Open Text Corp (OTEX) 2003 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen and thank you for standing by.

Welcome to the Hummingbird Ltd. Q4 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 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 and we'll now turn the conference over to Mr. Fred Sorkin, Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you very much.

Good evening, ladies and gentlemen and thank you for joining us for our fourth quarter fiscal quarter 2004 conference call.

Here with me today is Barry Litwin, Hummingbird's President and Inder Duggal, our CFO.

I am pleased to report that quarter four was particular strong quarter for us. (Inaudible) earnings for the quarter was $53.4 million, which represent 15.5% growth over quarter four, fiscal '02.

Adjusted earnings for the quarter were U.S. 35 cents compared to 31 cents in quarter four 2002.

Our quarter enterprise information management systems business continues to accelerate quarter-over-quarter and year-over-year in revenue and $35.7 million, during the current quarter, and increase of 29% compared to $27.7 million in quarter four '02.

Our quarter four, fiscal '03 revenues $17.7 million, this and was consistent with previous quarterly revenue.

With the portion of quarter four, fiscal '03 and enterprise system revenue to total revenue is 33% and 67% respectively, compared to the 40% and 60% in quarter four fiscal '02.

Total revenue for the year $192.6 million, an increase of 7% percent of over last year revenue. Enterprise informational system revenue was $122 million, which is up by 14% over previous year.

Adjusted earnings for the year were $1.22 up from $1.13 last year.

The changes year-over-year ratio of connectivity revenue of 41% in the last year to 37% in the current year is a strong indicator of the success of our strategy. While we continue to bring , the connectivity market segment, our main revenues have successfully from connectivity software to enterprise information management market.

Our of now, foundation for leadership in enterprise content management market.

The of enterprise information management system revenue is based a combination so factors. (Inaudible) anticipated the current market consolidation is content management market segment and delivered an anticipated suite of products ahead of our peer group of competitors.

We have gone through the painful process of integrating the technologies we acquired whereas our peer groups of competitors is just beginning to faces the same challenges.

Second, we were first in market with a full integrated record management offering, which enable us to and an increase importance of solution Sarbanes-Oxley. (Inaudible) compliance is a key acquires customers to step up investments in .

Third, we were able to increase our revenues while keeping overall costs to low by, and diverse during this challenging economic times.

Now based through to the very effective overall strategy. The integrated enterprise and packaging gave us for existing customers.

In particular, we continue to maintain our market leadership in and leader markets. This sector in , but it is . Our content and record management solution are uniquely suited for this market.

Fourth, customer is for our continued success. Our rate of over 90% in our fairly continued customer confidence in our .

Fifth, our increasing investment in business solution leveraged our and foundation for generating revenue while slowly strengthening our key market leadership. The combination of our fiscal 2003 acquisitions, and our investments in solution, has proven to be a particularly proven investment strategy for us.

This investment study new market opportunities and differentiate us from our competitors by verifying customer as opposed to selling . We combine the solution strategy has enable our sales force to compete on the basis of business value as opposed to technology.

The M&A activities currently underway is a predictor of success of market growth. We are in unique position to capitalize on this market opportunity over the next 12 months. While our competitors feel they are and integrated acquired companies and technologies, competed the phase of our investment strategy.

The build a strong integrated product foundation, which has been by in recently published report, I will interactive company and it's now focused on fastly becoming a major enterprise content management player.

The realignment of basis was encouraged by industry analyst in our markets . For example, is a leader is integrated government management market, age saying leaders in the record in compliance management market, that is again stated, is a smart enterprise suite market.

This is the foundation for strengthening our market leadership is enterprise content management market and this stabilize our core connectivity business. We are now posed for accelerating growth.

So what lies ahead? Where are we going from here? We still stay the course. Our strategy is working. We will continue to integrated approach for managing enterprise business content, and third, continue to strengthen our market leadership in enterprise content management solutions.

We recently announced a based component of enterprise. This new product comes to our strong client site in management solution. We are also at ease mobility. We should access enterprise content use. It also provides organization with access in the field.

We recently completed a of as compliance different 5015 that . This accelerate revenue from the government record management market.

We have delivered an improved integration of one management capabilities enterprise, and we will support a choice of platforms for our customers to in future. We are committed to multi-platform enterprise suite with make it Microsoft and based application several platforms.

I will now turn it over to Barry for some addition information, will go in-depth financial overview.

Thanks Fred. I'd like to supply a little more depth in the product side. The classification component of Hummingbird Enterprise is complimentary to our strong client side e-mail management solution that is considered to be one of our key product differentiators. This new capability will make it much easier for our customers to automate the process of managing e-mail. E-mail has become indispensable for organizations. By some estimates, as much as 60% of corporate information resides in e-mail.

At the same time, organizations are in encountering a growing number of compliance requirements governing e-mail and its retention, such as Sarbanes-Oxley, the US 5015.2 standard, the SEC standard, HIPPAA, the FDA Rule 11 and the Canadian Privacy Act , and other international legislation and regulations.

We recently complete a deal 5015.2 recertification of Hummingbird Enterprise to help us accelerate revenues from the government records management market, to go at 159% compound annual growth rate for the period 2003 to 2006.

Hummingbird mobility enables users to access enterprise content regardless of which device they use. It also provides the organization with access to their mobile workforce out in the field. Hummingbird mobility provides pre-built integrations with Hummingbird Enterprise as well as third-party applications that are users when something needs their attention enabling them to take action based on that information.

Hummingbird mobility is an easy to deploy, entirely browser based applications that supports multiple devices out of the box, including palm, pocket PCs smart phones, and .

In Q4, fiscal '03, deploys the largest figure deal based on Hummingbird Mobility. In addition, many of our existing customers have already expressed strong interest in extending their enterprise content management applications to support the mobile work force.

Our knowledge management module is supported within the Hummingbird Enterprise suite, whereas our key competitors, license third-party carry-on products. This enables us to provide tighter integration and increased functionality. We have delivered full integration of Hummingbird Business Intelligence with our Hummingbird management product.

Hummingbird DI is now the standard reporting tool that enables users to profile, generate, and publish structured reports based on data stored directly in the Hummingbird document management repository.

Unlike our competitors, we are in a unique position to bridge the management of unstructured data and structured or data base business content. Moreover, our data integration capabilities with Hummingbird ETL provide our customers with the ability to easily transform and consolidate any legacy data into Hummingbird Enterprise. As well internally, we are using Hummingbird ETL in the field to migrate competitive repositories to Hummingbird Enterprise.

As Fred mentioned, we are committed to a multi-platform Hummingbird Enterprise Suite and will support both native Microsoft and based applications server platforms. These initiatives encompass support of industry standards, such as Web services, Microsoft.net, and .

As an organization, at the forefront of content technologies, we've been working towards improved work flow and business process management capabilities to better address the emphasis and processes as they relate to content. To this end, we are now delivering more capabilities as part of Hummingbird Enterprise. The new capabilities include a graphical process definition interface that will allow business users to define business processes in a drag-in-drop interface with no IT involvement.

The markets for stand-alone document management, records management, content management, team collaboration and portals are converging into highly integrated content management suites, defined by the Gardner Group as smart enterprise suites, and by various financial analysts as enterprise content management suites.

Our product roadmap has anticipated and continues to reflect this convergence. Continued investments in the integration of our products position us well for market leadership and the enterprise content management market segment.

We made a strategic decision to extend our market reach with line of business solutions has leveraged Hummingbird Enterprise by targeting high value cross industry solutions. In partnership with the market leader in geographic information systems software, and other partners with expertise in the implementation of GIS solutions will release Hummingbird for .

This solution provides an integration for geospatial information with content addressing the needs of a diverse industry such as federal, state and local governments and utilities.

We are already seeing traction for this solution. Contract management, a solution that incorporates all of the key components at Hummingbird Enterprise, such as content, records management, collaboration and a reporting has an integral part of the solution, the solution to address the content life cycle management requirements of our customers.

Sarbanes-Oxley solution extends our compliance and records management strengths to support the needs of customers to satisfy governance, compliance and mismanagement requirements.

Much time this quarter was invested in preparation for two user summits. Our first year of summit will take place next week in Barcelona, Spain, and at the end of February, we will be hosting our Annual North American Summit in Florida.

Now as is our tradition, I'll give you some flavor on the deals for this quarter and always, for year as well.

This quarter there were 66 deals valued at over $100,000 totaled in U.S., $14.5 million. This is compared with last year's Q4 numbers of 60 deals for only $12.7 million. For all of fiscal '03, there were 218 deals over 100K totaling $50.5 million, compared with the '02 numbers at 196 deals totaled in $44.7 million.

And a sample of the customers represented by these deals includes Port of Seattle, Documentum, , Daimler Chrysler, Telecom Italia, AT&T and IBM.

Thank you and I'll now turn it over to Inder for the financial information.

Thank you Barry. Good evening ladies and gentlemen.

Certain of our comments are forward-looking statements, which involve risks and uncertainties. Actual results will differ materially as a consequence of the number of factors, including changes in market and competition, technological and competitive development, and potential downturns in economic conditions generally.

Additionally information on these and other potential factors that could affect the company's financial results are included in the document filed with Commission and with the Securities and Exchange Commission, and also look at the press release for the complete statements on that.

We have reported our financial results in U.S. dollars and in accordance with the U.S. GAAP.

Some of the numbers exclude certain items, which are later defined. The following are a few highlights that summarize the results of the current quarter, after which I'll then discuss detailed results of our operation.

Sales in the fourth quarter were $53.4 million up by $15.5 million, 15.5% from a year ago. Hummingbird Enterprise Solutions were 35.7 while connectivity sales were $17.7 million. Hummingbird Enterprise Solutions sales were 28.9% significantly higher than the fourth quarter of last year and 14.7% higher than the third quarter.

The total operating expenses this quarter were $37.7 million, up from $33.4 million in Q4 of the last year. EBITDA was $10.5 million, this is 19.7% of sales compared to $9.9 million; this is 21.4% of sales in the fourth quarter of last year, and $8.1 million, which is 16.8% of sales in the third quarter of this year.

Adjusted net income in the current quarter, which is based on seven other items at , were $6.2 million, higher than $5.6 million recorded a year ago. As a percent of the sales, adjusted net income in Q4 was approximately 12%, the same as the fourth quarter of last year.

(Inaudible) cash flow from the operations in the quarter were $15.7 million. Cash included, including short-term investments and net of bank debt was lower from the previous quarter, at 1., $1.8 million. This is after the purchase of and the repurchase of company shares totaling $2.4 million.

Deferred revenue continued to increase quarter over quarter and at the end of the fourth quarter were $54.7 million in the fourth quarter, and up from $3.9 million from the third quarter and higher by $12.9 million from the year ago.

Results of operation overview in slightly more details, as mentioned earlier, sales from the current quarter were $33.4 million, revenue from enterprise solutions were $35.7 million, an increase of $28.9 million from the fourth quarter of a year ago, and 14.7% higher than the third quarter of .

Revenues from connectivity were $17.7 million. Product revenues were $25.9 million, which was higher by a $2.9 million from the third quarter and $1.5 million higher by the fourth quarter of last year.

Services revenue were $27.5 million, an increase of $2.4 million from the third quarter of fiscal 2003.

As previously noted, adjusted net income, which excludes the amortization of intangibles, in-process research and development expenses and deferred income tax rate adjustments, all net of taxes was $6.2 million for the quarter, compared to $5.6 million from the same quarter a year ago.

Adjusted diluted EPS based on adjusted net income were 35 cents compared to 31 cents in the fourth quarter of last year. The current adjusted diluted EPS is based on diluted number of shares at $17.7 million reflecting the effects of our share repurchase program in the current year.

The geographical breakdown of the sale was in the Q4 was Americas was $29.2 million, which is 55%; Europe is $21.3 million, which is 40% and rest of the world was $2.9 million, which is 5.4%.

In the current quarter, gross profit was 88.8% of the sale, down from 91.1% in the same quarter of last year. The decrease is mainly due to acquired companies, which have both professional services and third-party product as well.

Sales and marketing expenses were $22 million, which is 41.2% of sales, up from $19.7 million from the fourth quarter of last year, and slightly down as a percent of the sale from 42.7% of sales last year. The sales and marketing expenses as a percentage of sales decreased from 43.8% in the third quarter of current fiscal year. The increase in sales and marketing expenses are mainly due to inclusion of cost from the acquired companies.

R&D expenses are lightly higher than $10.1 million in the current quarter, this compares to $8.8 million for a year ago. As a percentage of sales, these expenses were slightly lower than 18.9 percent, which is 19.1 percent in the same quarter of previous year.

The increase in R&D expenses as same as sales and marketing is due to acquired companies during the year.

The G&A expenses were $5.7 million in the current quarter as compared to $4.9 million in the third quarter of last year. As a percentage of sales, they remain unchanged at 10.6% compared to the fourth quarter of last year.

Total operating expense, excluding amortization of intangibles and other extraordinary items were $37.7 million, which is 70.7% of sales, up in the dollar amount at, from $33.4 million in the same quarter last year, but down as a percentage of sales from 72.4% of sales here.

This was compared to Q3 of this year at $36.2 million, at 75.2% of the sales . So there was a positive downtrend of the expenses as a percentage of sales compared to last, fourth quarter of last year, and third quarter of this year.

EBITDA was $10.5 million, which is 19.7% of sales for the quarter, compared to $9.9 million, which is 21.4% of sales in the fourth quarter of the prior year.

In the third quarter of this current year, it was $8.1 million, at 16.8% of the sales .

Amortization of intangibles was $6.2 million, which is slightly down from $7.4 million in Q4 of the last year. This amount has come down as we no longer amortized goodwill, as per the new accounting rules with respect to amortization of intangibles. These are all on account of the acquisitions made by the company.

Interest and other income consists primarily of net interest income.

Income tax expense was $1.9 million this quarter.

Overall the company reported a net loss of $1.4 million and basic and diluted loss showed off eight cents for the quarter compared to a net loss of 49,000 and the basic and diluted loss per shares of zero cents for the fourth quarter of previous year.

This change is mostly due to $3.2 million in process R&D expenses from valid acquisitions.

Adjusted diluted number of shares for the quarter were $17.6 million.

For the total 12 months results, the revenues for the 12 months were $192.6 million, an increase of 7% over the previous year, 12 months period. The Hummingbird Enterprise revenue for the year were $122 million, an increase of 14% from the prior fiscal year.

Adjusted net income for the 12 months ended 30th September was $21.8 million compared to $21.4 million for the 12 months of last year.

Adjusted diluted earnings per share for the current 12 months based on adjusted net income was 1.22, compared to 1.14 for the prior year 12 month period.

Net income for the current 12 month period was $33.7 million resulting in diluted earnings per share of 21 cents compared to net loss of $2.9 million and diluted loss per share of 16 cents for the 12 months of fiscal 2002.

The cash generated from the operations for the whole year were $40 million.

Balance sheet, total assets were $365.8 million, up from $356.6 million at the end of the previous year. The increase is mainly due to higher intangible as a result of acquisition made during the quarter. Cash including short-term investment and net of bank debt was $101.8 million as compared to $111.2 million at the end of the prior quarter. Again, this was out of acquisition of valid during the quarter and repurchase of 123,000 shares in the quarter.

For the entire year, 816,000 shares were repurchased for $15.6 million under the share repurchase program.

The accounts receivables were $56 million, up from $54.4 million at the end of the last quarter. DSOs based on four quarters were 106 days compared to 107 days for the previous quarter.

Now I've given some indication of some additional information on DSOs last quarter as well. DSOs is slightly higher and the five days effect of that is because of deferred revenue increase in the quarter.

And such as last year's pre-sales, which accounts for about 9%, nine days or so.

Fixed assets were $13.6 million, slightly higher that from $13.1 million in the previous quarter due to acquisition in the quarter. As mentioned, intangibles increased to $176.1 million from $155 million at the end of the third quarter, due to valid acquisitions in the quarter.

Goodwill at the end of the quarter was $99.7 million. Deferred revenue for 54.7 up from 50.8 at the end of the last quarter. The shareholders equity was 261.5 slightly lower at the end of the previous quarter from due to ongoing share repurchase plan.

The number of employees at the end of the quarter were 1,467.

With that, I will just come down to the executive conclusion that sales were $53.4 million, up by 11% over the third quarter. Revenues for Enterprise Solutions were at all-time high of $35.7 million in the quarter, up 29% from the fourth quarter a year ago.

Product revenue was $25.9 million, up 2.9 million from the previous quarter. EBITDA is $10.5 million. Adjusted net income was $6.2 million. Adjusted earnings per share was 35 cents. Positive cash flow from the operations, $15.7 million for the quarter.

The company completed four acquisitions during the year. Deferred revenue continues to increase, up by and was up by $3.9 million in the quarter.

With that I will give it back to Fred for his final comments.

Thank you Inder. I think I increase 2004. The continuation of our product R&D last month, acquisitions, fiscal management and focus sales execution is expected to revenue growth and margin contribution in 2004.

We are, maybe I'll give you some figures we are anticipating. Total revenues for next year is probably between 213, $215 million in fiscal '04. In this case, the ratio of connectivity and enterprise information management system revenues, revenue will be 60% and 67% of total revenue accordingly.

Year-over-year enterprise information management system revenues will be growth around probably 15, 17% from fiscal '03 to fiscal '04.

And adjusted EPS I will give you some figures for next year, but probably between $1.35 and $1.40.

We're really to finish, I'll I would like to say that accomplishing our fiscal 2003 strategic and operation objectives was made possible by and the education of all our employees. I would like to extend our appreciation and thanks to everyone at Hummingbird for their continued commitment to and business and the success of our company.

I would also would like to thank our and shareholders for their continued confidence in and commitment to Hummingbird. We are pleased with our success in fiscal 2003 and we are committed to our effort to deliver shareholders value in 2004.

Thank you very much, and right now, we'll probably can start with 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 star-one on your touch-tone phone. You will hear a three-tone prompt, three-tone prompt acknowledging your request. You 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 using a speakerphone before pressing any keys.

One moment please for your first question.

First question comes from Paul Steep, Orion Securities. Please go ahead.

Hi gentlemen. Fred, maybe you could talk a little bit this quarter about the acquisition strategy. We chatted last time I guess in Q3 about your thoughts towards maybe approaching a larger transaction. What's your view given the consolidation in the recent weeks in the market?

Well probably you asking, for example Interwoven with iManage and on this and what I hear only two days ago, I mean open in Germany. It's very difficult for me to give some, how we can, some comments on the last one statement or the last one acquisition by . It's very difficult for me to comment on this stuff.

But from point of two acquisitions before, I think it's logical. I think acquisition Interwoven involved in you know, in what Quantum, what, I mean in the content management side, so it's a , management from my manage, it's giving them addition mobile, but they have to go revenue for four or five models more to really to have what you call enterprise smart suite.

I think what they, I mean acquire, it's not enough really to be on this what today Hummingbird is and . From, but you know, it's caused them to go forward.

From point of EMS, AMC, I'm sorry, and the , it's interesting acquisition, because in our hardware company involved in what I mean, strategic management side, you know. And acquisition of government management probably will give some, how I can say, on point that probably somehow they won't get into their too much margins. And they really moving to software space, and perhaps maybe they can really implement some of their products on government management side.

So this is, , it's probably how they will do it. From point of two companies in Germany and , honestly speaking, very difficult for me to give comments very and not to push down anything what I don't believe is right.

So honestly, speaking I don't want to give comments on the last .

Fair enough, Barry, maybe you could talk a little bit about the rollout of 5.0 and now that we've got 5.1 live in the market, what the acceleration and the adoption. I know we're getting at a point where maybe the numbers don't make as much sense, but just some comments around that'd be helpful.

Thanks Paul, because I don't have those numbers in front of me. But it's definitely picking up. We see, well certainly we're not shipping 5.0 anymore. We're only shipping 5.1. You know, we've got some, you know, new releases coming down the pipe and certainly we're pretty happy with the way it's been going, and I think it's reflected in the sales for the quarter.

OK, and then two quick clarifications. Inder, just on the contribution from the acquisitions, I think you said that you were going a little fast and I may have missed it, so just what did and the other deals contribute for revenues in the quarter?

I didn't say that Paul, we, it's been very difficult for us to get the biggest data on separately, because we are integrated a lot of the businesses together. And we are working jointly on those businesses together.

And even I'd like to add, the point is if some companies beginning to us, run out , product for example, in England to space companies or the like a normal, you know, for leader and for countries. I mean this is like now the completely everything in sight in company revenue. So it's very difficult right now even from point of run out to judge, but we see about products were the selling approximately , so it's very difficult to give . It's for sure was contribution of and that way it's no reason to buy companies.

But to exactly contribution from point of total, total, it's probably difficult and probably doesn't make sense.

OK, fair enough. Thanks guys.

Thank you.

Thank you.

The next question comes from Jeffrey Fan, UBS. Please go ahead.

Hi it's on behalf of Jeffrey Fan. I had a question first about guidance for Q1, not sure if you mentioned that, if you could provide that?

As well as wanted to ask about the combination of business intelligence and the records management, document management side and how much traction you're seeing with that solution and if there are any customers who decide to go with both in the last quarter?

For sure there have been customers. It's on two fronts, certainly all the products now, of our, the other products within the suite use as their reporting engine. And also we have, I think what's unique out there is that we have the only business intelligence solutions where you can schedule reports and have them natively dropped off into the document management repository.

And the advantage of that of course, is you don't have to deploy to every seat in the enterprise simply to read a secure report, simply, you know, just keep operating all of the, the end stuff out to the enterprise, which has far, I think greater reach for the average user.

So we've definitely been seeing traction there and we have for quite a while actually.

And with respect to the guidance?

Sorry.

Any guidance for Q1?

Oh, for Q1, is it, guidance for Q1. OK, for Q1 probably from 46.5 to $48 million is the range. And probably from point of bottom line I will give you probably somewhere between 22, 25 cents.

Yes, thank you.

Thank you.

The next question comes from David Beck, RBC Capital Markets. Please go ahead.

Evening gentlemen. Just wondering, I may have missed a couple numbers, but Barry, you didn't break out, you've quoted in the past this adoption of Enterprise Five, am I to infer from your previous comment with Paul that you didn't break that out this quarter?

I said we broke it out last quarter either David.

OK.

I mean we can look them up. I don't have that number.

OK, it's not so important. And if Fred, could you maybe just restate, so I don't have to listen to the conference call again, although I really would like to, but your guidance for the whole year. You did mention a revenue range, and I just missed that.

OK, revenue I think it's, I gave you know, between 213 to 215.

OK.

Billion, so again that is from 213 to 215 is the range.

213 to 215, right?

Correct and bottom line I gave $1.35 to $1.40.

OK.

In this range.

And did you guys disclose, did you disclose the contribution of the acquisitions in this quarter to total revenue?

Yes, right now I think that it's, you know, we integrated companies during the quarter completely.

Right.

And right now it is only even on product side make and pay them for it. But sure it was contribution no doubt, but contribution is not , but you know, different , different between companies and, but I can tell grows and and .

OK.

We organically we grows, I mean with acquisition, it's 100%.

OK, OK, thanks Fred.

Thank you David.

The next question comes from , . Please go ahead.

Yes, thanks, good quarter guys.

Thank you.

How many, did you have any deals in the quarter that were over $1 million?

I think we over a million, but I think we having usually some deals probably four, five, six in this range of 600, 700, Barry can probably .

Yes, the number of deals over, pretty much just under, but there was nothing that actually topped the million mark this quarter.

But we can say what maybe.

There was 900, there was 850. There was 800, there was quite a few that were very close, but there was nothing that actually topped the mark.

OK, the average deal size on the more than 100K deals slipped a little bit from last quarter down to about 220,000. Is there any kind of trend there, people going more initial pipeline?

I don't know, I did some numbers, I don't know what it means, but I did some numbers of year over year and it's still virtually the same, it's up about, you know, 3,000 and quarter four over quarter four last year, the difference were up about 6,000. I didn't do this quarter to last quarter. I don't think there's any trends there at all. It seems to me that it's pretty much flat as far as the value, but number of deals have certainly gone up.

Yes, in addition to that, Barry has given the numbers for the quarter and they're also the average size was about 213,000. So there's no particular trends expect it keeps going up or down, depending on the number of days and the size that they .

OK, geographically, it looks like you're pretty strong in Europe this quarter. I guess that's a little bit unusual considering it's usually slow there in the summer months.

And that's also partly because the three acquisitions being done there in Europe.

OK, so that's really where the acquisition revenues come from.

And it's not only acquisition, but it is, three acquisitions and .

OK.

the number on the deals over 100K, there was a quite a few numbers, quite a few deals that took place in the UK, and the rest of Europe as well.

OK. That's it for me, thank you.

The next question comes from Blair Abernethy, Paradigm Capital. Please go ahead.

Thank you. Nice quarter gentlemen.

Thank you.

Just wondering if you can break out or give us some sense of the revenue by sector? You know, I know legal and government are very strong for you obviously, on the IP side, what else were you seeing good traction in?

I think except right now, it's financial , I mean, it's very difficult for me to say right now because it's , but it's quite standing .

From the banks?

That's right.

OK, and are you targeting any other verticals outside of legal and government that particularly this year?

what we'd like to do , legal and financials, this is our, right now, would be major push, I think so. The first one from point of vertical that I'm always like to take a look, it's probably interesting to take , entire business, because you have installation in the side, big chain of, I mean, and so on. And this interesting right now either make a and go to this market.

OK, just on the breakout of your revenues. On the IP side, do you have a license number?

On the IP side?

Well we do, it's as we , in the range of about 45-50%, I'm sorry, 40-45% on the license and services is ...

OK, if you take a look for example on enterprise management systems I mean business solutions, right business, we have $35.7 million total.

Yes.

So probably 50% of this go on licensing.

OK. Do you guys have any intention of breaking out a force in the future at all, to give us a better, clearer picture into how you're doing ...

On the licensing side?

Yes, just, you know, break it out as a license and service maintenance?

Sure we can do that .

If I keep getting that out as mentioned on the call, the total, we're not breaking that down very exactly. So we, I've given the product numbers on the side.

But I think we can do it. We can do it I think. We can give ...

I think it would be helpful in the future ...

Sure ...

... doing.

I think your input is quite valuable. We will do it.

OK ...

But again, usually it's very close, I mean if you allow 50% growth licensing it's maintenance and , and , it's professional services. But next time we'll give exactly.

That would be very helpful.

OK, we'll do it.

Just on the acquisition side, I mean you still got 100 plus million cash, what are sort of, what would you buy today, what types of things would you buy today to fill in any gaps, either product wise or geographically?

I think what I mentioned before and what I'm right now really working and company working, not me only, I mean, I'd like to, to have purchase some company who will really increase my, let's say market share. I don't need that is speaking today any substantial piece of technology. You have everything that is necessary to be successful for next five years. But from point of company to some vertical company who is really strength in vertical market to really increase our verticals, it's maybe really valuable for us.

You can use our technology to really prepare solutions. This what I'm looking right now and this what right now working on it.

OK, great.

Yes.

And one last question if I could for Inder. Inder do you have some sense of what the year-over-year foreign exchange impact was on your total revenues?

No, frankly I don't have that with me at this point of time, because the way our business is structured, it's fairly complicated way, so I don't have the exact numbers on me.

OK, no problem. Thanks, thanks a lot guys.

Thank you.

The next question comes from Paul Bradley, Dundee Securities. Please go ahead.

Yes, good evening gentlemen. I think most of my questions have been answered already. I just wanted to focus a little bit on the sales force. You've talked about the verticalization of your products and offerings. I'm just wondering if I could have an idea, give me an idea of total number of sales people, and how they're organized to deal with those particular vertical markets?

OK, you'd like to have total , right?

Total sales and then kind of the allocations, you know, have you, where you're focusing their efforts?

OK, the total sales people what I understand is about 267.

That's the quarter .

Yes, sales right.

OK.

I think is 257. Now from this connectivity, by probably 85, 90 people. Let's just 90 people to .

OK.

And ...

.

Sorry?

That is 167.

Yes, I mean solutions different, seven minus 90 is for people who involved sales people in solution business.

OK, now are they organized, you mentioned three vertical sectors before legal government financial sector ...

Not organized in verticals, like a verticals.

OK.

I mean, the point is every region, every region that we have was, for example I will tell you by state, right. For example, because it's the same in countries too in Europe. Every region, I mean they have sales people and director of the region and the sales people really, some sales people only additional certain accounts of certain, I mean verticals.

OK.

In this region. OK, some people, for example responsible for, I mean, for let's just say, for this financial, some people responsible for legal, some people responsible for government. This is how organized.

OK, so within a regional organization, you've got people focused on each of these, each of these sectors. Do you run named accounts for the largest ones or how does that work?

Say again?

Do you run a named account method of dealing with ...

Sure, for sure, everybody accounts name for sure, every salesmen.

OK, now just to following along that line of reasoning, Barry you talked about some of the new products out there. You talked about the contract management. You talked about the solutions from , can we take, can we expect other ones to specifically introduced to these vertical markets or are you seeking to enter other areas to generate sales there.

Yes, we're still doing a lot more work on the compliance side and you're going to be seeing more coming now over the next while for sure.

OK, clearly that's in response to recent legislation, customer feedback on that, specific stuff that we're looking for that they don't see in products in the market right now, or is it just an evolution of what you have out there?

No, I think the advantage for us is that you need so many different pieces in order to put the solution together, how do you tie structured data together in Sarbanes-Oxley, at the same time, with the unstructured documents, how do you manage it to work flow.

I mean if you have all the pieces that we have in our suite, it's much easier to design a vertical around the compliance, not to mention of course, you've got to have the certified records management solution.

So I think you know, we're very well situated there. I think what most other players are missing in this space, to put something comprehensive together is they're missing pieces, quite frankly.

OK, and that's the effort you've gone through over the last number of years to build the integrated platform there. l litwin: Absolutely.

OK, and just on that, obviously you were talking that the 5.1 release is out right now. Release cycle for next version of that is every six months, or is that every year?

Not it's not six months, but I mean there will be stuff coming, we have our summit around February time frame, and I think people can expect to see some new stuff around there.

OK. Thank you very much indeed.

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

Thanks very much. Congratulations both on your numbers and your ability to answer multiple questions from analysts.

I wondered about, is the connectivity business based on your guidance that you've given, you essentially see it as flat for the next year.

Yes, absolutely right. I mean I think if it's a continue what is today, I think we have what we talking about, somewhere between, you know, 70, $72 million is amount for connectivity for the last two years, and I go up, and it improve and not feel like today, I'm sure it will improve, but I give connectivity about 70, $72 million, the same like this year like last year.

OK.

And it's very stable.

OK. Inder you were asked about I guess currency rates and things like that. Do you have constant currency numbers, so what the revenues would have been in constant currencies in Europe versus?

No, we do have it David, I don't have it handy with me at the moment.

OK, terrific. Now I think it was acquisition where you purchased some technology that would help you with a solution for the UK government and then you'd extend that out to Europe ...

That was .

That was .

Oh, OK, sorry, so how is that going? Is the product ready and has it been spun out to multiple markets yet?

They certainly had a product and the product continues to do very well, and it growing. The R&D teams are working together now to put together a new product and I think you're going to see some stuff again showcased for the first time hopefully at Summit in February.

OK, so a couple of quarters before I think you were even thinking of spinning out to the U.S. as well, and so that's a few quarters away, is it?

The next generation certainly will be spun out to the U.S. as well.

OK, great. Can we have an update on the employee count?

Yes, it's 1,467 to be precise.

Right, OK, that's great there. And OK, last question is a conceptual one, which is the market's consolidating around you and is, do you have any concerns about, you know, you're no longer the largest in your space, how do you compete against that, because I guess what I'm worried about it, you know, maybe you don't hear about enough deals, but the ones you hear about you win, do you have that concern at all?

Uh, speaking, I mean, surely company is over $200 million, and I mean, sure there are pressure to increase revenues, and, but you know, I'd like to increase revenues smart way. I do not throw out money or equities to date for anything to buy 150, or $220 million company. I mean sure it's on the list. And I'm sure that we still substantial acquisition put us, I mean in 300, $350 million at least.

Right.

Absolutely you're right. We are concerned here, , but number one for me, probably not.

Thank you very much.

Thank you David.

The next question comes from Peter Misek, Scotia Capital. Please go ahead.

Evening gentlemen. Obviously, some of the third party analyst research has been quite positive on your guys lately. I was hoping to get a sense for your pipeline and how you've seen that being pulled through. Is now the ramp that we've been waiting for and hoping for, is it starting to come through. Are you seeing it?

Peter, first of all, it's, honestly speaking, I don't understand the question unfortunately, but to my point, you were think that you have a long waiting for this or what?

No, no, what I'm saying is that we've been long through this technology drought, and the third party analysts have all very much turned positive on your product offering. Are we seeing the pipeline improve very strongly? Is it ramping strongly?

Absolutely. Absolutely. Peter, the what I'm saying , first of all, pipeline is increased no doubt. Sales people doing much better than they were doing two years ago, from point of targets. I mean people, educated right now, very stable sales force, and I'm sure it will be increased in 2004 from point of side licensing sales and or example, PSO, I mean professional services. It's not doubt we will increase and probably this is what I told you, well go at least for 213, 215 at least in this range of revenue.

And from another point, honestly speaking, it's not so bad, I mean for the company who is really completing turning around the diversified company for the last three years like from scratch.

So I think it's, I think the no doubt. Pretty soon everybody will see, I mean how stuff will go up, substantially what I expect.

That's great. Thank you.

Thank you.

The next question comes from Steven Li, Raymond James, please go ahead.

Thanks. Inder I think I missed what you said regarding how many shares you bought back and the price you paid?

Well, 804,000 shares at about, I have to look for the number exact, don't want to give you the wrong number.

850,000.

Yes, approximately that much.

850,000 we bought, shares.

And for ...

(Inaudible) market.

Yes, and for $15.6 million.

OK, thanks.

The next question comes from Ralph Garcea, Credit Suisse First Boston, please go ahead.

Good evening gentlemen. If we look at the European revenue, what's the split between UK, Germany and the rest of Europe?

Revenues by countries?

Yes, is the UK half of your European revenue or less than half, more than half?

You know, I think just a moment, didn't really prepare, but he can tell you right away, no problem.

You can give me a minute.

Yes, we can go to our balance sheet and see what countries doing. Next time we will know that you're asking for such questions.

Well I just ...

prepare.

Because that's going to include obviously the acquisitions you did out of the UK. So I'm just trying to get a feel, one, how important the UK is to you and then two, what you're seeing in Germany and the rest of Europe with regards to you know, turn around, have we bottomed them there.

UK is nowhere close to you were suggesting, it's roughly about, you know, slightly more than one-third or so.

OK, and then what are you guys seeing in Germany and the rest of Europe with regards to a turnaround in IT spending?

Germany's usually not so fantastic, but I think they improve, quite a bit improve basically. I'm very happy that Germany doing this quarter, and you know, we hire about six months ago, new manager, a country manager and he's doing absolutely outstanding job. And in France right now, too, I think France probably doing around probably, if isn't one-third somewhere, France doing probably somewhere one-third or maybe little bit more, a little bit more, the rest Germany. And not only Germany, , I mean, and you know, Italy. Italy doing very well, basically, very well.

OK, and then on the forecast ...

I think if you ask me about Europe, probably, the worst country in Europe in terms of really IT spending through Germany.

Yes?

Yes. I think Italy is good. France is improved quite a bit. England doing very well.

OK, and then for Inder, I guess on the forecast, what sort of currency exchange rate are you using with regards to the dollar? You working with a 75 or a 76 cent dollar or?

Well we are looking at, we're looking at roughly at about $1.32 or so, roughly, I mean I know it's been going up and down, but that's the rate we have taken that.

OK, and then I guess for Fred.

Yes.

Yes, most of the senior people including the sales people took salary cuts or freezes last year. What are you guys intending to do for fiscal '04 with regards just, you know, to the base salaries in that?

First of all, salary cut, this is maybe compared to another companies, I mean Ralph. We never, ever cut salaries, we only freeze the salaries, we didn't increase, but we stopped increasing salary I think about four, five months ago ...

But that's only for the, that's for the stop not for the senior management.

Not for senior management, no, only for the staff.

Yes.

But, so the unfreeze is, I mean, for the staff, still I mean vice-president, presidents, I mean directors and so on, still didn't unfreeze their salary and packages.

But that would have already shown up in the Q3 and Q4 numbers, correct?

Correct.

OK, thank you.

Thank you.

Ladies and gentlemen if there are any additional questions at this time, please press star-one. As a reminder if you're using a speakerphone, please lift the handset before pressing the keys.

You have a follow-up question from Blair Abernethy. Please go ahead.

Thanks, just two quick ones hopefully. Can you just comment on partners in terms of going to market partners, either through integrators or technology partners at all, anything happening there of note?

Anything happens from what point?

There's not change on the landscape for us.

OK.

This last quarter at all.

No, and by the way, we will have meeting in New Hampshire two weeks from today with partners, it will be partners meeting with North American partners.

But no changes at all. I mean, the same partners, the same partners with was last year, the same partners this year.

In the U.S. are they, can you give us a sense of how much they're driving of your EIP sales?

How much we driving from point of total sales?

Yes.

Just a moment. I think ...

Just a ballpark.

I think 25%, yes, about 25%, not more.

OK.

25%.

Around there. OK, and just a hypothetical question.

Yes.

On the connectivity business.

Yes.

Have you guys considered or would you consider if you were to spin that business out, to sell that business and then take the capital and redeploy it in the higher growth EIP business? Would that be something you would, you'd look at?

You know, it's very difficult for me to answer because it's not for the call, you know, it's very sensitive question, and you know, I don't want to answer on this question because anybody can be on this call.

Sure, I understand.

OK.

No problem.

You understand what I mean.

Absolutely.

Thank you very much.

Thank you gentlemen. Bye-bye.

The next question comes from Scott Penner, TD Newcrest, please go ahead.

Thanks. Just a quick one for you Inder, you mentioned the concentration on the installed base, could you give a ballpark of the percentage of the EIP product revenue into new customers?

Scott, it's roughly around 25-30% with this for the new customers.

So it's fairly constant with past quarters?

Yes.

OK, that's great, thanks.

Thank you.

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

I think if I'd like to thank everybody who participate on this meeting, again, thank you very much and I hope you'll show even better results for the next near future. Thank you again.

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