Open Text Corp (OTEX) 2002 Q4 法說會逐字稿

Ladies and gentlemen thank you for standing by, your conference call will begin shortly. Again thank you for standing by, your conference call will begin shortly.

Good afternoon ladies and gentlemen, thank you for standing by. Welcome to the Hummingbird Ltd fourth quarter 2002 fiscal 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, or requires assistance from an operator, please press the star key followed by zero at any time.

I would like to advise everyone that this conference call is being recorded for replay purposes. And would now like to turn the conference over to Mr. Fred Sorkin, Chairman and CEO of Hummingbird Ltd. Please go ahead sir.

Thank you.

Good evening ladies and gentlemen, and thank you for joining us on our fourth quarter fiscal 2002 year and conference call.

I'm quite happy with our performance in what has been another tough year for software industry. Once again Hummingbird has proved that it is first and foremost company based on fundamentals.

Our ability to produce 81 cents for the quarter, and $1.14 for the year is a reflection not only on our commitment to properly manage the company, but also on our ability to properly manage the company. for Hummingbird employees in our ability to control course is reflected in our numbers.

I am also happy to state that the fiscal 2002, having worked has expanded its management team to level which exceed any time in our history. New additions made to management in sales and marketing world wide as resulted in an management team with maturity and experience.

I believe that we have already started to see benefits from the new management teams and that we will continue to enjoy advantages and progress so this team will be forward.

Fiscal 2002 also saw the list of Hummingbird enterprise 5.0. This offering presents a most comprehensive enterprise information management suit on the market today.

Our ability is to deliver modern solution based on our technology is the strategy on which we embarked over the three years ago. Inder Duggal provided a review of our financial results and Barry Litwin will provide more details regarding how I'm going in .

Thank you Fred good evening ladies and gentlemen. Some of our comments are forward looking statements, which involve risk and uncertainties. Actual results will differ materially as a consequence of a number of factors including changes and market and competition second and competitive development and potential down trends in economics and generally.

Additional information on these and other potential factors that could affect the companies financial result are included in documents filed with commission and with the change commission.

Also please look at the press release for a complete statement. We have reported our financial results in U.S. dollars and in accordance with U.S. . These are audited to result some of the numbers exclude the factor of certain items, which are defined.

I would first start with the highlights that summarize the result of the current quarter and fiscal year after which I will discuss the detailed results of our operation and for the fourth quarter were 46.2 million up five percent from 44 million in previous quarter both enterprise solutions and connectivity sales were up by more than a million dollars each compared to the third quarter.

revenues went up a healthy 2.1 million from the third quarter these comprise 53 percent of all sales in Q four '02 and up from 51 percent in the previous quarter.

Product revenue increased were both connectivity and Humming price enterprise product families from the third quarter of the current fiscal year.

Expenses were up in the fourth quarter normally by less than one percent over the previous quarters.

Adjusted net income in the fourth quarter increased to 5.6 million up 15 percent from the third quarter and for the quarter ended September 30th 2001. As a percentage of sales adjusted net income improved to 12.2 percent for the quarter up from 10.9 percent in the third quarter and 10.1 percent for the quarter ended 30th September 2001.

For the year adjusted net income was higher at 21.1 million up by two percent compared to 20.7 million in the prior year. Adjusted diluted earnings per share was dollar 14 up from dollar 11 for the previous years. In spite of the drop in revenues in the current year the adjusted net income as a percentage of sales improved to 11.7 percent compared to 9.9 percent in the last year.

Cash and cash equal and short-term investments increased by 5.6 million in the quarter and 26.2 million for the year. Results of the detail of operations now as mentioned earlier sales for the current quarter were 46.2 million up five percent over the previous quarter and down by five percent from 48.9 million from the same quarter last year. Sales from connectivity were 18.5 million compared to 17.4 million in the prior quarter and 20.4 million in the Q4 of prior year.

Revenues from Hummingbrid Enterprise solutions were 27.7 million compared to 26.6 million in the preceding quarter and 28.5 million in the same quarter of last year. As previously stated adjusted net income which is clued the amortization of intangibles and previously unrecognized in merson tax credit recorded in the second quarter, both net of taxes as well as the effect of income taxes rate change on to the tax is balances was 5.6 million for the quarter compared to 4.8 million in the third quarter of the current year and 4.9 million in the fourth quarter of the previous year.

Adjusted value to EPS based on adjusted net income was 31 cents up from 26 cents in the preceding quarter and 27 cents in the fourth quarter of the last fiscal year. The current adjusted value at EPS is based on diluted rated average number of shares of 18.3 million compared to 18.5 million shares in the third quarter and 18.3 million in the fourth quarter of the previous year.

The geographical break down of the sales were in the Q4, America's 32.2 million which is 66 percent, Europe is 14 million is the 28.6 percent and the rest of the world is 2.7 million which is 5.5 million sorry 5.5 percent. This was the figure that had just narrated word for fiscal 2001 debts just to give you a comparison numbers for 2000 - for the last year.

For fiscal 2002 the North American numbers were 29.1 million with the 63 percent, Europe was 14.1 million which is 30.5 percent and rests of world was three million which was 6.5 percent.

In the current quarter and the gross margins were 91.1 percent of the sales compared to 90.6 percent in the same quarter of the last year. The sales in marketing expenses were 19.7 million which were 42.7 percent of the sales down from 21.2 million from the fourth quarter of last year and slightly down as a percentage of sales from 43.3 percent of the sale.

Although slightly up from 19.6 million in the third quarter of the current fiscal year, these were down from 44.5 percent of the sales. The RND expenses were slightly up from the previous quarter, these were at 19.1 percent of sales compared to 19.4 percent in the fourth quarter of the previous year and 19.5 percent in the third quarter of this year.

GNA expenses were slightly lower then that in the previous quarter as a percentage of sales these were 10.6 percent of sales compared to 11.5 percent in the fourth quarter of the last year and 11.3 percent in the third quarter of this year. The total operating expenses excluding extraordinary charges which are amortization of intangibles and in process or indeed expense only in Q4 of fiscal 2001 were 33.4 million which were 72.4 percent of sales which were down compared to 36.2 million which were 74.2 percent of sales in the fourth quarter of last year and slightly up from 33.2 million which is 75.3 percent of sales in the third quarter of this year. Amortization and write-off of intangibles of 7.4 million, slightly lower than in the fourth quarter of the previous year, and in the third quarter of the current year. These are on account of the various acquisitions made by the company.

The other income consists primarily of net interest income. Interest tax expense was 1.9 million this quarter. At the present time and including in the fourth quarter the operations tax rate approximately at 38.5 percent for the purposes of adjusted net income, and adjusted diluted .

Overall the company reported a net loss of $49,000 and basic and diluted loss per share of zero cent for the quarter, compared to net loss of 3.1 million and basic and diluted loss per share of 17 cent per share for the fourth quarter of the previous year.

For the year, the sales were lowered by 13.3 percent from 208 million last year to 180.4 million in the year ended 30 September 2002. There was a net loss of 2.9 million in the current fiscal year, compared to net income of 3.7 million for the fiscal 2001. This is largely due to the restructuring which we took in this year.

The adjusted diluted number of shares in the fiscal year were 18.4 million, in comparison to 18.7 million shares for the prior year.

The cash flows provided by the operations in - is 7.4 million this quarter, compared to 12.5 million last quarter, and 8.4 million in the fourth quarter of the previous year. For the year the cash flows provided from the operations were 29.6 million.

The balance sheet.

The total assets were 349.6 million, down from 355.2 million as of the end of the third quarter of the current year, and down from 361.9 million at the end of the last year. Total assets have gone down from due to amortization of intangibles and lower account receivables.

Cash and cash and short-term investments were at 119.7 million, up from 114.1 million at the end of third quarter of the current year, and 93.5 million at the end of September 2001.

Accounts receivable were 52.9 million, up from 51.5 million at the end of third quarter, and down from 61.5 million at the end of last quarter. based on trailing fourth quarters were 107 days, compared to 102 days in the previous quarter.

The fixed assets were at $12 million, slightly up from 11.9 million in the previous quarter. The intangibles have gone down this quarter due to amortization during the quarter. Deferred revenue was at 41.8 million, almost the same at the end of the previous quarter. The shareholders was at 272.5 million, the same as at the end of the previous quarter.

The number of employees at the end of the quarter were 1,317.

One of the important things, which we did last year, was implementation at the back-end. Hummingbird North America and one of it's major European subsidiaries went live on during the first quarter of October this year. This marks the completion of a major step in Hummingbirds enterprise wide deployment of . The deployment was on schedule, and the rollover has gone very smoothly. We expect to realize the following benefits from the deployment during fiscal 2003.

After we have successfully rolled out SEP to all the countries in which we operate Hummingbird will have a single depositary of financial information. This will allow users more accurate information on a timely basis speeding up certain sources and increasing the ability to make better decisions in a timely manner.

This will allow for easier more rigid and more accurate consolidation of worldwide financial results. The system will require the formalization of certain procedures, driving the institution of standardized best practices, tightening of internal controls and of audit trails in a variety of activities.

Standardized best practices will result in better security and more consistent cost control. A major consulting firm has been engaged to review and monitor the SEP implementation with a special emphasis on data conversion and security.

We are hopeful that some of these activities will help bring about more positive operation. Barry will give you an idea of deals for more than 100,000 later on. To summarize very briefly I would just reiterate some of ready features once again in very brief.

Improved results in Q4 for both product families licenses as well as in total had justed net income went up as a percentage of sales over the previous quarter and over the fourth quarter in the last year. Other years the adjusted net income was up from previous years by three cents. It also went up as a percentage of sales.

Cash was up in the quarter as well a year over year. With that I'll hand it over to Barry.

Thanks Inder. Good evening ladies and gentlemen. This was a quarter totally focused on execution. All the departments within Hummingbird were totally devoted to ensuring the success of Hummingbird Enterprise.

All of our energies tunneled in on making sure that nothing impeded our strategic goals. I'm happy to say that well over 100 customers are either evaluating or piloting or in the process of migrating to Hummingbird Enterprise.

A large percent of these customers are looking at multiple products within the Hummingbird Enterprise suite. To give you a little more information on customer migration to Hummingbird Enterprise I'd like to present some figures on customer either platting a migration or undergoing a migration broken down by geography.

The C counts present a potential based on the early pilot numbers. Australia 18 customers representing roughly 7300 seats. In the U. S. 66 customers representing 38,000 seats. In Canada 24 customers representing 14,700 seats. In the MEA 27 customers representing 18,000 seats and in the U. K. 32 customers representing 12,000 seats.

In total this is roughly 167 customers for a total of about 90,000 seats. We continue to attract new customers based on our ability to deliver solutions which Spam multiple product boundaries. It seems that everyone today is focused on a total lower cost of ownership and from a technology view point a much tighter integration of functionality.

We believe now more than ever the Hummingbird Enterprise gives us a competitive advantage in better satisfying both the total cost of ownership and the functional synergy issues.

Looking forward preparations for our next summits are well under way. Scheduled for February the 23rd through 26th 2003 the theme of the event is achieve the possible. Reflecting our aim to validate the execution of the product and marketing strategy introduced at summer 2002.

As I just mentioned in today's highly competitive market place, there is increasing pressure for CEO's CFO's CIO's line of business Managers as well as IT Administrators to carefully consider the return on investment for IT purchases governing information and knowledge asset management.

Our conference will address this business priority by demonstrating the ROI of Hummingbird's solutions and present many case studies of actual implementations. As is traditional with our conference calls, I'll now give some information on our deals over a 100K.

This quarter there was 60 deals over a 100K totaling $12 million 763,000. Some of the customers in this list included State Bar of California TXU Australia U.S. General Accounting Office Allan and Intel Credit Suisse First Boston and IBM. Thank you, I'll now turn it back to Fred for some closing remarks.

Thank you Graham.

In closing I'd like to say is that the company's first quarter performance give us cause to be culturally optimistic about our prospects for the next fiscal year. Interest in our new Hummingbird Enterprise Suite continues to grow, pour some more new prospects in our significant install base. Significant enhancement to our management team during the past nine-month's makes the company better position then ever to leverages available technology assets.

As we announced with our October press release the 75 new sale stock buy back plan, the plan cost offer potentially purchasing of up to one million shares over the next 12 months, we've have taken this action because we believe having good shares are fundamentally under valuate in relations to their peer growth and giving the company the performance.

And probably by this really is my closing and right now time for the questions.

Thank you.

Ladies and Gentlemen we will now conduct the question and answer session. If you have a question please press the star key followed by the one on your touch tone phone.

You will hear a three tone prompt acknowledging your request. Your questions will be pulled in the order they are received. If you would like decline from the pulling process, please press the star key followed by the two.

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

The first question comes from Scott from , please go ahead with your question.

All right thanks.

Just a connectivity business was obviously very strong again this quarter not the first subsequential growth in the year, I mean the economy still, still not that great and job growth still troubled, I mean can you give a little bit more color about the source of the strength there?

So what's the question? Hello?

: Yes the connectivity business any more color about why it was strong in the quarter?

I think it's the activity business was mostly you know a little bit stronger then previous quarters but it's not that really special from my stand point. Still it's from the best connectivity was a couple of years ago even last year it's a big difference still. I mean but again I mean it's I don't think so it really was outstanding result for connectivity, it was more or less it's normal results I mean a little bit better then previous quarters.

: OK. The accounts receivable in the quarter I guess DSO Inder you, last quarter you mentioned that you know 30 to 40 percent of the receivables were over 120 days can you sort of up date that.

In the same range as this point of time. Almost the same range.

: OK and you still don't have any concerns over collectability.

No I don't we don't I mean other wise you would have seen that in the annual results some where so I don't have any concerns what so ever.

: OK.

Again I maybe repeating myself as I have said most of our customers own most of our sales are to 14 companies and our experience in collecting the funds have been fairly good over the period of time. In spite of the economic down trends don't think we have any or we have seen any threats were we would be varily concerned about not collecting a certain amount of money. It may have in one or two stray cases where we may not been able to collect the money but over all there is no concerns at all.

: OK thanks your European business again seem to be varily strong for a September quarter can you talk about how I guess you see Europe in general right now and I guess the strength of the pipe line over there.

duggal (?): I think European you are right what the was not so bad this quarter and probably the best the country is England and Italy and off state is France and Germany. I think from my stand point is good results on the future and I think from management stand point would be up grade and from point of some what I did you were up I think it has really improved absolutely.

: OK I guess lastly Barry thanks very much for the seat up date unfortunately I think I missed the numbers.

Give me one second here 27 at 18,000 seats.

: Super thanks very much.

Our next question comes from Mr. from please go ahead with your question.

Hi gentlemen Fred maybe you can give an up date since you guys closed a strong quarter here as to how you are feeling about guidance and what you are looking forward is you said you were a little more any thoughts around numbers.

You know I mean usually when you make not so bad quarter really successful quarter usually you are quiet but at the same time honestly speaking not so much it changes some around environment. I don't think so if we have something that changes it was very difficult environment from point of sales but if you ask me about next quarter I mean first quarter next year probably I will say probably the usual has to go down about seven eight percent maybe it will be between 42 44 I would be very but really cautious and probably from bottom line I think so we will be in the position to have been probably between 21 26 cents.

OK and then maybe just sorry.

A little for all year all year will probably will deliver around 190,000 a million dollars top line and probably around a dollar 25 for bottom line. The point is I think: I will give you some picture. That enterprise management sees grow, there's no doubt this is our future, and our division will really produce figures right now.

And this division probably will grow at least on the not less than 10 percent what I expect, you know, from licensing to maintenance and so on . But I'd like to keep at least flat like this year, and I will be happy to keep it because again I mean this is machine.

And I think probably in 2003 we can really be quite optimistic about to keep the same numbers on side, maybe couple of millions down, but it's not more. This is what I expect.

But this is division of enterprise management systems, this will go up at least 10 percent what I expect, if conditions of economics will not change. Because all really gain probably till 2004.

OK.

Did I answer all of your questions?

That's perfect.

The last one I'd have for you, and I'll pop off will be just talk a little bit about maybe some of the success you had, if there was some in terms of moving some of those deals that we talked about on the last call being delayed, and you were saying they're going to move into Q4 and potentially Q1. Did we see the bulk of those deals come to fruition? Or - and ...

No I think from my standpoint was delay deals from quarter three. They probably will be in quarter one, quarter two, its not I mean, right away there will be delivery.

For example, there are companies - I can give you examples talking let's just say, not less than six months they signed professional services for quite substantial amount of money. But delivery of products, they for example will do it somewhere during quarter one, in November.

So it's still people going for the and you know, and testings and everything. And even what I saw really trend, like people buying services before and after a product.

OK.

So I don't think so. It was really was delayed on quarter three was really was in quarter four. I think it will be in quarter one, quarter two for sure.

Great. Thanks a lot guys.

Thank you.

The next question comes from from UBS Warburg. Please go ahead with your question.

Great. Thank you very much.

Inder can you give us a bit of a breakdown between the licenses and the maintenance and service revenue streams?

Yes.

: For the two product lines, for connectivity and enterprise? Just maybe ballpark figures.

Well we normally don't break that down, but let me give you some idea of that, . Give me a second .

The product - altogether is - product was 24.4 million in Q4, which is about 53 percent for the total revenues, 19.5 for the maintenance - sorry, it's about 21.8 million for maintenance and services together, which is 47.2 percent.

And as far as connectivity and and - connectivity and enterprise solutions are concerned the product in connectivity, as we had mentioned to you it was roughly in the range of 60 to 65 percent on the product side. Whereas on the product side on the enterprise solutions is about 45 to 50 percent of total.

: OK. Great. Thanks. My next question is for Barry are all the seats that you talked about in each of the different regions I'm assuming all these are for Enterprise products. What specific products has been strong? Is there any one or two products that you can characterize as being strong?

You know typically we're it hasn't changed in this much. We're always stronger on the unstructured side then we are in structured so certainly in most of those pilots because I can, the ones that I mentioned are actually migrating. It's mostly moving from DM and some people from earlier versions of the Portals new aversions as well.

But there's also people there that are actually taking more additional products so some of these seats have for instance RM in the mix where they didn't have it before some KM and things of that and as I mentioned VIP.

: And all of these seats are for deals that have been purchased already so I'm assuming all these sales have been recognized and.

No some of these potential numbers based on projection that there talking about and some are based on the pilot seats that they've actually purchased but what those numbers were all more to show migration patterns. But there all customers, there all, there were all, everything that I mentioned on that list was an existing customer already that was migrating to something new in this suite.

: OK I see. Can you just charities the comparative situation a little bit?

I don't think there's been any change at all over the quarter. Seeing the same people we have for the last six to nine months at least.

: OK thank you very much.

We now have a question from Mr. David Beck from RBC Capital Markets. Please go ahead with you question.

Good evening gentlemen. Good quarter. I was just, very merely I'll just back on the same theme. It seems like that, that, that customer base your actually engaged with that seems like a relatively small percentage of the available customer base.

Would that be, would it be fair to characterize the impact of the Hummingbird Enterprise on this quarter as being relatively moodiest and I mean still your probably the I guess the first 25 percent of the roll out of this in terms of addressing the customer or even less than that?

I don't even think we're necessarily there yet David I mean you know the product was recently just released. It's taken time to get out there. Some people actually kick the tyres themselves before they move to a pilot phase. So I think we've got lots and lots of up side in the customer base than we haven't seen yet.

And we've got some aggressive plans that we're putting in place actually starting with the beginning of this quarter for actually migrating customers off of some of the older products onto the newer.

Is there a way of measure that in terms of your internal services team? They've am I'm assuming everybody's been trained on the new product.

Correct.

OK, OK. Leave me just a couple, I missed as well as earlier just the U. K. roll out numbers that you had in the totals. You just kind of ran, ran them off pretty quickly there.

Everybody missed one century.

You'll end up doing 'em all before the evening call.

Yes U. K. was 32 customers at 12K seats.

OK and the total.

The total in all. 167 at about 90,000.

167 at 90,000. Thanks.

The next question comes from Howard from GMP. Please go ahead with your question.

Actually it's more a for Howard . Congratulations on a good quarter guys.

Thank you.

: Just a house keep, you keep an eye in you're, how many sales reps did you have at the end of the quarter?

We had 223.

: Right, 223 OK. Just to add to Scot's previous question on DSOs and you're, you previously mentioned that your target DSO range would be 80 to 90 days.

Less.

: What plans do you have in place to actually bring that DSO level down to those levels?

Well two fold one is you know I compare it to last one year or year and a half most of you have seen. We have come down pretty hard and not accepting any deals which have a payment down which use to happen very frequently. For those deals are coming down as we go along and are they disappearing? No they are not disappearing but we're coming down on that.

And second is that all throughout we've in shaded a program for executive collection of funds as well and as we go along I'm still confident that we would be able to get to those numbers which we have mentioned previously.

And I think it's straight it's not so easy guys really to change I will say culture of some sales people who are really getting the revenue and you know for them it's important like for company and sometimes they stretching come in stable terms.

Right now we will probably issue internal document for the company but it will be proportional to the probably to commission if the are. I mean we're really taking this very serious and we'll be some measurement I mean put it soon in place in company we will start to put a lot of discipline on such things.

: OK. Last one for you maybe Fred. With regards to your normal course I sure bet that you announced what's changed in your view about these levels your shares aren't valued at opposed to them being under valued last year?

Again can you repeat it?

: No just with regards to your normal course?

Yes.

: What's changed in your view with regards to shares being under valued currently?

Oh. OK.

: As oppose to them being under valued last year?

First of all from my stand point I mean you know you measure company's health when the middle company is I think we from day number one we was very profitable company. It was a little bit unlucky then when we really introduced enterprise management solution suite of what it's call to day by Governor Group I mean enterprise smart suite.

Right away introducing the middle of recession what it really slowed down I mean purchasing slowed down I mean acceptance and so on. I mean from my stand point I think it's what we brought to date what company taking every year I mean $25 - $27 million to the bank, I mean it's not so bad but company earning from the mental stand point and from my stand point I mean the peers of people who isn't really in the same business get much better I mean evaluation of companies then we are.

So I think it's two reasons for it, first of all it's corporation states the way we're suffering and the last many reasons why this offering why we don't get special extent corporation states but I think this will be fixed I think as soon as really with our performance and what we are increasing and I think as soon as next year we will show the figures from the 90's and after 2004 probably when we will be more and we are big believers in what our products is today even Gardner Group didn't expect what we really delivery and right now they called the staff like you know a enterprise market what we really develop from day number one when we start a couple of years ago.

So everything I think from my stand point give me really some indications that companies shares or companies equities has to be probably more then we have today and this is why I start to purchase is probably after a couple of days after 48 hours after this announcement. So this is real reason is why I am doing and honestly speaking we will seriously repurchasing the stock and you know with such kind of price I don't think so it is really fair for us not to buy back from the market.

: Actually one more question for Fred and Barry with the decide you buy back what other plans do you have to use you cash.

Except buy back probably for some acquisitions from acquisitions plus you know still if you like to acquire good guys or from guide it is not enough cash because what we have around 120 is not such amount what you can acquire real tedious people so it's probably due to some technology maybe we'll acquire small one companies down 15 in this range from what I understand from what some pieces what we need really to accomplish this enterprise suit.

You know we lost technology to pages or what ever we have to have a soft spot everything in sight. So this is what you spend some cash and I think if you will buy back from the market around a million shares I don't know what you will be doing this time but you will be spending some money plus I think it is you'll for sure some small additional of companies around probably 10 15 20 million maximum.

: OK that's great thanks guys.

Acknowledge the positions to grow yearly for serious acquisitions companies because equity not on the same level I am not really positioned to dilute my share holders and this is way cash will be lost.

: OK thanks.

Thank you.

The next question comes from from Research Capital please go ahead with your question.

Hi good evening guys.

Good evening.

Two quick questions first Inder what was the what's been the maintenance renewal on the enterprise what was that in the last quarter and what that has been running at.

In approximately as a percentage it is almost the same obviously with the license revenue going up this quarter as a percentage of sales but in dollar value it's been almost the same.

What's been the renewal rate though for the enterprise.

We've been doing some in house research it's 90 percent plus sort of the same.

90 percent OK.

Yes.

And then Barry maybe just for you just looking forward you know kind of what's the this is coming closer to beat. What do you think that is going to do as far as your advantages with and total cost of ownership and been provided and all the separate products that would kind of demonish that value how are you guys going to position yourself for that.

First of all we have to see it happen which you know I have lived through many times already and I have heard this about and about a punch of other things. I am a big boy even in were part of a consortion and we are actively taken part in it and I think it is going to be good for everybody if they actually do take off but you know you got to remember this stuff is still all programmatic it's not just something that you point the systems at each other and then it magically works so I think it is going to make it a little bit easier for us to enter phase two systems outside of our influence if you will but I still don't think it is necessarily going to enable the ability to have the typely components as we do necessarily.

OK right thanks a lot guys.

We now have a question from from please go ahead with your question.

Thanks very much what percent of you sales comes through channel partners.

From channel partners?

Yeah. So resellers, and ...

I think it's around probably 20, 22 percent.

OK. And has that changed much over the past several quarters?

I think it's not changed over the past several quarters. What really was done, we really minimized partners and left the partners really selling for us. Because it was a lot of partners who did nothing.

OK.

Previously, and right now it's more clean environment, and the partners really doing the job of the education program.

Is there further opportunity there to expand that group? Or have you just sort of cleaned it up so you have it where you want?

. absolutely.

But right now it's more seriously we are, you know, working as partners. And there's verticals mostly. And they bring the partners who really can execute the tasks for sure.

Is there any update you could give us from the front?

From what - from ?

Yeah, from . In terms of your partnership. And I know you were working on marketing plans with them.

No. But you know, with - right now in big troubles, I think so.

Right.

So we really not based our really - revenues or whatever on . I mean, we have - I mean, during marketing programs we, you know, we in their I mean, exhibitions or their seminars, they in ours.

Yeah.

And I think probably during maybe third quarter, fourth quarter 2003 we see really results.

OK.

And Barry, those numbers that you gave on the customer profile, I think I got the countries. But are those customers to any particular industries? I would assume there's a heavy proportion that's in the legal community, but is it actually ...

No. Actually it's just - no. I don't think it is David.

I think it's just . That's just looking across all of our installed customer base on the enterprise suite side, not on the connectivity side. And migrating to the newer versions. It's not towards legal at all.

Oh great. OK.

What was the largest deal in the quarter, perhaps a couple of large deals? And could you talk about maybe some of the success there?

I think there was - there was a couple of ...

was ...

I mean there was deals over $1 million. You're looking for dollar values David?

Yeah, or to talk about the use, you know, whatever success were to multiple products going in? I just want - I'm leading up to kind of what's the potential in the next couple of quarters to hear about, you know, fairly large deals, multimillion dollar deals.

Well I think you'll find that even from the list I gave you, a lot of times there's customers that are buying large deployments which are buying more. For instance is on the list again ...

Yeah.

This quarter it was , where again they're putting in under the portal with as well. So - and there is revenue also for instance this quarter that I didn't mention, and I don't think is on the list again also.

Right.

So I think that we're seeing repeat business and a lot of the customers who had previously been on the bigger than 100K, but certainly some of these I mentioned were a lot higher than that. But we're actually getting repeat business because they're putting in other sites.

So I think moving forward the plan again of having to see customers buying into more products than they do initially, and then again buying yet additional for other sites, I think you're going to see that as working David.

OK. Good.

And you had put a new pricing strategy in place a few months ago, are you seeing direct evidence of that? Or is it just easier for you to price deals?

No I think it's easier.

It's easier for us to price deals, certainly.

And for the customers.

Sure.

Yeah. OK.

And lastly Inder, the deferred revenue didn't grow quarter to quarter, and I thought that it'd be up at least some amount. Is there anything we should read into that?

No. Nothing really David. It all depends in terms of how the revenues sort of pan out sometimes when you get the revenues they are not only for one year they may be for two or three years.

Yes.

So it's a very complicated sort of to say that definitely revenues will go up. But normally speaking yes they are but trying to quarter over quarter for last four or five quarters they've been going up. Yes.

Yes. OK great and good quarter. Thanks.

Thank you David.

The next question comes from Peter from Capital. Please go ahead with your question.

Good evening gentlemen. Just two quick questions it's tough coming on the late on the call. Wanted to know about other than the legal vertical where your guys are seeing some strength and then secondly some other discussion with that your technology is really improving. What do you thinks the key ingredient now for us to see some really good sales momentum? Thanks.

First of all from point of vertical except legal vertical expect in what you call in utilities and secondly right now we really take serious the medi-care. This is probably two extra verticals what you are right now really approach quite seriously and some sales.

This was probably what I can really tell you right now is the new ones. We really looking for and medi-care. I mean it's possible it's coming some verticals in retailer sales I mean based on the experience of 711 and it's going to approached in other companies with retailer I mean chain like 711.

This is right now working too. So this is mostly what I right now table this is what vertical approach. Second what's your question?

: In terms of our discussions with industry there saying that your technologies improving.

Yes correct.

: But wondering what you know what's missing for us to see the good sales acceleration?

Oh I can tell you what. Its economy if you can change that'll follow you right away.

: So it's really just a mackerel call on the sales part your not seeing delays your not seeing pricing pressure, your not seeing customers really.

Right now you know right now is the product is absolutely top product. All lines starting from Portal to collaboration so that means KM management DM business intelligence.

All this suite is absolutely top products and I think from my stand point what I discuss is customer recently came from London to talk to some customers. And yesterday I only was in Toronto on some customer's council society who purchased recently 2000 seats of VIP collaboration and DM.

Everybody absolutely A one marks give us for the product. So I think from my standpoint right now no real excuses expect in economy. If you change economy I'm telling you you'll be flying.

: Thank you.

Thank you. Thank you, yeah Peter since you have joined the call late Fred had mentioned in the beginning in terms of the guidance that based on what have we been seeing in terms of our products and deployment and everything. We are expecting or we are hoping that a sales total in the Enterprise solution should not be less than 10 percent next year.

Yes absolutely.

: Great thank you.

Your next question come from David from Securities. Please go ahead with your question.

Thanks guys and congratulations on a pretty good quarter. Just a few questions if I may. One of the things that you talked about your analyst's day was going through sort of a bundled focus on a vertical basis. Barry can you talk about how that's going.

Well that's basically what we have been doing David I mean again almost of of all of these deals that I mentioned on this over 100 K list and most of our deal is on there all involved more than one product. So we are bundling products I mean bundling is in our how we combine the products together and we definitely have looked at their model but this is a trend that we have been seeing not just the last quarter we have been seeing over the last year. Customers buying in to our strategy well we are definitely pushing more than one product out the door in to you know in to any one customer.

OK just on the deals the number of deals according to my calculations your average deal size on the deals that are more than a 100 K was actually down from last quarter to about 250,000 are you seeing any kind of pricing pressure at the larger end of the deals.

No I think it just fluctuation I think it is you know if you look at our deal some number of deals over a 100 K tends to fluctuate and I think the top you know the money associated with it tends to fluctuate as well. I don't think there is anything to read in to it either way.

OK and finally if you could just actually Barry to go back to David's question the large deals how many deals did you have in the quarter that were more than a million dollars and how would that compare to last quarter.

I don't have any I don't know if I have all of that information. I definitely don't have it for last quarter. There was a couple of deals any away over a million. I don't have last quarter with me I am sorry.

OK I'll get that later thanks.

It's not the meteoric on my sheets.

Our next question comes from from please go ahead with your question.

Thank you nice quarter gentlemen. A couple of quick questions here just in terms of your license quarter on the side what percentage was from new customers and which was from existing.

All of this we never really do such things before we give him new customer old customers because it is very difficult to down now when you have a it will much easy maybe you'll start somewhere from four to two such kind of formalities in this case we will give for sure but I think it is usually from point of new customer.

.

Yes about 30 35 percent was new customers usual.

OK.

Yes from right.

OK great and Barry just on the trailing or piloting how long do you think it's going to take to kind of work these migrations through how many months.

You know it depends on the size with some pilots they are really quick with some pilots take six months some pilots on a really complicated system take nine months. When there talking about putting in a Portal and some other components and then suddenly it depends on the sculp and size of the deal you know if one product is involved a pilot can go much quicker if it is a migration sometimes it goes slower because they are looking at you know seamless moving uses across and with as little distribution as possible. So I mean there is a lot of constraints there is no easy answer but typically a pilot can run you know four to six months something like that.

And you started the in the spring with some of these customers or when did some of these 167 customers start.

No summer.

Four quarters.

June July was when the earliest one started .

OK and then turning to new customers same sort of question you know how I now it is taking a long time to close deals but you know our are you seeing more customers new potential customers trailing and pile living and how long is that taking.

I don't think you know the meteoric is any different I think a new customer tends to run a pile up just as long as somebody was an existing customer. You ought to remember from the time the customer gets to the pilot stage they pretty much made up there mind assuming they can get it to work because that is the way they want to go. So I don't think there is any difference cycles of pilots wither it is a new customer or an old customer.

OK and final question can you talk a little bit about new product releases, new products? What's coming up in the next couple of quarters?

You see, the problem is will come, you know, 6.0 revisions. It's very, but it still takes probably 12 months time. Right now it'll probably come 501, 502, you know? This is improvements and improvements of existing, recently issued new release 5.0.

But if you're talking about really revolutionary revisions, probably it will come 6.0, which will take at least probably 12, 13 months. We know what we have to do. I don't think so it's for conference call, because I don't want to give really ideas what we'll do for because probably on the phone too.

Yeah.

But it will be very interesting stuff, 6.0 during 12, 13 months. Absolutely amazing stuff is coming.

And Fred, that's like 12, 6, 14 months from now?

No. It is 12, 14 months from now.

From now, yeah.

From now. Yeah. Just to clarify.

Already in development.

And in the meantime point releases.

But meantime it will be re-release 501, 502 but will be improving, much again improving. And polish the stuff what we right now have.

OK. Great. Thank you.

Thank you.

We now have a question from Mr. Paul Bradley from . Please go ahead with your question sir.

Yes. Good evening.

Barry, you've given some numbers indicating the momentum on the enterprise suite side, and we've been through those a couple of times. I just wanted to understand a bit about the sales organization that sits behind making that happen. I think we got the total number of sales reps earlier.

Could you give a split between connectivity and the enterprise products? And then perhaps give a little bit more description about how they're organized to push the sales effort forward?

On the connectivity side there's reps, basically are roughly about 19 or so. And the balance of about 133 is on the enterprise information commission side - sorry, I keep saying .

No, that's OK.

Now are those all quota bearing sales people?

Yes. That's right.

OK. And just sort of get an idea of how they're organized, 50-50 Europe - North America? Or ...

No. North America is more. It's in relationship, let's say about 60 percent of that is in North America, about 40 percent of balance is on Europe and Far East.

OK.

And in terms of - I mean clearly they'd be organized differently from the connectivity people, vertical market focus purely geographical? An overlay of both? How is that organized?

You know, I think it's more or less it's not , I mean it's across, I mean vertical going.

OK.

Now in terms of enterprise suite itself.

Yes?

I mean, have you tailored versions of it, or modules of it, to appeal to particular vertical markets? Or were you requiring, I don't know, domain knowledge of those markets as you roll out these trials, as you roll out implementations? How is that working?

Sure we need domain expertise for verticals. You know, the question is how far you go. As Fred mentioned we already, you know, had done a certain amount of vertical tailoring on the legal side, and we've done some obviously in retail.

Once we start getting multiple clients that are doing, shall I say, larger comprehensive initiatives within the same industry, we start having some stuff which is more repeatable, and we're actually amortizing a lot of the stuff we've done in the field to our professional service organization as far as implementations go.

OK.

Now just talking about the implementation side of things. You've spoken about these migration efforts here and you know, have done these exercises, I can see how complicated those are. Are you finding that you're getting a large proportion of the professional services work? Or are people choosing to do it in the house or sub it out to systems integrators?

No I think it's there are different, I mean, customer different stories.

If Some customer asking us to do it, and only us, for example the big guys like , for example in Switzerland, or for example the guys who is - they asking really us to provide services for deployment.

And - but there are some customers who like guys. And this is depend really on customer, how he'd like to structure - for example yesterday I meet with some customer, he's employed I mean their own integrator, integrator who will be doing implantation of 2003. I mean, he cooperation and .

So it's different, it's really very - I'm not creating service company because we're not in this business. We will be mostly employed, or subcontract, of future our professional services probably maximum I will give to the .

Keep probably our service for special cases to be involved in this account, to manage this account, to see what happens, not to have problems with .

OK.

There's times when we do an implementation where we have one or two people on site who are managing the project.

Right.

And there's some other organization there, which is doing, I don't know, the equivalent of the physical labor on the project.

OK.

And are you actively encouraging that as, I don't know, in effect a sales channel? Or how are you responding to that.

Yes. Sales channels, for sure sales channels. is customer services and after service is going to our service organization, and we decide really do we subcontract or manage ourselves. It depends what kind of customer, how big is the project and so on.

OK. No I guess I meant more or trying to build practices around specific implementations of your product.

You see, honestly speaking . Dealing with big guys, it sounds great, but usually it's - you have to be focused, you know? much better to have maybe, you know, the guys 100, 150 consultants organization than have 5,000 or 6,000 consultants and you not so focused. And you know, it's very difficult manage such organizations.

But again, for example, you're dealing with and is very nice connections. And you deal with them side, and right now involved in couple - in other accounts. I mean, and it takes some time from point of education and practice for those companies. But I think is OK what we're going as a business.

But do I have to deploy, let me say, couple of guys more in big five? I don't know, probably, I'm not so anxious honestly speaking.

OK. So that stuff that - you can win that business through the 133 sales people you've got out there?

Absolutely.

OK. A question on that.

Obviously this is version five new release. It's you know, it's - needs to build some momentum in the market. What's the turnover like in the sales force that's dedicated to this product? Is it as it has been in the past, or are you seeing a higher or lower rates?

There's virtually no turnover right now.

OK. No other jobs there then?

No.

OK. And in terms of expansion of that sales force? You've spoken about the revenue number moving up next year, it's obviously going to come off the enterprise. So it's we - do you need ...

It's very moderate, it's very moderate. I think it's - to read the figures what you think around 190 in next year I don't think so it's still be substantial increase it's maybe a couple of people here, couple of there but it's not absolutely not.

OK.

Mostly it's quality of salesmen. That's what he's looking for right now.

OK and are you managing to hire the way from other people at the moment?

Yes for sure. We managed to hire from other organizations. There are some people good one people really who looking for jobs and you know if you know a lot of dot com guys collapse and they had no so but people before and there are some solution companies what people looking for more opportunities so we don't have problems to hire people.

OK just jumping back to a question that's been raised a couple of times before just on account receivable. I think the number that was spoken about right back at the beginning was 30 or 40 percent of the receivables over 120 days. What are the normal terms that you could you just remind me what the normal terms are that you offer customers?

30 days.

OK. But clearly that's not happening.

It's not happening yet I must admit. I mean I can tell you in Far East there is virtually no because 30 days almost and in certain countries in Europe it's very, very difficult to get these let's say less even than 60 days there in certain countries in Europe.

OK.

North America is pretty OK. I think North America we've managed to come down to almost about 85 days or so and I'm sure we will be able to bring that down even further.

OK so that's just exerting some discipline over the sales force not to give extended terms.

Well that is.

Yes, yes.

That is the.

Yes.

Yes.

OK sorry last question was just on deferred revenues I think somebody asked about that before. If you were to look inside that, that balance for deferred revenues. Is that purely maintenance fees or are they deferred license fees in there as well?

There is, they could be a deferred license but that component is very, very small.

OK, OK and are you not seeing I mean in conjunction with perhaps offering some extended terms. People aren't doing phase projects or contingent roll outs of software.

Well if that is the case then that goes in revenue then.

OK but that's only.

That's why I said there maybe a small component of licenses which could be products and .

Well OK right but that's not something that's necessary to offer in the current market environment.

No we, normally we do not offer that in fact most the deals that we offer are, there is a disassociation between the licenses and the product service they take.

Oh OK OK thanks a lot. Thank you.

Your welcome.

Mr. Sorkin there are no further questions at this time please continue.

OK so thank you very much for your time ladies and gentlemen today and I would like see you for next time is more successful quarter results. I hope disappoint you. Thank you very much.

Ladies and gentlemen this concludes the conference call for today. Thank you for your participation and please disconnect your line.