Open Text Q3 2009 Earnings Conference Call Summary

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

Question: Scott Penner - TD Newcrest - Analyst : Thanks, John, just on the Captaris deal, I know it is only the second quarter, but do you have any achievements of note on the cross-selling side?

Question: Scott Penner - TD Newcrest - Analyst : Okay. And on the -- I noticed you said you were comfortable with the first call earnings guidance, and obviously last quarter you said you were comfortable with both top and bottom line.

Question: Scott Penner - TD Newcrest - Analyst : Is that by design that you're no longer--

Question: Scott Penner - TD Newcrest - Analyst : Okay. And on the -- just on the non-compliance related businesses, on the -- you mentioned the areas of payables, do you have any new products coming up there?

Question: Scott Penner - TD Newcrest - Analyst : And then just lastly, what are you seeing as far as updates on the competitive landscape? What is going on with IBM and EMC?

Question: Scott Penner - TD Newcrest - Analyst : And just to, Paul, I think you mentioned, I just want to be clear on the tax rate, you mentioned that going to -- did you say no more than 28% and what was the timing on that?

Question: Scott Penner - TD Newcrest - Analyst : Okay. So we should see some sort of, let's say, adjustment in the fourth quarter?

Question: Scott Penner - TD Newcrest - Analyst : On the interest expense, Paul, in the past there's been a fluctuation relative to some instruments there. Were there any -- was that -- that item have any kind of impact again?

Question: Scott Penner - TD Newcrest - Analyst : Okay. And just to be clear , that is included in the adjusted EPS

Question: Scott Penner - TD Newcrest - Analyst : Okay. Thank you.

Question: Tom Liston - Versant Partners - Analyst : Thank you and good afternoon. John, just on the comments about the revenue guidance, I haven't double checked the numbers, but I don't think the currency's moved that much sequentially since our last call at least, year-over-year it certainly has. But when you last gave the guidance, I don't think it has moved much, or Paul, do you have some numbers around how much that has moved versus your revenue streams?

Question: Tom Liston - Versant Partners - Analyst : Okay. In other words, could we just talk about it -- it has weakened out there and we talked one month into the quarter last time, and there was some debate about the growth rate of ECM, and you said you've worked it in your forecast and discounted extra this time. And even with the currency effects, there's still a, looks like a license revenue miss. Can you talk about what has changed, or if it has changed, because it doesn't seem to be all just currency on a sequential basis since we last spoke about guidance in the market.

Question: Tom Liston - Versant Partners - Analyst : Okay. And, Paul, on deferred revenue, the incremental gain you have sequentially, that is a seasonal cause, year-over-year it is down, is that mainly currency, or can you just talk about renewals in general.

Question: Tom Liston - Versant Partners - Analyst : Okay. And finally, obviously you can't talk specifically about Vignette until it closes, but traditionally most of your acquisitions have been at least in some growth mode or a very minor decline when you acquired them, and allowed you some time to get that onto your business model. Obviously last quarter, Vignette's license was down 29% and overall revenue down 24%. What do you think your experience brings to be able to manage a company or potential acquisition maybe in a larger decline mode than most of your historic acquisitions? 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 - Analyst : Okay. Thanks. I'll pass it along.

Question: Richard Tse - National Bank Financial - Analyst : Hi, guys. Just wondering if you can maybe comment at all in terms of when this deal does close, how long do you think it will take to cut over to your operating model, will that be a one or two-quarter event? How should we see that?

Question: Richard Tse - National Bank Financial - Analyst : Okay.

Question: Richard Tse - National Bank Financial - Analyst : Right, and with respect to the product line, their strength in web content management, how would you see that fitting in with the existing red dot offering that you have? 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 : But would you be keeping sort of the both divisions, or would you be integrating the products?

Question: Richard Tse - National Bank Financial - Analyst : Okay, fair enough. Just finally, with this being sort of the big remaining play out there in the public market, and with no sort of big candidates left, what are you guys doing in terms of the new product development front? Last year I think you spent a lot of time talking about web 2.0, there's going to be fewer plays out there for you to acquire of this size. So, can you give us a gauge in terms of what is happening on the R&D front and organic initiatives?

Question: Richard Tse - National Bank Financial - Analyst : Okay. Great. Thank you.

Question: Joseph - Deutsche Bank - Analyst : Hi, good evening, thank you very much for taking my call. There is a couple of questions that's already been asked but I have a couple more. The first one is, within the limits of what you can comment on the Vignette acquisition. Can you give us a sense for the type of revenue synergies you're looking for by integrating the products, maybe with a couple of practical examples, maybe in specific verticals, et cetera. The second question I have is, my understanding is that the Vignette portal platform is actually using autonomous technology underlying it, assuming the acquisition closed, is that something that you would continue that relationship from an OEM perspective or you would actually be replacing that with your own technology. Thank you.

Question: Joseph - Deutsche Bank - Analyst : Okay. Thank you very much. And if I may just add one last follow-up, are you in a position to discuss what other targets that you consider and eventually why did you choose Vignette? Thank you.

Question: Joseph - Deutsche Bank - Analyst : Okay. Excellent. Thank you very much.

Question: Paul Steep - Scotia Capital - Analyst : Geat, thanks, well I'll take a shot at it one different way, which is on the Vignette side, is there any reason, John or Paul, to think that this deal would work any differently than your operating model to other prior deals, maybe with a little more tempering, given the economic climate?

Question: Paul Steep - Scotia Capital - Analyst : Got it. Fair enough. Actually one quick clarification from you. Can you just remind us on the deferred revenue write-down for Captaris on the quarter?

Question: Paul Steep - Scotia Capital - Analyst : Okay, that is what I thought you said. The last one would be, why would we assume I guess, John, that you guys wouldn't look to go maybe further afield for further acquisitions and segments that would be adjacent, things like BPM and other segments in and around adjacent ECM?

Question: Paul Steep - Scotia Capital - Analyst : Okay, fair enough, thanks, guys.

Question: Lawrence Rhee - Blackmont Capital - Analyst : Hi, just a couple questions with respect to Vignette, if I may. Just from a high-level -- can you just add some color around their customer base, and whether or not you can give even a percentage of what type of customer overlap there exists with Open Text and Vignette?

Question: Lawrence Rhee - Blackmont Capital - Analyst : Got you. And also with respect to just the price paid, would you be able to add some color whether or not, were you guys the only players at the table or were there other vendors sniffing around Vignette as well, if you're aware?

Question: Lawrence Rhee - Blackmont Capital - Analyst : Great. Okay. And, lastly, just clarification, I had my notes that you expected to realize what, $17 million in cost savings in the next two quarters, which includes this March quarter and June quarter. Can you just quantify how much of that $17 million you realized the cost savings this particular quarter.

Question: Lawrence Rhee - Blackmont Capital - Analyst : Great. Thanks, guys.

Question: Mike Abramsky - RBC Capital Markets - Analyst : Thanks very much. John, I realize you've been quite consistent on saying you can't talk about Vignette, so I'll ask you a question about Vignette. Are you reluctant to sort of comment at this point, just, is there some chance that the deal doesn't get done?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. But is there a chance that the deal gets done at a different price, or something substantially different than what we've seen at this point?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. Just going back over sort of the last couple of quarters in both your outlook and also performance. Could you reconcile for us, your comments have been fairly consistent on macro-demand for compliance, as well as your pipeline remaining healthy.

Question: Mike Abramsky - RBC Capital Markets - Analyst : But in the last couple of quarters, you've been pulling in your outlook in terms of what you're comfortable with, first it was revenue, in the last quarter it was seasonality and 90-day pipeline. And now it's just EPS.

Question: Mike Abramsky - RBC Capital Markets - Analyst : So, are you seeing, is revenue visibility declining on the deal delays because of the economic department, like you said in Europe, et cetera. 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 Abramsky - RBC Capital Markets - Analyst : Do you expect that to trough, or you're just not sure. How do we think about the trend going forward?

Question: Mike Abramsky - RBC Capital Markets - Analyst : But does the delay give you some, like is there visibility to those actually closing, or is that's what's kind of more difficult to see, is to sort of when those things will and if come through? Delay can be, we're just not getting the signature, or delay means we sort of know we're getting it but it is sort of stretching out.

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. And is that kind of current comment on now focusing in EPS consensus reflective of still perhaps that currently lower visibility in the current quarter that you're in right now?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. And then lastly, just with regard to Vignette and a kind of high-end products, are there any low-hanging fruit either in your

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay.

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. Thank you very much, John.

Question: Dushan Batrovic - Canaccord Adams - Analyst : Hi, thank you. So, John, it sounds like things did get a little bit worse since you spoke in January. I wanted to get a sense as to what that actually looked like and when that actually occurred. Was it February, March, I guess another question I'm asking, the question is around linearity in the quarter. And so far what you've seen in April, are you extrapolating April for the rest of the quarter, when you say that you're comfortable with EPS, or are you banking on any improvements this quarter?

Question: Dushan Batrovic - Canaccord Adams - Analyst : When you mention the big deals being chunked up here, has that process accelerated of late based on what you're seeing in the economy?

Question: Dushan Batrovic - Canaccord Adams - Analyst : And could that impact your commentary around how we should think about license seasonality at some point?

Question: Dushan Batrovic - Canaccord Adams - Analyst : Last question from me, on Vignette, obviously, any pressure in perhaps entering into this transaction a bit earlier than you would have ideally wanted to, based on their own process of evaluating strategic alternatives. And I ask that because of the Captaris integration still hasn't fully been completed and economic conditions are kind of tough.

Question: Dushan Batrovic - Canaccord Adams - 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: Gabriel Leung - Paradigm Capital - Analyst : Thanks, Paul, just have two questions for you first, just on the tax rate, just to confirm, you said that fiscal '09 tax rate should average around 28%, right.

Question: Gabriel Leung - Paradigm Capital - Analyst : Any sense of what 2010 would look like for Open Text as a stand alone entity?

Question: Gabriel Leung - Paradigm Capital - Analyst : Okay, and just on the cost of debts for the remainder of the calendar year, which I think the color is still in effect, should we think about 5% as the cost of debt?

Question: Gabriel Leung - Paradigm Capital - Analyst : Okay. And then a question for you, John, with regards to your outlook for the remainder of the year. I think you had commented that we should expect to see the same sort of seasonality as we had in the past. Is that correct?

Question: Gabriel Leung - Paradigm Capital - Analyst : And I think previously you talked about, in Q4 you typically see a 20% to 25% sequential improvement in license revenues. Is that correct?

Question: Gabriel Leung - Paradigm Capital - Analyst : Barring whatever foreign exchange is, right? I think just based on where spot rates are right now, the things remain unchanged , it looks like you will probably get a sequential benefit on the Euro and the pound, so I guess the question is, all else being equal, are you saying we should expect to see maybe a 20% to 25% sequential increase in

Question: Gabriel Leung - Paradigm Capital - Analyst : But that is what you're implying. Okay, that's fine.

Question: Gabriel Leung - Paradigm Capital - Analyst : No, that's it, thanks.

Question: Steven Li - Raymond James - Analyst : Thank you. John, one more question on Vignette. Would you characterize Vignette as having more overlap compared to a Captaris, which might lead to stronger cost synergies.

Question: Steven Li - Raymond James - Analyst : Okay. And--

Question: Steven Li - Raymond James - Analyst : Okay. Great. And can you also comment on what kind of erosion you saw at Captaris, was it worse or better when you guided 30% erosion?

Question: Steven Li - Raymond James - Analyst : To what you guided?

Question: Steven Li - Raymond James - Analyst : Question for Paul, can you actually give us what the impact was on the deferred revenues, the FX impact you talked about?

Question: Steven Li - Raymond James - Analyst : Okay. Thanks.

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Thank you. Just a couple of things here. On the cash that you have on the balance sheet today, assuming you're going to use $40 million to $50 million for this acquisition. Of what you have left, Paul, how much do you foresee as your base working capital needs of cash?

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Okay, and how much of your $237 million cash today is off shore versus US based.

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Okay, so is there any withholding tax on the offshore cash?

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Okay. So given that scenario, what's your view towards further reducing your debt over the course of the next year, with Vignette in the works?

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Okay. Thank you. And shifting gears over to maintenance, you touched a little bit on maintenance renewals. What about the pricing environment on maintenance, and sort of what have you done with the, assuming that some of the Captaris business has rolled in January? 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: Blair Abernethy - Thomas Weisel Partners - Analyst : Okay. So--

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Fair enough. Fair enough. Just, John, just shifting gears to over to you, on the competitive landscape, I'm wondering if you could give us a sense of how you're seeing any changes out there with, in the legal vertical with Interwoven and now with Autonomy. And also in terms of Oracle and Stellant, we're hearing they're showing up a little more often. Are you seeing that?

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Okay. Great.

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Okay. Great. Thanks, John. 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 Lechem - CIBC World Markets - Analyst : Thank you, good afternoon. Just wanted to ask a little bit about the partner channel this quarter. You mentioned it was at 49% above your target range. What if anything, was unusual this quarter to cause it to be that high?

Question: Paul Lechem - CIBC World Markets - Analyst : When you give the 49% number, how do you actually define what a partner sale is? Is it something they've worked with you on, or something they brought you? How do you actually come up with that 49% number?

Question: Paul Lechem - CIBC World Markets - Analyst : Excellent. And one more question for you, Paul, is the guidance range you have given for the profitability, the operating profit model. What would it take, if anything, to move you above your current guidance range? How do you see this evolving over time?

Question: Paul Lechem - CIBC World Markets - Analyst : Excellent. Thank you very much.

Question: Ralph Garcea - Haywood Securities - Analyst : Good afternoon, just a couple of questions, I guess. Following up on your March comments, of the deals that were delayed over the last couple of weeks of March, how many have closed through April and early May?

Question: Ralph Garcea - Haywood Securities - Analyst : And of the original size of the deal, as you sort of had it in your pipeline, would you say it is 20% less of what you had expected, or 50% from your chunking comment?

Question: Ralph Garcea - Haywood Securities - Analyst : Yes, if you thought the deal was going to be $500,000 let's say to close in the last couple of weeks, did it close at $500,000 in April.

Question: Ralph Garcea - Haywood Securities - Analyst : Okay. I mean, as the process started with regards to Vignette, and you were doing your due diligence, were you getting feedback from customers and in your partner channel that this would be a great business to integrate into the rest of your 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: Ralph Garcea - Haywood Securities - Analyst : Just going back to your larger deals. You mentioned two or three on the SharePoint side.

Question: Ralph Garcea - Haywood Securities - Analyst : Which, would you say SAP is, or the SharePoint's now caught up to SAP with regards to the size of your customer base, or are they still, is SAP still--

Question: Ralph Garcea - Haywood Securities - Analyst : Okay. And just lastly, Vignette has been predominantly a 65% America's, 30% Europe.

Question: Ralph Garcea - Haywood Securities - Analyst : Would you see the product road map going forward selling Vignette into American and red dot and go through Europe, et cetera, or would you continue developing all three products?

Question: Ralph Garcea - Haywood Securities - Analyst : And then I guess for Paul, sort of to what Paul was saying on the previous question, assuming this deal closes and you get to a billion run rate, it should be easy to increase that operating margin range from 25% up to 30% given the scale? 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: Ralph Garcea - Haywood Securities - Analyst : Okay. Thank you.

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Thanks, just a quick follow-up, Paul. I don't know if you hit on this or not, but on your income statement you had a $11.5 million, $11.6 million in other income. Can you just walk us through what is in that number?

Question: Blair Abernethy - Thomas Weisel Partners - Analyst : Okay. That's great. Thank you.

Question: Dushan Batrovic - Canaccord Adams - Analyst : Hi, sorry, just a quick follow up. The tax rate comment, 28% for the full year, I think would imply a slightly lower tax rate for Q4. And when you talk about being comfortable with consensus EPS for Q4, does that -- are you assuming that lower tax rate?

Question: Dushan Batrovic - Canaccord Adams - Analyst : So you're assuming with the 30% tax rate?

Question: Dushan Batrovic - Canaccord Adams - Analyst : Perfect. Thank you.