Open Text Q2 2014 Earnings Conference Call Transcript

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

Question: Richard Tse - Cormark Securities - Analyst : Thank you, very much. Mark, could you elaborate a little bit more on the potential revenue synergies with GXS? I guess, specifically, I'm curious to see of the existing customers that OpenText has, how many are currently running transactions through GXS? Or maybe from a percentage basis, what that number would be?

Question: Richard Tse - Cormark Securities - Analyst : Okay. And then, just one other quick question with respect to the $3 billion acquisition capacity. Given that you're in the mist of integrating this is it safe to say that we are not going to see a sizable deal until this is complete or is that something you can take on still for the rest of this year?

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

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Hi, good afternoon. Mark, can you talk a little bit about what you saw from a geographic perspective? I think you mentioned EMEA was strong, looks like the Americas was flat year-over-year. Can you elaborate on that and how the environment is looking currently?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Okay. And, can you talk about what you're seeing as far as Red Oxygen both in the quarter and in the pipeline? You singled out a specific deal that closed in the quarter drive by Red Oxygen. Was that really a benefit in the quarter or is that more from pipeline perspective what we're going to see going forward?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Great, thanks. I'll pass the line.

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Thanks, Mark, just two questions. First of all, I wanted to ask about AppWorks. It seems like a really exciting opportunity. I wanted to see if you guys had quantified exactly what that could add to your overall market opportunity? And then, as far as driving developer licenses, or license to the foundation elements, is this a second half of 2014 event or is it more like FY15?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : And then lastly, Paul, a quick one. Just how should we view the priorities for capital allocation now? And, how quickly, or not quickly, is your preference to pay down the debt?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay, thank 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: Paul Steep - Scotiabank - Analyst : Great, thanks. Mark or Paul, maybe you could talk about the acceleration? You pulled things forward by about six months, maybe what's changed? And then, also give us a perspective on how we should think of it, the GXS organization? This is one of your biggest deals ever. And then, I've got one quick follow up, thanks

Question: Paul Steep - Scotiabank - Analyst : Okay. Two last -- one last clarification on that and then another one. Just on the sales force alignment, is there any changes we should expect there, Mark, in terms of merging together those forces or are they going to actually stay distinct? And then, the second clarification on your earlier comments in the call, in terms of revenue decline, historically on license I think we had been guided to maybe 20% down at the max. What's the thought around cloud in terms of the magnitude there? Thanks.

Question: Paul Steep - Scotiabank - Analyst : Perfect. Thanks, guys

Question: Paul Treiber - RBC Capital Markets - Analyst : Thanks, very much. Two quick ones on the financials. One is with the addition of GXS do you anticipate any change to your target tax rate? And then, also, what was the foreign-exchange impact to revenue in the quarter?

Question: Paul Treiber - RBC Capital Markets - Analyst : Okay, thank you. And then, one for Mark on the strategy and the longer term view. After GXS, the cloud or transaction revenue was about one-third of total revenue, so you are obviously making a big investment to address the cloud. How should we think about the license business going forward in terms of the perpetual model? Will you continue to sell license longer-term on a professional model or do you see that moving to SaaS over time?

Question: Paul Treiber - RBC Capital Markets - Analyst : Okay. Thanks, very much. I'll pass it along 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: Mike Anderson - Credit Suisse - Analyst : Hi, guys, is Mike Anderson on behalf of Michael. Thanks for taking our questions and congrats on the nice quarter. Mark, I believe that you mentioned last quarter that your ASP was roughly 268,000 whereas this quarter it ticked up to 274,000. With the Red Oxygen suite strategy, can you give us a framework to think about how Red Oxygen has the potential to lift ASP over the next couple years as your customers may be more likely to purchase more of your EIM suite?

Question: Mike Anderson - Credit Suisse - Analyst : Great. And then, of the large deals that you did close this quarter between $500,000 and $1 million and $1 million plus, can you give us an idea of what percentage of those deals were Red Oxygen related? And then, with that, were the new Red Oxygen customers, did most of those come from the beta test group?

Question: Mike Anderson - Credit Suisse - Analyst : Great. And then, just one quick housekeeping one. I think in your prepared remarks you said that there was 41% of license was partner and I think in the slides it says 35%. So, I just wanted to make sure I had my numbers right.

Question: Mike Anderson - Credit Suisse - Analyst : No problem. Thanks, very much

Question: Blair Abernethy - Cantor Fitzgerald - Analyst : Thanks, very much. Just a question for you, Paul, on the GXS side, the last numbers that we've seen have been end of 2012. Can you give us a sense of has the run rate moved that much at the end of 2013?

Question: Blair Abernethy - Cantor Fitzgerald - Analyst : Okay. And, in terms of the reduction in force on the OpenText side I wonder if you could just give us a little more color there. Did you -- have you done anything on the sales force side? And, what is your thinking this year in terms of sales force capacity? Are you happy with where you are or is that going to change this year?

Question: Blair Abernethy - Cantor Fitzgerald - Analyst : Just in terms of -- just a little more color on the reduction in force on the OpenText side?

Question: Blair Abernethy - Cantor Fitzgerald - Analyst : Okay, great. And then, Paul, in terms of revenue reporting next quarter with the GXS, will 100% of the GXS revenue be in your cloud services line or is there some revenue that will be moving into other categories?

Question: Blair Abernethy - Cantor Fitzgerald - Analyst : Can you give us a sense of the magnitude of how much will be in license and maintenance?

Question: Blair Abernethy - Cantor Fitzgerald - Analyst : Sure, that would be great, thanks. Okay, that's it for me. Thanks, guys.

Question: Mark Schappel - The Benchmark Company - Analyst : Hi, good evening. Mark, in the past I believe you've probably talked about maintaining product growth at or about the market growth rates. With the exception of GXS I'm wondering if you're still holding to that general growth rate for the core business?

Question: Mark Schappel - The Benchmark Company - Analyst : Okay, thank you. And then, Paul, real quick, you may have mentioned this but the Cordys revenue in the quarter, do you have that handy?

Question: Mark Schappel - The Benchmark Company - Analyst : Thank 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: Rakesh Khurana - Susquehanna Financial Group - Analyst : Great, thank you. I believe at the conference last year you talked about [prevalence to] Cordys, BPM, and platform. And, I just wanted to understand if that's credit and if yes, I wanted to understand your strategy for the BPM segment. And, could there be any potential disruptions in the field?

Question: Rakesh Khurana - Susquehanna Financial Group - Analyst : Just a quick follow-up. I was hoping you could talk about customer interest in pipelines for Red Oxygen? And, also when should we expect Red Oxygen to be fully GA?

Question: Rakesh Khurana - Susquehanna Financial Group - Analyst : Thank you.

Question: Kris Thompson - National Bank Financial - Analyst : Thank you. Paul, maybe you could just talk about the GXS CapEx. It looks like it's hovered around 40% for the last couple of years. And, Mark, in there, there's some capitalized software development. Could you maybe just highlight what a good run rate is going forward? And, maybe give an explanation of that software, the capitalized software development, please?

Question: Kris Thompson - National Bank Financial - Analyst : Okay, that's helpful. And, just on the income tax, I know GXS had over $0.5 billion of tax loss carry-forwards, are you able to retain those on the change of ownership or are those going to go way?

Question: Kris Thompson - National Bank Financial - Analyst : Got it. Thanks, guys, great quarter

Question: Eyal Ofir - Clarus Securities - Analyst : Thank you, and thanks for taking my question. Congrats on the quarter by the way. First question is just on last quarter, the license revenue was a little bit weak due to the government shutdown. I just wanted to get your impression, were you able to close some of those deals that slipped? And, how much of that helped in the quarter? And then, also I have another follow up on Red Oxygen. 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: Eyal Ofir - Clarus Securities - Analyst : Okay. So, we could see pent-up demand coming back there as well for future growth there. Another question for you, just on the Red Oxygen side. Obviously, when you come through into a new product cycle here the partners lag a little bit more than your direct sales force would. What are your partners saying so far in terms of feedback providing you? And, also from a pipeline standpoint, what are partner showing you thus far and what do you expect going forward?

Question: Eyal Ofir - Clarus Securities - Analyst : Okay, perfect, thanks. Before I pass a line, just one for me. On the GXS front obviously you've put together your sales forces with EasyLink. When can we expect some of the -- your own OpenText direct sales force to be able to start up selling to GXS products and visa-versa.

Question: Eyal Ofir - Clarus Securities - Analyst : Okay, great. Thanks, and congrats on the 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.