Open Text Q2 2012 Earnings Conference Call Transcript

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

Question: Richard Tse - Cormark Securities - Analyst : Yes, thank you. A couple quick questions here. Mark, how would you say your style on the outset differs from John's, in light of the priorities that you're focusing on?

Question: Richard Tse - Cormark Securities - Analyst : Right. 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 - Cormark Securities - Analyst : Is your bonus structure similar to the one that John had as outlined in your circulars?

Question: Richard Tse - Cormark Securities - Analyst : Okay. A bit of a loaded question here, but I know you've gone through your priorities, but if you had to change a single thing right now, in terms of what you've seen in the past 30 days, what would that be?

Question: Richard Tse - Cormark Securities - Analyst : That's great, thank you,.

Question: Brian Freed - Morgan Keegan & Co., Inc. - Analyst : Thanks for taking my call, and congratulations Mark. Looking forward to continuing to deal with you. 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 & Co., Inc. - Analyst : No, but I did want to -- since I'm pretty familiar with your background and you mentioned Oracle as a currently promising -- but as yet untapped -- opportunity, given your history with Oracle, can you talk a little bit about how you think you might be able to leverage those past relationships and that past history to move Oracle into a tapped opportunity and a revenue-producing partner?

Question: Brian Freed - Morgan Keegan & Co., Inc. - Analyst : Okay, thanks.

Question: Kris Thompson - National Bank Financial - Analyst : Great, thanks Mark and welcome to Canada.

Question: Kris Thompson - National Bank Financial - Analyst : I just want to chat a little bit about the December quarter. A lot of people were a bit paranoid about lower than normal budget flush, looks like you guys have managed to escape that. How did you guys escape that crisis? In your recent discussions with customers, do you think spending's going to slow a little bit in half one? Maybe you could give us an idea of the spend into half one and half two of the calendar year, if you don't mind? 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, that's helpful. You did mention the Tempo solution in your prepared remarks. Can you give us an idea of the pricing model for that solution, and the climb interest so far? Maybe if you could provide some materiality to your revenue profile going forward, so we can get our heads around it, if that's really going to be a big driver this year, or is it a few years away still?

Question: Kris Thompson - National Bank Financial - Analyst : Okay, fair enough, and just one more for me. Actually Paul, just on the CapEx,, it looked a little bit hotter than I was expecting in the quarter. Did you have some more CapEx in the Waterloo, for your new building there? Are you done? And what's the normal maintenance level of CapEx going forward on a quarterly basis?

Question: Kris Thompson - National Bank Financial - Analyst : Okay, thanks for taking my questions, guys. All the best.

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Thanks. First of all Paul, on the charge this quarter, it's a little less than I was expecting. I was expecting more around the $15 million mark. Maybe you could just talk us through whether there's some still to come, and then what the cash outflow was for this quarter?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Yes.

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : All right. Mark, if I could just ask, you made a comment on the integration of the BPM assets, and I just want to be clear on what you said. I think you said a 15% revenue decline in the first year from -- of operations. I think the guys there were only saying about 10% decline on the license revenue. I wanted to clear that up.

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : License revenue, okay. Paul, do you have the revenue and earnings contribution from Global 360?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay, and then lastly for me Mark, just on the integration of those -- the BPM businesses, there was a timeline laid out where first there would be integration of the two Global 360 and Metastorm separate from the mothership, and then it would be integrated and cross-selling would come from that. I want to just set some expectations as to when we should assume that we are going to start to see some really significant cross-selling opportunities come in and really contribute to the revenue side?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay, that's helpful. Lastly, the margin on the professional services was quite a bit higher than it was last quarter, and quite a bit higher than I think most people were expecting. You said last quarter that the Company was feeling a little pinched on professional services capacity. Just wanted to know if you could update us on how you are feeling about that, and whether the margin is likely to come back down to the 20% level?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay, thanks, I'll pass the line.

Question: Mike Abramsky - RBC Capital Markets - Analyst : Thanks very much. Hi Mark, and welcome. Mark, welcome to hear your comments on why you joined and how you looked at the Company, and those are very positive. I was wondering, based on your experience and knowledge of not only the software companies you've worked with, but others, and also what you see going forward as the kind of global environment? Where do you think -- or do have any thoughts that you're formulating on where Open Text maybe needs to be shore up to reduce risk to the business model? And maybe bring its model more to maximize the opportunities ahead of it?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay, that's helpful. Open Text is traditionally traded at a discount to peers. I think it may be fair to say partially because of some lack of visibility to organic growth, given the acquisition-centric model, as well as other decisions taken such as lack of guidance. I'm not asking -- because I'm sure you're unprepared at this point to state whether you're going to change policy or not, but I just wondered if you felt that with your focus on organic growth, that you think some of the issues that have led to those decisions may become more easier or different in the future?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. Lastly, do think we should set up for any expectations for either investments or impacts to growth in margins that could be transitional

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay, thank you.

Question: Paul Steep - Scotia Capital - Analyst : Thanks, welcome Mark.

Question: Paul Steep - Scotia Capital - Analyst : First question sort of falls on what we've just been discussing. Going back over the call here so far, you've talked a lot about unifying the narrative, dialing up the emphasis in core ECM. The question would be, what do you need to do there? You talked a little, and I would read from your prior statement that investment aren't going up, maybe they shift around a bit. What also is the timing? When do think you'd be in place that you'd be ready to run your new playbook?

Question: Paul Steep - Scotia Capital - Analyst : Okay, to tag on to that point, or the other question that got raised from your comments here, you talked more about focusing in and highlighting growth products versus sustaining market products. When do you think we sort of talk to that? Is it sort of, we'll revisit these things come June, and get more feedback from you prior to then? Or what should people expect?

Question: Paul Steep - Scotia Capital - Analyst : Fair enough. The last one, just to make sure -- all that was great and helped clarify things. The last one you sort of flagged, is it fair to state out of your comments tonight -- you talked about balancing acquisitions versus organic growth in the next year that really we're going to likely see an evolution here, and you're going to focus on these fundamental changes, and we're unlikely to see any sort of big deals unless something fantastic falls out of the sky on us?

Question: Paul Steep - Scotia Capital - Analyst : Okay. Great, thanks a lot.

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Hi, good afternoon, welcome on board, Mark.

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : As we look at the deal strength in the past quarter, good volume of larger deals, and good mix of revenue coming from new customers. Are there any one or two areas that really stood out in driving that, be it transactional ECM through the SAP relationship, or SharePoint-related solutions? Was there one or two big factors in that strength, or was it across the board, across the product portfolio? 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: Thanos Moschopoulos - BMO Capital Markets - Analyst : Okay. Then in terms of product areas, are there any -- you mentioned that you see core ECM as a good opportunity. Any other specific areas that you think will be instrumental in driving accelerated growth going forward?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Okay. And then finally just a question for Paul. We saw the maintenance margin come down a little bit relative to the prior quarter. Is there any dynamic there we should be aware of?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Okay. That's great, I will pass the line. Thank you.

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Hi, good evening and welcome to Open Text. I'm just wondering, in terms of the geographic areas you talked about seeing strength in France and Germany, are there any areas of specific concern that you're seeing as we look ahead in the pipeline? Also, I'm wondering if you can comment on emerging markets and what your strategy is there. Do still expect to use partners like SAP to penetrate those markets, or are you looking to add direct representation in those areas, as well? 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: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Okay, great. Last question, earlier in the call you mentioned some coverage gaps in -- I think you said federal commercial and manufacturing. In terms of -- what's your go-to-market strategy in those areas to help you increase you penetration?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : What percentage of revenues is coming from Japan, and where do want it to go?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Okay great, thank you.

Question: Eyal Ofir - Canaccord Genuity - Analyst : Thanks for taking my question, welcome aboard, Mark. Just very high level, as you're looking out into the pipeline, obviously you talked about some of the opportunities in Europe and Germany, specifically, and I'm assuming you've still seen a lot of stuff in the US. Can you talk about geographically where you're seeing the biggest opportunities in your pipeline, and what gets you excited in some of the more emerging areas?

Question: Eyal Ofir - Canaccord Genuity - Analyst : In terms of the products that are driving some of the pipeline, is it primarily core ECM, or are you starting to see some of the new products launched late last year starting to come into the pipeline, such as Tempo? What kind of feedback have you gotten so far from some of the new products from customers?

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay thanks. One last question from me. You talked about your approach to growing in emerging markets, but if you exclude India and China when you look at APJ, and obviously Japan as well, are you looking to more -- some form of direct sales there, like increase the head count? Or are you still focused on leveraging the current partner ecosystem?

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay, thanks, I will pass the line.

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Thank you, and welcome aboard, Mark.

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Just to questions. One on the government vertical side, and your thoughts there, then secondly, organic growth. On the government vertical side, could you just give us your sense of the selling environment out there now? Obviously with all the macro concerns in Europe and the goings-on. How was your Q2 in Europe on the government side, and how is -- how are their budgets looking in 2012?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : 11%. Okay, great. Secondly Mark, just on -- if you look out over the next year, what do think are the highest-impact steps or areas that you can go after for -- to help step up the organic license growth in the business? I know I'm probably going to sound like a broken record, but number one, core ECM share market gains. Number two is getting our worldwide sales force trained, educated, well-equipped, to be able to sell business process management. I'd say those are the two big-ticket items for us as we look at organic growth. Great, thank you. Paul, just on the quarter, any large deals, like deals over $2 million or $3 million?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Okay, great. Thanks very much.

Question: Mike Nemeroff - Morgan, Keegan & Company - Analyst : Thanks for taking my questions. Mark, congratulations on the job. I'm looking at the presentation on the web, and one of the growth drivers it says BI, and I joined the call a little bit late. Could you expand on this intelligence and how you think that's going to drive some core growth going forward?

Question: Mike Nemeroff - Morgan, Keegan & Company - Analyst : Great. A couple of quick ones for Paul. I was wondering if you wouldn't mind giving us the revenue contribution from Metastorm in the quarter, and then also total what the license contribution from the BPM businesses was total. Then also, I just have a question on deferred revenue. Seemed to be down a little bit more than I was expecting, if you can comment on that please?

Question: Mike Nemeroff - Morgan, Keegan & Company - Analyst : Great, I'll pass it along, thanks very much. 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.