甲骨文 (ORCL) 2002 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Stellent, Incorporated quarter ended June 30th, 202 conference call.

Representing the company on the call today are the company's president and chief executive officer, Vern Hansley [phonetic], and the chief financial officer Gregg Waldon, the senior vice-president of business development Dan Ryan, and Mitch Berg, our vice-president of operations, will be available to answer questions at the end of the call.

At this time all participants are in a listen-only mode.

Later we will conduct a question and answer session.

At that time if you have a question, you will need to press star and then the number 1 on your telephone.

As a reminder, this conference is being recorded Tuesday, July 30ing, 2002.

A replay of this conference will be available at 8 o'clock p.m.

Eastern time on Tuesday, July 30th, through midnight, Tuesday, August 6th.

To access the replay, you will dial 800-642-1687 for domestic and 706-645-9291 for international and enter the conference ID number 487-6783.

The following presentation contains forward looking statements including projections about Stellent's future performance, Stellent disclaims any obligation to update these forward looking statements.

You should be aware that many factors could cause actual results to differ materially from those anticipated in these forward looking statements.

Please direct your attention to Stellent's recent filings with the SEC including their Form 10(k) and forms 10(q) which contain meaningful cautionary statements under factors affecting future results and elsewhere.

In the future Stellent will make other filings with the SEC from time to time including Form 10(k) that will update this cautionary disclosure.

These filings are available on the SEC web site, www.SEC.gov.

It is now my pleasure to turn the conference call over to the company's president and chief executive officer, Vern Hansley.

Good afternoon, and thank you for taking the time to join Stellent for a discussion of our first quarter results.

I'll pend a few moments highlighting the quarter and discussing some of our strategic objectives then our CFO Gregg Waldon will provide a financial review.

Gregg we'll turn the call back over to me for a quick summary and I will open the call up for questions.

Had we are pleased to report Stellent completed a strong first quarter of our fiscal year 2003 despite a challenging economic environment.

Our first quarter revenues were 17 percent, 1 million, a 22 percent sequential increase over 14 million reported in the prior quarter.

We also maintain a strong cash and marketable securities position of approximately 88 million.

Our team generated significant momentum during the quarter to enable us to achieve our Q1 revenue goals.

Our direct sales initiatives and partner programs resulted in 25 competitive new content management customer wins.

Our mobile and wireless group signed a number of large contracts during the quarter. and we released a new version of our content management technology to bring content management further into the enterprise, we'll reach more users and manage more content.

Stellent provides world class software solutions that efficiently manage all business and web content in the enterprise.

Our market share continues to grow due to our dedication to this vision, our leading edge technology solutions, our strategic alliances with major technology players such as BEA and IBM.

Stellent is now recognized as one of the top content management vendors in the world.

During the first quarter we signed 72 new and expanded content management software license agreements. of those 25 new content management customers, including companies such as Procter and Gamble, Hitachi America, Centers for Medicare and Medicaid services, Great River Energy, UMB Financial.

The remaining 47 were continued roll outs across existing customer accounts.

Customers such as ING Group, United Nations, Guardian Life Insurance, [inaudible] America and Oglethorp Power Corporation.

We began to see momentum in manufacturing, utility and consumer goods industry during the quarter in addition to our continued strong key government, health care and financial services vertical sectors.

In addition, our mobile and wireless group signed or renewed agreements with companies including DigiSystems, U.S.

State Department, Computer Think, PTC Alta Vista during the quarter.

We also announced Sony, Ericsson Mobile Communication AB is using our outside end technology in their PA 800 Smart Phone which is based on the open semi and seminal platform.

This application is another example of how outside end adds value to mobile applications by empowering mobile workers to easily access, view business content on their wireless devices.

We continued our focus on alliances, alliance activity during the quarter and we closed a number of joint implementations that substantially influenced our revenue.

We won Oppenheimer Funds with BEA and the State of Mississippi Human Services, the software house international.

We also joined the see bolt system alliance program and were elevated to the top of the level of the BEA star partner program.

During the quarter we announced several new enhanced and products to enable our customers to more fully leverage the critical business content in their organizations.

Version 6 of the Stellent content management system which began shipping in March offers robust content collaboration and integration capabilities and the enterprise strength scale ability enabled organization to further optimize content management across a large number of employees, partners and customers.

Version 6 includes three new servers, including one based on technology required from connect up in early April.

We believe version 6 gives Stellent the widest array of content contribution, management and delivery mechanisms available in the world to both line of business and enterprise implementations.

The product has been well received by customers, partners and analysts and we're confident that we'll provide significant revenue stream for us moving forward.

We also introduced the new audio video indexer module during the quarter to help meet global 2000 business he is' need to access manage and deliver rich media content.

Our technology has always been able to securely manage work flow, publish media file to the web. and with the audio video indexer, we now provide users with the most sophisticated method of leveraging this growing volume of critical business content.

Stellent also announced version 6 with Stellent content categorizer which further ease of use for content contribution by automating Meta data assignments and providing integration with industry leading categorization engines.

We feel our strategy to enable integration of our software with proven categorization products rather than build proprietary categorization technologies ensures the most flexibility and accuracy for our customers.

We continue to expand our international presence in Amia [phonetic], Asia Pacific and Latin America during the quarter.

I'm especially please with the progress we're making in Amia particularly in the E government vertical.

I had the pleasure of meeting with various customers, prospects and analysts recently in this region.

Also alliances with such - such as Price Waterhouse Coopers and EDS are maturing into global partners for us and will present additional international opportunities for us in the near term.

We are pleased with our Q1 results.

Our pipeline is strong as we move into Q2.

We believe our unwavering product strategy, our strong alliances and our commitment to our customer satisfaction positions Stellent to emerge as a leading content management vendor when the IT buying patterns stabilize.

We are committed to returning Stellent to profitability as soon as possible and we are confident in Stellent's future.

I now will turn the call over to Gregg Waldon, our chief financial officer.

Thank you, Vern, and good afternoon, ladies and gentlemen.

We caution you that parts of the following financial overview are forward looking statements and we disclaim any obligation to update the statements.

They represent our view of Stellent business as of July 30th, 2002. the actual results may differ materially due to a number of risk factors that have been identified in our recent filings with the SEC second including our forms 10(k) and 10(q) under the caption risk factors and also in those filings. the following comments will relate primarily to our financial components for the quarter ended June 30th, 2002.

Product license revenues and services revenues for the first quarter ended June 30th, 2002 were 11.1 million and 6.0 million respectively for a total of 17.1 million.

This represents a 31 percent decrease from the 24.6 million in total revenues for the quarter ended June 30th, 2001, and a 22 percent sequential increase from our quarter ended March 31st, 2002 up 14 million in total revenue.

Our product license and services revenues for the quarter ended June 30th, 2002 is 65 percent and 35 percent respectively.

Our goal is to have product license revenues that are approximately 75 percent by the March 31st, 2003 quarter which approximate and the average [inaudible] over the last 8 quarters.

Our pro forma net loss for the quarter ended June 30th, 2002 was 5 million.

Our pro forma loss for basic share of 22 cents.

Compared to the pro forma net income of 2.6 million or pro forma earnings per diluted share of 11 cents for the quarter ended June 30th, 2001.

Pro forma profitability [Inaudible] exclusive of amortization and certain intangible assets, restructuring charges and pro forma income taxes.

Our product license revenue from a customer base was approximately 48 percent and we continue to have over a 90 percent [Inaudible] renewal in June 30th, 20 two-quarter which shows that our customers have our software in production and ton buy more [Inaudible] many numerous line of business applications.

OEM revenues which can include the conversion mobile and wireless and content publisher and consent server products represented approximately 33 percent of our product license revenue in the June 30th, 2002 quarter.

Additionally, approximately 12 percent of our license revenue was from our international operations. and approximately 44 percent of our nonOEM product license revenues were influenced by our partner.

New customers that were added were as follows: Twenty-five new corporate content management customers for a total of 975; 12 new OEM customers for a total of 364; and over 380 corporate viewing and converting customers.

Our average transaction size for our product license revenue for the June 30th, 2002 quarter was 132,000, which is up from the March 31st, 2002 quarter of 111,000, but down from our December 31st, 2001 quarter of 275,000, and from our quarter ended September 30th 201 up 207,000 we closed two 7 figure product license deals into June 2 0 two-quarter our average transaction size is recognized product license revenue [Inaudible] and does not include services, maintenance or deferred revenue.

We believe that our average transaction size over the next several quarters will be between 150,000 to 200,000.

Overall, our pro forma gross margin for the June 30th, 2002 quarter was approximately 71 percent, versus 65 percent for the March 31st, 2002 quarter. the amount of 474,000 that is separately stated in the June 30th, 2002 quarterly income statement is due primarily to the connect to acquisitions that we completed in the June 2 00 two-quarter.

Pro forma gross profits for product license revenues for the quarter ended June 30th, 2002 was 84 percent which is up from our March 31st, 2002 quarter of 82 percent.

Our gross profit for services revenues for the quarter ended June 30th, 2002 was 48 percent which is within our target range of 40 to 50 percent and a 7 percent increase from the March 31st, 2002 quarter of 41 percent.

Sales and marketing expenses for the quarter ended June 30th, 2002 were approximately 10.3 million compared to the March 31st, 2002 quarter of approximately 11 million.

As a percentage of revenues, our June 30th, 2002 quarter sales and marketing expense was 61 percent of total revenues versus 78 percent of total revenues in the March 31st, 2002 quarter. the decrease in actual dollars from the March 31st, 2002 quarter to the June 30th, 2002 quarter is due primarily to the restructuring and decrease funding for certain marketing programs.

Research and development expenses are 28 percent of total revenues, or approximately 4.7 million in the June 30th 2002 quarter.

Compared to 33 percent of total revenues or approximately 4.6 million for the quarter ended March 31st, 2002.

General and administrative expenses comprised 16 percent or approximately 2.7 million for the quarter ended June 30th, 2002 compared to 31 percent of total revenues or approximately 4.4 million for the quarter ended March 31st, 2002.

General and administrative expenses went down considerably in total dollars by 1.7 million from the March 31st, 2002 quarter primarily due to recording the provision for [Inaudible] many accounts of approximately 1.8 million in the March 31st, 2002 quarter.

As previously described in a press release in April of '02 002 we reduced our head count by approximately 50 people with 12 positions eliminated in our local headquarters and the balance distributed across all levels, departments and geographic areas. the total restructuring costs were approximately 2.5 million broken down as follows: Severance and benefits 2 million 50,000.

Facilities 300,000, and other 150,000.

As of July 29th, we have 399 employees which is down from 485 employees as of December 15th, 2001. the employees are broken down as follows: Direct and OEM quota carrying sales reps 51.

Inside sales reps 19.

Sales engineers, sales managers and other sales staff 59.

Marketing 27, [inaudible] consulting services 95, research and development 106, and general and administrative 42.

On the balance sheet, our cash and marketable securities balance is 88 million as of June 30th, 2002.

We anticipate that our cash use and operations for the June 30th, 2002 quarter will be approximately 4.6 million.

Our day sales outstanding was 90 days which is down significantly from the March 31st, 2002 quarter of 119.

Our goal for the September 30th, 2002 quarter ranges from 85 to 90 days and our goal for DSO's as of December 31st, 2002 is in the range of 80 to 85.

Our prepaid expenses and other current assets balance of approximately 6.4 million is approximately the same as the balance at March 31st, 2002 and is comprised of approximately 3.3 million in prepaid expenses such as insurance and consulting services, 2.5 million in miscellaneous and nontrade receivables and refundable deposits such as certain taxes repay roll related refunds and deposits for European facilities, and approximately point 6 million in inventory.

As of June 30th, 2002 we have approximately 1.9 million of capitalized software.

We are generally amortizing this asset into cost of goods over a period of three years.

All of the capital software relates to software purchased from a third-party or developed for us by a third-party.

Our capitalized software is broken down into four main projects as follows.

First the content category there is a module sold by us for use in contributing large amounts of text based content.

We typically license approximately $150,000 of this module on a quarterly basis. the software was purchased in April 2001.

Second, the extra site server is a server sold by us and built on J2EE architecture for high end web site consumption.

We contracted with an outside independent entity to build this for us. the product was released in the June 2002 quarter.

Third, the localization of certain of the content management sweets of products into French, Spanish and German was done by an outside entity as well.

Fourth, our OEM group purchased third-party software to enhance our development of multiple viewing and conversion products.

We do not have any projects that would result in additional capitalized software at the present time.

No shares were purchased or repurchased in the June 30th, 2002 quarter.

In conjunction with the SEC rules on corporate disclosure, regulation F D, the following guidance is provided for our upcoming September 30th, 2002 quarter and our fiscal year-ended March 31st, 2003.

In developing our revenue projections, we have examined our pipeline, the overall high technology sector, the market growth rates of us, our competition and with other high technology companies.

The number of quota carrying sales representatives, partner influence, new product influence, interest rate fluctuations and other factors, and continued sluggishness of IT spending in both the United States and Europe, and European seasonality.

We certainly are aware of what is being reported in the media regarding the select corporate IT spending and the difficult broad economic climate both here and in Europe.

But we also believe that the content management industry will remain strong and we are competent that our world class products, employees and partners will give us competitive advantage through this uncertain business climate.

Based upon these assumptions and trends, the following guidance will be given: For our quarter ended September 30th, 2002, we estimate that revenue will range from 16.5 to 17.5 million.

In pro forma loss per share of 22 to 26 cents based upon an estimated 22.4 million basic shares outstanding.

Of the total revenue, we anticipate that approximately 65 to 68 percent will be product license revenue.

We anticipate approximately .5 million in interest income in the 2002 quarter.

Our pro forma loss per share does not include any restructuring charges or amortization of certain intangible assets.

Four or fiscal year ended March 31st, 2003, we have no changes to our original estimates that we provided on our May 2nd, 2002 conference call.

Those estimates are revenue ranging from 70 to 80 million.

And pro forma loss per share of 56 to 86 percent based upon an estimated 22.4 million basic shares outstanding.

Of the total revenue we anticipate approximately 67 to 72 percent will be product license revenue.

Based upon our current cost structure we anticipate requiring a revenue range of approximately 22 to 23 million per quarter to be profitable.

After reviewing the current and forecasted pipeline, the IT spending environment, and the general economic environment, our goal is to achieve break even from operations no later than the March 31st, 203 quarter.

We continue to examine all options regarding returning to profitability including generating additional revenue and further expense reductions.

We believe that we are well positioned in the content management space to take advantage of any rebounds in IT spending.

I will now turn the call back over to Vern Hansley for a summary.

Thank you, Gregg.

I'd like to conclude today's call by emphasizing the fact that we are not chasing the market, the market has come to us.

Despite this economic downturn, we see continued demand for managing unstructured content which is our background and our suite spot.

Our experience in managing this unstructured content combined with automatic conversion capability, our focus on enabling all users to participate in the process regardless of technical ability, gives us a unique edge over the competition.

We now offer the broadest content management product suite available on the market today and will become - will continue to broaden this offering to empower customers to fully leverage their intellectual cap by bringing more users and more content into this Stellent environment.

Stellent is committed to executing on our goals, returning to profitability and growing our market share. to do this we are focused on achieving return on investment of for our customers, targeting vertical markets and expanding our mobile and wireless capability as to mar the market matures.

We are confident about our leading position and content management market and proceeding with cautious optimism until the tech spending rebounds.

I will now open the call up to questions. 00:29:05

Thank you.

Ladies and gentlemen, that concludes the formal remarks by management this afternoon.

We will now open the lines for question and answer period as time will allow.

Our first question is from the line of Steve Ashley at [inaudible].

Could you maybe characterize what the pipeline looks like today as you enter your September quarter compared how it looked when you were coming into the current June quarter?

I would say it's about the same, Steve.

There's a little bit more activity on our RFP process, and just the types of deals that we're - but I would say it's up a little bit, but not as substantial amount.

I believe we have the same matrix is there that we had coming into this quarter.

And of the large deals that slipped out of the March quarter, could you maybe update of how many of those have closed and what the status of those are?

Just the large deals or all the deals?

Well, you know, maybe the large deals.

ANALYST:

Okay.

There's two of them that came in. [two]

Both of the 7 figure transactions that we did in the June quarter were rolled over from the March 31st, 2002 quarter.

Right.

But are there any large of those large transactions that still haven't been closed that still might close?

Yes, we have some large ones that are in this quarter.

Have you closed any of them yet or early in this period, in the September quarter?

Not as yet.

Gregg, of the two large deals you closed, do you know what percentage of the receivable on that would be greater than 90 days?

Yes, I would say there's about 1.4 million receivable that's greater than 90 days.

Okay.

And, you know, I guess I read somewhere where Microsoft introduced an upgrade version of its content management server.

Are you aware of that or can you offer any color or comment on that?

We're reviewing it internally right now.

They announced a beta version of the newest content management server, so we continue to view that.

We don't see them very much in the market and we think functionally we still offer quite a stronger product than CMS right now.

And just lastly the 25 new customers in content management, how many new content management customers were in the March 4th quarter?

Do you know? [Quarter]

In the March quarter?

Yes.

I don't have that information really available here, Steve.

But my guess is it's probably in the 30 range, 25 to 30 range.

Great.

Thank you.

Thanks, Steve.

Our next question is from the line of Brian Nykis [phonetic] at Thomas Weisel Partners.

Please go ahead with your question.

Yes.

In terms of the linearity in the quarter can you give us a sense as to how this quarter was relative to last quarter?

And could you also talk about in terms of deal enclosures between existing and new clients the thought process and if the purchase decision is still relatively unchanged?

Thank you.

The linear in this quarter here, Brian, on the June quarter was about 25, 30 and 45. and we anticipate a similar amount of linearity here in the September quarter with roughly 45 to 55 percent of our revenues anticipated being the last month of the quarter.

Okay. and in terms of new versus existing clients, are you seeing any type of [Inaudible] resonating better with new clients than in term of existing clients, are they coming back and just purchasing add on type licenses and if so what's driving that type of sale?

I think it's pretty consistent with our strategy over the past five years which [inaudible] the line of business environment, and that's just [inaudible] and we continue to sell inside the enterprise.

I think historically, if you look over the last several years, we've sold approximately 45 to 50 percent of our software licenses come from existing customers, which sort of confirms that strategy.

I don't think we see that changing radically in the future.

That's been our strategy and I think that's going to be our strategy.

I think the one thing that we see changing in the market to add to what Dan commented on, because of the state of where the IT spending is and the focus on return on investment, our ability to go in at the price point in our line of business right now is where customers are look at, there's a proving ground where we go in and are successful.

And then the second component in some of the larger transactions with the wide array of products that we have, we can show that, here, look, here's an enterprise approach to this and we can sell that to highest levels, but we might start at the line of business because of the identified problem and a business issue that needs a return.

We need to prove a return and I think that's a little bit more relevant. and as we craft some of these verticals that we're going into, I think they'll be more present as more of a solution than just content management.

We're seeing some of that present itself in the market.

Okay. and then lastly, in terms of the vertical market strength, obviously health care and financial services and government have been traditionally strong for you guys.

You talked a little bit today how manufacturing can utility and consumer good industries have picked up.

How have you allocated yourselves?

Do you have dedicated teams for those new verticals and if so how is that progressing?

Well, we're just kicking off our vertical program where we're going to focus our energy more on E-gov and health care.

I think that some of these other ones are presenting themselves that we've always been in about 7 different industries that some of them are upgrades and spending is coming back.

But we are we're going to effect us our energy as far as allocation and head count is in E-gov and health care, because that, we actually have focus groups around those.

We've kicked off an initiative to bring some solutions around those markets. and we're seeing momentum both here domestically here in the states and also in the immediate region in the E-gov.

So we're kind of going to put our energy today, because I think that we can go in and capitalize on those, those are quite large markets and we'll be a pretty good size software company dominating those. and then the other ones will come to us just based on our market that we're in and the flexibility of our core technology are more generous.

So if you're focusing the bulk of your quarter reps on E-gov and the financial service health areas -

Weaver not doing that.

Oh, you're not?

No.

I guess what I'm saying is we're focusing some of our marketing energy for solutions around E-gov and health care and we're going to keep the sales force that we have more generous we'll focus some of our inside salespeople on some of those markets and they will provide, you know, sort of our general salespeople which we continue to educate and get trained to understand how to sell solutions in these different markets and we'll provide the material to make them successful that way.

Okay.

You just can't - I mean right now we don't think it's strategic enough to verticalize our sales force at this point.

UNKNOWN SPEAKER:

Okay.

Thank you.

Our next question is from Steve Sigmond [phonetic] at RBC Capital Markets.

Please go ahead with your question.

Thank you.

Hey, guys.

Hey, Steve.

Couple questions for you.

Can you give us a little more color, Vern, on some of the competitive wins?

You mentioned the 25 competitive new wins.

Did you see any change in the landscape there or in the tactics, particularly discounting tactics or special terms at the end of the quarter that you saw to try to bring deals in the door?

Well, you know, I think as everybody would say this is a pretty competitive market right now.

We've had some really good competitive wins.

Sony entertainment was a competitive win there.

I don't think that that one particularly was pricing.

I think it was more our ability to go in and solve the problem and then what they could see we could do beyond that and more of our ability and we got into feature function, flexibility and cost of ownership I think [inaudible] I contribute that one to.

Oppenheimer Funds, with BEA brought us into that one.

That was a big one for us.

That had a little bit of price pressure on it, but it was a good win for us in a competitive landscape.

It was in the right - it was the right business problem for us.

We had plug into BEA portal there.

We had to get up and running.

There was tension from the CIO there, so it was highly competitive from that perspective.

And we were not the incumbent there, but it was our business problem as I would state.

The other one I think would be that I thought was Wendy's was a good win for us, was a competitive win.

So I think - you know, if you look at the competitive landscape, I think [inaudible] which listen more document them [inaudible] one and two competitors in the market right now.

The higher ASP's that you saw in the quarter, they're sequentially higher, albeit down pretty significantly from historical levels.

How much of that was driven by some of the new modules, particularly the new modules and the mid servers around 6.0 and how much of it was enterprise versus departmental buying?

I don't think we have the exact percentages on that, Steve, but I would say that, you know, a lot of this stuff people are starting to get educated on some of the new technology they had and they were just module upgrades that categorizer and web analyzer and things like that.

And then I would say that the 47, I think that's the number, 47 of the continued roll outs, some of those were adding new servers for new capabilities versus the new one for more - the 25 new accounts were buying footprints where we're solving a problem and it's a full serving environment.

So that's the way - I mean if you break out where that mix is, it's a 25 new accounts and the 47 roll outs, we either sold new servers or new modules to the existing customers and then there was a line of suite of new servers that came in.

Sony entertainment took three of the new servers in order to get that deal.

Gregg, can you quantify your expectations around cash earn for the next couple of quarters given the revenue guidance that you've given?

Yes, I can.

Essentially, we're looking at the September quarter cash use and operations are anywhere 2.5 to 3.5 million, and the December 2002 quarter 1.5 to 2.5 million and the March quarter being cash flow positive.

Okay.

Thanks.

Final question, any noncash transactions in the quarter?

Zero.

All right.

Thanks.

Our next question is from Mike Marsoff [phonetic] at U.S.

Bancorp Piper Jaffray.

Please go ahead with your question.

Hey, guys.

Wondered if I could piggyback on Steve's question about the competitive landscape.

First it's two parts.

Were there any displacement significant displacement deals?

You talked about not being the incumbent at Oppenheimer.

Who was the incumbent?

Any others that are notable?

And then maybe you can shed a little light on something we're hearing many companies talking about bloated pipe lines and, you know, a lot of deals in front of them just close rates being the issue.

Can you give us a little more color on what you're seeing out there in the channel?

Is there any favoritism from S I's or platform vendors?

And I would imagine at least on the S I side you'd be a favorite given the speed of deployment as they try to increase their margins.

Maybe you can just shed a little light on that.

Yeah.

I won't get into who the competitors are N inaudible].

I don't play that way.

But I think that the one where we weren't the incumbent, it wasn't a displacement, it was a new application where we plugged into and it was more inside the firewall.

The [inaudible] I think the other two that I mentioned were just competitives and one was an RFI we got into, and it was the feature functions and it didn't get into a price tug-of-war.

On the other one, just, I think we out sold them on that one because it was our business problem.

It was coming from content from business perspective and going to the outside.

As far as in the channel, if I would say anything, the big SI's and some of the, you know, the bigger players, and it's hard for them because they have multi vendor strategy, we're getting a lot of energy from the software [inaudible] servers and portal players are really taking recognition to our approach to this business problem moving forward.

I think some of the SI's that we've seen, the EDS's and accentures and PW's we're starting to get a lot of energy where they're talking more about building [inaudible] around our technology where they're seeing the ability to do that as we transition into the enterprise.

So we're seeing - I wouldn't put it in the favoritism category, but I would say that we have a lot of energy in that area where people have recognized us as a leader in this as far as our ability to deploy, integrate with these folks, company is easy to work with, those types of things.

So I think that we're seeing a lot of energy in that arena which helps what I call draft for our market in our pipeline.

In reference to the pipeline, you know, I don't know if bloated is a proper word that I would use, but I'd say that - I would say that we have good - we have a good pipeline.

We spend a lot of time, the domestic VP of sales and I spend a lost of time with him going through the pipeline so we understand what it means, how competitive is it, is it an R S P process, what are the decision points and we have good energy there. and we scrub it down pretty well so that we know.

I mean they always have all the other things, I think there's a lot of activity, but you have to separate activity from reality. and what potentially will be real business whereas an existing customer, where is the competitive situation, what are the things, what are the tactics that we need to do to win. and that's how we evaluate it.

And I think as I look through what we're going to close this quarter and having visibility, I can look at that.

And I think that's what we are as we look forward in this market, what can you see and what is going to close within the quarter and where the decision processes are and that's the trick. and then the stuff that's all activity around that because we're starting to get energy from all our new modules that we have out.

We're educating a lot of people, partners, and things that we just come out of engineering.

We had a significant engineering release this last quarter which presents a lot of opportunities for us.

That's really what we're working on in that capacity and just analyzing the pipeline.

So I would say it's very positive from that perspective and we just continue to do that.

It's a weekly process.

Vern, if we look at a cross-section of the deals that were signed, are portals still kind of the leading slot in terms of activity generation, or is it commerce or what exactly is driving?

And then if you could talk about who is contributing on the portal front, is it the peer plays like Plumtree and Epicentric or is it BEA, IBM, etc.?

Portal is also a big word because there's dollars in there.

I would articulate the activity because there's a lot of business issues with inside the firewall that people are trying to get their hands around this content to deliver for information, for value, to make a decision.

Portal is the word that everybody uses and they understand that they have to have content management so I would say that classified - is it an Internet project or extra net project or is it a portal project and that's some of the stuff we hear in the market.

As far as there will be a portal involved, and if I look where we're running to BEA IBM and Plumtree being the peer play, are the people that we're partnering with and building applications and port lets and [inaudible].

I articulated two of them in the call here with Oppenheimer and Wendy's I think was a BEA opportunity that we had to integrate with that portal.

So same with IBM, with guardian life, we integrated with a Webster product at Guardian Life, and Plumtree obviously and Procter and Gamble.

So those are the types of things that it's manned mandatory that you integrate with these folks.

We see the bigger [inaudible] taking a little bit, they've got strength there and we've got a lot of energy and highly integrate with those folks.

And Gregg a couple for you.

The two deals that you described were 7 figures, were either or both of those greater than 20 percent?

And what was the head count target for September 30th?

Head count target for September 30th, we don't have anything right now in the works here, but we did reduce head count in the June quarter by approximately 50.

That if that was what your question was, Mike.

Okay.

But no other changes materially between now and the end of September?

Well, as we stated here, we're always looking at ways in which to get to profitability.

That means increase in revenues or looking at further expense reductions.

But nothing material at this point.

And either of those large deals greater than 20 percent?

Yes, yes.

One was.

Great.

Thank you.

You're welcome.

Our next question is from the line of Nate Swanson at [inaudible] Equity Partners.

Please go ahead with your question.

Hi, guys.

Can you talk about connect to acquisition and where you're at in terms of integration, and did that impact the June quarter either in terms of financial impact or help in closing deals?

As you know, we closed that acquisition in April.

We incorporated the first release of the integrated product in our 6.0 release which was announced in the quarter. and we subsequently announced the 6.1 release of the connection server as it's called from that product line which had its own functionality [inaudible] product eyeing the product, branding it with the selling look and feel as well as integrating with all that security and running J 3 out server.

So the 6.1 release followed pretty shortly afterwards.

So we have a full integration.

That also included connectors to our own [inaudible] product robust connectors in and out of our own content server.

So we've done a pretty accelerated integration of that product line and that development group into our effort here, both development and marketing and sales.

From an impact standpoint, I think it's had substantial impact on some of the deals that we've done.

There are specific ones as well as overall vision on really integration and content distribution has had an impact on a number of deals and we only anticipate that growing going forward.

I think the same is true with the [inaudible] server that we released.

I think we're talking about a suite of [inaudible] covers a lot of layers and wing we have a potentially broader view of that than a lot of other people you're thinking about.

So we're presenting this vision to while we're selling line of business our solution, we're presenting a larger business that we CIO and the senior IT people that really encompasses [inaudible] content management and distributor content all as one infrastructure and that's being received very well.

I think that whole story is selling products for us.

And there are a couple.

And there are a couple of specific transactions where that helped us competitively because we're able to demonstrate what the technology would do and how we were integrating that.

So -

Content from other -

Yeah, and actually help us get a deal in a competitive situation last quarter.

Great. a couple questions for Gregg.

In terms of license revenue, can you break that out new versus existing customers?

Yeah. 48 percent was from our base up to 11.1 total license revenue.

Okay. and then in terms of DSO's, nice improvement there.

Was there anything unusual this quarter?

Nothing unusual, just good cash collections.

Okay.

Great.

Thanks, guys.

Our next question is from Scott Phillips at Merrill Lynch.

Please go ahead with your question.

Thanks.

My first question is for Vern.

If you look at the Microsoft content management announcement, you know, they're positioning their content management offering as the cornerstone of their .bus strategy.

What do you do as CEO to position Stellent around that?

Where do you see Microsoft winning, where do you see your opportunities?

How are you going to win against Microsoft here?

Well, I think that one thing that we're seeing with - we've been evaluating their product and how they've been trying to enhance it and put marketing around it versus how they deploy it.

We have to let some customers that look at Microsoft and go okay it's Microsoft stuff.

They're going to get there sometime.

So that in 12 or 18 months.

We don't - if I look at the transactions that we won last quarter, except for Europe, we didn't see them competitively, okay.

So there's one thing and we evaluate who our competition in each one is.

So I think that we'll start to see them.

And the other thing is we have to see them perform more than just, you know, publishing a web site.

This is a full service environment that people are looking at and how you integrate into the enterprise. and it's also multi platform. and if you can't integrate with abservers and you can't integrate with Aldap [phonetic] and you can't run multi platform and you can't do a lot of conversion capabilities, this becomes a little bit more significant than putting stuff into templates and publishing on a web site. and that's what they're doing. and the reality is that they don't have the full picture because they're coming into this thing and they're starting to get a view of this unstructured problem that exists in the market. 80 percent of the information, okay.

If that's a reality and that's growing at 400 percent a year, our strategy to push down into the content stack is - and we're going to push down so far, but collaboration and web file sharing and enterprise management plugged into portals is going to give them a broader brush, and they're really going to have to do a lot more work to get there.

In your current evaluation, Vern, where you look at what they're going to be offering in the next release here, do you see some holes that you think you can exploit or is there a particular acute point of pain that you think you can focus on to deliver the revenues going forward?

Well, the ones I just reviewed, those are the ones that I'm really focused on, collaborate, file conversion, and the integration with the abservers and the portals.

You can't always be an all Microsoft solution.

It's still best in class here for at least the next 12 to 18 months.

Is there anything that prohibits, let's say, if I look at the portal space at Plumtree, BEA, from lining up with Microsoft, is there something that's going to - I hear the arguments that you've made and I think they're accurate, that you offer better punctuality and better sell times.

Is there something else that's out there that's going to prohibit some of those portal partners from ever partnering with Microsoft on a go forward basis?

Well, I think that - I think that Plumtree is partnered with Microsoft.

Most of their stuff is built on that.

BEA on the other hand I think is looking for partnerships that are J2E versus .net.

You're going to have to play there from a bridge perspective, but I think that J2E has a lot of mine share in the CIO minds cross corporate America, both domestically and internationally.

So I think that, you know, I look at our partnerships with what I consider the top 3 portal vendors being BEA and IBM and Plumtree, very, very strong right now.

Yeah, you have to partner with Microsoft.

You can't ignore them because they're there.

But, I mean, you have to have a solution.

Customers are looking for solutions.

They don't want to build it. and cost of ownership is a big thing, what they're going to spend on it, and maintenance.

I mean, if you look at our maintenance renewals and people really upgrading our product, I think that that - and we run in completely in the Microsoft environment.

So there isn't any risk to them.

And then how we integrate to the desktop with our web dev standard, so we're creating an environment that's a no risk proposition and we solve the problem.

And I think that has a big impact other than just technology that Microsoft says they're in the business.

Okay.

Gregg, a couple questions.

I mean, a lot of doubts you mentioned have improved dramatically, but where are you accounted for the capitalized software in the balance sheet line up?

What should I be looking at as to where that software fall? [inaudible]

If you take a look in the 1.9 million market in the press release -

I'm sorry.

I don't have the press release.

I'm sorry.

I'm calling from my cell phone.

Where did that fall previously?

It's under other, other assets.

Okay.

With regard to rev rec, what's your rev rec policy today for your channel business and have you had any changes there?

Well, the policy right now that we've done in the June quarter is that we're recognizing revenue when they sell through to an end user.

So that's the piece that [inaudible].

All right.

Well done .

Thank you very much.

Thank you.

Our next question is from Amy Sing at JMP Securities.

Please go ahead with your question.

Well, yes. a couple questions.

First -

Would you repeat the name?

Yes, Amy Sing, JMP Securities.

Thank you.

Yes.

Wanted to find out if you're planning on repurchasing some shares in the September or December quarters?

Amy, this is Gregg.

We are constantly evaluating those options.

We didn't purchase any in the June quarter.

We have no firm commitment to do so in the September quarter at this time.

Okay.

Was there any revenues recognized from any of your investment holdings or related third-party transactions?

Zero.

Okay. and what about are you expecting anything from the September quarter?

Zero.

And then my final question relates to stock options.

Do you have any sense of how much stock option expense would be in the fiscal '03 year?

At this point, Amy, we don't know.

Obviously we report our stock option expenses in footnotes in the back of the financial statements and we all do so again in fiscal '03.

Okay.

Thank you.

I would like to remind everyone, in order to ask your question, please press star then the number 1 on your telephone key pad.

We'll pause for just a moment to compile the Q and A roster.

[Pause.]

Our next question is from Ann Marie Ram [phonetic] at Adams Harkin and Hill.

Please go ahead with your question.

Good evening.

I was just wondering if you could comment about the features, the collaboration features within Stellent 6.0 as they related to I think document you put out an announcement today about some collaboration features, if you any thoughts or comments on that.

Thank you.

Yeah.

I think it was - it's a nice confirmation of our strategy certainly [inaudible] the serves came up today.

Our collaboration feature set is really [inaudible] tied fought management environment, and we built our collaboration server on the same architecture and we've added the functionality required for team level collaboration otherwise known as digital work space or content collaboration.

Essentially allowing end users to create work spaces, create the work flows, the security levels for a given project, whether that's a budget project or a project that has internal and external users.

Generally it's around content.

You're usually working around file types and usually the opposing approach to this is by sending a lot of E-mails with attachments around which is a pretty efficient way to do it.

Create a secure environment that enables functionality, gathers all the conat the point, all the revisions, all the notes, discussions, group discussions, and then can archive that entire package at the time the project is done into a secure area to be either kept or eliminated based on what it is.

So it's I would say the full functionality of the pure play collaboration vendor, but tightly coupled to content management environment and we look at collaboration as just one step earlier in that content life cycle than content management.

Great.

Thank you very much.

Our next question is from Scott Phillips at Merrill Lynch.

Please go ahead with your question.

Thanks.

I had one more.

If I look at the license service mix and the license margin in particular in the June quarter, last quarter you had attributed the maturation [Inaudible] there to Adobe.

Is it the same this quarter?

What should I be thinking of?

I know you've given some forecast as to how we should trend it forward, but what was behind the license margin this quarter?

And I'll start there.

We certainly had seen Adobe again this quarter vary this quarter [inaudible] a few other ones, but there wasn't anything of real significance.

We picked um a couple percentage points on our margins from the June - in the June quarter from the March quarter but there wasn't any unusual anomalies in it.

I'm not suggesting there's an anomaly.

I'm just asking about the business process.

You know, is it Adobe again and Verity in and if so, would that impact the license margin?

What's the thought process of then, Bill, versus buy going forward?

That's a good question.

We're constantly analyzing that.

Dan and his team do a good job in perusing what's out there, what's available versus the buy versus the pay royalty.

We haven't made any decisions on that over the course of the last couple quarters to pull the trigger on anything yet but we're constantly looking at it.

That's absolutely things that come to issue each and every quarter.

Right.

What about looking at the demand [inaudible], what you're getting back from your sales side on that specifically, is it originating as an Adobe in categorization level or is it coming in at your level, the data level?

What are you hearing back from your sales force as to what's driving that picture?

And I guess the follow on to that or into that same question is what do you do if the origination that your level and yet you're paying this down in the margin side why not just exit that agreement?

I'm not sure I follow that question there, Scott.

Okay.

Perhaps one more time.

You only have Adobe and Verity to deal with generation of web sites as well as the search and characterization capabilities, correct?

There is a question in the margin because of the license agreement assignment.

Then that has an ongoing contribution level, right?

Wait a minute, wait a minute.

Let's make sure we understand where those are positioned in our architecture because you articulated it wrong.

Okay.

Let's get it correctly articulated.

What Adobe does for us is turn content into PDF.

We only have a component so when business stuff comes into our thing, we turn it into PDF and we pay them a royalty on that.

That's an optional module that people buy. the second component you're saying categorization which Verity we don't use Verity for categorization.

We use Verity for indexing inside the server, okay, which is pretty, you know, it's a royalty that we pay so like Gregg says, are continuing to look at search vendors that are boutique that potentially we could integrate with our product. the categorization module which we announced which is also a royalty component, we use economy in another group out of Cambridge called smart logic best in class categorization modules that we plug into that that we pay a royalty. and we sell that feature.

So those are - so your question, I think, is where you're going with it is why don't we have our customers buy those ; is that correct?

Yeah, that's basically it because I think you can get back to the similar 95 plus percent margin that you're running at on the license side if you were to have those customer - even if you structure those deals.

I think that's a good point, scoot Scott.

I think the one thing our customers really like about our stuff is all that integrated is taken care of, and I don't have to deal with three vendors.

So what we're trying to evaluate and analyze in Dan's group and product strategy and engineering is how we leverage the stuff a little better, but we're creating solutions.

One of our big entrees into the market is we did a lot of point things that build a solution that solves a problem, not just selling technology.

That's why we've been successful at what we're doing.

And I think that that's one of the things moving forward we have to continue to work on the margin capability of being a pure software play in the 70 to 80 percent of selling software versus the service mix.

We built an architecture to integrate these things and we're going out and bringing that stuff in because it gives us broader picture I was referring to earlier.

Just another thing to add to what Vern said, you know, you started categorizing strategy that we rolled out in 6.0, post 6.0.

Was to allow customers actually to plug in alternate categorization engines into our products for that reason because there's several different ones out there that we can actually let people use.

So in certain cases that is exactly what we're doing.

As Dan was saying there, what we're going to do is, look, we've got these things all plugged together.

We've cut these things.

Now, if customers start coming to us and saying, hey, looking we'll just negotiate the deal.

We don't want to pay that royalty if we get into some of these enterprise ones we get a lot of sever services.

Look, this component you might as well get from Adobe because it becomes a margin thing with us, we're going to have to do those types of strategy. and we're evaluating that stuff significantly right now.

All right.

Great.

Thank you.

Our next question is from Ed McDwyer at Merrill Lynch.

Please go ahead with your question.

Hi.

Just a question quick for Gregg.

Looking forward in modeling the amortization intangibles, Gregg, what would be a reasonable assumption for the next few quarters?

We amortize typically everything over a three-year period, so just divided by 12 and that would be your quarterly results.

If you took the 1.9 million in capitalize [inaudible] a good shot here in the September quarter.

Okay.

That's for the software. and then I guess there were some other intangibles that you amortized?

Correct.

At 1.6.

Can I expect that to kind of continue along that same projectory?

Correct. and we have - that trajectory will be maintained through June 30th at 2003 when the three- year term expires in the acquisition of S CD division.

All right, great.

That's all I need to know.

Thank you.

At this time there are no further questions.

Are there any closing remarks?

Yes.

I'd just like to close with Stellent's committed to execute on these goals and return the profitability and growing our market share, and we're confident about our leading position in this content management space and are proceeding with cautious optimism as the market starts to rebound.

And thanks, everybody, for participating.

This concludes today's conference 01:09:56 call.

You may now disconnect.