Open Text Corp (OTEX) 2003 Q2 法說會逐字稿

Good evening, ladies and gentlemen. Thank you for standing by. Welcome to the Hummingbird, Limited second quarter earnings announcement 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 cue 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 call is being recorded. I will now turn the conference over to Fred Sorkin, Chairman and Chief Executive Officer. Please go ahead.

Thank you. Good evening, ladies and gentlemen, and thank you for joining us for the second quarter fiscal 2003 conference call. I am very happy with our second quarter performance, given the challenge in economic and geopolitical circumstances. earning for the second quarter was 47 million with adjusted earnings of $0.33. our classification at the end of the second quarter is 142 million, and this reflects two acquisitions of companies in the quarter and 376,000 shares purchased during the quarter. Total number of shares purchased during the current fiscal year is 694,000.

During this quarter we completed two acquisitions, LegalKEY in New York and Key Automation/Dispro in Europe. These acquisitions show our continued commitment to our strategy of protecting our markets and accelerating expense in geographic areas where we see growth opportunities.

LegalKEY increases our presence in our already strong legal vertical and brings us further expertise in legal specific applications. Dispro, a Hummingbird reseller with significant expertise in the government vertical give us ability to accelerate our growth in the Belgium, Luxembourg and Netherlands markets. We are remaining through to our strategic plans and continue on our search for further acquisitions.

During this quarter we had our annual user conference in 2003. This year's conference was an outstanding success, and was totally customer friendly. Keynote presentation successful utilization of Hummingbird products. We are given by the US Airforce, the European Court of Human Rights, and insurance. Many other presentations are liking success stories given by our customers and partners.

We are fully confident that next year's show will be even better. We believe that Hummingbird Enterprise provides the best possible balance on functionality and return on investment in the Smart Enterprise area. Commonwealth Enterprise was an early adopter of key technologies, such as record management. I'm happy, by the way, to say that we just won the AIIM Best of Show award in category of record management.

Now asking you to provide you with our financial results, and then Barry will provide more details regarding our ongoing researches in .

Thank you, Fred. Good evening, ladies and gentlemen. Certain of our comments are forward-looking statements, which involve risks and uncertainties. Actual results could differ materially as a consequence of a number of factors, including changes in market and competition, technological and competitive development and potential downtrends in economic condition generally. Additional information on these and other potential factors that could affect the company's financial results are included in documents filed with the Ontario Security Commission, and with the Securities and Exchange Commission. Also, please look at the press release for a complete statement on this.

We have reported our unaudited financial results in US dollars and in accordance with US GAAP. Some of the numbers exclude the effect of certain items which are later defined. The following are a few highlights that summarize the results of the current quarter, after which I will discuss the detailed results of our operations.

The sales for the second quarter was 47 million. Enterprise Solution revenues were 29.3 million, while connectivity sales were 17.7 million. Enterprise Solution sales were 8.8 percent higher than the second quarter of last year, and 13.6 percent higher than the first quarter of the current year. The total operating expenses this quarter were 34 million, slightly up from 33.1 million in Q2 of the fiscal 2002. The EBITDA was 10.1 million. This is 21.4 percent of sales, compared to 10.3 million, which is 23.4 percent of sales in the second quarter of last year, and $8.8 million of 20.1 percent of sales in the first quarter.

Adjusted net income in the current quarter was $5.9 million, slightly higher than $5.7 million recorded a year ago. As a percentage of sales, adjusted net income in Q2 was 12.5 percent, slightly better than 12.4 percent in the comparative quarter of last year, and 11.6 percent in the first quarter. The positive back-flow from the operations in the quarter was $10.3 million. Cash and cash equivalents and short-term investments were lower from the previous quarter of 110.2 million, due to two acquisitions made during the year, made during the quarter , and after having repurchased 375,800 shares at a gross of 6.8 million during the quarter.

The first revenue increased significantly to 48.1 percent in the second quarter, up 4.8 million from the first quarter, and higher by 7.7 million from a year ago, results of operations . As mentioned, the sales for the current quarter were 47.7 million, about $1 million higher than the same quarter last year. Revenues, as I mentioned earlier, from Enterprise Solutions were 29.3 million, which is $2.4 million higher than the second quarter a year ago, and up from $25.8 million in the first quarter.

Sales from connectivity were $17.7 million. The product revenue was, we were very happy with the product revenue going up fair amount. They were at $24.8 million, an increase of $3.1 million on the prior quarter. The services and the maintenance revenue was 22.2 million, relatively unchanged from the first quarter of fiscal 2003.

As previously stated, adjusted net income, which excludes amortization of intangibles, in-process and research and development expense, recorded in the current quarter and for fiscal 2002, previously unrecognized investment tax credit, all net of taxes was 5.9 million for the quarter, compared to 5.7 million for the same quarter a year ago, and 5.1 million for the first quarter.

Adjusted diluted earnings per share is based on adjusted net income was 33 cents, higher than 31 cents recorded in the second quarter of last year, and 28 cents in the first quarter.

The current adjusted diluted EPS is based on diluted weighted average number of 80 million shares.

The geographical breakdown of the sales for the quarter are, Americas is $27.9; Europe is $16.4 million; and rest of the world is $2.7 million. In the current quarter, the gross profit was 91.7 percent of sales, compared to 91.3 percent in the same quarter of last year.

The sales and marketing expenses were $19.9 million, which is 42.5 percent of sales, slightly up from 19.3 million from the second quarter of last, and also slightly up as a percentage of sales from 42 percent of the sale last year.

R&D expenses were slightly higher at 9.1 million in the current quarter as compared to 8.8 million a year ago. As a percentage of sales, these expenses were slightly higher at 19.4 percent versus 19.1 percent in the same quarter of the previous year.

The G&A expenses have come down slightly to 4.9 million in the current quarter compared to five million in the second quarter of last year. As a percentage of sales, they were down to 10.4 percent compared to 10.8 percent in the second quarter of fiscal 2002.

The total operating expenses excluding amortization of intangibles in-process R&D, recorded in the current quarter were 34 million, slightly up from 33.1 million in the second quarter of last year.

EBITDA was $10.1 million, relatively unchanged from $10.3 million in the second quarter of the prior year.

The amortization of intangibles were 4.1 million, down from $7.5 million in the Q2 of last year. This has come down, as we no longer amortize the goodwill as for the new accounting rules with respect to amortization of intangibles. These are on account of various acquisitions made by the company.

Other income consists primarily of net interest income. The income tax expense was $2.4 million this quarter, the operational tax rate is approximately 38.5 percent for the purposes of adjusted net income and adjusted EPS. Overall the company reported a net income of $1.8 million and basic and diluted earnings per share of 10 cents for the quarter compared to $4.7 million and basic and diluted earnings per share of 26 and 25 cents respectively for the second quarter of the previous year.

This change is largely due to regarding previously of unrecognized investment tax credit in the second quarter of the prior year. Their adjusted diluted number of the shares were 18 million compared to $18.5 million a year ago.

The six months results, the revenue for six months ended 31st, March 2003 were 91.1 million, an increase of one percent over the previous year. The net income for the current six months was 3.8 million resulting in diluted earnings per share of 21 cents compared to a net loss of one million and diluted loss per share of six cents for the first six months of fiscal 2002.

The adjusted net income for the six months ended 31st, March 2003 was $11 million compared to 10.6 million for the first six months of last year. Adjusted diluted earnings per share for the current six months based on adjusted net income was 61 cents, compared to 58 cents for the prior year. The cash flow provided from the operations were 10.3 million for this quarter.

Turning to the balance sheet, the total assets were 352.1 million, up from 348.8 million at the end of the previous quarter. The increase is mainly due to an increase in intangibles as a result of two acquisitions made during the year.

The cash and cash equivalents and short-term investment were 110.2 million, compared to a119.7 million at the end of the prior quarter. Again, this was due to the acquisition and the repurchase during the quarter for 376,000 shares for $6.8 million.

Accounts receivables were 53.6 million, up from 49.8 million at the end of last quarter. This was also a result of combining the results of the two acquired entities during the quarter. The DSO's based on trading four quarters were higher than 108 days compared to 101 days in the previous quarter. The higher DSO is a result of addition of accounts receivables of the new companies, but not recognizing four quarters of revenue from those subsidiaries, and comparatively higher invoiced month versus recognized revenue in the second quarter, as a result of which was increase in our deferred revenue.

The fixed assets were $12.2 million slightly higher from $11.8 million in the previous quarter. As mentioned earlier, the intangibles increased to 151.4 million from 142.9 at the end of the first quarter due to the acquisition.

Goodwill included in the intangibles at the quarter was, at the end of the quarter was 87.4 million. We counted out goodwill impairment analysis as for the guidelines of FAS 142, and a result, there is no impairment of counting value of the goodwill in the book.

Deferred revenue was significantly higher at 48.1 million, up from 43.2 million at the end of the quarter.

The shareholders equity was 263.9 million slightly lower than at the end of the previous quarter, largely due to the shares repurchased by the company.

The number of employees at the end of the quarter were 1383.

So in executive conclusion in summary the sales were up by 6.7 percent over the first quarter. Product revenue went up by 3.1 million from the first quarter. EBITDA went up in absolute dollars as well as the percentage of sales in the quarter compared to the first quarter. Adjusted net income went up as a percentage of sales as well as absolute dollar amount compared to the first quarter. The positive cash flow from operations of $10.3 million, the company repurchased 367,000 shares in the quarter. Total number of shares bought back in the current fiscal year are the 694,000. Deferred revenues up by almost $5 million in the quarter.

With that I'll hand it over to Barry who will provide you synopsis of the company's operations.

Thanks Inder. As Fred already mentioned, we remain fully committed to our strategy. Our planning assumptions continue to focus on maximizing revenue from our installed base of customers through targeted campaigns to migrate DOC's open customers to DM 5., establishing market leadership in records management and extending our market reach by focusing on targeted line of business solutions.

Let me first highlight some of the key trend lines relating to the first initiative of generating incremental revenue from our installed base.

Last quarter we announced that we had 243 customers representing approximately about 143,000 seats. Well we're in the process of evaluating our migrating from our Legacy two-tier DOC open platform to Hummingbird Enterprise.

We now have 332 customers totally 170,000 seats that are in the process of migrating from DOCS open to Hummingbird DM 5. We are seeing accelerated momentum from DM 5 adoption.

We've also made significant advances in our overall product positioning and visibility is a leader in enterprise content management space and within the emerging Smart Enterprise Suite market segment.

Recently Gartner published the Smart Enterprise Suite Magic Quadrant, with Hummingbird in a favorable position as a visionary. Being in the first quadrant in this area, there is nobody in the leader quadrant yet.

From a marketing perspective, we continue to emphasize demonstrated return on investment as a means to raise awareness and support targeted lead generation activities for higher value and repeatable solutions.

We're making investments in the development of ROI studies across our key market segments. As an example, the Gartner Group recently completed and published the comprehensive ROI study on one of our key customers, the European Court of Human Rights, which incorporates Hummingbird document management and knowledge management and our portal as part of an integrated solution that saves the court 7.9 million euros a year in mailing costs.

The second major area of focus for us to make prudent investments in gaining market leadership in records management. We already have strong presence in markets, such as the public sector and regulated industries, such as utilities where we are seeing increased demand for our RM solutions.

The acquisition of LegalKEY is designed to specifically to consolidate our market leadership within law firms. The legal market is highly segmented. The competitive landscape is clearly defined.

Records management requires, law firms are quite unique, and the acquisition enables us to strengthen our market position in the legal vertical market segment and change the way we compete.

LegalKEY offers a suite of practice management solutions that encompass conflict resolution, matter intake and court dates. These solutions enable us to sell more on the basis of value as opposed to selling technology.

Our customers want to deploy enterprise records management solutions based on a scalable document management platform. Our recent survey found that 53 percent of organizations did not include electronic records management in their record management programs. And 39 percent of organizations do not have a formal policy relating to e-mail retention and disposition. It's estimated that by 2006, 90 percent of the global 2000 companies will have developed electronic records management practices and policies.

We're in a strong competitive position to capitalize on this market opportunity.

We will continue to make significant investments in our records management capability. We have a very robust document management platform that is fully integrated with our records management offering. We will extend these capabilities to take full advantage of increased market opportunities and as Fred already mentioned, we recently won the AIIM Best of Show Award in the category of records management.

The third area of activity for us is to focus on targeted line of business solutions, and we're in the process of launching three targeted solutions: contract management, geographical information systems or GIS, and correspondence management. These solutions all leverage core Hummingbird product functionality along with a set of value-added capabilities that will enable us to up sell into our install base of customers and to generate higher value revenue per transaction.

All of our investment decisions are consistent with our overall strategy. It's based on the fact that our customers IT investment decisions will increasingly be based on a combination of proven ROI, risk mitigation and a consolidation of existing IT infrastructure. In such a climate, it is critical that we continue to demonstrate a lower total cost of ownership, validated with proven ROI as a key differentiator in the way we secure higher value deals.

Our initiatives to deliver better integration between components of Hummingbird Enterprise, our visionary leadership in the emerging Smart Enterprise Suite market, our increased focus on targeted line of business solutions that extend the value of our core products, and our targeted marketing initiatives that focus on business value are all intended to create sustainable value for our stakeholders.

Now, as is our tradition, I'll give you some flavor on the deals for the quarter. This quarter there were 58 deals over 100K totaling U.S. 14,589,000. Few of the customers were Inco Limited, U.S. Air Force, Avaya, Metropolitan Life Insurance Company, The European Commission, Deutsche Bank, and Barclay's Bank.

Thank you and now I'll turn it back to Fred.

Thank you Barry.

In closing, I would like to once again reiterate that I am very pleased with our performance second quarter and with our recent acquisitions.

We continue to focus on the demands of our business, and on the implementation of our strategy.

Now thank you very much. And I will now turn it to, over to questions.

Thank you. One moment please.

Ladies and gentlemen, we will now conduct a question-and-answer session. If you have a question, please press the star, followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request.

Your questions will be polled in the order they are received.

If you would like to decline from the polling process, please press star, followed by the two. Please insure 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 Howard Lis from Griffiths McBurney. Please go ahead sir.

Good afternoon. Thanks. Congratulations on a solid quarter gentlemen. You just talk a little more about the acquisitions, how much revenue did they contribute in the quarter?

It's immaterial till completed.

Sorry?

Immaterial.

Howard it was close to only one of acquisition was closed on 26, and the other one was closed on end of March, so revenue included from them was very immaterial.

OK, and in terms of your accounts receivable, I know it was obviously impacted by these acquisitions to some degree, but it still remains above your target. What percentage of the AR is above 120 days right now?

Howard, that's roughly about 30 percent or so.

And are you still looking to bring that number down to 90 days or?

Absolutely, I mean one thing I can say for certain that next quarter onward, it should not be anywhere close to the numbers, which we have seen this quarter, so they would come back, if not less, at least 100 days or so again.

OK.

But we still a making effort to answer at the moment, but we still making our extra effort to bring it down to less than 90 days.

Under the in-process R&D expense, 1.1 million, was that related to one of the acquisitions?

Yes, it was related to both acquisitions.

OK, and your head count and number of quota-carrying reps by product line?

The quota-carrying people are about 241, and out of which about 95 or so, 95 is for connectivity and the balance is for EIMS.

Total head count of the company now?

1,383.

OK, great, and any comments you'd like to share on sort of the pipeline, the outlook, Q3 in particular, what you're expecting there?

Very difficult right now to really talk about pipeline. I mean I think pipeline looks from my standpoint, quite healthy. I'm right now on the way to to stay during the May, so probably I will really make some adjustments or at least I will keep more precisely what right now we got on our hands.

So it's very difficult for me to right now tell you exactly. I mean it's idea, but it's I think quite healthy from my standpoint.

What kind of guidance you providing for Q3?

From guidance standpoint, I think so, we'll go around 48 to 50, and from bottom line, from 35 to 37.

OK. And any additional comments on other acquisitions you're looking at.

Yes, we're looking for acquisitions, I mean, probably pretty soon we'll see about this for sure. I think this is quite close, it's possible.

Are these similar nature, sort of smaller tuck-in acquisitions in the two verticals that you've identified as priority or are they something more substantive?

It's possible, and small and big.

OK.

OK.

Thank you.

Thank you.

Your next question comes from Scott Penner from TD Newcrest. Please go ahead sir.

Thanks. Just looking at the product revenue, Inder, can you take a shot at breaking that between the IP and the connectivity?

Scott we normally don't break the product revenue down, but most of the increase is coming from the EIMS product revenue.

OK, and I guess last quarter and the one before, you discussed a little bit about the percentage of license revenue generated from new customers. I, you know, I'd be specifically interested in that number for the EIP division.

It's roughly between 25 to 27 percent or so.

OK, and just the amortization of intangibles, going forward, just for housekeeping Inder, what's about the level going to be?

It's going to be in this range, roughly about, I would say between 4.5 to about 4.8 or so, roughly.

OK, great. Just lastly here. The headcount additions, I have you going up by around 70 heads in the quarter. Can you talk about ...

That's mainly because of the acquisitions.

Yes, can you just talk about, it looks like the number of quota carrying reps was about stable, can you talk about just where the headcount additions happened, whether they were R&D or?

Well they were pretty much across the board, R&D and professional services, and some marketing and the general administration people.

OK, great.

And they have, and these other people, they don't have a very large number of sales people, LegalKEY was Fred mentioned, they have only about three, four sales people, and Dispro is a mix of everybody does, it's more on the consulting side. So they don't have per say, any sales people as such, I mean other than maybe three people or so, Fred.

Dispro/Key?

Key.

Yes, Dispro has about four people sales, we provided sales to government, mostly government in regional .

OK, thanks. Just lastly, Barry, the LegalKEY products, like one of the initiatives was to take the fiscal records management and integrate it with your own product. Can you just give a quick update at where you're at on that?

It's in process right now. We've got both teams working on it. I expect about, certainly within this quarter you'll see something.

OK, great. Thanks very much.

Your next question comes from David Beck from RBC Capital. Please go ahead sir.

Hi, good evening gentlemen. Just, a couple quick questions. What would the, Inder I may have missed it, but what would the receivables have been without the acquisitions?

Receivables without the acquisition?

Yes.

It would be two-and-a-half million roughly less, by this amount.

OK. And did you state the connectivity revenues? I know it's on the press release and you probably stated it on the call, and I'm just trying to toggle between calls, so it makes it lots of challenge here.

Again, David.

The connectivity revenues for the quarter, or the enterprise revenues, whichever one of those you break out.

Yes, it was 29.3 million and connectivity was 17.7.

OK, OK, that's fine. My other questions have been asked, thanks.

Your next question comes from from Merrill Lynch. Please go ahead sir.

Yes, hi guys, I had a quick question on the connectivity business. Can you talk a little bit about the pricing in that business? Are you seeing any pressure and just the general dynamics around the industry there? You know, clearly I know you guys are the leader in this market, but if you can kind of share any data points that you're seeing on that side, that'd be greatly appreciated.

No I think first of all, it's right now mostly marketed, you know, and this is an average what we get in the say 17-and-a-half, 18-and-a-half in this range per quarter worldwide, from point of prices it's stable. I mean, because it's right now not so many players, and we'll always from being number one was keeping our prices always to the same level.

So no erosion in prices, that's all. What the question more? I mean?

Yes, no, that's pretty much it. So basically the pricing now would be comparable to what it was last year?

Yes, I think so in the same range, absolutely.

OK, and what are you kind of forecasting going forward for this business, you know, are we ever going to kind of see the growth?

I was explaining before, it's very difficult to predict, because today you know, the business went down you know, because of layoffs, because it's layoff, because of recession, so because it's correlation one to one, is going on. If you laid out the people, you don't need expertise for the connectivity.

From point of what you'll do next year, if the economy will be better, but we expect in this I hope it's for sure.

OK, thank you.

Thank you.

Your next comes from Jeffrey Fan from UBS Warburg. Please go ahead sir.

Great. Thank you very much. On your guidance Fred.

Yes.

Can you just elaborate on that a little bit? It looks like you're looking for some sequential improvement in terms of revenue and based on your last comments, it sounds like connectivity will remain relatively flat. So most of that growth is going to come from the enterprise business, is that the correct read?

Yes.

OK.

It's mostly for sure, I mean increase of revenue will come from enterprise, I mean with enterprise solution business for sure.

And most of that I presume would be coming from the product side as well, assuming no changes in the maintenance contracts or terms?

Yes, absolutely.

OK.

And mostly to come from state licensing here.

OK. I don't know if you guys disclose the percentage of your revenue or your license for product revenue from new customers versus installed base.

This question we have every time and every time we say we don't have the statistics, we have only idea unfortunately. I think we're getting probably around 20, 25 percent of new customers.

Twenty, 25 percent.

Twenty-five.

From new customers?

Right, correct.

OK. And just more of a broader question, when we look at this space, in terms of data management, I guess your company is a bit unique in that you have both structured and unstructured date under one roof. Are you seeing any demand from customers that are looking for a combined product, and if so, which industries or which areas, what type of applications are they looking to deploy this type of solution.

Yes, we do a have some customers that have bought into both structured and unstructured data. It's not tied at all to any one particular industry. As a matter of fact, there's a couple customers this quarter that were actually business intelligence customers that have now bought into this document management largely, because of the integration between the two packages. But I don't think it's tied to any one specific industry.

Right, that's, have you seen the pick up in terms of interest and sort of both solutions coming under one vendor?

Yes, we've been saying for years that all of this stuff is coming together, that's been our strategy all along. Everybody is talking about moving all of their IT infrastructure into one cohesive unit. We're getting enormous pull for the last few quarters within our BI products by the fact that we automatically just check things directly into the document repository without having to maintain separate silos and things of that nature.

And what type of size of deals are we talking about here for those customers that are buying, you know, both sizes?

Well certainly some of them were on the list of deals over 100,000.

OK, great. Thanks very much. Good quarter.

Thank you.

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

Hi, good evening guys. Most of my questions have been answered, just a couple follow-ups. One, Barry I guess for you, can you talk a little bit more about the records management and maybe break out, you may not have an exact figure there, but kind of what that's making up of your total revenue now, and what you kind of see there going forward for that particular product line?

And specifically outside of Legal, what kind of opportunities you guys see there?

Well I don't think there's anyway to break it out, because records management always gets sold with document management for us. The two are inseparable. There's no way to sell RM without DM. A large part of the RM business, to answer the second question, is definitely outside of Legal, already within government.

OK, and then, on the balance sheet, for the deferred, how much of that was added from acquisition?

It was roughly about 2., a little bit over $2.2 million.

Just add one more thing. I mean if you read any of the reports from Gartner, or any of the other groups out there, they're all saying by the way, that when it comes time to deploy records management within your company, it should be inseparable from the DM system, and there's a number of reasons for this, primarily of course is the fact that it's all running in the same repository.

Thanks a lot guys.

Your next question comes from Peter Misek from Scotia Capital. Please go ahead sir.

Evening gentlemen. Could you just, one housekeeping question and a competition question, any FX impact Inder in the quarter?

No there is not much impact on that FX.

So revenue was, because of the mix geographic mix, it was pretty immaterial right?

Pretty, yes, pretty immaterial, that's right.

Could I also have one other one, on the pro forma option expense, would you be able to give us that?

Peter, no I don't have that at this point in time.

OK, and then on the competition side, who do you guys view as the competition now? I mean, it appears that the market's fragmenting in different ways. I know that in BI there's certain players, Records Management et cetera. It appears your portal in records management product have some of the best traction outside of the Legal vertical. Who are you encountering now?

I don't think the competition is significantly changed for us over the last few quarter.

OK.

Typically we run up against other DM vendors when it comes to you know, RM deals, but it's the same players that it's been for the last two quarters, and it seems to me the consolidation is I don't know if it's all done or slowing down, but certainly we haven't seen any change in the competition landscape in the last quarter.

Great. Thank you.

Your next question comes from David Wright from BMO Nesbitt Burns. Please go ahead sir.

Thanks very much. Good evening, and I guess most of my questions have been asked, but I'll try a few. Do you have a breakdown by industry vertical? Is that something you could give us in terms of percent of revenues coming from Legal and government?

No David we don't do that on a quarterly basis. On the year basis, roughly it's, we have mentioned our year as Legal is roughly between 20 and 25 percent. And next one after that is the government, which is slightly less than 20 percent or so.

This is my, .

Yes.

So it's remaining roughly the same OK. When I look at your large deal size and your chart and then I kind of do some averages, it looks like your average deal size is creeping up very slightly. Is that true or you know, what's your gut feel here? Are you starting to bid on bigger contracts?

Yes, you're absolutely right, it's right now, we prices our side of the contract going up and up from deal to deal, you're right.

OK. I'll come back to a competition question. You bought, for instance you bought the People DOC acquisition awhile back and now Documentum has picked up . Are you seeing any more competition on the collaboration front with your products Barry?

No, you know, collaboration for us is more something that we use to round out the suite. We don't typically go in on deals where it starts off being heavily just collaboration oriented. We usually go in on deals, I mean the bulk of the deals are usually heavily oriented around the content side, which is document management, records management and collaboration just rounds out the offering.

And so the same would be with business intelligence as well still.

Yes, business, well business intelligence, we still have some deals which are great business intelligence and then, what we really get on leverage is from the way the products integrate and the way you tie the two suites, you know, not the two suites, in the way BI actually ties automatically, mostly into the documents and records management repository.

Great. Thanks very much. Not many are growing their license sales these days, so well done.

Thank you.

Your next question comes from Paul Steep from Yorkton Securities. Please go ahead sir.

Hi, gentlemen. Barry, can you maybe just give us an update? Last quarter, you talked a little bit about some promotional packages in legal and government that were going to be launched. Give us a sense as to how that's performed or what you're seeing out there on that front.

I think everything's been going pretty much OK. We've been pushing a lot of these packages into actually pretty much everywhere. But, you know, as we discussed last quarter, there were some targeted towards legal and towards government, but there are some as well targeted to the general market. They've been going well.

OK. I guess on the geographic side, Fred, can you give your views maybe as to when you've gone around and done reports with your various field folks what the sense is out there in the various markets between mainly North America and Europe? Is there any change in direction or are things sort of holding similar to what you thought last quarter?

Well, the point is last time when I really make such overview, it mostly didn't change, honestly speaking. I mean you feel quite you know substantial deals or really money-wise or quantity . Sometimes we have people taking less than they need and update maybe after quarter after two quarter you are adding. So IT is not spending money have to spend right away.

Secondly from point of Europe, it's again England and France and even in Italy not in that - I mean conditions results and good results from these I mean countries. Germany is still not good at all. not so bad, too. I think from the European, it's Germany still the worst country from business wise. Paris is more or less, you know, stable, but right now will be some I mean feedbacks because some point of from point of meeting people to each other and so on. But it's usually we was getting from Paris about six - probably six - seven points more.

OK, great. Thanks, gentlemen.

Thank you.

Your next question comes from of Raymond James. Please go ahead, sir.

Thanks. Just a couple of questions - can you talk about your momentum in the legal sector? Has your win rates been going up against manage or is it pretty much the same?

How ours what?

Your win rates against manage - has it been going up?

OK. I mean I think in legals, we still ahead of everybody from point of . We still legals and right now even right now it's from a point of purchasing I mean who's doing quite OK I think so we increase in presence even on side because purchase their products. And we have already one foot in this competition I mean site, and it's possible conversion of competition probably after one year to our products. But this is what's major really reason to improve and give up legal purchase of this company. But just OK from my standpoint what you'd like to do.

OK, great. And, Barry, by your estimate, what is the average time to convert for the 170,000 seats that are currently being evaluated?

some of those seats aren't deployed. A lot of those seats are still . It's not - ...

It's not only ...

... it's not just evaluation anymore. We're long past that point.

OK, thank you.

You're welcome.

Your next question comes from Paul Lechem from CIBC World Markets. Please go ahead, sir.

Thank you. Barry, I'm just wondering if you could give us some more details on your line of business solutions. You mentioned you were launching three. What's the kind of timeline we're talking about here? And what do you expect in terms of deals from those in terms of deal size? Would they be sold along with your Enterprise products as well? You know, what - can you - can you talk about what a deal would look like?

Well, typically, I mean all of them leverage on top of our existing systems and none of them are stand-alone solutions that are run without having at least some of the components of Hummingbird Enterprise under them. The way all of these were developed, Paul, they was all existing deals in place already. That's how we developed these things.

So for instance in the area where we partner with , I mean there was a number of deals that already took place and then we built the solution largely around how we sell those deals moving forward around the stuff that we installed. The same is true for the contract management and the correspondence management solutions.

So I think over the next few quarters, you're going to start - you know, as people become more familiar with the solutions and how they actually do leverage on top of our solutions, you're going to see more traction take place with them.

So, when are you actually going to be launching these and what would they actually - how would you actually package these then?

They're all being packaged as vertical - as skews on top of the stuff that already exists.

And the launch date?

Some of them have started and have been sold already, but it's all pretty much happening now. This quarter is probably the first quarter that would see stuff that actually gets sold since it's been a real stand-alone solution. But the deals that were - that we used to actually develop the stuff were - happened before.

OK, thank you.

You're welcome.

Your next question comes from Ralph Garcea from Credit Suisse First Boston. Please go ahead, sir.

Good evening, gentlemen. Were there any deals greater than a million dollars in the quarter?

Sorry?

Were there any deals greater than a million dollars in the quarter?

Yes. Yes, it was few deals over a million dollars.

A few as in three, four, five?

Yes, let's just say you're right.

Should have given you one number only then.

If you give me a whole number - to give you one number?

Yes.

Going to give you three.

And were they all in North America or Europe?

Some Europe - some North America.

OK. This - I mean it looks like an uncharacteristic tick upwards in the number of deals - 58 deals greater than 100K. I mean normally you're sort of flat Q1 to Q2 in the larger deals. What's driving this?

We've had quite a bit of fluctuation there, Ralph. I mean if you look back over the last couple of years, there's always been quite a bit of fluctuation in the number of deals.

These are your upticks in Q4. Is there something changed here in selling cycles or was there, you know, product cycle related stuff that drove it up this quarter?

No, but, you know, it's the whole strategy reason. You know, there's more and more people, there's more knowledge out there about Enterprise suites, there's more people buying more than one module out of the box or buying more modules, let's say, than they did before. But I don't - I - you know, I don't know if it's - could say it's a trend. I think you've seen a lot of variation before.

Yes. And just a ...

Last quarter it was about - what was - ...

Forty-three.

... 43? Yes. So, this quarter 58?

Yes.

It's a good - it's a good trend. I'm just trying to figure out what's driving .

What's driving this?

Yes.

It's driving this better sales people. They probably I mean I will not think about cycle. It's really cycle is effect or not. But I think probably experience of people more deal you're doing and this was the reason.

OK.

I think so.

On the connectivity side, is there a new product cycle coming up or what sort of release schedule should we anticipate from ...

We're on a constant one-year release cycle for connectivity products.

So when's the next product coming again?

I would imagine it's probably around summertime.

OK.

Not quite sure exactly what the date is, but it's sometime in the summer there'll be another rev.

OK. And just on the upcoming M&A on the big deal that you're looking at, are you going to use all cash or a mixture of cash and stock?

It can be, you know, some small purchasing - purchases and this for sure cash. For big ones, I - will probably still be mix. You know, it's everything can happen. I mean probably mix ...

OK.

... of everything - cash. Or maybe it's again, you know, we'll go and I'll borrow some money .

OK.

It depends really on the deal.

And just one last question for Inder, I guess. On the cost synergy side, I guess with Dispro, there's probably not much because of the Benelux region, you really didn't have a footprint there. Do you see any cost synergies from the LegalKEY side and merging offices or ...

Not really. Not really at the moment because we are operating LegalKEY virtually as a stand-alone at this point of time. So there's no immediate plans to merge the - both the entities anyhow. So I don't think you're going to see any cost synergy in the near future.

OK, thank you.

Thank you.

Your next question is a follow-up from Howard Lis from Griffiths McBurney. Please go ahead, sir.

Actually it was pretty well asked. I just want the deals over 500K. I know it was asked over a million, but how about over 500K?

I don't have the breakdown.

able to tell you what's about 100K, 150K, 200K - all right?

Just last quarter, you talked about over 500. OK, that's fine. Thank you.

Thank you.

Your next question is also a follow-up from Jeffrey Fan from UBS Warburg. Please go ahead, sir.

Hi, Inder, just a follow-up on the foreign exchange question. You said there is very little impact. Is that because you price in U.S. dollars over in Europe?

No, Europe is pretty much all across in - partly in local currency, partly in U.S. dollars, as well. is not that much in any case because the movement of the U.S. dollar to euro in the quarter was not very significant there. I mean it has been creeping up, you know, but otherwise has not. And one has to take a look at it after the net bottom line impact because you have revenue on one side and the expenses also are somewhat high in the both sides.

Right. Maybe we'll follow up after the call.

Yes.

These questions regarding M&A - to a big deal. Like how big are we talking about?

What are you talking about - from point of evaluation of company? ...

No, just the size - the size of the - size or the value that you're going to pay, like ...

I mean - no, I don't know.

Give us a range?

pay for this. I cannot really tell you guys. Sorry. I know that acquisition in this range, the company will be between, like you say, maybe $60, $80, or $100 million sales.

OK. OK, thank you very much.

Thank you.

Your next question comes from David Wright from BMO Nesbitt Burns. Please go ahead, sir.

Yes, just quickly, do you have the trend of number of million dollar deals over the past number of quarters? I guess three the most number of million dollar deals you've done in a long time or ...

No idea, David. 100K we'd have to go through all the reports on the previous quarters. I don't have it at the top of my head.

OK.

Sorry.

Yes, that's OK. Thanks.

Mr. Sorkin?

Yes?

There are no further questions at this time. Please continue.

OK. In this case, again, I'd like to make a statement that is we very, very happy with the quarter. of our sales forces and all in other departments. I'm looking really forward to make third quarter better than second one for sure. And again, thank you very much for your time. Thank you very much and God bless you all. Bye.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.