Open Text Corp (OTEX) 2002 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Hummingbird, Ltd. third quarter fiscal 2002 earnings conference call.

At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference please press star-zero for operator assistance at any time.

I would like to remind everyone that this conference is being recorded and will now turn the call over to Fred Sorkin, Chairman and Chief Executive Officer.

Please go ahead.

Thank you.

Good afternoon, everyone, and thank you for joining us to discuss Hummingbird's third quarter fiscal 2002 financial results.

As I stated on our pre-release conference call two weeks ago, the third quarter was a particularly difficult one. We were disappointed with the numbers and size of the deals that actually closed in the final days of the quarter as our initial expectations had been for improvement in the revenue. Instead, a significant number of deals were late and/or reduced in size.

Regardless of the disappointing top-line results, the business continued to generate positive momentum in a number of areas. We completed the corporate and product re-branding that was in stages in the first quarter. We successfully shipped to the first release of the Hummingbird Enterprise which included new versions of virtually all our products. Without a doubt, this was the most significant release in the history of the company.

The new offering has been very well received with nearly all customers who participate in the beta program agreeing to deploy the technology within the next 12 months or even before.

I am particularly pleased to announce that such strategic accounts like , , Telecom Italia, and 7-Eleven, are among the early supporters of Hummingbird Enterprise.

Our entire worldwide sales force was trained on the new products an in May. This was followed by training conferences around the world for our partners.

We executed a comprehensive program of investor analysts briefings regarding the re-branding and product launches, which has paid off in strong positioning in the portal collaboration magic as a wireless endorsement of our Enterprise Information Management system strategy.

In addition, the Gartner Group report introducing enterprise software SmartSuite Market has successfully launched a series of web seminars introducing and detailing a number of potential applications for Hummingbird Enterprise.

We continue to and our continue to increase. At little over six months ago, we were pleased to welcome Andrew and Fred to Hummingbird in the position of Chief Marketing . And Vice President of US , Ace .

These two executives has quickly proven their value to the organization. In recent weeks, we have also added two new regional directors to US Sales organization. I am very optimistic that these changes will pay significant dividends for the company in fiscal 2003.

The activities company is due in the third quarter. Laying important foundation upon which to build for our next phase of growth. We have stronger products than ever before. A unified corporate branch position and the right talent to assets. And probably now, will provide a view of our financial results and then probably Barry will provide more details regarding our ongoing issues.

(Inaudible) please.

Thank you Fred. Good evening ladies and gentlemen. Certain of our comments are forward looking statements which involve risks and uncertainties. Actual results is a consequence of a number of factors including changes in market and competition, technological and competitive development. And potential down play in economic conditions generally.

Additional information of this and other potential factors that could have effect on company's financial results are included in documents filed with Federal Securities Commission and the Securities and Exchange Commission. Also please look at the press release for a complete statement there.

We have reported the financial results in US dollars and as in accordance with the US cash. Some of the financial numbers exclude the effect of certain items which is defined. The sales for the third quarter were $44,000,000, down by 4.4 percent over the previous quarter and down by 8.6 percent over the same quarter in the last year.

Sales from connectivity was $17.4 million. Compared to $19.1 million in the previous quarter. And the last year's figure of $21.6 million. The revenues from Hummingbird Enterprise Solutions were $26.6 million. Compared to $26.9 million in the previous quarter and $26.6 million in the previous year.

Adjusted net income, excluding the amortization of intangibles, previously unrecognized tax credits recorded in the second quarter, both and the effect of income tax rate changes on deferred tax balances for $4.8 million for the quarter. Compared to $5.7 million in the second quarter and the current - of the current year, and $4.6 million in the third quarter of the previous year. That leaves that earning per shares, based on adjusted net income was $0.36 compared to $0.31 in the previous quarter and compared to $0.25 in the previous year.

The current adjusted diluted EPS is based on diluted number of shares of $18.5 million compared to $18.5 million shares in the second quarter. And the same amount in the third quarter of the previous year. The geographical breakdown of the sales for the fiscal 2002 and the third quarter is in North America were about 60 percent, Europe was 33.4 percent, and the rest of the world was 6.8 percent. The gross margin was 91.4 percent of sales compared to 90.5 percent in the previous year. The sales and marketing expenses were 19.6 million, which were 44.5 percent of the sales, down from 21.3 million from the third quarter of last year but slightly up as a percentage of sales from 44.2 percent of the sales then. These were slightly up from 19.3 million, 42 percent of sales in the second quarter of the current fiscal year.

R&D expenses were slightly down from the previous quarter. These were at 19.5 percent of sales compared to 21.3 percent of the third quarter of the previous year, and 19.1 percent in the second quarter of this year.

The G&A expenses were almost the same as in the previous quarter. As percentage of sales they were 11.3 percent of the sales compared to 10.6 percent in the third quarter of last year and 10.8 percent in the second quarter of this year.

Total operating expenses, excluding extraordinary charges, which are amortization of intangibles, were 33.2 million, which is 75.3 percent of sales compared to 36.7 million in the third quarter of last year and slightly up from 33.1 million, which is 71.9 percent of sales in the second quarter of this year.

The amortization and write-off of intangibles of 7.5 million is slightly higher than in the previous year, but the same as in the second quarter of the current year. These are on account of various acquisitions made by the company.

Other income constitutes primarily of net interest income.

Income taxes expense of $2 million this quarter includes a deferred tax charge of $800,000 resulting from recognizing the impact of income tax rate increases. At the present time and including in Q3 the operations tax rate is approximately 38 percent for the purposes of adjusted net income and adjusted EPS.

Overall, the company reported a net loss of $1.8 million and basic and diluted loss per share of $0.10 for the quarter compared to net income of $6.5 million and basic and diluted EPS per share of $0.35 for the third quarter of the previous year.

The cash flows: The cash flows from the operations are $12.5 million in this quarter compared to $11.5 million last quarter and $12.8 million in the third quarter of the previous year. Year to date the cash flows were $22.2 million compared to $31.8 million in the last year.

Coming to the balance sheet, the total assets were at $355 million, almost the same at the end of the second quarter of the current year and down from 362 million at the end of the fourth quarter for last year.

Total assets have gone down primarily due to a decline in intangibles and the .

Cash position was at 114 million, up from 102.9 at the end of the second quarter of the current year and 93.5 million at the end of September, 2001.

Accounts receivable were down to $51.4 million from 51.9 at the end of the second quarter and $61.5 at the end of the last year.

DSOs were 102 days compared to 101 days in the previous quarter.

Fixed assets were $11.9 million, slightly down from $12 million in the previous quarter.

Intangibles have gone down this quarter due to amortization during the quarter.

Deferred revenue was higher at $41.8 million in this quarter, up from $40.4 million at the end of the previous quarter.

The shareholder's equity was at $272.5 million, down from $274.4 million at the end of the previous quarter. The number of employees were 1,292 at the end of 30th June.

With that I will hand it over to Barry to give you the description of the business.

Thanks, Inder.

With the key milestones of the corporate re-branding and the launch of Hummingbird Enterprise 5.0 behind us in Q3, our focus now turns to marketing our more competitive offering. There are two legs to this next phase of our plans: first, targeting our installed base to maximize the penetration of existing accounts; and secondly, improving Hummingbird's visibility and increasing awareness of our offering and value proposition.

There are two facets to our efforts to maximize penetration in existing accounts: encouraging users of the legacy open product line to migrate to the modern Web-based version, Hummingbird DM 5; and maximizing the number of modules of the Hummingbird Enterprise that are installed within each customer organization.

A significant portion of our maintenance revenue comes from customers who are still using two-tier open product. This installed base totals approximately one million users. Many of these customers are ripe for an upgrade as a large number of these systems have been in place for upwards of three years. The substantially updated and fully Web-based Hummingbird VM 5 and its companion products such as Hummingbird Collaboration, Hummingbird Portal, Hummingbird KM, and Hummingbird RM, represent a compelling reason to upgrade now.

Because a significant portion of our DM installed base is in the legal vertical, this is a significant focus of our migration marketing strategy. The following law firms have already committed to migrating to DM 5, , , , and .

We are particularly pleased also to announce that the leading New York-based law firm, Sullivan Cromwell, has already completed the successful migration at one of it's content libraries to DM 5.0. Also, Bank of America's legal department purchased a migration for over 400 seats of to VM 5 in an effort to reduce the cost of maintaining the across their geographically dispersed organization. During the past 12 months this customer has also purchased Hummingbird RM.

Our cross-selling strategy is also getting momentum. Telecom Italia, an existing customer, purchased 40,000 seats of DM and 50,000 seats of KM. Bank of America expanded its use of Hummingbird's products from document management in its legal department to include business intelligence in the securities department. And Intuit, an existing knowledge management customer, purchased Hummingbird DM 5 with workflow and imaging, to better manage its legal contracts. They turned to Hummingbird after two previous attempts to deploy DM systems from other vendors failed.

In addition to our efforts to leverage our existing customer base for new opportunities we now have an adequate foundation of products and positioning to introduce our value proposition to a wider following. A number of new marketing initiatives play to this objective.

We're about to release a significantly re-vamped Web site. This initiative has been under development for several months and is expected to significant improve customers' online experience with Hummingbird. As Webcast participants will see, the new site features a customized user experience that allows the user to tailor the content that is presented to them based on the selection of a .

We've also initiated a program featuring a series of Web seminars introducing our new brand and demonstrating Hummingbird Enterprise. This initiative began in June and has already been attended by over 150 prospects.

We have recently created a new field marketing organization reporting to sales, that will be responsible for validating leads and assuring that they are passed on the appropriate reps.

This will have two important benefits. First it will insure that sales resources are focused on deals that have the highest possible probability of success. And second, they will improve our ability to forecast future performance.

In addition to existing customer up-fitting to DM5, we see significant potential for winning new customers with the Hummingbird Enterprise offering. Pennsylvania State Police purchased over 1,500 seats of Hummingbird DM. Plus our workflow in imaging add-ons, to automate and improve the accuracy of various paper based processed.

EDS selected Hummingbird for this product of based on perceived of deployment. Australia based manufacturing concern, ACI packaging, made an initial purchase of 500 seats of Hummingbird DM plus the DM Workflow add-on in Q#. The solution will created essential repository to ensure the consistency and accuracy of various HR safety and audit documentation and allow corporate knowledge to be levered among manufacturing and process workers and professional staff.

It will eliminate the existing problems of unauthorized deletion of content, the presence of multiple versions of key documents and credit a process for auditing employee reading of safety policies and procedures. The DM repository will be fully integrated with Lotus Notes.

We booked 44 deals over a 100,000 during the quarter. For a total value of 10.9 million. I would like to provide some detail on a few of these. Della a manufacturer of highly specialized security papers for many of the worlds paper currencies, purchased an additional 350 sheet of Hummingbird Portal with Knowledge Management. To begin the role that of a pilot that was undertaken last year.

The ADC pilot was highly successful in created essentiallized knowledge repository where sales representatives from around the world could find the information they needed to prepare consistent, tender offers. Hummingbird Portal has been selected as their corporate standard and is expected to be extended to the remainder of the 4,000 seat enterprise as departmental demand dictates.

We expect purchase of a DM system to follow the role of that of a Knowledge Management Portal. Telecom Italia, a large user of our search server indexing engine, for both it's external website and Internet, followed up this quarter with a major commitment to Hummingbird Knowledge Management and Hummingbird Document Management.

Both components of this deal were very competitive. We won against and share points in the knowledge management side, and against , Sharepoint, Lotus Domino.Doc, and Open Text on the document management side.

A successful pre-existing deployment to Beeam & and the company, a good relationship of the primary system integrator. A strong presence in the European telecom industry, a reference from Deutch , and out of the box integration with the existing search server deployment were key to the win.

This deal makes Hummingbird the corporate standard in document and knowledge management; which for Telecom Italia. The Zurich based telecommunications company, Swisscom, is a new Hummingbird customer in Q3. They purchased Hummingbird Portal with Hummingbird Knowledge Management in an effort to gain control of a runaway Internet.

The 2000 seat sale is for a pilot in the IT and software development organization, which if successful, will ultimately be rolled out to the 20,000 person organization. In this deal, we'd be and (ph) for this business, winning on the quality of our proof of concept and local presence in Zurich.

We also continue to expand our penetration of Marquis account TXU. Following the successful deployment of 2000 seats of DM in the UK, we have now successfully displaced the departmental deployment of documents in the US. We were selected because of the dramatic improvements in Version 5 of our DM package, and our new 360 degree ViewVision. An out-of-the-box integration with their existing 15,000 seat Portal deployment.

Hummingbird is being elevated to a strategic supplier from preferred supplier and TXU is planning to create a Hummingbird center of excellence to showcase the value of this solution to employees to encourage expanded use.

In addition to these customer successes, we also accomplished two key technology licensing milestones in recent weeks that should further strengthen our competitive position. The first is an agreement to license the J2EE reference platform from Sun Microsystems. Several months ago we began the process of developing a J2EE compliant version of Hummingbird Core Services, the app server layer upon which all components of Hummingbird Enterprise will ultimately sit.

Licensing the reference platform will allow us to complete the final phase of this project. This will enable our products to be fully J2EE compliant and allow us to interoperate with major platform vendors, including BEA and IBM.

The second milestone was the licensing of Java-based workforce technology from Software. This technology will enable us to deliver better workflow functionality throughout all modules of Hummingbird Enterprise.

For deployments that require full production workflow, we will continue to leverage the technology and services of such successful partners as and .

At this point I'd like to turn it back to Fred.

Well, thank you.

I would like to conclude by emphasizing the following key points: The recent release of Hummingbird Enterprise 5.0, our product by far is positioned to be as competitive as any offering on the market today.

Second, the new release is proving to be a powerful catalyst for customers to upgrade. Our cross-selling strategy is working. Customers are coming back and buying more components of our solution. New prospects are responding very positively to the offering and our favorable placement in recent industry analyst research is helping to stimulate new interest.

We have instituted new processes and new systems around in the scrubbing and monitoring of the sales pipeline. While the overall environment remains very challenging, we are more comfortable that these changes, combined with the recent additions to the management team, substantially improve our ability to execute within each.

And now thank you for attention and we will now open the line for the questions, please.

Thank you. One moment please. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question please press the star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request and your questions will be polled in the other they are received.

If you would like to decline from the polling process, please press star followed by the two.

Please ensure you lift the handset if you are using a speakerphone before pressing any keys. One moment please for your first question.

Your first question comes from Scott at . Please go ahead.

Yes, thanks. Can you go a little bit into the geographical breakdown? It was a strong quarter in Europe, which is not very commonplace right now. Could you just talk about that and maybe segment it by region in Europe?

First of all, Europe was more or less in far what you would expect from Europe and probably the best two countries were close. It was Italy and England and after it France and Germany. Germany was still not doing what I was expecting but it's on the way right now with some changes.

Okay. The other thing was the hundred-K deals, the average size of them has picked up again this quarter. Is that, you know, a function of less new customers in at the low end or can you go into that a little?

No, it was a mix of new and old customers I think.

I think it was old customers and new customers for sure.

Yeah.

Yes, it was about how many deals for us?

44.

44 deals 10.9 ...

Right.

10.9 million, right.

No, I don't see any kind of differences what was before.

Yeah, and, Scott - and, Scott, in the last quarter they were just on a comparable basis, there were 47 deals at 11.5 million. So I think they're more or less ...

More or less on the same line.

OK. The campaign to target the mid-market customers, have you developed that to a point where you could talk about some of the initiatives?

From point of mid-size customers you talking?

Yeah, sort of the - not the largest customers but more the mid-size.

Oh, I think from my point what we're really doing, I mean, surely the bulk of mid-size companies what we're really getting. But we're a - and quite substantial companies if you take a look really what we're doing. One of the companies was .

I mean, Telecom Italia, when they purchased 40,000 of DM and 50,000 management. So it's the rest of who's taking in from 10,000 to 40-50,000 .

But there are customers what the - mid-size customer to 2000.

OK, just lastly before I pass it on, the - you had talked about on the 8th about a preliminary range in Q4 about 45 to 40 - 44 to 45 million in revenue and earnings of 25 to 27 cents. Do you still see that as being a comfortable target?

Yes, I think so.

OK, thanks very much.

Thank you.

Your next question comes from David , RBC Capital Markets.

Please go ahead.

Good evening, gentlemen.

Yes, David.

Just any words on forward guidance for us for the - for the year end?

I gave it. I think if you'll ...

We did give it, David.

Oh, I'm sorry. I ...

Yes, because he gave you guidance for quarter four between 44-45 on the top line and between 25-27 cents of adjusted ...

OK.

... EPS.

Apologize I didn't pick that up.

Can you elaborate on the two new regional directors that were added in the U.S. sales force, perhaps their background, where they came from and where they're being located?

They're located Midwest Texas and another is New York metro.

And these two guys, I mean, been around from .

Oh, both of them. OK. And any further details on progress with the new pricing bundling strategy on version 5? Is there really much of an update since the analyst day or is it just pretty much online?

I think the final price, lease only, we discussed today is finished completely. And probably if you can call to probably to India tomorrow - after tomorrow you can get all the stuff.

OK. And the, Barry, did you mention a time when you would be J2EE compliant? I think you said that was in the near term for the platform.

Well, we acquired the technology and we've been moving there. I think over the next year you'll probably see us be fully compliant.

OK. OK, thanks a lot, guys.

Thank you, David.

Your next question comes from Peter Capital.

Please go ahead.

Hi. Just wanted to ask a question specifically where are the signs of life and what are, just trying to get a little bit more color there? Also wanted to get a sense for in terms of the delayed deals, do you anticipate that they come in this coming quarter?

Can you repeat the first sentence? I didn't hear all of it.

Oh, sure. In terms of signs - fred: The last part I hear, but not the first part.

In terms of the signs of life you are seeing, where are you seeing -

I don't understand what's signs of life. I don't understand - unid: Well, in terms of the business activity. In terms of positive business activity.

Yes.

Where are you seeing the positive business activity; what do you think's the potential for that? You know, are we going to see a rebound. I'm trying to get a sense for that.

Rebound? In point of -

No, in point of Hummingbird's revenues.

But Hummingbird's revenues in direct coalition with economy.

Okay.

And economy is there. I mean not there - here. It's the problem is that I don't think so - it will be - 2003 will be not so good too from my standpoint.

Okay.

we covered in 2003. I mean we will do everything, whatever is necessary to do, but I think the economy's quite difficult. And probably you have to tell me really what do you think about economy?

I think that everybody's guessing right now.

Oh, ok. So that's my guess. I think maybe by end of 2003, beginning 2004, we will get more or less, good weather. But right now, I don't expect it.

Ok. And just a follow-up on the delayed deals, do you think they're going to close in the coming quarter or just -

Yes. Some deals will be closed in the fourth quarter for sure.

Ok.

And some deals will go in first and second quarter of 2003.

Thank you.

Thank you.

The next question comes from Paul Steep, Yorkton Securities. Please go ahead.

Hi gentlemen. Just to quickly follow-up on that question, have any of the delayed deals closed so far yet Fred; in that quarter?

Yes. Couple deals I'm sure we've closed already. (Inaudible).

Good. Excellent. Ok. If we move onto Hummingbird Enterprise, what are your thoughts around how many of your customer base are actually going to upgrade to Hummingbird Enterprise, maybe over, I guess, the next year? This time next year when we talk -

Next year are you talking or this year?

Next year. This time when we talk again, what's your hope in terms of getting people upgraded because -

Well Paul, what I've said already, what we're really going to go very aggressively at, is going to be trying to upgrade all of the old two tier DM customer base that we have. A million years. Try to upgrade as many as possible as we can to Hummingbird Enterprise.

We've already seen a great uptake. Virtually everybody that took part in the BETA program has committed already to moving to Hummingbird Enterprise and there's a number of deals that happened even this quarter already with all of the new products. Even though they only officially shipped at some point in the beginning of June.

Ok. Just to be clear on that, to make sure I've got it, the customers on two-tier right now, if I'm paying maintenance, is it a free upgrade and you're going to get the implementation service revenue if they decide they require assistance?

No.

No. If you're on two-tier, it's not a free upgrade.

That's what I though. Ok. So what does the - what does it actually look like in terms of potential for you? I know that there was some thoughts about a special program potentially to go get these customers to upgrade. Have you put anything together that's formalized we could talk about today?

(Inaudible). The programs are all going to be rolled out probably by the end of the summer towards the end of the fiscal year, for us.

Ok. Sounds good. Why don't we just move on quickly to the workflow product. Maybe you can tell us a little bit about the selection and how you came to selecting your new partner to work with -

It's not a partner. Actually he did a source acquisition. So we took a co-drop of the COET and we moved forward with it. However, we want royalty-free.

Ok. So that was actually the next part of the question.

It's now Hummingbird, I mean, they retained the rights to use their own software, but we have the right to diverge and move forward with the software. We actually went through a fairly lengthy, probably too lengthy process to choose workflow. There were a number of constraints that we had. We weren't looking for full production workflow. We have very competent partners for that, particularly and .

What we were looking for was more the ability to do process and ad hoc type workflow throughout our DM offering and within the portal and collaboration and be out as well touching everywhere. We were looking for 100 percent Java-based technology, which we found and we were lucky enough to find a technology, which was designed primarily to be an OEM-able product, which means it was designed to actually layer into other people's products.

So we're quite excited about the technology acquisition and hoping moving forward that over the next two quarters at least we'll start seeing something coming out of this for us in the workflow.

Okay. So you partially answered the next logical question, which is when, if I'm a customer and eager to buy this, when can I go buy it?

I mean, I would say two to three quarters moving out you're going to see something that you'll be able to buy.

Okay, and have you already sort of lined up a set of beta customers to test this?

Not months. Sorry, I said before two quarters. Up to somewhere between one and two quarters you're going to have something you can buy.

Okay, one to two quarters we're looking at sort of GA and presumably that means we're out likely right now testing it with some folks?

No. We've just recently acquired the technology. You're not going to see so much -- you're going to see added functionality in our products with this workflow. It is going to replace some of the add-ons we have currently today in the DM space. You're not going to see a standalone workflow product.

Okay.

We're not getting into the workflow business.

Okay. That's what I also wanted to make sure. That sounds great. I think that pretty much covers it for me. Thank you.

Okay, Bob.

Your next question comes from Scott Preston, Research Capital. Please go ahead.

Hi, guys. How are you doing?

Good, thank you.

A couple questions: One, can you just describe how the connectivity in host access business is still making sense, what the synergies still are as your strategy is starting to more and more focus on the enterprise business? And to date how many of these customers have you been successful in cross-selling, especially with the new Hummingbird Enterprise?

From point of connectivity business fault, it's connectivity business doing much and much more whatever jobs from point of sales. I mean, you know that this connectivity is in direct proportional to the economy like how many seats, how many laid-offs of the people I mean and so on, and this is mostly we have big installation in telecommunication companies, what right now you know with the process going on. But still I'm quite happy what this guy is bringing to the top line. I mean, last quarter they brought around 17.24, I think so, no?

Seventeen-point-four.

Yes, 17.4 I mean million US and I think it's a story you'd like to have more but I think it's quite okay in such situation what you have right now.

Now, are you asking what is really you'll be doing in the future with this division or what?

Yeah, I'm trying to figure out how, you know, it seems like your strategy is more and move moving to the enterprise business with Hummingbird Enterprise and the different applications around that. Where does the connectivity business fit in strategically and is it just a distraction? I know it adds sales but longer term they're going to be decreasing sales and decreasing profits and it's more of a commodity type business.

It's just that in this business nobody knows about it because it can be covered some sales and top lines when the economy will pick up, it's no doubt. I mean, I am not saying it will be increased tremendously sales of connectivity but still I was expecting whatever, you know, I'm really waiting for pick up economy. This is major - I really problem what you have right now in most connectivity site.

I think whatever connectivity will give me today like 72-74 million worldwide. I mean, probably it's less than last year but still it's quite, you know, respectable of the line, what is mostly legacy business.

Now if you ask me the connectivity people will be standing in the future Enterprise, I mean, business - our Enterprise software business, I can tell you honestly probably not.

OK.

... has to be absolutely different sales focus.

OK. So you don't plan to harass that huge install base?

No, we are - no, we're doing this. We approaching installed base of connectivity by people with selling Enterprise Information Management Systems.

OK.

Sure.

How many - how many of those deals have you closed?

Oh, my goodness, I mean, it's quite a bit o deals. I mean, we have - because you have Fortune 1000, yes, all the banks or whatever, and telecommunication companies, and so on.

Well, we're selling today - I mean, we're selling today Enterprise Enterprise software way it was before we sold, I mean, connectivity business.

It's also very hard to say because any time we sell into a Fortune 1000 company they all have our connectivity stuff.

Yeah.

Yeah, that's what I say, Fortune 1000 all connectivity business anyway. And we sell Enterprise software to those companies right now.

OK. Two more quick questions.

Yes.

What's the plans for the cash? What are you - what are your focuses there as an acquisition? And then could you just talk about the average number of products purchased in the last quarter? People are they, you know, on average purchasing DM and, you know, two or three different products, portal and DM or portal and knowledge management?

Certainly within Hummingbird Enterprise we're finding more and more that customers are purchasing more than one product. But I don't have an average - an average number for you that I can tell you over all the deals what was the average number of products. I just don't have that .

OK.

But he was asking another question what I understand.

On the - on the cash, what are the plans for the cash?

What we will do with the cash, this what you're asking?

Yeah.

Today probably we'll collect the cash, you know, mostly. But if it's going to be some opportunity to really to make interesting acquisition from point of increasing market share, for sure, we'll use cash.

Is there an area of focus that you guys are looking at?

I'm sorry?

Is there an area of focus?

Sure, we focus on Enterprise, you know - Enterprise software for sure. We looking on portal side, we're looking on DM side. We're looking for all the components what we're selling today. And if I have opportunity to increase, I mean, market share on one of the major components that'll do it.

OK. All right, thanks, guys.

Thank you.

Your next question comes from Howard Griffith Mcburney & Partners.

Please go ahead.

Yes, good afternoon, gentlemen.

Good afternoon.

Just a couple questions, DSO have sort of remained at fairly high levels for a number of quarters now. Just wondering what your plans are there and what you would view as sort of a target range?

, you're right absolutely, but I cannot be proud DSO. It's no doubt I think 100 or 102 days. Probably pretty soon what we're right now - and I'm really - this is probably number one priority right now or task for company. We have to put really very painful this from point of accepting purchase orders from the customer. And you know, it's not so easy, because today the people mostly fighting for every deal.

But, you know, and as soon as you're fighting for every deal, the customer asking for stretching, if they giving you purchase order they think, you know, they do you a bigger favor and they asking for stretching payments, you know, for 90 days or 65 or 70 days, or 121 days. So with this right now, honestly speaking, even right now as we're talking about these financial people, and the receivables, and sales people still be big meeting, still probably beat us on you do not accept even some purchase orders who is really more than 60 days of payments.

How much of the, of the 51 million in receivables is roughly greater than 120 days old?

It's probably ...

A percentage.

I would, it would be roughly I would say, I don't have the exact numbers in front of me, sorry, but it would be, I would say, 30 to 40 percent or so.

30 to 40 percent's high.

Over more than 120 days.

Right. I guess the implication of some of that is, you know, in this, in this environment a lot of companies just aren't going to make it, and, you know, the question is ...

Are we afraid that some companies are ...

... you know, how much of that might be at risk?

... if you're losing payments.

Well , as Amir also commented on this point, yes we do agree that the DSOs are higher, but, you know, on a positive note I think, I mean, another reason to study for the DSOs being higher is that it's a history which we have had with some of our customers. And originally five, six, seven years ago, when we had signed agreements with them, with some kind of a payment term, our experience has been pretty difficult to get them down to a lower rate.

And second thing is on the quality of these, of receivables, we have absolutely no doubt that most, if not all of these, would pay. I mean, I keep giving an example in our ten years or so. If we had sold off, so we're about a billion dollars of revenues over the period of time, what amount would be written off is in the region of only five, six or $7 million. So that gives me very great comfort on the quality of the receivables. We are trying to make as Fred just mentioned, every effort to bring these payment terms down from the customers.

Great. Do you have a target range you're shooting for?

We've always said that we want to bring it down between 80 and 90, if not less than that here. So ...

And I know there's a number of questions about cash. Are you planning to restart your share buyback?

I don't think so. I think with such volatile markets that it's really, I don't know if it'll happens tomorrow. Maybe, you know ...

You should know what's happens tomorrow, and honestly speaking, to buy back, I mean, you know, it's five percent during one year time, you have to spread. And not buy, I mean, it really didn't help a lot, honestly speaking. And our float is not so big one anyway, it's 18.5 million ...

Right. No it's more symbolic in its nature ...

Symbolic, you're right with, but this never ever happens in, at least in my experience it helps from point of of stock or whatever. in our side. Maybe some companies really helping, but even some companies where they saw it is, I didn't see really a big increase of share price or whatever.

Right. OK.

So really it's not in focus to go right now and announce such an open market shares or buyback shares, no.

Okay. How many quota-carrying sales reps did you have at the end of the quarter?

Two-forty, two-forty-two.

Okay. And just finally is there any guidance you're providing on the next fiscal year, '03?

For next year fiscal?

Yeah.

No, I don't think so. Probably it will be somewhere happy to answer on this question when I've finished this fiscal year.

Okay.

But maybe I will have some more clear idea. I'm surprised if I don't have it but I will try my best really.

Great. Thanks very much.

Thank you.

We have a follow-up question from Paul , Securities. Please go ahead.

Hi, guys. Just one question. Inder, on the allowance for doubtful accounts, there's been no change to that over the past few quarters?

There's been a very small change. There has been a change there, but nothing very material.

Okay. Roughly what's the allowance sitting at these days?

You've got me there. I don't have the exact number, Paul. I'll have to take a look at that.

That's okay. We can pick that up later.

Really I don't mind.

And then the other follow-up was just around maintenance for either Fred or Barry. In terms of customers, are you seeing any pushback or experiencing any pushback from customers that have maybe gone through layoffs or other downsizing exercises where they're saying to you, "Listen, we're not using as many licenses" or "we're wanting to pay a little less for maintenance"? What are you seeing on that front?

No, we don't see it at all. We actually don't see it honestly.

Okay. Great. Thanks, guys.

Thank you.

Your next question comes from David , BMO Nesbit Burns. Please go ahead.

Thanks very much. Good evening.

Hi.

Hi.

I've been on multiple calls here, so I hope I don't ask questions that were already asked. On the connectivity business, obviously you can't control the cash flow or the revenues there because of the difficulty in the economy. I know it's a bit of a cash cow business for you. Is there further opportunity to make it a fatter cow? Are there cost savings that you could put in there so that even if the revenues aren't as strong as you had hoped it will contribute even more to the bottom line?

I don't think so, Dave.

No. It's a pretty efficient business?

Yes, absolutely.

Yeah. Okay and the other thing, just a twist on the maintenance question, your deferred sales revenue is growing but should we be expecting it to grow faster so maybe another way to ask that question is, is there a push to go back to customers to get them to sign up for maintenance that they haven't already signed up for or any specific programs there to build your maintenance?

I think usually when we really sign the deals, I mean usually we sign the maintenance for sure. In maintenance we're talking about from 15 to 18 percent on enterprise information management system side.

Right.

Now, so I don't really see the customers, real customers who doesn't have maintenance with us. I mean, we never really ever have such case as a customer suddenly saying, "You know, guys, we don't need maintenance anymore." I mean, maybe we saw maybe a couple cases but it's not rule of thumb idea, you know. Yes, maintenance is quite okay, I think so.

Okay, so there's no particular opportunity of a customer set that hasn't been paying maintenance but want the new products and therefore would sign up to get some portion of the new enterprise products?

No no, they're for example, really. The customer for example who has for example and so and in Dublin management side, and products, and they will be upgrading for -- for example docs 5.0, 5.0 ...

Yes.

guys probably who has a maintenance we were operating for free. But if you go from, you know -- from docs open, I mean, to the three-tier, I mean 5.0 ...

Right.

challenge for sure, and this is bulk of customer on which you affect.

OK, thanks very much.

Thank you, .

We have a follow up question from , . Please go ahead.

Thanks. Just on the vertical markets, if you could go into what were the strongest for the quarter, and then maybe a specific discussion about the outlook for the government part of the business, heading into their year end. Thanks.

The government business, government business, it's OK. No problem -- not big problems with government business. You know, the government right now is spending money, and mostly they spending money on document management sites and collaboration and record management.

From point of -- in other verticals, I mean, legal vertical is OK, too. Right now we talking about vertical, who is doing not so bad too and we see some prospects very interesting. So this is mostly three verticals where we're really pushing right now, it's manufacturing, legal, and government.

OK, thanks very much.

Thank you.

Ladies and gentlemen, if there are any additional questions at this time, please press the star, followed by the one. As a reminder, if you are using a speaker phone, please lift the hand set before pressing any keys.

Sir, there are no further questions at this time. Please proceed.

OK, so anyway, I would like to thank everybody for the time. And I wish you the best and probably you talk to each other by end of fourth quarter and I hope it will be probably more successful than previous. Thank you very much again. All the best. Bye.

Ladies and gentlemen, this concludes the conference call for today. We thank you for participating and ask that you please disconnect your lines.