Open Text Q3 2014 Earnings Conference Call Transcript

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

Question: Kris Thompson - National Bank Financial - Analyst : Mark, in your commentary you mentioned that you had about 300 customers looking at the upgrading to Content Suite 10.5 and normally every quarter you have 10 to 25 notable customer installations of $500,000 or more. That sounds very significant. Can you just give us an idea of if we should think about those customer upgrade potentials in the context of that type of size per customer?

Question: Kris Thompson - National Bank Financial - Analyst : Just really quickly, for Paul, Paul, there's been some headlines about the EU looking into some special tax structures over in Luxembourg. I'm sure you can't say much, but can you provide us any commentary, if you're concerned at all about your structure that you're about four years into? Thanks.

Question: Kris Thompson - National Bank Financial - Analyst : Great to hear. Thank you, guys.

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Mark, can you expand a little further in terms of the issues that you called out in the America. Is that just a question of getting the right leadership in place or the right reps in place? How would you characterize the issues?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Great, and how would you characterize the overall spending environment heading into Q4? Would you say that it's stable or would you say that there's been signs of improvement, as evidenced by the growth in EMEA and APAC? 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: Thanos Moschopoulos - BMO Capital Markets - Analyst : Great. Thanks, Mark. I'll pass the line.

Question: Scott Penner - TD Newcrest - Analyst : Just two questions. For you Mark, just wondering if you could give any update on AppWorks, any of the metrics that you're following and whether you've seen any developers come out with either test or production applications yet?

Question: Scott Penner - TD Newcrest - Analyst : Okay. Just a question for you, Paul, and that is the breakout of the deferred revenue and deferred implementation cost on the bottom-line impact of $1.9 million that you mentioned, is that an after-tax number or is that included in the adjusted EPS?

Question: Scott Penner - TD Newcrest - Analyst : Right. Okay. Appreciate it. Thanks.

Question: Blair Abernethy - Cantor Fitzgerald Canada - Analyst : Just two questions on the cloud side. Paul, you mentioned the GXS contribution to cloud maintenance and license. You left out pro serv. Was there any GXS revenue pro serv?

Question: Blair Abernethy - Cantor Fitzgerald Canada - Analyst : Okay, great. And then just in terms of the Easylink business, it looks like it was down 5%-ish sequential, maybe 10% year over year. Can you just tell us what's going on there in that business?

Question: Blair Abernethy - Cantor Fitzgerald Canada - Analyst : Okay, great. Thanks very much.

Question: Richard Tse - Cormark Securities - Analyst : With respect to Red Oxygen, are you expecting a bit of an acceleration now in license growth, given that the entire portfolio is going to be out of the market here within the month?

Question: Richard Tse - Cormark Securities - Analyst : Okay, and then could you elaborate in any way on -- you guys seem to be getting a little bit more aggressive on your IP and maybe give us a bit of color into why that's been the case?

Question: Richard Tse - Cormark Securities - Analyst : Okay, and one last question here. You've had GXS on your belt for a little while now. What do you think needs to be done, the main things that really drive the revenue synergies here going forward?

Question: Stephanie Price - CIBC World Markets - Analyst : Now that Red Oxygen is rolled out, can you talk a bit about the time line to Blue Cobalt (sic -- see comment below, "Blue Carbon") and how you see the solution evolving over time? 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: Stephanie Price - CIBC World Markets - Analyst : Okay, great. And in terms of the transactions, you recorded over $1 million. Can you talk a bit about them in general terms; the theme with customers, what customers were buying and what sectors were most active and if any of the deals were Red Oxygen-related?

Question: Stephanie Price - CIBC World Markets - Analyst : Right. And then just finally, in terms of Q4, Paul, can you just confirm that you're expecting the typical license seasonality for the quarter?

Question: Stephanie Price - CIBC World Markets - Analyst : All right. Fair enough. Thank you, gentlemen.

Question: Paul Steep - Scotia Capital - Analyst : Mark, maybe you could talk a little bit on the cloud side about Managed Services and the level of investment there. I know when you bought GXS, I believe it was about 39%, 40% of revenue there? And then secondly, just following up on the comments last quarter about a slight displacement in cloud revenue in the first bit; do you feel we're through that or if we've got potentially some in Q4 as well? 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 Steep - Scotia Capital - Analyst : Great, and just a quick clarification for Paul, because I know he likes forward-looking statements here (laughter) on the software capitalization side. Paul, thinking out a couple of years, as you continue to invest in the OpenText grid and cloud, how should we think, I know that snuck into the queue tonight, how should we think about capitalization of software hitting the balance sheet or still very tiny number in terms of overall R&D spend?

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

Question: Paul Treiber - RBC Capital Markets - Analyst : Paul, you mentioned in the prepared remarks that the increase in cloud services margins was due to a reduction in telecom costs. Could you elaborate on that? And then also the margins were slightly above the target model you have, so are they sustainable where they are or do you see them dropping back? 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 Treiber - RBC Capital Markets - Analyst : Okay, and then a similar type of question as regards to depreciation. It looks like this quarter, it was slightly below the target. Again, could you just elaborate on that?

Question: Paul Treiber - RBC Capital Markets - Analyst : Okay. And Mark, just in regards to your comments on on-premise and cloud coexisting, how should we think about the underlying growth of those types of markets? Should they grow in line with each other or do you see one growing faster than the other?

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

Question: Eyal Ofir - Clarus Securities - Analyst : First off, just on the average selling price, it's a nice uptick here, by the way, so congratulations on that, the $307,000. My question is, is that a function of seeing more enterprise-wide deployments and bidding more enterprise-wide? Is it also a function of Red Oxygen or maybe a little bit of both?

Question: Eyal Ofir - Clarus Securities - Analyst : Okay, so then now, heading into the June quarter here, more of these suites are available. Obviously, you have a pretty healthy pipeline. So we can anticipate this metric to continue to increase?

Question: Eyal Ofir - Clarus Securities - Analyst : Okay.

Question: Eyal Ofir - Clarus Securities - Analyst : Okay. I appreciate that. Congrats on that. One follow-up question is to some of the other comments you've made. So number one, just on the fax business in Japan and APAC, you're saying there is still more declines. Any way to size that up? Then number two, on your patent litigation against Box, would there be other players in that space that could be potentially infringing, as well? I'll leave it there.

Question: Eyal Ofir - Clarus Securities - Analyst : Okay. 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: Eyal Ofir - Clarus Securities - Analyst : Okay. Thanks. I'll pass the line.

Question: Michael Anderson - Credit Suisse - Analyst : It looks like you guys had a very nice rebound in the public sector this quarter, where [Allied] contributed about 20% of license. Can you just comment on the regions or suites that helped generate that strength and what that pipeline looks going into next quarter?

Question: Michael Anderson - Credit Suisse - Analyst : Got it. And then switching gears slightly, your new license from new accounts, it was 25%, maybe a tick down from where it has been normally over the last few quarters. Can you comment on just the competitive environment, in general, how that's been playing out and how maybe Red Oxygen is changing the discussion or changing the buying patterns of your current and/or new customers that you're trying to acquire?

Question: Michael Anderson - Credit Suisse - Analyst : That's very helpful color. Really quick one for Paul, can you just comment on how renewal rates have been? And as you go back to your installed base and essentially upsell them, do you expect that they could actually trend up slightly over the next four to six quarters?

Question: Michael Anderson - Credit Suisse - Analyst : Great. Thank you very much, guys.

Question: Ralph Garcea - Global Maxfin Capital - Analyst : Just two quick ones here. In the large deal environment, Mark, is there any different in the sales cycles between a cloud sale and an EIM sale, is the first question? And are you are Jon doing anything different to avoid back-end-loaded quarters with regards to these larger deals?

Question: Ralph Garcea - Global Maxfin Capital - Analyst : And then just on the one cylinder that's not working with regards to Canada and the US West. Was it sector-related, public sector versus commercial? Or was it just personnel issues and they've been rectified and move on?

Question: Ralph Garcea - Global Maxfin Capital - Analyst : Okay. Perfect. Thank you.