Open Text Q2 2010 Earnings Conference Call Transcript

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

Question: Scott Penner - TD Newcrest - Analyst : Just first of all, maybe on the web content management side, which has been a source of weakness for the past couple of quarters, did you see any of that spending come back? Which would be I guess a quarter ahead of what you had expected?

Question: Scott Penner - TD Newcrest - Analyst : Okay. Now, you mentioned that seasonality should be in the range of prior years. Given a strong December quarter, I guess you'd expect that there's still some additional WCM backlog?

Question: Scott Penner - TD Newcrest - Analyst : Right. Okay. That's helpful. And then you mentioned a couple of the -- a couple of large deals that tacked on SAP integration. How is it (technical difficulty) [progressing] from the SAP front on the new reseller agreement?

Question: Scott Penner - TD Newcrest - Analyst : Great. The Vignette -- now, with the Vignette 8.0 and the Portal 8.0 released, how long do you expect until there is -- until I guess all of the installed base have those products, have it installed, and are positioned to upgrade the functionality?

Question: Scott Penner - TD Newcrest - Analyst : Okay. Paul, just to -- if you could remind me, the mark to market that you said was $1.2 million positive this quarter, I am pretty sure that's in the [adjusted] (technical difficulty) [income] number, and just confirm that. And what was the number, positive or negative, last quarter?

Question: Scott Penner - TD Newcrest - Analyst : And just last thing again, Paul, the deferred revenue balance on the balance sheet dipped, as it always does in the December quarter. But it seemed to dip by more than (technical difficulty) [years]. 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. Thanks. I'll pass it along.

Question: Tom Liston - Versant Partners - Analyst : Thank you and congrats on the quarter. Just a couple of questions around -- there were some comments obviously, Microsoft, and we've heard and you're discussing Oracle improving. Can you quantify that any more or give us some -- you talked about some of the areas, but can you give us a little more context on how they are progressing and maybe some expectations for this year?

Question: Tom Liston - Versant Partners - Analyst :

Question: Tom Liston - Versant Partners - Analyst : And obviously went through some leadership changes at year-end. Can you just comment on those. And is there any other pieces you need (technical difficulty) [to] layer down as you take it to the next level?

Question: Tom Liston - Versant Partners - Analyst : Just a quick one for Paul. He said the collar is off that debt now? Or against -- when you [applied it] (technical difficulty) it's not -- it's done now?

Question: Tom Liston - Versant Partners - Analyst : So that's the reason you're not paying down debt, obviously is the low interest rate, because it's still based on LIBOR; correct?

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

Question: Mike Abramsky - RBC Capital Markets - Analyst : Thanks and congratulations. John, just want to reconcile -- you beat handily Street on the top a million and on the bottom line by $0.17. So why just say you're comfortable with the next two quarters at Street? Because wouldn't that sort of be lowering your guidance or your outlook? Because last quarter you said you were comfortable with full-year top line and bottom line.

Question: Mike Abramsky - RBC Capital Markets - Analyst : Right. But what -- last the quarter you were guiding -- this is before the Street's obviously going to include this quarter in their numbers. So isn't that -- why wouldn't you flow through the numbers and say you are now comfortable with higher Street? You were comfortable with Q2, Q3, Q4 last quarter, so if you've beaten on this quarter, wouldn't that flow through to a higher outlook?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Well I appreciate that, but I'm just -- and I don't want to beat a dead horse here, but are you then saying you have lower visibility now on last quarter and the last two quarters of the year? Or this is sort of an anomalous situation and maybe not sustainable through the end of the year? It's like why would you not now say, okay, we are comfortable with Street plus 40 and Street plus $0.17?

Question: Mike Abramsky - RBC Capital Markets - Analyst : All right. Still a little confused there. On Vignette, what was the contribution in the quarter? And is the license mix of Vignette -- you said was pretty high. So is that -- I assume that's above the normal 80% to 85% services that they -- comprises --?

Question: Mike Abramsky - RBC Capital Markets - Analyst : So this -- is that what is the case this quarter, is it higher?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. And then just to clarify kind of going forward, we should think about license for the next couple of quarters, as you said, down 0% to 5% from this level, and then Q4 up 10% to 15% from that level?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. And then SAP (technical difficulty) percent -- I think this is the first time you've sort of talked -- broken that out. Is that unusually large?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. And (technical difficulty) again, is that sustainable in terms of that contribution? Or is that (multiple speakers) just a Q4 thing?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Great. Congratulations.

Question: Richard Tse - National Bank Financial - Analyst : Just a couple of quick ones here. The tone sounds like it's improved, obviously. Can you give us a sense of what you're hearing from your accounts versus last quarter? Because I think you were -- it seemed a bit more conservative last quarter. Obviously with these results (multiple speakers) you're a bit more comfortable there.

Question: Richard Tse - National Bank Financial - Analyst : Okay. And I guess specifically on the products, you mentioned compliance being the driver here. Can you give us a bit more color in terms of the products specifically and sort of the (multiple speakers)

Question: Richard Tse - National Bank Financial - Analyst : Okay. I expect that some of the products (technical difficulty) like the social media and mobile. What are you guys targeting in terms of the first year of those product launches of your base that you think could convert and sign up for those product here?

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

Question: Brian Freed - Morgan Keegan - Analyst : Good quarter. Real quick, as you look out at the competitive landscape, you seem to be gaining or maintaining share versus the big guys like IBM and EMC. But there is a pretty large number of (technical difficulty) fast-paced competitors popping up on the radar screen. Can you talk a little bit about how you see the opportunities for ECM playing out in the Software as a Service part, how you look to address that over 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: Brian Freed - Morgan Keegan - Analyst : Thanks.

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Nice quarter guys. A couple things. You've talked a little bit about the Vignette web content management. What's happening over on the RedDot side?

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : And did that business -- did that grow year-over-year?

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : And in terms of your large deals, you didn't break it down very much for us. Can you give us a sense of number of deals, and maybe (multiple speakers)

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Were there any deals north of $2 million or $3 million? Individual deals?

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Okay. Great. Also, on the -- can you talk a little bit about the legal verticals, which was (technical difficulty) one of the core areas for Hummingbird? Just sort of how you see that vertical playing out these days, and what you're doing in that market.

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : How has that vertical held up during the recession?

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Great. And just a question for -- just another question on the sales side. What is your rep count? And sort of the -- if you break out where the reps geographically are located now? 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. Great. Last question for me. Paul, just on the (technical difficulty) what are -- going forward what are your debt repayment plans?

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Okay. Great. Thanks very much guys.

Question: Paul Lechem - CIBC World Markets - Analyst : On the -- going back to the license number in the quarter, should we view that as sort of a one-time catch-up from the pent-up demand of the web content management customers holding off around the integration period of Vignette?

Question: Paul Lechem - CIBC World Markets - Analyst : So the -- your views on the actual pipeline and backlog at this point in time versus (technical difficulty) [ago] ex that kind of pent-up demand. Can you give some color around just the general sales activity?

Question: Paul Lechem - CIBC World Markets - Analyst : Okay. And you made some changes to your US sales force in terms of organization and focus in the last year. Can you give us (multiple speakers) some sense of (technical difficulty) where that is, actually what you're seeing? Or where -- you've completed that process. Is there more to come? And what does it mean going forward?

Question: Paul Lechem - CIBC World Markets - Analyst : Right, okay. On the SAP reseller agreement, the expanded reseller agreement you signed with them last quarter, is it too soon to get -- to give us any tangible (technical difficulty) that it's actually working? Or when should we start to see tangible signs? And how can you sort of gauge that?

Question: Paul Lechem - CIBC World Markets - Analyst : And do you have insight into their pipeline?

Question: Paul Lechem - CIBC World Markets - Analyst : And then two quick questions for Paul, if I may. (technical difficulty) one (technical difficulty) is on the timing of the remaining Vignette restructuring charges. Well, I shouldn't say Vignette exclusively, but the restructuring charges from that, stemming from the acquisition, are they still likely to be done by the end of this fiscal year?

Question: Paul Lechem - CIBC World Markets - Analyst : Okay. On your amortization of intangibles, is there anything expected to roll off the current level anytime soon? Or should we expect it to kind of remain in this ballpark?

Question: Paul Lechem - CIBC World Markets - Analyst : Okay, thank you very much.

Question: Derrick Wood - Wedbush Securities - Analyst : You said web content management is picking up, obviously some of it due to some quarterly catch-up. Aside from that, are you seeing greater willingness to spend? Or are web content management initiatives still a little lower in priority?

Question: Derrick Wood - Wedbush Securities - Analyst : And what's -- it may be too early, but what's the feedback been on the 8.0 release?

Question: Derrick Wood - Wedbush Securities - Analyst : Just to get some clarity still on the WCM side, so the catch-up, was that more on the Vignette side or the RedDot side or a combination? 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: Derrick Wood - Wedbush Securities - Analyst : Okay. And in terms of the outlook, you guys aren't really changing your stance obviously at this point, but what would it take for you to get more positive or better visibility or confidence in growth beginning to accelerate sustainably going forward?

Question: Derrick Wood - Wedbush Securities - Analyst : Last question and I'll let you go. On the SAP front, just can I get some clarity on how you guys record revenue? I thought it was in arrears, and so a lot of that revenue would come in January. Has something changed? Or did SAP just have a more upfront quarter?

Question: Derrick Wood - Wedbush Securities - Analyst : Great, thank you.

Question: Dushan Batrovic - Dundee Securities - Analyst : Just to touch on your outlook one more time, still trying to gauge your level of conservatism there. And is it safe to assume that you are leaving some room for -- in the -- if the economy does deteriorate further, some of the pipelines, some of the visibility that you have, you're leaving room for some of those to be severed or some of those projects to get cut, just in case? Is that a fair way to interpret what you're saying about your [outlook] (multiple speakers)

Question: Dushan Batrovic - Dundee Securities - Analyst : Okay. All right. So if those projects don't get cut, then you should do a little better than perhaps your outlook, okay.

Question: Dushan Batrovic - Dundee Securities - Analyst : And also just can you remind us of your priorities for cash right now? If you're not really planning on paying much debt off in the near term, what's the plan for the cash?

Question: Dushan Batrovic - Dundee Securities - Analyst : And you still see a pretty good pipeline there?

Question: Dushan Batrovic - Dundee Securities - Analyst : And last question from me is just on the sales organization, some of the adjustments you've made, quite often there are disruptions that come with those types of moves. Have you -- nothing is in the numbers, the numbers were great this quarter, but have you seen any -- even anecdotally any disruptions that still might have impacted your group over the past couple of quarters?

Question: Dushan Batrovic - Dundee Securities - Analyst : Terrific. Thanks very much.

Question: Gabriel Leung - Paradigm Capital - Analyst : Just going back to the discussion around acquisitions (technical difficulty) priorities, are you (technical difficulty) on your traditional document management and web content management play? Or are you started looking beyond your core ECM offering to expand upon? And can you talk about some of the things you're looking at?

Question: Gabriel Leung - Paradigm Capital - Analyst : Secondly, on the -- I guess on the channel partner front, I think there's some news over the last week or so about SAP starting to resell some -- [a few management] solutions within -- I believe it was in insurance and finance verticals. Any comments around that and how you see that playing out between your partnership with SAP?

Question: Gabriel Leung - Paradigm Capital - Analyst : Just on the Oracle, you obviously talked about putting some more investments (multiple speakers) into that, hoping to get some benefits over the course of the year. Is your view that the Oracle relationship will evolve very similar to that with SAP such that Oracle reps will themselves start selling the Open Text Suite?

Question: Gabriel Leung - Paradigm Capital - Analyst : Just a last question for you, Paul. Obviously your target in terms of the cost synergies with Vignette remain a $40 million to $50 million (technical difficulty) [annualized] basis. But can you talk about how much of that was there a recognized in Q (technical difficulty) I believe Q1 there was almost no synergies recognized. How about in Q2? 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 : Perfect. Thanks a lot guys.