Open Text Q4 2007 Earnings Conference Call Transcript

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

Question: Scott Penner - TD Newcrest - Analyst : (technical difficulty) Can you hear me, John?

Question: Scott Penner - TD Newcrest - Analyst : I was just asking if you could hear me. There was a lot of noise on the line. Just -- I was curious, you mentioned the -- now position yourself for growth in (technical difficulty) 2008. What elements of the business, being it either the direct side or with the partnerships do you really feel is going to contribute? I guess what elements of that give you the kind of visibility to [welcome it] and give the kind of forecast you're giving?

Question: Scott Penner - TD Newcrest - Analyst : And just remind me, what is the time line for delivery of DMX right now?

Question: Scott Penner - TD Newcrest - Analyst : Okay. I'm assuming that the Marathon oil may be the big deal that you're talking about, but even if it isn't, could you just kind of talk about the nature of the competitive win, what elements gave you the advantage?

Question: Scott Penner - TD Newcrest - Analyst : Okay. And was this a -- was that a direct contact for your direct force? Or did it have anything to do with the Microsoft joint relationship?

Question: Scott Penner - TD Newcrest - Analyst : Okay. Just a couple of housekeeping -- Paul, is the IXOS now completely closed out?

Question: Scott Penner - TD Newcrest - Analyst : Okay. (technical difficulty) There was a charge of 7.7 million on the income statement. What does that relate to?

Question: Scott Penner - TD Newcrest - Analyst : What should we expect, I guess, on the future restructuring cost heading into '08? Is there anything substantial that's on the horizon?

Question: Scott Penner - TD Newcrest - Analyst : Okay. I'll turn it over, thanks.

Question: Paul Steep - Scotia Capital - Analyst : John, maybe just talk a little bit in terms of customer attention on the Hummingbird side, particularly what the pipeline sort of looks like heading towards DMX? Where you expect that to sort of drive numbers into [F] '08?

Question: Paul Steep - Scotia Capital - Analyst : Great. And then the second one I have is, usually this is the time of the year you take a run at any organizational changes designed to sort of drive better performance out of the organization. Have you done anything to help sort of boost the numbers or get the sales force and the rest of the operations lined up for [F] '08?

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

Question: Mike Abramsky - RBC Capital Markets - Analyst : Last time you had guided for the 20% attrition. I just want to make sure, does that imply that your organic growth since you're reaffirming that that's now where you're at on Hummingbird, your organic growth excluding Hummingbird would be in excess of 10%?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Slightly less than that?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. And what would you -- how would you convey the sustainability of your growth going forward and your view that you're going to grow at the market rate? What is the risk to that and what is the upside?

Question: Mike Abramsky - RBC Capital Markets - Analyst : What's driving the migration to the enterprise? And are they typically going to look at changing pricing or going to RP in those situations? Or what's the environment like when you do that?

Question: Mike Abramsky - RBC Capital Markets - Analyst : The -- maybe this is a little bit of a speculative question but are you finding that at your current valuation you're having to consider potential overtures from others out there to see further consolidation in the market? What's your view on becoming part of that?

Question: Mike Abramsky - RBC Capital Markets - Analyst : I assume that the slightly impacted PS margins this quarter was related to your improved partner leverage? Or was that related to historically what you've done is bring in some contractors to sort of help close deals that perhaps increases your costs?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. And great quarter. Thanks very much.

Question: Ed Maguire - Merrill Lynch - Analyst : Yes, good afternoon. I was wondering if you could comment on how the contribution of the relationship with SAP this quarter, I mean, how did that factor into any of the large deals you might have done? 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: Ed Maguire - Merrill Lynch - Analyst : Okay. Did you have any special incentives to the sales force for the fourth quarter, any expense out there?

Question: Ed Maguire - Merrill Lynch - Analyst : Okay. And just finally --

Question: Ed Maguire - Merrill Lynch - Analyst : Right. And could you comment just generally on what you may be seeing in terms of the US market, particularly the financial services market, whether there has been any concern among your customers about fallout from the recent liquidity issues?

Question: Lawrence Rhee - Blackmont Capital - Analyst : Just with respect to R&D, I guess it stayed flat on a gross level sequentially. Is this something that you expect going forward? Or is this, I guess, part of the benefits that you're seeing from the [changes] from Hummingbird?

Question: Lawrence Rhee - Blackmont Capital - Analyst : And just with respect to that one announcement that [B. Braun] announced a couple of weeks ago, is this announcement that was part of the Q4 results this quarter or is this something that's going to be recognized in Q1?

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

Question: Richard Tse - National Bank Financial - Analyst : Just wondering if you could elaborate a bit more on the Microsoft partnership? They've seen the 35% year-over-year growth in share points. Just wanted to get a feel for how you guys are benefiting from that, given your partnership there?

Question: Richard Tse - National Bank Financial - Analyst : Okay. And to clarify another point, now, you guys gave a split here for licenses, 37% from new, 63% from the installed base. And you talked about Hummingbird this quarter. Are we sort of to make the conclusion here that Hummingbird was on the huge contributor end, with DMX coming out it's going to sort of cause another incremental uplift here?

Question: Richard Tse - National Bank Financial - Analyst : Okay. And one final question on the G&A, Paul. It looked like it spiked up here a bit to like 18.5 million. Is that -- what sort of would explain that? And is that sort of going to come down to sort of these normalized levels around 16 million? 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 : Okay, great. Thank you.

Question: Robert Schwartz - Jefferies & Company - Analyst : I'd like to -- so maybe you could add a little bit more clarification on SAP relationship. I'm wondering what kind of quota they carry and could their Q4 benefit your Q1, given that they're -- you're on different fiscal years and given the size of the quota?

Question: Robert Schwartz - Jefferies & Company - Analyst : And I just want to be clear, the large deal in the quarter, that was with Microsoft as a partner or SAP?

Question: Robert Schwartz - Jefferies & Company - Analyst : Okay. And could you maybe give us some -- a little color on Oracle? It was thrown in the list of partners but I didn't know if you've closed any business this quarter with them.

Question: Robert Schwartz - Jefferies & Company - Analyst : And last question. Is there anything about the seasonality of Hummingbird in this product release that would sort of -- you reaffirmed the seasonality in the past. I'm wondering what did you take into account concerning Hummingbird for this Q1 and the release of the product? How did you think about that?

Question: Robert Schwartz - Jefferies & Company - Analyst : That's very helpful. Thank you so much.

Question: David Wright - BMO Capital Markets - Analyst : Just following along on that, was that seasonality for total revenues or for your license revenues?

Question: David Wright - BMO Capital Markets - Analyst : Total revenues. Thank you. Could you summarize for us what products would have been available this quarter that weren't available in past quarters? Is there anything new? I know you launched a new connectivity product in the quarter. Was there anything else that --?

Question: David Wright - BMO Capital Markets - Analyst : Okay. So nothing really new on the product front?

Question: David Wright - BMO Capital Markets - Analyst : Were there many new salespeople? I guess the other way to ask it is last quarter, how many salespeople did you have? Around 250?

Question: David Wright - BMO Capital Markets - Analyst : Okay. Then when I kind of dissect through the Hummingbird numbers and your own numbers, so Hummingbird had a couple of weak quarters in your own sort of license sales and now this strong one. I guess what I'm trying to figure out is, was it just catch-up because you were coming to your own fiscal year end and deals that didn't come in, in the December or March quarter came in now? Or do you think that the market is a little bit stronger today than what it was in the last couple of quarters?

Question: David Wright - BMO Capital Markets - Analyst : Okay. And the large deal size, now just to confirm you said that there were 3 over 1 million. That number doesn't include the 1 over 2 million?

Question: David Wright - BMO Capital Markets - Analyst : Oh, it does include the one over. Okay. And the 11 over 500,000, does that include the ones over 1 million?

Question: David Wright - BMO Capital Markets - Analyst : Okay. So it's really 7 over 500,000.

Question: David Wright - BMO Capital Markets - Analyst : So you're doing a lot of -- the large deal contract number isn't growing that much over the years.

Question: David Wright - BMO Capital Markets - Analyst : What is growing I guess is the midmarket and the kind of average and below average size deals? Is that correct?

Question: David Wright - BMO Capital Markets - Analyst : Right. So it gives you kind of renewable revenue?

Question: David Wright - BMO Capital Markets - Analyst : Very good. Okay, thank you very much.

Question: Brian Freed - Morgan Keegan & Co., Inc. - Analyst : Hi guys, thanks for taking my call. I'd like a little more clarification. You mentioned that you were generally comfortable with consensus but I think you just mentioned in terms of seasonality, normal seasonality, for the first quarter is down pretty significantly on a sequential basis. Were those comments specific to the full year or were you comfortable with quarterly breakout of consensus as well?

Question: Brian Freed - Morgan Keegan & Co., Inc. - Analyst : Okay. And then secondly, on the SAP business, can you talk a little bit more about how that's structured? And is it a revenue sharing agreement? And do you believe that the benefit in terms of more revenue from SAP would offset any potential risks to your business?

Question: Brian Freed - Morgan Keegan & Co., Inc. - Analyst : And did you extend the -- did it extend to a global basis recently? Or has it always been a --

Question: Brian Freed - Morgan Keegan & Co., Inc. - Analyst : Okay. All right. Thank you very much.

Question: Gabriel Leung - Paradigm Capital - Analyst : I just had a question on the competitive front. You talked a little bit about how you're stacking up against some of the smaller ECM (inaudible) ECM players. How about the FileNet IBM entity? Specifically are you hearing any rumblings within their existing customer base that might be favorable for you down the road? And concurrently on head-to-head RFPs, how are you stacking up against those guys? And in situations where you're winning, what's the customer saying? Why are they going with you guys over them?

Question: Gabriel Leung - Paradigm Capital - Analyst : Okay. And just for Paul. What's your best guess of the remaining sort of cash restructuring obligations remaining over the near term anyways? 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 Penner - TD Newcrest - Analyst : Thanks. Just curious, you mentioned you're going to repay another 30 million of the debt in this quarter. What's your feeling on the proper balance I guess with the share repurchases as well? Given the cash that you're putting out, it would seem like a pretty good deal to be buying back shares at this price.

Question: Robert Schwartz - Jefferies & Company - Analyst : Yes. I just want to be crisp on a couple of things about the guidance. You said you were comfortable with the seasonality that's out there and the consensus for Q1. And then you mentioned that typically you're down, I think you said 25 to 30% Q4 to Q1. Consensus has you down 10%. How do I reconcile those two things?

Question: Robert Schwartz - Jefferies & Company - Analyst : 25 to 30% of total revenue?

Question: Robert Schwartz - Jefferies & Company - Analyst : Okay. That's what I need to know. So it's really around -- the numbers you gave are really around licenses? 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: Robert Schwartz - Jefferies & Company - Analyst : Okay. That's helpful. Thank you.

Question: Blair Abernethy - Westwind Partners - Analyst : Just a couple things. Paul, do you have the headcount numbers in the quarter?

Question: Blair Abernethy - Westwind Partners - Analyst : Yes.

Question: Blair Abernethy - Westwind Partners - Analyst : Okay, great. I wonder if you can elaborate a bit more on the comment around outsourcing some of your R&D to India and whether -- is it just R&D? What have you done there to date? And is there some work you can do there on the services side as well?

Question: Blair Abernethy - Westwind Partners - Analyst : A small project at this point. 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: Blair Abernethy - Westwind Partners - Analyst : Okay. And just another -- turning over to pricing or the pricing environment. Can you comment on what you're seeing out there in terms of licensed pricing?

Question: Blair Abernethy - Westwind Partners - Analyst : And on maintenance renewals?

Question: Blair Abernethy - Westwind Partners - Analyst : Okay, great. Thanks very much.

Question: David Wright - BMO Capital Markets - Analyst : A follow up on the restructuring. Paul, you mentioned that there would be an outflow in fiscal '08 of 7 to 9 million. And you also said that we might see a small charge in Q1. Are those numbers the same thing? Are we looking for another $7 million charge in Q1?

Question: David Wright - BMO Capital Markets - Analyst : Okay. So approaching zero, does that mean it's a couple of million dollars or not even close? 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: David Wright - BMO Capital Markets - Analyst : Okay. Thank you very much.

Question: Ralph Garcea - Baywood Securities - Analyst : Thanks for taking the question, guys. You've talked about partnerships on the software side with SAP and Microsoft. Services, it looks like you did a few deals with Logic and I think the CGI business is still healthy. You haven't mentioned storage, though. Can you sort of elaborate on -- did you get any pull from the storage guys this quarter and how are your relationships there?

Question: Ralph Garcea - Baywood Securities - Analyst : So was it just particular for the storage industry itself in the June quarter? Or how does the pipeline look, I guess, for your first half of the year calendar, second half of this year?

Question: Ralph Garcea - Baywood Securities - Analyst : Okay. Thank you.