Open Text Q2 2011 Earnings Conference Call Transcript

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

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Thank you. Just to -- first of all, John, you mentioned the ECM suite 2010 drove some of the key transactions in the quarter. Is this existing customers that are buying new modules within the suite or something different?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay. And that is about the timeframe that you'd expected it to happen it?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Right. In your commentary about some of the key deals, I seemed to notice, and maybe it is just ones that you are highlighting, more deals where there are both SAP integrations and some form, Microsoft integrations. Is that fair to say that you are seeing more of that type of business?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : And in the StreamServe acquisition, maybe to ask this in a way that you can answer. Just last quarter. I think you mentioned that the run rate was $50 million in revenue it was about 25% to 30% of license revenue. If we were to do the math for the two months, is that about the contribution? 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/Waterhouse Securities - Analyst : Okay. So, it wasn't a significant drop off in business as there sometimes is?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay. And then, lastly, and I will pass the line. The Metastorm deal, according to some numbers that are out there, looks like about 40% or so of their topline, at least as of these last numbers, with license revenue, is that about the next?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay, that's fine. Thank you very much.

Question: Tom Liston - Versant Partners Inc. - Analyst : Hi, thank you very much, and congratulations. Just overall, with the -- especially the top line on the license revenue being robust, can you give us some of the dynamics in the quarter in terms of what did well, do you feel you are taking it more from competition opposed to maybe the market is growing nicely. It seems from some of the industry analysts and certainly some of enterprise software companies, there is a bit of a pickup, and certainly your more cyclical verticals seem to be outperforming and new customers were good number too. So, can you talk about overall environment and how much you see sort of trending over 2011?

Question: Tom Liston - Versant Partners Inc. - Analyst : And so do you have a sense on their calendar 2011 budgets, and it looks like they are increasing their ECM use? And then the second question related is do you feel like you're win rate's higher versus your competition?

Question: Tom Liston - Versant Partners Inc. - Analyst : Okay, very good. And Metastorm, can you give us a sense, Paul, roughly topline growth over the last few years? And secondly, do you have any early indications of what -- that might impact your tax rate?

Question: Tom Liston - Versant Partners Inc. - Analyst : Sure. And real quick, do you know the percentage of revenue from government?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : For Meta-- 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/Waterhouse Securities - Analyst : Very good. Thank you.

Question: Paul Steep - Scotia Capital - Analyst : Great. John, maybe worth talking about our just looping back post last quarter, how Europe has turned out, or what the turnaround there is sort of shook out like this quarter, post the results last time?

Question: Paul Steep - Scotia Capital - Analyst : Okay. And in the US? How is that trended? Like last quarter it was good.

Question: Paul Steep - Scotia Capital - Analyst : It's a little shaky during parts of last year.

Question: Paul Steep - Scotia Capital - Analyst : Okay. Fair enough. That's it for me. Thanks, guys.

Question: Richard Tse - Cormark Securities - Analyst : Hi, John. Could you give us a little bit of rationale behind this Metastorm acquisition, maybe give us a sense of how this transaction came about, and how you plan on targeting it into your current base?

Question: Richard Tse - Cormark Securities - Analyst : Over the course of the year, would you look at integrating into the ECM suites or give us a sense how that would work?

Question: Richard Tse - Cormark Securities - Analyst : Okay, fair enough. And just a quick question for Paul, on your other expenses it was $6 million there, it seemed to be a pretty sizable number relative to past quarters. What was that coming from?

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

Question: Kris Thompson - National Bank Financial - Analyst : Great. Thanks guys. Just back to the Metastorm here, do we need to think a little bit more about the segmentation of the revenue between the three buckets that you've outlined there? The BPM, BPA and enterprise architecture? Is it mostly BPM? And the reason I'm asking is, just a quick look we've had so far, it looks like SAP and Oracle are important players in that space. I'm just wondering if there is going to be some channel costs there with your new partner, Oracle and obviously your existing one, SAP. And maybe, I don't think Microsoft is a big player, is that really the reason why you wanted to acquire this company? It looks like there's a lot of integration going on with SharePoint with these guys.

Question: Kris Thompson - National Bank Financial - Analyst : Okay.

Question: Kris Thompson - National Bank Financial - Analyst : Okay. So , I guess, what about your existing install base? Is there a lot of overlap? Can you maybe just sort of give us an idea a of, maybe Richard was trying to go here, how you guys learned about this opportunity? Did one of your key partners come to you and say you should have a look at this, it makes a lot of sense? Can you provide any more

Question: Kris Thompson - National Bank Financial - Analyst : Okay. And John, while you we have you here, can you give us a little more color on your Oracle road map, just an update. 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: Kris Thompson - National Bank Financial - Analyst : Okay, and just finally for Paul, on the Waterloo buildout, can you break out your growth CapEx or what you spent in Waterloo on the new building and how much is left?

Question: Kris Thompson - National Bank Financial - Analyst : Okay, so this quarter was about $5.5 million?

Question: Kris Thompson - National Bank Financial - Analyst : Okay, thanks a lot, guys. All the best.

Question: Stephanie Price - CIBC World Markets - Analyst : Hi. Could you talk a bit about new customer wins in the quarter, what they were buying, and who was driving it? Whether it was the direct sales force or partners?

Question: Stephanie Price - CIBC World Markets - Analyst : And in terms of what they were buying, compliance sounds like it is still the biggest product out there you're seeing?

Question: Stephanie Price - CIBC World Markets - Analyst : Okay. And last quarter, you talked about eight large deals in the pipeline post Q1. Did all those now close, or could we expect some of those to move into Q3?

Question: Stephanie Price - CIBC World Markets - Analyst : Great. Thank you very much.

Question: Michael Abramsky - RBC Capital Markets - Analyst : Yes, thanks very much. So, Metastar looks like a good acquisition. It's got quite a lot of enterprise customers, and it's kind of an extension, I think, of your current business. It looks like you paid a little bit more, if I'm calculating this correctly, then you did previously for other acquisitions. And I'm just wondering if that is just because of the quality of the business and the opportunity there? And if that may actually expand your acquisition pipeline a bit because of your willingness to pay a little bit more here?

Question: Michael Abramsky - RBC Capital Markets - Analyst : And basically, based on your cash flow, it looks like you could do at least one of these size every eight to 12 months?

Question: Michael Abramsky - RBC Capital Markets - Analyst : Okay, and then Metastorm, I think EBIT margins are similar, around 7% or 8%, yours are at 30%. So, if you're talking about sustainability of your margins, then either/or you're bringing in them pretty quickly into your model, or you have some parts of their business that are doing really well, like even maybe some of the legacy parts of your business, or both. So, could you just give us some perspective on that?

Question: Michael Abramsky - RBC Capital Markets - Analyst : Okay, that's good. And then just lastly, with regard to what happened in Q1 with regard to the miss, going forward now, your tone -- you prev -- is this a change in tone, John, from previously where you talked more about both execution and also potential limited visibility to demand,? You seem to be talking a little bit more about now confidence in your pipeline domestically and going forward? Is this a shift in that visibility?

Question: Michael Abramsky - RBC Capital Markets - Analyst : Okay. Thank you very much.

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Hi, good evening. Just wondering, I understand that there was some catch-up with the Q1 delays, but I'm just wondering, were there any deals that you were expecting in future quarters that got pulled ahead into Q2?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Okay. And given the strong results in Q2, how should we look at seasonality for the balance of the year?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Okay. And earlier you mentioned that the pipeline is healthiest that you've seen in a while and that you've scrubbed it so you've got -- you are pretty comfortable with it. So, in your pipeline, how many deals would you consider to be kind of these larger size deals? And would these be related to enterprise wide type deployments or just customers buying more and more components of it?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Okay. And I guess, with these larger deals, and I understand that they are chunked down, is there -- does it require larger services component? And just wondering if you feel that you've got sufficient capacity?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Okay, great. And just last question, I think earlier in your commentary you mentioned 40 customers in progress for installation for social media, did I hear right? And also, what verticals are you seeing the greatest amount for this?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Great, thanks a lot.

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Okay great. And congratulations on the quarter.

Question: Gabriel Leung - Paradigm Capital - Analyst : Thanks, just want to go back to Metastorm for a second. John, I know you haven't closed the transactions yet, but can you give us a little more color into Metastorm's vertical segmentation, where they were strong in? And also, as you look into the Metastorm customer base, can you give us a sense of what sort of ECM deployment they have in place? Is there a lot of Open Text, or is a lot your competing vendors?

Question: Gabriel Leung - Paradigm Capital - Analyst : Okay. Just moving onto your partnerships, SAP continues to plug along nicely, it looks like you're getting some pretty good traction on the Microsoft side now. And I think based on the last update that we had with Microsoft and yourself, sounded like they were planning on putting more resources in place for fiscal 2011, both yours and Microsoft's. Are you finding that that's what's driving a lot of the new business on the license side now? Is a lot of it being driven on the Microsoft side? Or is it still being driven by customer demand? What do you think's --

Question: Gabriel Leung - Paradigm Capital - Analyst : Okay. Just one last thing. I guess in your preamble, in terms of the outlook anyways, you talked about smoothing out some of the deal flow of the pipeline, that sort of thing. So, should we take that to mean that we could potentially see less seasonality than has been the case the past? Or, was that just a general comment on how you are doing the pipeline right now?

Question: Sera Kim - GMP Securities/Griffiths McBurney - 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: Michael Abramsky - RBC Capital Markets - Analyst : Thanks. Nice quarter, guys.

Question: Michael Abramsky - RBC Capital Markets - Analyst : Just a quick one for you, Paul and then something for you, John. Paul, on a large deals, can you give us more color? Were there any deals over $3 million or $4 million?

Question: Michael Abramsky - RBC Capital Markets - Analyst : Okay. Was that over $5 million? Over $6 million?

Question: Michael Abramsky - RBC Capital Markets - Analyst : Okay, great.

Question: Michael Abramsky - RBC Capital Markets - Analyst : Okay. And just on -- I missed the very first part of the call, did you give any revenue contribution from StreamServe this quarter?

Question: Michael Abramsky - RBC Capital Markets - Analyst : Okay, great. And then John, the -- I wonder if you could give me a little more color on the -- what you're seeing in the government vertical in the various geographies. This has always been important vertical for you. And what areas, obviously we know a number of governments and under stress. What areas are you guys seeing that you're getting new business in?

Question: Michael Abramsky - RBC Capital Markets - Analyst : Okay, great. Thanks very much, guys.

Question: Eyal Ofir - Canaccord Genuity - Analyst : Thanks, congrats on a good quarter, guys.

Question: Eyal Ofir - Canaccord Genuity - Analyst : Two quick questions from me. First off, can you guys talk a little bit more about the mobile applications and what you are seeing in terms of customer demand? Are you starting to see that coming through, and when should we expect in 2011 to start seeing a ramp there?

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay, perfect. And then, just on the -- going to the OpEx lines, I know obviously sales and marketing was up pretty significantly this quarter. You had a pretty good license revenue that was expected. But in terms of how much seasonality we should be building into that line into Q3 can you guys talk about what your baseline should be before the acquisition and then what it should look like after?

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay, perfect. Thanks. Best of luck.

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Yes, just a follow-up. First of all, Paul, did you say StreamServe was $13 million?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Right. So that, if you analyze that, that's upwards of $80 million, which is a fair side higher than $50 million. Is that going -- is $50 million still the number on a more annualized basis?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay. And lastly, just John, with the, what could be viewed as a reboot of the duet relationship between SAP and Microsoft, can you just remind us, I don't remember it ever being much of a factor competitively for you before, but if you could just sort of run through the history 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: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Right. Okay. Thank you, I appreciate it.