Open Text Q3 2013 Earnings Conference Call Transcript

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

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Mark, can you provide some color around the spending environments? Over the past month, we have obviously seen some slower software from the likes of Oracle, IBM and SAP. And in the context of that climate, you have delivered a good license number. And so can you talk about how customer demand progressed in the quarter? And how the demand environment is shaping up from your perspective as you look forward into Q4?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : And now should we be thinking about organic license growth in Q4 specifically as well? Or do you really want to focus your guidance more around second half?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Okay. And one more for me. The cloud revenue was down a little bit relative to Q2. And so was that currency or was that some fall-out as you're integrating EasyLink?

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

Question: Richard Tse - Cormark Securities - Analyst : Mark, in terms of your description of the service revenue decline, timing of deals. Can you elaborate on that a little bit more?

Question: Richard Tse - Cormark Securities - Analyst : Okay. And then in your previous comments, you've talked about increasing the sales capacity. I think the numbers have been about 20%. Are you fully there now, in terms of the sales capacity? And secondly, related to that, are all these sales guys in the position to sort of hit their full stride on quota? Are they all trained up now? And if you can maybe elaborate on that, that would helpful.

Question: Richard Tse - Cormark Securities - Analyst : So essentially, based on that, you would probably think that coming in a new fiscal year, the sales momentum should accelerate, no?

Question: Richard Tse - Cormark Securities - Analyst : Okay. And just one final question. What is the environment like for acquisitions today? And how are you going to balance that against the organic growth initiatives? 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 - Cormark Securities - Analyst : Okay, thank you.

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Mark, just two questions for you, if I may. I would like to ask, first of all, if you would repeat what you were talking about the SAP HANA, what sort of product you're talking about to plug into HANA, and whether this will be -- the goal is to have this as part of the re-seller solution?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : And timing is second half of this calendar year? Is that right?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay. Other question for you, Mark, would be just the products that you ran through on the different pillars of EIM. Where do you think the most opportunities are? Is it with the InfoFusion that you talked more about, or some of the other solutions?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : I appreciate it, I will pass the line, thank you.

Question: Tom Liston - Cantor Fitzgerald - Analyst : Mark, you alluded to it a bit. But can you talk about what the main [callister] on the dividend was, and how it relates to -- is M&A activity look like it's slowing down a bit? Or is it just simply -- okay, we can borrow money cheaply if you want to get there? And as important in going forward, whether triggers potentially increase that. Including talking about organic growth and is the step function investment kind of done obviously beyond growing investment? Can you talk about a bit the levers and why now, and what might potentially increase that down the road?

Question: Tom Liston - Cantor Fitzgerald - Analyst : A quick follow-up. On the license revenue, one of the most impressive aspects was the size of big deals and the number of big deals. Can you attribute that to anyone, whether it's a vertical or just sales force getting properly up to speed? Or a couple of key partners? Is there one or two angles there that contributed to the large deals being up so substantially year over year?

Question: Tom Liston - Cantor Fitzgerald - Analyst : Great, thanks. I will pass the line.

Question: Paul Treiber - RBC Capital Markets - Analyst : Just going back to license revenue again. Despite the environment, as you mentioned, the execution was very good. Did you see any impact from Eastern March or sequestration? Or did you -- were you able to manage around that, and that is just a reflection on your new operations team you put in place and the sales force ramping up?

Question: Paul Treiber - RBC Capital Markets - Analyst : And speaking very broadly about perhaps the trend in win rates over the last several quarters from last year, and also the growth in the pipeline. Would you say both those metrics are ramping in line with your expectations at a very high level as a sales force? And this sales force comes on board and there is less change in the organization.

Question: Paul Treiber - RBC Capital Markets - Analyst : Great, thanks. One more and then I'll pass the line. You didn't mention the quarterly license model. Is that model still intact?

Question: Paul Treiber - RBC Capital Markets - Analyst : Sorry, the quarterly seasonal license model.

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

Question: Kris Thompson - National Bank Financial - Analyst : Paul, just on the maintenance renewals, the cash generated from your deferred revenue this quarter was strong. But it was a bit lower than I expected, and the year over year was down. Can you give us some color on that figure?

Question: Kris Thompson - National Bank Financial - Analyst : Okay, that's good. And just, I don't know, Paul or Mark, on the 8 multi-million dollar deal that you did, can you give us some color on how many were existing versus new customers?

Question: Kris Thompson - National Bank Financial - Analyst : Okay. Because the last couple of quarters you've been focusing, I think, to use your words, filling more modules into your customer base. Is that still a strategy? Or as it looks like, is it your new sales people bringing in new relationships and getting you into some new customers? Is that what we are experiencing?

Question: Kris Thompson - National Bank Financial - Analyst : Okay, just on the financial services vertical. Just to pick a weak area, it looked like it was down year over year. What's happening in that vertical? Is it some new products that you require there? Or did you just have some slippage there?

Question: Kris Thompson - National Bank Financial - Analyst : Okay, guys, I will leave it there. Thanks a lot.

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Just a couple of things. Paul, just on the Resonate acquisition. What was their approximate annual revenue run rate?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Okay. And on the maintenance revenue, the maintenance base, if you will. What -- you talked a little bit about the renewals. How about the pricing environment for maintenance contracts? Particularly in Europe, given the ongoing recession 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: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Okay, great. And then on the partner side of the equation, obviously SAP continues to be your leading partner. But I want to perhaps drill in a bit more on some of the other partners outside of SAP and how they have been performing for you?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Okay, great. And one last quick one. I'm not sure if I missed this or not. But what is the current sales rep head count?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : So you're not going to -- are you going to give it on an annual basis?

Question: Blair Abernethy - Stifel Nicolaus & Company - Analyst : Fair enough. Thanks very much, guys.

Question: Paul Steep - Scotia Capital - Analyst : Mark, maybe you can talk just back on the dividend. What is the target pay ratio or maybe how did the Board think about setting that initial level of dividend? More importantly, what sort of growth target or plan going forward?

Question: Paul Steep - Scotia Capital - Analyst : That helps. The last one then, for you as well. Just a clarification on the litigation. Does that clear up the Captaris piece, and does it basically put in place a longer-term license around that?

Question: Paul Steep - Scotia Capital - Analyst : Great. Thanks, guys.

Question: Stephanie Price - CIBC World Markets - Analyst : Just getting back to the cloud and the cloud revenue that you saw in the quarter. Can you talk a bit about how much of your products are actually have been rolled out in the cloud so far? And where you are with those initiatives and what the customer response has been?

Question: Stephanie Price - CIBC World Markets - Analyst : Okay. And then just a last one for me. On the cross-selling initiative, can you talk a bit about how those are going in the role of the EIM strategy? How has the uptick been so far?

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

Question: Michael Nemeroff - Credit Suisse - Analyst : Nice job on the license. Just one quick follow-up on the license, though. I've been asked by a couple of people -- was there any contributions from Resonate in the license line this quarter?

Question: Michael Nemeroff - Credit Suisse - Analyst : I'm sorry. That was a no?

Question: Michael Nemeroff - Credit Suisse - Analyst : Okay, thanks, Paul. And then also just following up on some of the deferred revenue questions. I'm looking at the deferred revenue. And the growth was obviously a little bit -- it's slower this quarter than it was -- I have to go back a couple of years to see it this slow. You commented that there was no pricing degradation on the renewals. And I was just wondering, what's the explanation for that deferred revenue deceleration? 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: Michael Nemeroff - Credit Suisse - Analyst : Okay, great. Thanks very much, guys.

Question: Rekesh Kumar - Susquehanna Financial Group - Analyst : You talked about a [CP] HANA and how you're trying to leverage that within [inman] information in the future. But if you look at ERP the last year, the growth has been moving from the ERP applications to [alec vic dernasis]. So is the lack of growth in the ERP products impacting some of your growth in the [CP house]?

Question: Rekesh Kumar - Susquehanna Financial Group - Analyst : Just, I have a follow-up quickly on Microsoft [wearing that] 2013. Any color on the type of work [in news cases] around the new release that you are doing?

Question: Rekesh Kumar - Susquehanna Financial Group - Analyst : Thank you. That's it for me.

Question: Richard Tse - Cormark Securities - Analyst : Yes, just one follow-up on the services again, Mark. So it was [off here] a bit. Would it mean that those customers did not take the liberty of the license, and that would be to come? Or is it recognized -- I'm trying to get a sense of sort of an incremental revenue stream will come with that when the Professional Services come back on?

Question: Richard Tse - Cormark Securities - Analyst : Yes, isn't there like a license component to that as well?

Question: Richard Tse - Cormark Securities - Analyst : Okay, all right, thanks.