Open Text Q3 2012 Earnings Conference Call Transcript

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

Question: Richard Tse - Coremark Securities - Analyst : Thanks. So, Mark, just to start off, before you came on board, you had a nice run over the course of the year. So, what happened that this quarter a is sort of turned around here on your watch? I know you are new to the job and I know you are making some changes, but it seems that the progression post acquisitions in the past have turned over very quickly in terms of execution, but Metastorm and 360 haven't been as successful.

Question: Richard Tse - Coremark Securities - Analyst : Just switching gears here in terms of the acquisition, my understanding that from your comments tonight is that Metastorm and Global 360 really haven't been that successful in terms of the, let's call it the integration or the upsell. So, in the midst of that, why are you making a decision here to take on another acquisition before that is actually integrated?

Question: Richard Tse - Coremark Securities - Analyst : Okay. And just one final quick one. Based on your experience with some of these changes, I'm sure you probably have implemented in other organizations. How long, typically, let's give it a quarterly basis, until you are at full force here, is that one, two quarter event or what's the history been?

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

Question: Kris Thompson - National Bank Financial - Analyst : Great, thanks. Mark, on the EasyLink, can you just tell us how the technology will aid Open Text's competitive position against the usual suspects like IBM, EMC, and HP? And how it benefits your partnerships with SAP, Microsoft, and Oracle?

Question: Kris Thompson - National Bank Financial - Analyst : Okay, that's helpful. And with the IBMs and EMCs, did they provide similar solutions, or is it a different competitor landscape?

Question: Kris Thompson - National Bank Financial - Analyst : Okay. Last for me. Paul, on the maintenance renewal rates, you mentioned they were 92%, but can you give us an idea of the robustness of the pricing in the market? Are you getting some price hikes there?

Question: Kris Thompson - National Bank Financial - Analyst : Okay, thanks guys.

Question: Brian Freed - Wunderlich Securities, Inc - Analyst : Good afternoon. Two quick questions. First, Mark, as you look to drive this shift to functional model, can you talk about any changes you've made to the sales incentive structure, either at the field or regional management level?

Question: Brian Freed - Wunderlich Securities, Inc - Analyst : Okay. And then my second question for you, Paul. If you look at the shortfall, what's the relative split, would you guess, between the ECM business in North America and the BPM business? 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 - Wunderlich Securities, Inc - Analyst : Okay, thanks.

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Thanks very much. Just a couple questions on the Q3. Mark, I wonder if you would just characterize the deals that -- the shortfall here. Was it more deals lost or slipped, and is -- what's your sense on the pipeline as you've entered Q4 versus as you entered Q3?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Okay, great. And in terms of the sales rep capacity, what is -- how many quarter carrying reps do you have today?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Okay, great. And the last question for me, just on the SAP's contribution in the quarter. In the past, SAP's license contribution would be recognized one quarter in arrears, and I'm -- sometimes that moves around a little. Can you just describe what they contributed to your business this quarter?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Okay. And just to follow on that, Paul. The SAP had troubles executing in North America, did -- was there any read through for Open Text in Q3?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Okay, thank you.

Question: Stephanie Price - CIBC World Markets - Analyst : Hi, gentlemen. Could you talk a bit more about the revenue and earnings contribution from Global 360 and Metastorm in the quarter, just given that you're talking about BPM as one of the factors for the miss in the license revenues?

Question: Stephanie Price - CIBC World Markets - Analyst : Okay. And on the efficiency gains that are to pay for the sales force increase in capacity, is that the $5 million in restructuring you were talking about earlier?

Question: Stephanie Price - CIBC World Markets - Analyst : Okay. And in terms of the EIM strategies you outlined, Mark, could you talk a bit about what other acquisitions that you might be in, what holes you still have to fill to broaden that strategy?

Question: Stephanie Price - CIBC World Markets - Analyst : Okay, great. Thank you.

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Thanks. Just looking at the consensus going in for licensed revenue versus what was reported is -- call it a delta of about $14 million. I know we're not exactly exact here, but is it correct to think that $7 million of the miss, let's say, came from the BPM side, and the other was the sales execution in North America?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay, thanks for that, Mark. When you outlined the EIM market in general, what additional competitors does that bring into the mix when you expand what you consider to be your market opportunity?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay. And then the acquisition of the EasyLink, when I just took a quick look at their revenues for the -- it looks like the vast majority, well, the majority of their revenue comes from, as they defined it, fax services. So, I just want to get a sense whether this is a technology buy or a customer base expansion that you think you can leverage down the road, or was it really about acquiring cloud capabilities?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : And just to be clear, Blair's question earlier, the deals that you didn't have the execution on in the quarter, are all of those deals still live in your pipeline?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : The deals that you cited for the execution issues in Q4, are those deals still live?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay. How long do you think it will take you, Mark, to get the organization to, on that 10% blended growth rate of the EIM business?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay, thank you very much.

Question: Paul Steep - Scotiabank - Analyst : Great, thanks. Mark, maybe just to loop back at EasyLink for a second, maybe you could give us a little bit more color around the stability of the base in the business there? It seems like it's more of a services business. How much of that is under long-term contract that's fairly sticky for you folks?

Question: Paul Steep - Scotiabank - Analyst : Yes, EasyLink. How much of it's contracted longer-term, or over a one to three year period in terms of a recurring business?

Question: Paul Steep - Scotiabank - Analyst : Okay. How much of your business, then, would you try to shift over? Where I'm going with this is on a revenue recognition basis, do we need to think about, as you bring in a services business and a SaaS Model, how much should we model in a change in the operating model going forward?

Question: Paul Steep - Scotiabank - Analyst : Fair enough. The last one for me would just be on BPM. 15% license decline, is that the number we're tracking to at this point? I know we've talked a lot on the call about a disappointment here. That was sort of the number we talked about, February 1st. Is it of on that par into the back half?

Question: Paul Steep - Scotiabank - Analyst : Great, thanks.

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Hi, good evening. Just to clarify that last question, you're planning to break out EasyLink services revenue either separately or in MDA going for -- once the acquisition closes?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Okay. I think in the past you had mentioned, as you grow -- I know cloud is still really small budding part of that -- your business. So, in the future as you grow your cloud business, would that be all included together or would EasyLink just be segmented separately?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Okay. And just for clarification, earlier you mentioned that you're seeing immediate impact from consolidating and the BPM operations. So, keeping in mind that it does take time to wrap up sales capacity and to train them, when do you think you'll start to see a positive impact in North America for license revenue growth?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Okay. So just to be clear, there are two issues that caused your license sales weaknesses. One was issues on the BPM side but another was on execution issues in North America sales, overall, for license revenues? Is that not correct?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Okay, so sorry, just addressing the deficit in sales capacity, what is the reason for the turnover that you've seen, and how long do you think it will take to see a positive impact from the increase in sales capacity that you expect for the next couple quarters?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Just last question. You mentioned that you didn't see any impact from the economy. I'm just wondering if you can comment on the decline in Europe? Was that related to the BPM issues, or was there anything else that was impacting that weakness? 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 : Thank you.

Question: Eyal Ofir - Canaccord Genuity - Analyst : Thanks. Thanks for taking my question, guys. First of all, I'll ask the easy one for Paul. On the sales and marketing expense lines, I see it's actually up sequentially. My thought process when we see license revenue down as it is, was this due primarily to the increased integration of the BPM into the sales organization and training, or is there anything else in there?

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay. And then, Mark, for you, there's two parts to my question. First off, on the BPM side, you talked about obviously having the sales reps now trained to sell BPM, but when do you expect to get some of your partners trained on BPM and expand on that indirect channel as well?

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay. And have you also done some other internal changes like looking at the low producers and may be targeting them to -- for turnover, turn those guys over to maybe bring external parties to maybe take over?

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay, preventative. The last thing for you, on the partnerships. When you look beyond BPM, you talked about all the different new markets you want to attack. Is there any new type of partners you are looking to attract, or should we assume it's going to be what was seen to date in terms of partnerships?

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay. So going forward it should be a similar type of split, and potentially increased fix, focus on system integrator's. That doesn't change when you look at the overall larger markets as you try to tighten them?

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay. Thanks. I'll pass the line.

Question: Paul Treiber - RBC Capital Markets - Analyst : Hi, thanks for taking my question. How should we think about license seasonality going forward? Do you think some of the changes you're implementing will do some of the historical seasonality, or do you think it would actually increase it? And then, regarding Q4 license, you expect

Question: Paul Treiber - RBC Capital Markets - Analyst : Thank you. Mark, one last question. You've been at the Company, as you said, for 120 days now. What's been the feedback that you are getting from partners, customers, employees, and other stakeholders on the new vision for the company? And, has there been anything surprising that you can share, or is it mostly in line with your expectations?

Question: Paul Treiber - RBC Capital Markets - Analyst : Thanks, guys.