Open Text Q4 2010 Earnings Conference Call Transcript

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

Question: Scott Penner - TD Newcrest Securities - Analyst : Just to start, Paul, with a couple of things. Number one is what happened with the tax situation in Q4. And then if you could also touch on, just over the past few years, there's been a material negative on the cash flow statement from deferred taxes. Can you sort of give us a brief explanation on what that's expected to be next year?

Question: Scott Penner - TD Newcrest Securities - Analyst : Okay. So just to translate that a little bit, when you talk about your adjusted tax rate, are you talking about the 5% to 10% or the 12% to 14% in that case?

Question: Scott Penner - TD Newcrest Securities - Analyst : Okay. That gives me something to chew on. Now the -- just one other thing for you, Paul, and that is the repurchase of treasury shares in the quarter -- are those -- was that actually shares bought in the marketplace?

Question: Scott Penner - TD Newcrest Securities - Analyst : Okay. I got it. And then just, John, on the industry analysts, aside from their forecast of 4% to 8%, when you look at your business, where is your organic growth going to come from? If you could talk just to some of the success maybe with the cross-selling to Vignette initially and what you'd expect there. And then parse it into what you might expect from the new product to revenue -- I mean, where is really the growth opportunities going to come from?

Question: Scott Penner - TD Newcrest Securities - Analyst : Okay, then, if I could just finally -- and I'm sure others will dig into this as well, but just a little bit more on exactly what the change or the nature of the partnership is with Oracle and exactly who's --?

Question: Scott Penner - TD Newcrest Securities - Analyst : Okay. And that's effective immediately?

Question: Scott Penner - TD Newcrest Securities - Analyst : Okay. Thanks.

Question: Mike Abramsky - RBC Capital Markets - Analyst : Thanks very much, John. John, this is the second guidance miss in a row. And could you just -- you said earlier that excluding, I think, differences in FX impacts, it was in line with your prior expectations. Can you give us some detail on what the FX impact was to revenue versus expectations? And were there any deals that did slip, for example, into the following quarter?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Right, but what I was asking was per your -- what you had already factored in, relative to what you factored in.

Question: Mike Abramsky - RBC Capital Markets - Analyst : So how does that speak to visibility going forward? I just want to clarify -- normally, you say you're maintaining an outlook stance relative to first call. So, first call is 6% on the top line. What are your assumptions -- is that an organic growth outlook that you're therefore comfortable, since you say 4% to 8% market growth was the first call EPS top line, first call number?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. But I'm -- sorry, but to repeat it, but what about your normal stance of comfort with first call? In this case, are you reiterating that normal stance, which is you're comfortable with first call [F] '11 revenue and EPS and that that's really an organic growth outlook?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. And then on the EPS first call outlook, if you tax adjusted now for your new tax outlook, are you comfortable with that outlook? In other words, obviously, that outlook -- that first call number for EPS is built in the prior tax assumption.

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. Now, you have done that in the past. Is there something different in terms of visibility or otherwise that would cause you not do that this time?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. On the restructuring charge, could you give us a little bit of detail of what's behind that? Is it people? Is it other cost? What functions are you trimming? And do you expect further -- what predicated that?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. And then lastly, would your outlook for F '11 or for -- would we expect to see the trend, excuse me, on F '11 pro forma operating margins improve, given the recent cost-cutting?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. Thank you very much.

Question: Paul Steep - Scotia Capital - Analyst : John, maybe you can talk about -- there's been -- we're now at year end, any sales force changes, any other organizational changes that we should think about into the 2011 pipeline and sales execution that would cause any hiccups, delays, any other surprises?

Question: Paul Steep - Scotia Capital - Analyst : Okay. That's good. Secondly, I guess, if we actually look, you've covered a lot on -- I think people are going to focus in on the license here. And I guess just trying to get your feel for -- and I know Scott touched on it with the three items that you thought were going to drive growth -- do you see any changes in the market that really are affecting license beyond customer buying? Has there been anything changing in the ECM market that you think is different, that we all are missing, or --? 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 : Okay. Have the close rates massively varied? Obviously, the big deals varied the close rates, but I guess people are going to point to SharePoint as a potential risk here. Has that really changed anything at this point?

Question: Paul Steep - Scotia Capital - Analyst : Okay. And then the last one for me -- obviously, the cash balance is building. Maybe between you and Paul, the perspective on it, again, the readiness for the Company providing price as always for another large M&A. And then if in lieu of a large M&A, how we think about that debt position.

Question: Paul Steep - Scotia Capital - Analyst : But is there -- let's assume the pipeline is there -- do you think you're ready at this point?

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

Question: Steven Li - Raymond James & Associates - Analyst : Paul, a question on your costs. The sales and marketing, is it abnormally low this quarter because of the timing of the closing of some of the acquisitions? Or is this a good base going forward, so we're looking at $48 million just in marketing on $240 million of revenues?

Question: Steven Li - Raymond James & Associates - Analyst : So at the high end of the range?

Question: Steven Li - Raymond James & Associates - Analyst : Okay. And on the FX impact, can you talk about the FX impact on your maintenance? And also if you had any -- did you recoup any back maintenance this quarter?

Question: Steven Li - Raymond James & Associates - Analyst : And what was the FX impact? Was it positive or negative on the maintenance? 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: Steven Li - Raymond James & Associates - Analyst : And it would be similarly for license, it would be proportionately negative for license revenues?

Question: Steven Li - Raymond James & Associates - Analyst : Okay. And one other question, Paul, how much more is there to come from Vignette in terms of annual savings? You talked about $40 million to $50 million annual savings range?

Question: Steven Li - Raymond James & Associates - Analyst : Okay, great. And just one last question. On the Q1 seasonality, so for license we should expect the same as historically, so down 25%, 30%?

Question: Steven Li - Raymond James & Associates - Analyst : Okay, thanks.

Question: Eyal Ofir - Canaccord Genuity - Analyst : Just a quick question on the restructuring charges you talked on earlier. You said there was $2 million for it in fiscal 2011. Is that a monthly -- sorry, a quarterly rate? Or is that an annual rate? 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 - Canaccord Genuity - Analyst : Okay, perfect. Now, drilling a little bit down further into the results for the quarter, I'm actually going into the September quarter, are you guys seeing the momentum that you saw in Q4 in Europe and Germany continuing in the September quarter?

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay, great. And then (multiple speakers) --

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay. And how about the US? The US seem to be obviously stronger in the June quarter. Are you seeing any slowdown there? Or is it still tracking (multiple speakers) --?

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay. And the large deals, are they coming from the channel or are they coming from direct sales?

Question: Eyal Ofir - Canaccord Genuity - Analyst : A little bit of both, okay. Okay, great. I'll pass the line. Thanks.

Question: Derrick Wood - Wedbush Securities - Analyst : What was the license contribution from SAP in the quarter?

Question: Derrick Wood - Wedbush Securities - Analyst : Okay. So that's still the case. Can you give us some color as to when Oracle -- when you think that could start to contribute meaningfully -- or contribute to revenue?

Question: Derrick Wood - Wedbush Securities - Analyst : And then you mentioned geographically some comments about what you're seeing. What about vertically? And specifically, I know there's some questions around potentially longer procurement cycles out of the government vertical. What are you seeing in your pipeline out of government?

Question: Derrick Wood - Wedbush Securities - Analyst : Okay. Thanks for that color. Can you just remind us what the breakdown is on revenue of back office versus front office? Is it still kind of 60/40 -- 60% back office? 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: Derrick Wood - Wedbush Securities - Analyst : Okay. That's it for me. Thank you.

Question: Blair Abernethy - Stifel Nicolaus - Analyst : Just want to talk on the M&A front a little bit further. This quarter, two of your acquisitions were more in the services side of things. Is this something you're looking at doing more of in the future?

Question: Blair Abernethy - Stifel Nicolaus - Analyst : Is this a change to your revenue mix, do you think, going forward, John or --?

Question: Blair Abernethy - Stifel Nicolaus - Analyst : Okay, great. And was Nstein the only business that had maintenance base then, presumably?

Question: Blair Abernethy - Stifel Nicolaus - Analyst : Okay. What did that contribute in the quarter? 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 - Analyst : Okay.

Question: Blair Abernethy - Stifel Nicolaus - Analyst : And just onto your larger transactions, John, I'm just wondering if you can give us some more color on what and where -- what verticals and what solutions were driving that this quarter?

Question: Blair Abernethy - Stifel Nicolaus - Analyst : Okay, that's great. Thank you.

Question: Gabriel Leung - Paradigm Capital - Analyst : John, any chance you can give us an update on how sales or I guess uptake of some of the new apps like Social Media and the Open Text Everywhere application is progressing thus far?

Question: Gabriel Leung - Paradigm Capital - Analyst : Okay. Then moving over to the Oracle partnership -- sorry, I missed this in the beginning -- but can you elaborate again what -- which parts of your products that they will be selling?

Question: Gabriel Leung - Paradigm Capital - Analyst : And do you have a target as to when you might see Oracle get to that sort of 10% contribution as well?

Question: Gabriel Leung - Paradigm Capital - Analyst : And you don't anticipate any conflicts with their offering -- which one is it? -- Stone?

Question: Gabriel Leung - Paradigm Capital - Analyst : Okay. Just a couple of housekeeping items here. Just on your commentary as it relates to the industry growth expectations, I guess, of 6% to 8%. You meant probably in constant currency, right?

Question: Gabriel Leung - Paradigm Capital - Analyst : And then as it relates to the lower, I guess, effective tax rate and range, when should we start modeling that into our adjusted EPS estimates? In the current quarter?

Question: Gabriel Leung - Paradigm Capital - Analyst : Okay. And should we anticipate any incremental costs associated with this, I guess, this restructuring?

Question: Gabriel Leung - Paradigm Capital - Analyst : Okay. Just lastly, I think someone had asked this already, Paul, but there wasn't any one-time items in the maintenance line was there this quarter, was there?

Question: Gabriel Leung - Paradigm Capital - Analyst : Okay, perfect. Thanks a lot, guys.

Question: Sera Kim - GMP Securities - Analyst : Just one -- a couple questions. First, just going back to that Oracle, just so I understand, you mentioned that joint technology exchange. Will it be of the similar reseller agreement that you have with SAP, just so I understand that (multiple speakers) --?

Question: Sera Kim - GMP Securities - Analyst : Okay. So not -- it won't be like that today as when you announced it but it will move towards that direction?

Question: Sera Kim - GMP Securities - Analyst : Okay. And in the quarter, was Oracle flat, up and down? And I'm wondering if you can provide SAP and Microsoft as well, if it was flat, up or down in the quarter?

Question: Sera Kim - GMP Securities - Analyst : Okay. And with Microsoft, you mentioned earlier that your market has expanded with the new share plan and your ability to really offer additional product offerings with that offering. I'm just wondering, have you started to see the impact of that? Or is that something we will see going forward and possibly starting in fiscal '11?

Question: Sera Kim - GMP Securities - Analyst : Okay, great. Thanks, that's it. Thank you.

Question: Paul Lechem - CIBC World Markets - Analyst : On the large deals you're starting to see in the US, is this a result of your reorganization of the sales force to be more account-focused? And if not, can you talk about how the traction is going in the newly reorganized sales force in the US?

Question: Paul Lechem - CIBC World Markets - Analyst : This has maybe been asked before, but has there been any extraordinary level of turnover in the sales force, unplanned turnover in the last little while?

Question: Paul Lechem - CIBC World Markets - Analyst : Okay. Your breakdown between new account sales and into your installed base, it seems to have been skewing more to new customers, which ordinarily wouldn't be a bad thing; but my question is, what's happening in the install base? Why, if anything, [is the] sales activity into the install base going down at this point?

Question: Paul Lechem - CIBC World Markets - Analyst : Well, I mean, when we do the math -- I mean, given that license revenue growth is relatively modest in the last year, especially on an organic basis, there's been quite a steep increase in the new customer SKU. So, actually, it would -- the license revenues for the install base probably would have gone down. You talked in your growth outlook for next year about cross-selling into that install base as being a big initiative. Are you saying take-up of that and where do you see MSuite take up with those?

Question: Paul Lechem - CIBC World Markets - Analyst : Is there any special compensation for the sales team to go after the install base? Or is there any SKU versus -- one way versus another and new customers versus install? 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 Lechem - CIBC World Markets - Analyst : Okay. Well, I'll leave those. One last question, actually, on the usage of cash. You seem pretty clear that M&A is your top priority but I haven't heard you talk about a potential dividend. If not now, when could you potentially even see putting a dividend in place?

Question: Paul Lechem - CIBC World Markets - Analyst : So it's not even in the horizon?

Question: Paul Lechem - CIBC World Markets - Analyst : Okay. Alright, thank you.

Question: Ralph Garcea - Northland Capital Partners - Analyst : Just on the M&A strategy, if you look at the Burntsand deal and the New Generation deal, I mean, did you do those because Accenture and Deloitte were focusing more on SAP and you needed the strength in the bench and then SharePoint and then the Oracle side or --? I guess that's one part of the question. And then, two, where is Accenture and Deloitte with regards to the strategic alliances you have with those two? Where are they focusing most of their 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: Ralph Garcea - Northland Capital Partners - Analyst : So you see joint teams then on some of the larger deals? And are Accenture and Deloitte driving some of these multimillion dollar deals? Or is it mainly the SAP sales force?

Question: Ralph Garcea - Northland Capital Partners - Analyst : Okay. Thank you.

Question: Scott Penner - TD Newcrest Securities - Analyst : Sorry, just, Paul, I think you mentioned, if I'm doing the math, the cash restructurings for the year were about $35 million of cash flow impact, is that right?

Question: Scott Penner - TD Newcrest Securities - Analyst : Okay. And then just -- I want to come back to the tax rate again, the 12% to 14%. Just is that -- I mean, that's a phenomenal decrease from where it was before. Is that the kind of level that is sustainable? And then, without any nicer way to ask this, has it been blessed by your auditors?

Question: Scott Penner - TD Newcrest Securities - Analyst : Okay. Thanks, guys.