Open Text Q3 2008 Earnings Conference Call Summary

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

Question: Paul Steep - Scotia Capital - Analyst : Paul, maybe you could talk a little bit and John as well chip in a little on the renewal cycle. Based on the deferreds it looks like you had some pretty great renewals when we came to the end of the year. How did that turn out?

Question: Paul Steep - Scotia Capital - Analyst : And I guess the John side of that question would relate really to DMX. When I see sort of those high renewal rates that tells me I'm assuming you did something right and the Hummingbird Enterprise customers which weren't quite so happy are much happier now and what is the conversion starting to look like on that front?

Question: Paul Steep - Scotia Capital - Analyst : Any sort of anecdotal evidence from the sales force as to sort of what type of funnel is out there in terms of pent-up demand for five and six users wanting to sort of flip over to a new version?

Question: Paul Steep - Scotia Capital - Analyst : Okay, I guess the final one for you then really comes down to free cash flow redeployment and the fact that you didn't move the debt down at all this quarter. What is the thoughts? No buyback, no M&A yet -- where do we go with the free cash?

Question: Scott Penner - TD Newcrest - Analyst : John, just to clear up a couple of things that were said by some of your peers, have there been any real notable changes in the competitive landscape or any sort of pricing pressure?

Question: Scott Penner - TD Newcrest - Analyst : And what is the environment out there for million dollar deals? Were you able to replace the deal assigned in the pipeline? What is the environment like?

Question: Scott Penner - TD Newcrest - Analyst : When you say multi -- are we talking two or five?

Question: Scott Penner - TD Newcrest - Analyst : Is there any particular driver or is it just generally the compliance in Europe that's driving that?

Question: Scott Penner - TD Newcrest - Analyst : On the partner front you mentioned 40% and that all of the major partners are contributing. What about guys like the Accenture? I'm assuming that they're somewhere. What's the traction like? 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 : Just finally the sales rep count of 230 doesn't really seem to be moving up too much. Is there the thought that you have the capacity with your partner channel to deliver the higher numbers or does that quarter carryforward have to go up?

Question: Tom Liston - Versant Partners Inc. - Analyst : Thank you and good afternoon. Just, Paul, on the cash question I will ask it a different way. I think previously you benchmarked more like a 150 type of number as a target. Is there a little bit increased potential for acquisition that you see out there that maybe you let the cash balance grow a little faster?

Question: Tom Liston - Versant Partners Inc. - Analyst : So we're not -- we don't necessarily read into anything and let that cash balance grow?

Question: Tom Liston - Versant Partners Inc. - Analyst : And, John, on the US segment you talked about Europe being strong. You're pleased with other segments but certainly overall revenue was in line, US might have been a little weak as well the financial services vertical I think you said 5% which is probably near the low end of your historic range. Are you certainly seeing some of that in the US, some of the push and perhaps delays as the financial institutions try to sort things out down 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: Tom Liston - Versant Partners Inc. - Analyst : Would you characterize financial services vertical as being slightly below expectations or such is that just the normal (inaudible)

Question: Tom Liston - Versant Partners Inc. - Analyst : Okay (multiple speakers) and on the partner influenced deals, the number was 40% in the quarter, correct?

Question: Tom Liston - Versant Partners Inc. - Analyst : Any of the big deals partner influenced that you can highlight?

Question: Tom Liston - Versant Partners Inc. - Analyst : And just finally licensed revenue in the quarter was obviously pretty strong year-over-year. I think it was up 20% versus as you characterized the industry more at 8 to 13. Is there any one or two things you could point to that drove up performance whether it was a competitive win rate or certain product sets maybe performing better than expectations?

Question: Tom Liston - Versant Partners Inc. - Analyst : One more quick question for Paul. Other income, was at all FX the stuff or is there anything else in that (multiple speakers) 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 - National Bank Financial - Analyst : On your partner channel can you sort of give us a feel for how big your Microsoft partner channel is relative to the others? And I guess asked another way who is sort of the most significant partner channel today in terms of driving that license base for you guys?

Question: Richard Tse - National Bank Financial - Analyst : If you looked at your license base would you say that over half of that is coming via your key partners in the form of I guess Microsoft SAP and Oracle?

Question: Richard Tse - National Bank Financial - Analyst : Of your product lines today it sounds like compliance, records management is obviously the big driver here. So what is that in terms of proportion of your licenses?

Question: Richard Tse - National Bank Financial - Analyst : Is that were all your million dollar deals are occurring though today on the archiving and record records management side? 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 - National Bank Financial - Analyst : Finally on the competitive landscape question there -- what is your sense of EMC? It seems like they've had a bit of a slowing here recently. Is that -- you were saying you have strength here in Europe. Is it -- you think you're taking share away from these guys or give us a sense of where that stands today?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Given all the changes that have gone on in the industry now you're facing larger players who have coupled up with some of the pure plays, do you see the need to acquire something bigger than just [tactive] acquisitions to continue to grow? Do you think you can do that independently or do you think that becomes more of an important strategy? Also just lately how are you thinking about trying to avoid some of the challenges that you face in future acquisitions that experienced with (inaudible)

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay, do you -- you've been making some investments in sales and marketing although again I got a little confused on the sales number because I thought last quarter you were talking about higher numbers. Maybe I was wrong. Is that correct?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay so have you seen an impact from that or when do expect to see an impact and where are you focusing those investments? I know you have been for example investing in direct sales.

Question: Mike Abramsky - RBC Capital Markets - Analyst : I guess just the last question which -- in terms of maybe the following four trends which would be industry consolidation or partner leverage or the records management compliance partner demand or your execution -- which do you think will be the biggest drivers of your growth over the next six to 12 months of those elements or contribution to those to your growth and what pending trends or catalysts do you see in any of those areas that might be important to highlight?

Question: Dushan Batrovic - Canaccord Adams - Analyst : Thanks very much and John, you touched on this a couple of times. The Web 2.0 or the enterprise 2.0 strategy, just wondering what stage we're at there from an industry standpoint. Are customers piloting? Are they actively deploying on mass? Is this a three-year story, one year story, a five-year story? And secondly how would you rate yourselves right now versus the competition being some of the larger Microsofts and IBMs versus some of the newer startups that are in this space?

Question: Dushan Batrovic - Canaccord Adams - Analyst : If we look at your 8 to 13% growth target for ECM would you classify the enterprise 2.0 as being incremental to that number or as contributing to that number in the longer term?

Question: Dushan Batrovic - Canaccord Adams - Analyst : So you're saying you would expect more business to shift from the compliance e-mail archiving towards the enterprise 2.0 strategy as ECM evolves?

Question: Steven Li - Raymond James & Associates - Analyst : Thanks, a couple of questions on your margins. Any reason it was -- on the license said, any reason it was as high as it was in the quarter at 94%? 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: Steven Li - Raymond James & Associates - Analyst : So on average, it's more like 92, 93% range.

Question: Steven Li - Raymond James & Associates - Analyst : On the professional services margin, you see that sustainable in the 20% range going forward, Paul?

Question: Steven Li - Raymond James & Associates - Analyst : Great and then just one other question. On your free cash flow statement you had an unrealized loss of $2.7 million on the financial instruments. Where do you (inaudible) exactly in your P&L?

Question: Steven Li - Raymond James & Associates - Analyst : Did you take that out when you calculated your adjusted EBITDA?

Question: David Shore - Research Capital - Analyst : Thanks, good afternoon. John, can you talk about license seasonality going forward? Would you expect to see the same kind of trends you have seen historically?

Question: David Shore - Research Capital - Analyst : Second question on the expensive side both your R&D and G&A expenses for the quarter were a touch ahead of kind of your guidance range there. Can you talk to please?

Question: David Shore - Research Capital - Analyst : So there is an FX movement within those lines as well.

Question: David Wright - BMO Capital Markets - Analyst : Thanks very much. Good afternoon, just some clarifications to start with. I did miss last quarter's conference call the but going over the transcripts it did say you had 250 sales reps last quarter and I think you said that you had 230 this time.

Question: David Wright - BMO Capital Markets - Analyst : So you're trying to grow it, you have more partners helping you. Now where is the turnover coming from?

Question: David Wright - BMO Capital Markets - Analyst : And I too was looking for the clarification on the revenue number excluding the foreign exchange gains. Since you can't give that I wondered if you could explain why you would not be willing to give it.

Question: David Wright - BMO Capital Markets - Analyst : It would just be helpful if we're measuring your business on the growth rate what that growth rate is.

Question: David Wright - BMO Capital Markets - Analyst : Could you -- the number of deals -- you had over 500,000. Was that did you say seven? Did I get that number right?

Question: David Wright - BMO Capital Markets - Analyst : And that was including the deals over one million? 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: David Wright - BMO Capital Markets - Analyst : Over the million -- and the multimillion dollar customer (multiple speakers)

Question: David Wright - BMO Capital Markets - Analyst : So when you look at the history there, the number of deals over $500,000 is not a number that's growing so you're getting more business in smaller sized accounts? Is that how it's working out?

Question: David Wright - BMO Capital Markets - Analyst : The customer that you have, the multimillion dollar customer, is that a new customer or is that someone that --

Question: David Wright - BMO Capital Markets - Analyst : Were they on the Hummingbird side or the Open Text side?

Question: David Wright - BMO Capital Markets - Analyst : Very good. How long would you say that sales cycle was for that very large sale? 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: David Wright - BMO Capital Markets - Analyst : Was it more than $3 million?

Question: David Wright - BMO Capital Markets - Analyst : Finally on Artesia, that was a business at one time I think was fairly -- had reasonably limited market opportunity. It was being sold into ad agencies and things like that. Would you say that its market opportunity has gone kind of mainstream as being used in all marketing departments today or is it just that it's become very popular in the ad agencies?

Question: Lawrence Rhee - Blackmont Capital - Analyst : John, I think you mentioned earlier if I heard you correctly you said you're going to focus on merging the capabilities of unstructured and structured data. If that is the case does that mean you're going to be scaling up your BI capability and is that the Hummingbird piece of the equation? And if so could you just add some color as to what your customer is asking for? Is that something in near-term demand in terms of merging those capabilities together and is that kind of a market trend?

Question: Gabriel Leung - Paradigm Capital - Analyst : Just going back to the seasonality question, I think earlier in the fiscal year you had sort of alluded to from Q3 to Q4 we should see a sequential improvement on licensees by 20 to 25%. Do you think that growth range is still feasible?

Question: Gabriel Leung - Paradigm Capital - Analyst : And just in terms of what some of your peers have been talking about, some of them have talked about longer decision-making cycles, just more views from controllers and CFOs on deals in particular. Did you see any of that in your March quarter or into any of the deals in fiscal Q4?

Question: Gabriel Leung - Paradigm Capital - Analyst : Just lastly going back to that 8 to 13% industry growth forecast that you think you should be -- that the company should be able to hit, do you think you can do that organically over the next year or two or do you think you're going to have to tack on another (inaudible) acquisition to get that infrastructure -- to get there?

Question: Brian Freed - Morgan Keegan & Co., Inc. - Analyst : Thanks for taking my question. For those of us who are trying to calculate currency could you give us a little bit of color what the split in North America is between the US and Canada?

Question: Brian Freed - Morgan Keegan & Co., Inc. - Analyst : Okay, great. And secondly as you kind of look out particularly within Europe there's been some chatter in terms of the macroeconomic from the US (inaudible) in that way. Have you seen anything notable within that particular geography given your exposure to it?

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Just a couple of things. John, I wonder if you can give us a little more color on the Hummingbird customer base. In terms of the DM 5 installed base and the connectivity products what is happening on the DM 5? I know you've had sort of at least three versions go through. Is the base expanding now or do we have to wait a little while longer?

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : At this stage though i.e. --

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Second question I had is in terms of your new customers overall, can give us some sense of -- can you profile them a little for us in terms of are these -- what verticals are the new customers coming out of and sort of larger corporations, midsized. Where are you seeing I guess the best traction in terms of the new customers?

Question: Scott Penner - TD Newcrest - Analyst : Just a couple of things one of which -- do you expect the percentage of services to basically -- well basically the business model in total to remain pretty constant as you grow?

Question: Scott Penner - TD Newcrest - Analyst : Just lastly you talked a bit about the Web 2.0 and some interest in collaboration. Are these products that are also driven through some of your major channel partners? 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 : Is there any interest from any of them in doing that?

Question: Scott Penner - TD Newcrest - Analyst : And that's at a fairly early stage?