAP, Oracle or Microsoft individually in terms of what stage you're at in those partnerships? We're fairly early; when do you expect those to hit sort of a point of critical mass here?

Question: Richard Tse - National Bank Financial - Analyst : Okay. And with respect to sort of the broad economy and all the undertones out there, you're sort of signaling here that things haven't really changed for you dramatically. In fact, you're sort of holding the course on your annual growth here. Has there been any resistance at all to any of your products from the point of view that the economy seems to be slowing down here a bit? 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 - National Bank Financial - Analyst : Okay. And then one final question. With respect to your sales force, where do you see that to be the optimal level at this point? Is 250 it? Or do you --?

Question: Lawrence Rhee - Blackmont Capital - Analyst : Could you provides some color on the percentage bump, I guess, that you would receive on the maintenance revenue line there, Paul? Because of the accounting treatment for maintenance revenue back when the acquisition of Hummingbird occurred?

Question: Lawrence Rhee - Blackmont Capital - Analyst : Okay. That's great. And with respect to the competitive environment, has anything changed there? Are you hearing more? Obviously, the broad group generally did reasonably well for the December quarter. Is there anything you can comment from the competitive environment?

Question: Lawrence Rhee - Blackmont Capital - Analyst : Okay. That's great. 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.

Question: Scott Penner - TD Newcrest - Analyst : Thanks. John, last quarter, you talked a little bit about the possible tuck-in acquisitions, just some expertise on the SAP side and other solutions oriented. Is that still kind of what you're looking at? And are you any further along with doing something versus three months ago?

Question: Scott Penner - TD Newcrest - Analyst : Okay. And then on the partner side, just to follow along on Richard's question. Obviously, Accenture is a little bit different with how they approach the market. How would you characterize kind of where they are on the continuum there?

Question: Scott Penner - TD Newcrest - Analyst : Okay. And then Paul, just a quick question. The interest expense line didn't take down too much relative to what I would have expected after the debt repayments recently. Is there any other items in there? Or is that just pure?

Question: Paul Treiber - RBC Capital Markets - Analyst : Hi. This is Paul Treiber on behalf of Mike Abramsky. Could you provide FX impact to revenue in the constant currency growth in the quarter?

Question: Paul Treiber - RBC Capital Markets - Analyst : Okay. And then how sustainable do you see that that 12% year-over-year organic growth going forward? And then how do you see your organic growth comparing against peers?

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Just, Paul, I wanted to clarify, on the large deals, you said the deals north of $500,000, how many deals were those?

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Okay. So, separate from the eight, an additional five.

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : John, were there any deals over $2 million? 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: Blair Abernethy - Thomas Weisel Partners - Analyst : Okay. And can you talk a little bit of these deals north of -- all these deals north of $500,000. What sort of solutions are getting the most traction out there in the big deal segment?

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Compliance. And how about the traditional Hummingbird legal vertical, how has that been performing for you?

Question: Steven Li - Raymond James & Associates - Analyst : Paul, just a quick one. Regarding the financial expense, the non-cash impact from the hedges in place you talk about, is that added back in your adjusted EPS calculation? Thanks.

Question: Paul Lechem - CIBC World Markets - Analyst : John, you've been talking about the email archiving, records management driver to your business for some time now. And it keeps on surprising me that it's still such a driver. How much more is there in that to play out before it starts to become saturated?

Question: Paul Lechem - CIBC World Markets - Analyst : So we're talking still years to play out here?

Question: Paul Lechem - CIBC World Markets - Analyst : I guess that's what surprises me, if it is such a regulatory issue or a governments-driven issue or legal issue, that it might not happen faster and then the cycle is over. I mean, it just seems that we should be getting close to the end of this.

Question: Paul Lechem - CIBC World Markets - Analyst : I see. Can you also now talk about the up grades? You spoke a little bit about DMX and you're starting to see that -- that [uptake] up there. You've also released a new version of Livelink. Can you talk about how long are these upgrade cycles going to play out? When should we start to see them really hit their stride and what should we expect out of that in terms of your license growth?

Question: Paul Lechem - CIBC World Markets - Analyst : Sorry. Are you saying that early next fiscal year or the next calendar year?

Question: Paul Lechem - CIBC World Markets - Analyst : So, a good part of your 8% to 13% growth, you're expecting it to be driven around the product cycle?

Question: Paul Lechem - CIBC World Markets - Analyst : And getting the benefit of foreign exchange? Any foreign exchange lift?

Question: Paul Lechem - CIBC World Markets - Analyst : For the bottom line -- but I am assuming that it's helping you on the top line at this point in time?

Question: Paul Lechem - CIBC World Markets - Analyst : Okay. My last question is on the sales additions you're talking about. You've always talked about a 30% excess capacity in your sales organization so it surprises me a little bit that you want to be adding to sales at this point in time. Are you trying to look ahead at this point? Like why now are you adding salespeople? 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 : So should we expect then you're going to be adding commensurate with your revenue growth, so really we're not going to see a huge increase in your margins on the sales fund?

Question: Scott Penner - TD Newcrest - Analyst : Sorry, just a couple of things. The $5 million deals. Were they all driven by partners?

Question: Scott Penner - TD Newcrest - Analyst : Okay. And then in the past you -- and then, Paul, you touched on it -- the problem services businesses or service contracts at Hummingbird. Have those pretty much run their course?

Question: Scott Penner - TD Newcrest - Analyst : Okay. And the 20% mark is still the kind of internal target?

Question: Gabriel Leung - Paradigm Capital - Analyst : John, just wondering how things are going in the connectivity business. If I remember correctly, that side of the business is sensitive to hiring patterns. Just wondering if you were seeing any softness there, just given what's going on in the macroenvironment?

Question: Gabriel Leung - Paradigm Capital - Analyst : Okay, great. And Paul, just a question on the R&D expense; had a bit of a sequential uptick. So, $26 million in the quarter, is that sort of the run rate you're looking for on a go-forward basis?

Question: Gabriel Leung - Paradigm Capital - Analyst : Okay. And sorry, I missed the quota-carrying rep headcount. What was that number this quarter?

Question: Steven Li - Raymond James & Associates - Analyst : Just one little question. John, some of your operations of Hummingbird that you closed last year, can you quantify how much license revenues they would have represented, approximately?

Question: Steven Li - Raymond James & Associates - Analyst : Oh, so, the whole of the 20% to 27% license decline was because of geographic regions that you had closed down?