Open Text Corp Q4 2011 Earnings Conference Call Summary

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

Question: Mike Abramsky - RBC Capital Markets - Analyst : John, and just kind of referring back to a question you answered last quarter on your License outlook, you had sort of indicated I think that you were expecting a slightly higher, I think 20% to 30% quarter-over-quarter. You delivered about 17%. So I'm just wondering if -- and yet, you're still I think in a positive sense talking about sustained good pipeline opportunities despite the macro, so can you just kind of reconcile that a little bit for us?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Can you just expand on that a little bit, John? Just so we understand what the kind of, down step in license is going to be on -- is that just an interim, or is that kind of a bit of a steady state lower run-rate for now? And then you talked about the impact of consolidation on License run-rates, so can you give us some direction on that?

Question: Mike Abramsky - RBC Capital Markets - Analyst : From Q4 to Q1 would be typically down 20% to 25%?

Question: Mike Abramsky - RBC Capital Markets - Analyst : And that's on License?

Question: Mike Abramsky - RBC Capital Markets - Analyst : So that's the kind of pattern. And where you are in the quarter right now, are you still -- how are you feeling about either the issue of deal slippage and lumpiness, which is kind of typically a factor for you, the risks of those things?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Okay. And then lastly, on the margins, your sales and marketing expense was up to 26% of revenue. You had 23% in Q3, and 20% last Q4. So can you just give a sense of, is this a leading indicator for investment? Because typically, if you guys see bigger headwinds, historically you have tended to kind of pull back costs pretty quickly. So can you sort of give us some color on what is going on 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: Mike Abramsky - RBC Capital Markets - Analyst : And what would that operating model, just remind us on that line?

Question: Mike Abramsky - RBC Capital Markets - Analyst : 21% to 23%?

Question: Mike Abramsky - RBC Capital Markets - Analyst : Thanks very much.

Question: Tom Liston - Versant Partners Inc. - Analyst : Just on a theme, could you just comment overall on how StreamServe and Metastorm are integrating and it sounds like their License might have been slightly [lucrative on the top] but just an overall commentary on integration?

Question: Tom Liston - Versant Partners Inc. - Analyst : Do you think there was maybe some hesitation as you're acquiring for some of the bigger deals to see how things shake out?

Question: Tom Liston - Versant Partners Inc. - Analyst : And on Global 360, 1 of the reports was talking about strategic BPM growth recently being in the 30% range. Could you kind of define that for us and help talk about the profile of their revenues?

Question: Tom Liston - Versant Partners Inc. - Analyst : Okay. But you would see that obviously coming down a bit just as some --

Question: Tom Liston - Versant Partners Inc. - Analyst : No, that's what I was trying to hone in on. Yes. For sure. And Paul. Just for clarity, typical operating margins of 25% to 30%, you say I believe you said about a 1% hit. Does that mean off of Q4 of 25.8% or the bottom end of the range might come in slightly below that in the first part of the year.

Question: Tom Liston - Versant Partners Inc. - Analyst : Okay. Very good. Thank you. I will pass the line.

Question: Richard Tse - Cormark Securities - Analyst : John, historically you guys have been fairly aggressive on moving on the costs here in acquisitions. It seems like less so for the recent acquisitions. Can you elaborate in a bit more detail as to why that is the case here?

Question: Richard Tse - Cormark Securities - Analyst : And with respect to the acquisition environment, can you give us a bit of color in terms of down the road, let's say 2 years from now, what are you going to be looking at in terms of acquisitions? Looks like you've consolidated the BPM market. What else is out there? If you could try to clarify that.

Question: Richard Tse - Cormark Securities - Analyst : Okay. Great. Thank you.

Question: Stephanie Price - CIBC World Markets - Analyst : Just following on that question, can you talk a bit more about the cross-selling opportunities that you can see between Metastorm and Global 360 and your existing operations?

Question: Stephanie Price - CIBC World Markets - Analyst : Great. And in terms of a pipeline, could you talk a bit about what you're seeing and if you're seeing any sort of impact from the economy right now and also US government spending?

Question: Stephanie Price - CIBC World Markets - Analyst : Okay. And just finally, on larger transactions, can you talk a bit about the solutions and verticals that were driving the larger transactions and whether you're seeing any slowdown in those markets and people switching to smaller transactions?

Question: Stephanie Price - CIBC World Markets - Analyst : Okay. Thank you very much. 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/Waterhouse Securities - Analyst : First of all, just a couple of clarifications, so when you talk about the seasonality of 20% to 25%, that is on the base of business in Q4, and then we add in what we believe on Global 360?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : And then are just on the Metastorm, I guess, Paul, in the past, in your filing, you've given the quarterly or annual revenue from StreamServe and Metastorm. Could you give that again?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Sure, maybe while he is doing that, I will give him lots of time here, John, and ask you, just in general, these larger transactions, it seems like over the last couple of quarters, you talk more and more about productivity-related solutions, and obviously, with the purchases of BPM, are these -- maybe if you could just give us a little bit of the idea of the relative deal sizes of some of the productivity-based solutions, and the sales cycles relative to some of the other solutions?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Yes, I mean the sales cycle, given that these are -- the profile and transactions seem to involve a lot more systems, are they, are they 12 to 24 months, I mean just some idea of relative to your other 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.

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay. So Metastorm looks to be, call it $2 million to $3 million below what the run-rate would be. Is that a good indication of the -- what impact that deal slippage may have had.

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Just a couple more things. Paul, you mentioned the margins on Services, and the rationale for that. Just how long is that likely to extend?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay. And lastly, just here on the acquisitions that you have done, obviously have a very strong presence within the Microsoft system. What initiatives beyond just being happier to work together are there under way to work a little closer with Microsoft?

Question: Scott Penner - TD Newcrest/Waterhouse Securities - Analyst : Okay. Thanks, guys. 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 : John, you've talked a little about it. But maybe just go over Global 360, the timing and even maybe the deal size in terms of valuation seem lately out of character from the past. What is sort of pushing you to maybe move faster than in the past and take on 2 decent-sized deals, in a fairly short timeframe?

Question: Paul Steep - Scotia Capital - Analyst : Okay. And in terms of timing, I'm just making sure we're all thinking -- since this seems to be a little bit of a divergence and it looks like you're going a little more for growth in these 2 deals, which makes sense. In terms of the time frame to roll solutions out, and sort of go maybe deeper into almost sort of a service oriented architecture market, and deeper into that, should we be thinking about revenue synergies more from this deal and --

Question: Paul Steep - Scotia Capital - Analyst : So should we look for, just to tie this off and 1 last 1 for Paul. So should we look for a step-up, theoretically in 2013, in fiscal 2013, to CapEx, or I guess fiscal -- even into, likely 2013, is when you have a step-up, as you ramp to pack head count, to try to tackle more apps. 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. And last 1 then, for Paul, just to wrap up here, the $600 million term loan, where are you in the process, and if things sort of go astray in the next little while, have we got secured financing already in place, Paul?

Question: Paul Steep - Scotia Capital - Analyst : Just as a backstep, the revolver which renewed in October is already basically pre-done.

Question: Paul Steep - Scotia Capital - Analyst : You are sounding highly confident. I just want to sort of put this to rest.

Question: Paul Steep - Scotia Capital - Analyst : Awesome.

Question: Paul Steep - Scotia Capital - Analyst : Perfect. Thanks, guys. 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: Kris Thompson - National Bank Financial - Analyst : John, just on the License 10% decline that you expect on the Metastorm and Global 360 deals. Is that business that you guys are targeting as less profitable and culling or is that just what you expect some of your required customers to abandon?

Question: Kris Thompson - National Bank Financial - Analyst : Okay and in the past, I think you guys have suggested about 20% of your total revenues are compliance or regulatory related which is -- have some resilience to the economy here, and recessionary outlook. What is your revenue mix now, that you've done these 2 deals and you're talking about Web Content Management a lot more, you've got Nstein and developing mobile applications now. Are you getting a little bit more into a riskier revenue profile and kind of economic downturn?

Question: Kris Thompson - National Bank Financial - Analyst : Okay. That's great. And just I might have missed this, I'm not sure if you touched on the visibility, but last quarter, you said the pipeline was strong, visibility is improving, and I know the world has kind of changed in the last couple of weeks. Are you feeling the same way or are you a little bit less confident now?

Question: Kris Thompson - National Bank Financial - Analyst : Okay. And also, on the last call, I'm not sure if you mentioned your ASPs this call, but I think they were lower last quarter, around $250,000, and you mentioned that reflects pipeline of customers, taking a nibble, and then hopefully converting those into some larger deals. And this quarter, it looks like your transaction is greater than $0.5 million and $1 million is actually lower than the last couple, so are we going to expect to see some divergence?

Question: Kris Thompson - National Bank Financial - Analyst : Okay. Just 2 more for me. Paul, on the special charges for Global 360 -- the $15 million to $20 million, how much of that is head-count versus facilities?

Question: Kris Thompson - National Bank Financial - Analyst : Okay and for the Waterloo CapEx, how much of that was spent this quarter and what is remaining, please?

Question: Kris Thompson - National Bank Financial - Analyst : Okay. Thanks, guys. All the best.

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : For the Global 360 sales force, last quarter you mentioned Metastorm had a different sales strategy in terms of selling to functional managers versus CIOs, for the regular business. What does Global 360 sales force do? Is it different? So is that going to require more integration effort or is it pretty similar? 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: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Okay. And then do you see BPM as a way to drive more business in the traditional ECM offerings? Is that what the strategy is or --

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Do you think BPM could get to a size that is more -- to a larger size, similar to your the compliance based stuff or is it just kind of be the wedge to kind of get you to more --

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Okay. Great. And earlier, you mentioned you wanted to chunk the business because you got to see these larger deals coming.

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Does that mean have you better visibility into fiscal 2012 than you normally would?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Okay. So you have -- so the contractor signs, you have more visibility, but the only thing that could happen is maybe some of the deployments might get pushed up a little bit because of what is going on?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Oh, okay. Great. And then just last question, can you provide an update on Oracle, I think, in the past, you talked about them bringing in a couple of deals, but I think it was still in the early development phase. Have things progressed since the last quarter? And do you see the pipeline building through Oracle?

Question: Sera Kim - GMP Securities/Griffiths McBurney - Analyst : Okay. Great. Thanks a lot, guys.

Question: Eyal Ofir - Canaccord Genuity - Analyst : First question for you John, obviously you guys had made 2 acquisitions here on the BPM side. Are there any other areas in your portfolio you think you need to expand on and continue to make acquisitions in?

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay. So this is not obviously the last move by you guys? 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 : And then from the size, what should we expect? Is it going to be similar sizes or going to be smaller tuck-ins.

Question: Eyal Ofir - Canaccord Genuity - Analyst : And obviously, you talked earlier about the relationship with Microsoft. With this acquisition, these acquisitions, obviously that relationship is strengthened.

Question: Eyal Ofir - Canaccord Genuity - Analyst : In terms of where the market from the ECM standpoint is going to change at all for you guys because of these acquisitions?

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay. And final question from me, is you talked earlier that you are seeing a pickup in emerging markets for you guys. Obviously that is a new area that you've talked about over the last few quarters.

Question: Eyal Ofir - Canaccord Genuity - Analyst : What kind of pickup are you seeing? And how big are these potential deals for you guys? 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. So now we're getting into some significant deals here.

Question: Eyal Ofir - Canaccord Genuity - Analyst : And in the pipeline, you're seeing similar opportunities, I imagine.

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay. And in your pipeline as well, can you just break it out in terms of the largest opportunities, how they look from a geographic standpoint?

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay. And the strategy remains the same -- primarily going into these emerging markets in Asia through your partnerships?

Question: Eyal Ofir - Canaccord Genuity - Analyst : Okay. Perfect. I will leave it there. Thanks.

Question: Derrick Wood - Susquehanna Financial Group - Analyst : But Paul, I was wondering, could you give us a revenue breakdown on Global 360 by kind of Licenses, Maintenance and Services, and then you gave the expectation on the License cut for this year, you've given color on Maintenance and Services as well, so could you talk about that?

Question: Derrick Wood - Susquehanna Financial Group - Analyst : Okay. That's helpful. And then the market for ECM, you talked about 7% to 11% and you guys tracking at or perhaps a little above. That includes some of your acquisitions or is that on an organic basis?

Question: Derrick Wood - Susquehanna Financial Group - Analyst : Okay. And then last question, on the margin side, you guys gave a fairly wide range. Just kind of trying to get where -- what you're thinking for this year. Is this going to be -- as you look at operating margins this year versus last year, are you thinking that being a year for growth and investments, and perhaps operating margins could come down, or are you trying to keep them flat, or are you still thinking you could be at an operating margin expansion mode?

Question: Derrick Wood - Susquehanna Financial Group - Analyst : Okay. That's it for me. Thank you.

Question: Brian Freed - Wunderlich Securities - Analyst : Just your acquisition philosophy. Historically you guys have tended to buy things at a fraction of revenue multiples. The last 2 have been multiples kind of more growth oriented. Is there any shift in your longer-term philosophy toward buying companies and driving EPS leverage versus the past?

Question: Brian Freed - Wunderlich Securities - Analyst : Okay.

Question: Brian Freed - Wunderlich Securities - Analyst : And then my second question is around the competitive landscape. Obviously, you and IBM seem to be doing pretty well, ECM was down 7% year-on-year. Can you talk a little bit about what you're seeing from a competitive standpoint, particularly with Documentum. And if you see indications that they're regaining strength and will become more formidable or what is the issue there in your view?

Question: Brian Freed - Wunderlich Securities - Analyst : Okay. And then lastly, on the partner revenue front, this quarter, partner-driven revenue was a little lower than typical. Is that primarily a function of acquisitions you added on and do you think that will move up as they embrace some of the functionality your acquisitions will bring?

Question: Brian Freed - Wunderlich Securities - Analyst : Okay. Thank you, that's all.

Question: Steven Li - Raymond James & Associates - Analyst : Hi, thanks. Paul, I might have missed it earlier, but what's the Services margin outlook? When do we see it back to a 20% level? Thanks.

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

Question: Gabriel Leung - Paradigm Capital - Analyst : John, I was just wondering if you could provide a timeline of when you would expect the integrated BPM offering to sort of hit the market? And at that point, would you expect some of this margin compression you're seeing, you talked about several hundred basis points margin compression from the integration, start to alleviate? Thanks. 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: Gabriel Leung - Paradigm Capital - Analyst : Right. But it sounded like in the previous question, you still expected on a full-year basis, for the year adjusted operating margins, to at least stay steady with what you reported in '11, I think it was 27.5%, is that a fair assumption?

Question: Gabriel Leung - Paradigm Capital - Analyst : Okay, that's great. Thank you.