Open Text Corp Q2 2017 Earnings Call Transcript

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

Question: Richard Tse - National Bank Financial - Analyst : Thank you. Mark, you're getting pretty close to your $3 billion of capital deployment target on acquisitions. Would you be in a position anytime soon to sort of increase that target?

Question: Richard Tse - National Bank Financial - Analyst : Okay. Thanks. So, you guys have done a time of acquisitions, and some meaningfully large ones here. When you say integrated, should we assume that those products are kind of running off a single platform, and that there sort of inter-operable with each other? And I asked that question, because when you look at your innovation chart in your deck, and you're sort of moving the project bands, and then you eventually... Is there an opportunity to actually scale your margins when they do become fully integrated?

Question: Richard Tse - National Bank Financial - Analyst : Okay. And just a last one for Steve, if I might. You know, Steve, clearly a much bigger company with a lot more products. When you look at the sales force, I know you touched on it, but when are you going to give us a bit more color in terms of how that sales force is going to be structured? Are they all going to sell all the products? And give us a sense of how you sort of divide the markets in terms of size, et cetera. Just wanted to (technical difficulty) with understanding of that. Thanks.

Question: Richard Tse - National Bank Financial - Analyst : Okay. That's great. Thanks, guys.

Question: Paul Treiber - RBC Capital Markets - Analyst : Thanks, very much. I just wanted to hone in a little bit more in your comment about the revenue normalizing back to historical levels. Considering that when we look at the public filings from EMC, that Documentum revenues have been declining for a couple of years. Do expect that revenue to stabilize -- or is that going to naturally stabilize? Or do you expect some potential revenue synergies through cross-selling to help you get back up to those historical levels?

Question: Paul Treiber - RBC Capital Markets - Analyst : Okay. Good to understand. Shifting to R&D and spending, it's up significantly in this quarter. I assume a lot of that's from acquisitions, but can you speak to perhaps the organic growth, per se in R&D spend? And what are the key priorities for R&D spending from here?

Question: Paul Treiber - RBC Capital Markets - Analyst : One last one for John, Just in regards to the acquisition being structured as an asset purchase. In terms of working capital buildup, how much do you anticipate? And then over what time period would you expect that?

Question: Paul Treiber - RBC Capital Markets - Analyst : Okay thanks. I'll pass the line.

Question: Philip Huang - Barclays Capital - Analyst : Hi, thanks. Good afternoon. Just a couple of clarification questions on the integration process side. Just for modeling purposes. So, in terms for the initial decline due to -- revenue decline due to sort of the normal integration process, do you expect it to be more front-end loaded with bigger declines at the beginning? Or pretty evenly spread out over the next several quarters?

Question: Philip Huang - Barclays Capital - Analyst : Right. Got it. Okay that's helpful. And secondly --

Question: Philip Huang - Barclays Capital - Analyst : Great. Got it. And just so that I've got it clear in my head. So, ECD was sort of declining, basically, around mid-teens range over the, I guess more recent history. And then on top of that there's going to be sort of 5% to 10%, so basically for the next several quarters --

Question: Philip Huang - Barclays Capital - Analyst : 2% to 3% per year?

Question: Philip Huang - Barclays Capital - Analyst : Got it. And so then we just add it to the 5% to 10% over the next several quarters, and then basically moderates from there before it returns to growth.

Question: Philip Huang - Barclays Capital - Analyst : Maybe, I was wondering, just further on March, on March regarding the process of integration. Would you be able to elaborate a little bit about the types of revenues or contracts that you are thinking of that will kind of go down in the near term? Is that mainly lower-margin relationships? Or is there anything you can kind of help us sort of better understand that process?

Question: Philip Huang - Barclays Capital - Analyst : Great. That's super helpful. And then a final one from me, even though ECD is the biggest deal in your company's history, and just given how well you know the business, is it fair to assume that you expect a relatively straightforward integration process. It sounds like you guys haven't really hit the pause button in terms of looking at future M&A opportunities. But I was wondering if you could maybe comment a bit on that.

Question: Philip Huang - Barclays Capital - Analyst : That was very helpful. Thanks very much.

Question: Steven Li - Raymond James - Analyst : Thank you, just a quick one for me. John, the $60 million of cost savings, do you get it back in year one, or is it more back-end loaded and therefore in year two?

Question: Steven Li - Raymond James - Analyst : So the way I should think about it is -- your comment is, ECD is on board, on the operating model within 12 month, and then there's going to be a little bit more from the restructuring after that.

Question: Steven Li - Raymond James - Analyst : In terms of cost savings. 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. FEBRUARY 02, 2017 / 10:00PM, OTEX.TO - Q2 2017 Open Text Corp Earnings Call

Question: Steven Li - Raymond James - Analyst : Yes. Okay. Sounds good. Thank you.

Question: Paul Steep - Scotia Capital - Analyst : Great. Hey Mark, could you talk a little bit about, what the biggest key product opportunity you see out there, for ECD being, in terms of what you think you can leverage in the base? Not only within the technology side, but maybe Steve can comment a little bit on where he sees the largest lift as well. Thanks.

Question: Paul Steep - Scotia Capital - Analyst : leave it there, but I got to ask on that. So on InfoArchive, Mark, I think they bought it about a year ago. It was relatively small, maybe $60 million in net revenue was what we calculated out. Where did it sort of track out at the end of the time it was independent? Because that was a fast-growing piece of Documentum?

Question: Paul Steep - Scotia Capital - Analyst : Great. Thank you.

Question: Eyal Ofir - Dundee Capital Markets - Analyst : Thanks. Thanks for taking my question. I'll start off just with, John. Can you just clarify one thing for me? I think you pointed that you're going to hit the mid-point of your operating margin targets for the fiscal year, but I think that included the one-time integration costs. Is that correct?

Question: Eyal Ofir - Dundee Capital Markets - Analyst : Okay. So, if we back those out you should actually be higher than the mid-point?

Question: Eyal Ofir - Dundee Capital Markets - Analyst : Okay but you'll be able to identify how much they are though?

Question: Eyal Ofir - Dundee Capital Markets - Analyst : Okay. Perfect. That's fine. And then, just for Mark and Steve, in terms of the ECD acquisition how much of the revenue was actually given by the partner network? And what do you think -- how do you guys go about managing that channel, I guess, without overwhelming them with the new cross-sell opportunity here?

Question: Eyal Ofir - Dundee Capital Markets - Analyst : In terms of managing the channel. So, I imagine over time you're going to try to get the channel to also cross-sell the OpenText offerings. So how are you guys going to manage that? How long will that take to bring channel on board as well?

Question: Eyal Ofir - Dundee Capital Markets - Analyst : Okay. Great. And then Mark, for you, from just on the M&A side of the equation, though. Obviously you've done a significant amount over the last 12 months. How should we think about what your thoughts would be for the next ones? I'm assuming it would be in a different category within the EIM pie, because you probably want to see this the Documentum and the ECM portion of OpenText integrate, and get that going. So, I imagine there's other verticals you are looking at. What gets you excited, I guess, in the M&A pipeline?

Question: Eyal Ofir - Dundee Capital Markets - Analyst : Okay. And you guys are pretty comfortable now, following the HP acquisitions? And you're all integrated in those transactions and (Inaudible)

Question: Eyal Ofir - Dundee Capital Markets - Analyst : Okay. That's great. Just before I pass the line, just one more question. You guys hit it out of the park on the license side this quarter. Should we assume more seasonality into the next quarter? And then also from a macro standpoint, what are your thoughts? And I'll pass the line. Thanks.

Question: Eyal Ofir - Dundee Capital Markets - Analyst : Okay.