Open Text Q4 2004 Earnings Conference Call Transcript

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

Question: Scott Penner - TD Newcrest - Analyst : John, I just wanted you to go over again the sales structure of the new merged organization. I would assume the sales forces have now come together, and exactly how the varying salespeople are incented to cross-sell the products.

Question: Tom Liston - Dlouhy Merchant - Analyst : Just regarding Vista Plus, can you give us some further detail with regard to the revenue breakdown between license, maintenance and services, as well as the costs that will be added to Open Text? And with that, can you also comment -- is the Vista Plus revenue for 2005 already in the guidance that's provided?

Question: Paul Steep - Scotia Capital - Analyst : Alan, can you just give us a quick update on what the level of the restructuring charge is at the moment on the balance sheet, and just remind us as to the shift on the tax rate as well?

Question: Blair Abernethy - Paradigm Capital - Analyst : I just wanted to get a little more color on the eight deals over 500,000 and, say, the few deals over a million. What percentage of these were with new customers versus existing customers? And can you detail how many of these deals were Livelink-driven deals and how many were IXOS-driven deals? 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: Howard Lis - JMP Securities - Analyst : I just wanted to get some clarification on the tax rate. Previously you had provided the guidance for '05, and the only discussion I recall on the tax rate was in the 30 to 35 percent range. Now we are talking about 10 points lower than that. Is that a correct understanding? And if so, should the earnings guidance have not moved up a bit?

Question: Andrey Glukhov - Southwest Securities - Analyst : Could you comment on the services margin? It appears to have softened a little bit sequentially. And how should we think about it going forward?

Question: Mike Abramsky - Canaccord Capital - Analyst : Could you just stretch out or explain a little bit further the issue of this comment you made, Alan, about the profitability profile changing for the merged entities? What has changed in terms of your assumptions that you made when you bought the company that has now impacted your EPS outlook? 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 Kessler - Standard & Poor's - Analyst : I was wondering if you could talk a little bit about what I think is probably hitting your stock in after-hours trading, which is essentially this -- you, relative to what we the analysts initially expected from your company for the first quarter, seem to be suggesting that seasonality, among other factors, are contributing to maybe less in the way of EPS than we expected. However, you essentially reiterated your guidance for FY '05. I think one of the concerns that I have, at least, is what gives you confidence in your ability to essentially get to that $1.10 to $1.30 number, given your expectations related to Q1?

Question: David Beck - RBC Capital Markets - Analyst : John, I would like to focus a little bit more on your comment about pricing pressure. There's been a couple of specific occurrences which I've actually had a chance to find out about with Documentum specifically, under the direction of EMC, definitely trying to go in and price themselves to gain market share -- very similar to what they are doing with Legato (ph). And now with Veritas getting into your space, so to speak, I'm just wondering if the reason for you not really seeing much pricing pressure is because you have kind of been the price leader and the lowest-priced product out there. And effectively, these guys are coming into your kind of level of pricing. Clearly, they have been up around the $500 per seat plus, and you are now -- you are the $100 per seat area. And maybe at what point this starts to -- you maybe start to see this, or a little bit more detailed comments on how you may react if -- especially with the Veritas move today. As we would expect it, price is just going to become (indiscernible) more aggressive in certain areas, not necessarily all the areas, of course.

Question: Ed Maguire - Merrill Lynch - Analyst : Just going back to your outlook for fiscal year '05, if you back out the change in the tax rate, it looks like the expenses are going to be running a little bit hotter from the acquisitions. But you are maintaining the range for revenues, so it does not seem that you are factoring in an increase from 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. the acquisitions. I guess what I am getting to is it seems that there is some conservatism in your outlook, and could this be at all an outcome of just the challenges in the IT spending environment currently?

Question: Mark Schappel - McDonald Investments - Analyst : I wonder if you could help me out a little bit with the guidance for fiscal '05 here. With the acquisition of Artesia and especially with Vista and not raising it -- I met with Artesia a couple of years ago. If I recall, they had revenues in the range of, say, 20 to 25 million. That was about two years ago. And with Vista, I believe it was (indiscernible) that they do about 13 million. So a little bit surprised about leaving the '05 guidance the same. Could you just address that, please?

Question: Steven Li - Raymond James - Analyst : Just to clarify, did you say Vista had $50 million in revenues? And also, what was the license contribution from IXOS?

Question: Richard Tse - National Bank Financial - Analyst : With respect to your acquisition strategy, why aren't you taking a break here? It sounds to me like you have all the pieces of the puzzle (indiscernible) now. Is your team being spread a little thin in terms of the sales guys learning these new products, and your development teams, in terms of integration? Could you address what your strategy is in terms of acquisitions there?

Question: Nate Swanson - ThinkEquity - Analyst : It looked like the IXOS license revenue was down year over year. Can you talk about what you have seen in terms of sales force headcount, specifically unforced turnover?

Question: David Wright - BMO Nesbitt Burns - Analyst : The guidance with the lower tax rate that you have, higher cost than you had previously modeled -- so I was just wondering where you might see that in the model? Is it at the gross margin level? Are you sort of expecting that there will be slightly lower gross margin level than what you had previously anticipated? Or is it in other areas like sales, general admin and R&D? Related to that is I was wondering how much cost savings is left on IXOS once your own 100 percent of it? It sounds lie you've already done restructuring, so what is left to take out there?

Question: David Shore - Desjardins Securities - Analyst : Tom, what is left to do as far as acquiring the rest of IXOS that you don't own?

Question: Brandon Osten - Sprott Securities - Analyst : You mentioned with the restructuring charges that you kind of worked it all through. What is sort of the final tally? Because you said IXOS' restructuring charge is 24 million -- I don't know if you misspoke -- plus the 10 million on the Open Text side. How much of that reserve remains yet to be paid out?

Question: Andrey Glukhov - Southwest Securities - Analyst : Alan, any thoughts towards establishing actually a pro forma tax rate and using basically a fixed percentage number for the tax rate?

Question: Blair Abernethy - Paradigm Capital - Analyst : I just want to talk a little bit more about your guidance. When you gave us the 4.20 to 4.50 guidance about six months ago, it was pre-Artesia and pre-Vista. Artesia and Vista are 25, 27 million. Vista did $17.5 million U.S. in fiscal '03. So clearly, there is some softness in the rest of the businesses 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. going forward into next year, and I just want to know what your thinking is in terms of where is the softness coming from, such that these two acquisitions are not fully additive?

Question: Rajiv Das - Westwind Partners - Analyst : Tom, can you comment on what your organic growth was for license? I think you mentioned 24 percent for total Open Text revenues. What was the license revenue growth rate for Open Text?

Question: Paul Lechem - CIBC World Markets - Analyst : Could you discuss a little bit about your next-generation platform, Hermes? What is involved with that and what is the timeline?

Question: Andrey Glukhov - Southwest Securities - Analyst : Tom, IXOS has a strong legacy of basically -- a strong record of working with taking output from ERP systems and basically using (indiscernible). Can you just take us through how Vista Plus is complementary to what IXOS does? Basically, how are the two working together?

Question: Richard Tse - National Bank Financial - Analyst : Just a quick question. I know that you guys have made acquisitions to in some ways get an installed base. Can you give us a sense of how many seats you have added, I guess, over the last year from acquisitions, and how many have started to convert to core Livelink?

Question: Rajiv Das - Westwind Partners - Analyst : Tom, can you comment on the competitive dynamics in the ECM market and how that has changed for you following the acquisition of IXOS, who you are seeing out there, what your win rate is against them?

Question: Rajiv Das - Westwind Partners - Analyst : Did you see partners more often this quarter?