Open Text Corp (OTEX) 2004 Q4 法說會逐字稿

Welcome to the Hummingbird limited Q4 earning announcement conference call. Following the presentation we will conduct a question and answer session. I would like to remind everyone that this conference call is being recorded on Thursday, October 21, 2004 at 5:30 eastern time. I would now turn the conference over to Mr. Fred Sorkin, President and CEO. Please go ahead, sir.

Thank you very much. Good evening ladies and gentlemen welcome to our fourth quarter fiscal 2004 conference call. With me today is Alan Litwin, President and Inder Duggal, CFO, earning growth.

Total revenue for the quarter was 59.3 million which represents an increase of 5.5 over 2004 and an increase of 11.1% over quarter for 2003. Total revenue for the year was 220,000,000.2 an increase of 14.4% over last year revenue. Total enter [inaudible] price management revenue is 41.1 million, representing an increase of 5.4% over quarter three, '04. Enterprise management revenue for fiscal 2004 was 150.2 million which is up by 23% over fiscal 2003. Total connectivity revenue for the quarter was 18.2 million compared to 17.7 million in quarter four, 2003. Adjusted earnings for the quarter were 41 cents which represents 17% increase over quarter four, 2003. The distribution of quarter four, 2004, connectivity and enterprise system, revenue is [inaudible] and 69% respectively compared to 33% and 67% quarter four, 2003. Adjusted earnings for the year was $1.40, up from $1.22 last year. Cash flow from operation was 10.1 million in quarter four 2004 and 39.1 million for fiscal, 2004. Our continuous strong performance is an indicator of the success of our strategy.

The accelerated adoption any of the of Hummingbird end price, [inaudible] of our strategy to deliver an integrated suite-to-cost exceeding our customers need to manage and preserve the value of their business content. In fiscal, 2004, we have achieved all of our key operational objectives. In doing so we have added found solid foundation for the future of our company. We are in a strong position to further strengthen our market leadership in the rapidly growing enterprise and [inaudible] market segment.

The family 2004 was for success this year. New functionality [inaudible] and with the ability to specific solutions Hummingbird Enterprise 2004 [inaudible] was allowed to move us into a new direction. Industry analyst have validated these statements. The Gartner group positions Hummingbird in the quadrant of the Smart Suite, Suite Magic has announced at the Gartner IT symposium in Orlando, Florida, I am very pleased that Hummingbird has been positioned in the leading quarter of the enterprise . Over the course of fiscal 2004 our content life cycle management solutions recognize technology awards including the [inaudible] of 2004 award from Chemworld magazine.

I am always pleased to be able to tell you that earlier this week agriculture and Agrifood [phonetic] Canada was awarded a gold medal at the 2004 Gtech [phonetic] distinguished award ceremony in Ottawa, Canada. This distinguished award program formally [inaudible] and celebrates leadership, innovation, and excellence in management E [phonetic] government within the public sector. AAFCs executive correspondance management systems based on Hummingbird Enterprise was awarded in the category of national E government's strategic information management.

We continued to gain momentum in solution areas such as content management, geographic informations systems solutions, content life cycle management, record management solutions, email management, correspondence management solutions. In this quarter we closed a number of deals with the Hummingbird Enterprise contract management solution including Standard Charter Bank and Blackhills Corporation and our pipeline continue to grow. We have also continued to advance our position as a leading provider of integrated practice management, records management, and compliance solutions globally further validating our market leadership in the legal and government vertical market segments.

In quarter four the city of Rotterdam purchased Hummingbird Enterprise which will be deployed to 8,000 of the city municipal office workers for record management.

We continue to be very successful in both selling and bundling Hummingbird Enterprise components as an integrated suite. This sales strategy creates a continuous theme of incremental revenues from our install base of customers that may have one or more components of Hummingbird Enterprise deployed, and now, extending their solutions to include additional components or expanding their deployment from department scope to an enterprise scale deployment.

Maintenance revenue remains very strong. This is clear evidence of customer loyalty and satisfaction with the Hummingbird products. We continue to make investments in customer retention strategies through customer-centric advisory boards.

In fiscal 2004 we have also expanded beyond our traditional vertical market segments and have successfully signed several new customers in the Financial Services, energy, law enforcement, and manufacturing sectors. This solutions are highly repeatable and global deployments in the largest financial investment banks that support risk and portfolio management solutions, capital project management, and highly secured deployments in the law enforcements area. This sophistication strategy in fiscal 2004 lays a solid foundation to actually raise growth [phonetic] in fiscal 2005 as these initial deployments grow in scope. Looking ahead in 2005 we will maintain prudent fiscal management of the company and continue to invest in a go-to-market business model that focuses on the delivery of [inaudible] life cycle management solutions to the extent that enterprise and integrated suite. As we celebrate our 20th anniversary we are looking ahead to an exciting future for the company as a leader in the enterprise content management market. I will now turn to Alan Litwin for discussion of our operation highlights as [inaudible] financial results.

Thank you, Fred. Good evening, ladies and gentlemen.

Without a doubt our success in fiscal '04 is attributable to our ability to anticipate and deliver products and services to address the needs of our customers. As Fred mentioned our focus in 2004 has been to up-sell and cross-sell complementary products and services into our install base of customers while enhancing the technology mix and the solutions built on our platform to enter new markets. I'd like to provide you with some of the details behind our success.

Based on feedback from customers and our partner network, in 2004 we identified and delivered solutions for the following requirements. Insuring compliance with the emerging corporate governance and records management requirements. Maximizing productivity working with enterprise content especially with e-mail and deployability of the enterprise platform with functionality to support large deployments and disaster recovery scenarios. Let me provide some texture around these three requirements and how we address them with our offerings.

In 2004 we significantly strengthened our ability to satisfy our clients stringent compliance requirements. We are uniquely positioned as a leading enterprise content management vendor with an offering that meets the requirements for the U.S. government, the U.K. government, the European Union and Australia. Our compliance solution encompasses both paper and electronic records management and meets the stringent U.S. government requirements for security also known as Chapter Four of the DOD 5015.2 Specification. To further enhance the value proposition we built integration to EMC Centara [phonetic] one of the leading fixed content storage solutions in the market. During the course of the year we were able to leverage this ability to win deals in the Financial Services sector against our competition. In addition in 2004 we announced a partnership with Sertus [phonetic] one of the leading Sarbanes-Oxley compliance vendors. As part of the partnership Sertus will leverage Hummingbird Enterprise as its foundation to satisfy the section 404 requirements of the Sarbanes-Oxley act.

Our second focus was on improving user productivity. Based on the detailed feedback collected by our usability group from our customers, we were able to translate this information into product requirements and deliver a new improved face to Hummingbird Enterprise. We recognize the amount of time spent by knowledge workers and e-mail applications such as Microsoft, Outlook, and Lotus Notes. And to that end, we set out to deliver improved functionality in these application to say enhance the user experience. Specifically our stated goal was to hide the complexities of the technology and present the enterprise content in conjunction with business correspondence from within the familiar e-mail application. Our improved e-mail integration enables knowledge workers to worry less about where content resides and concentrate more on the job ahead. The business content and e-mails are now categorized in structured or project or engagement containers providing users with a unified view to all content associated with a particular task. In grouping the information in this fashion allows the organization to enforce their business rules on the content allowing for automatic enforcement of appropriate security levels and sharing of the content with the appropriate team members both within, and external, to the organization. In addition users can now search for content stored in Microsoft exchange, Hummingbird Enterprise, and other enterprise repositories from within their e-mail application using our advanced information retrieval and knowledge discovery capabilities.

Our third stated focus was to improve the suitability of Hummingbird Enterprise for mission-critical deployments for large geographically disbursed organizations. For Hummingbird Enterprise this requirement was delivered as the ability to provide a read-write caching server to better serve remote offices, provide content integration, and synchronization services to replicate and distribute enterprise content across multiple servers, and to offer a product that can withstand network outages without interrupting the user.

As we exit fiscal 2004 the positive results that Fred shared with you we are poised for even greater possibilities in fiscal 2005. In 2004 we added enterprise work flow, mobility, secure instant messaging, and end-to-end e-mail management in Hummingbird end price. In 2005 we are planning to further enhance our enterprise content management platform specifically focusing on customer validated capabilities. In February, at our next summit, we will be unveiling Hummingbird Enterprise 2005, and without divulging details at this time I would say you won't be disappointed.

I would like to state that Hummingbird Enterprise is a result of our collaboration with our customers, our partners, and industry analysts. It's with fair support that we are able to raise the bar with every new release of our software. Now as a customer I would like share with you some of the details for the deals in the quarter which were over 100 K. This quarter we had 74 deals for a total of 18.7 million, and some of the customers were Baker McKenzie, U.S. Air, National Guard, U.S. General Accounting Office, Port of Seattle, Barkley's Capital, Bull France, Morgan Stanley, and the City of Rotterdam as Fred already mentioned.

Thank you, now I will turn it over to Inder.

Good afternoon, ladies and gentlemen.

The following are comments are forward-looking statements which involve risks and uncertainties. Actual results will differ materially as a consequence of a number of factors including changes in the market and competition, technological and competitive developments, and potential down trends in economic conditions generally. Additional information on these and other potential factors that could affect the company's financial results are included in documents filed with the [inaudible] 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 financial results in U.S. dollar and in accordance with U.S. GAAP some of the numbers exclude effects of certain item which are later defined. The following are some of the highlights which summarize the results of the current quarter after which I will describe the detailed results of our operation.

Sale for the fourth quarter were 59.3 million, up by 11.1% from a year ago. Hummingbird Enterprise solutions revenue were 41.1 million while connectivity sales were 18.2 million. Hummingbird Enterprise sales were up 15.2% significantly higher than the fourth quarter of last year and 5.5% higher than the third quarter of this year. Total operating expenses this year were this quarter were 41.1 million, up from 37.7 million in Q4 of fiscal 2003. EBITDA was 11.6 million, which is 19.6 percent of sales compared to 10.5 million which is 19.7 percent of sales in the fourth quarter of last year, and 10.6 million which is 18.8 percent of sales in the third quarter of the current fiscal year. Adjusted net income in the current quarter was 7.1 million, up from 6.2 million recorded a year ago. As a percentage of sales adjusted net income in Q4 was approximately 12% compared to 11.6% in the fourth quarter of fiscal 2003. Positive cash flow generated from the operations in the quarter was 10.1 million. Cash including short term investments was higher from the previous quarter at 130.5 million. I will now provide some more details on the opening.

As mentioned earlier sales for the current quarter were 59.3 million, revenues from enterprise solutions were 41.1 million, an increase of 15.2% from the fourth quarter of last year. In the current quarter enterprise solutions accounted for 69% of total revenue compared to 67% in the same quarter last year. Revenue from connectivity were 18.2 million, product revenues were at 28.7 million higher by 1.2 million from the third quarter, and higher by 2.8 million from the fourth quarter of last year. Services revenues including maintenance and support were 30.6 million an increase of 3.1 million from a years ago, and up 1.9 million from the third quarter of fiscal 2004. As previously noted adjusted net income which includes the amortization of intangibles, in process R&D expense, and deferred income tax adjustments all net of related taxes was 7.1 million for the quarter, compared to 6.2 million from the same quarter a year ago. Adjusted diluted EPS based on adjusted net income was 41 cents compared to 35 cents in the fourth quarter of last FY. The current adjusted diluted EPS is based on diluted [inaudible] numbers of shares of 17.6 million. The same as in Q4 of the fiscal 2003. In the current quarter gross profit was 87.3% of the sales compared to 88.8% in the same quarter of last year.

Based on marketing expenses were 25.5 million which is 42.9 percent of sales up from 22 million from the fourth quarter of last year which was 41.2 percent of sales. Sales and marketing expenses as a percentage of sales for the third quarter of this FY were 43.9%. These were higher to support the increased levels of sales.

R&D expenses were 10 million in the current quarter compared to 10.1 million from the year ago. As a percentage of sales these expenses were at 16.9% compared to 18.9% in the same quarter of previous FY.

G. and A. expenses decreased to 5.6 million in the current quarter compared to 5.7 million in the fourth quarter of last year. As a percentage of sales they decreased to 9.5% compared to fourth quarter of fiscal 2003 which was 10.6%.

Total operating expenses excluding amortization of intangibles were 41.1 million, up from 37.7 million in the same quarter last year. This was primarily due to the increase in sales and marketing expenses as I noted earlier. As a percent of sales quarter operating expenses were 69.3%, down from 70.7% in the fourth quarter of the previous year. This was 40 million in the previous quarter which was Q3 of fiscal '04, which was 71.2 percent of sales.

EBITDA was 11.6 million which is 19.6 percent of sales for the quarter compared to 10.5 million which is 19.7 percent of sales in the fourth quarter of the prior year. And from 10.6 million for Q3 of fiscal '04 which was at 18.8 percent of sales.

Amortization of intangibles was 5.2 million, down 1.1 million from Q4 of last year. The entire quarterly amortization amount relates to waited acquisitions made by the company in the past history. Interest and other income consists primarily of net interest income. Income tax expense was 2.2 million this quarter.

Overall the company's reported a net income of 3.7 million and basic and diluted EPS of 21 cents for the quarter, compared to a net loss of 1.4 million and basic and diluted loss per share of 8 cents for the fourth quarter of the previous year. Adjusted diluted EPS based on adjusted net income of 41 cents compared to 35 cents in the fourth quarter of last FY, and higher than 36 cents reported in the third quarter of the current FY. Adjusted diluted number of shares for the quarter were 17.6 million.

Now I will briefly give the twelve-month summary for the P&L accounting. The revenue for the sales for the year were 220.2 million, an increase of 14.4% over the previous year. Revenue from enterprise solutions were 150.2 million an increase of 23.1% from 2003. And they accounted for 68% of the total revenue compared to 63% last year. Revenue from connectivity was 70 million which is pretty much the same as what we had reported last year. Adjusted net income for the year ended 30 December, 2004, was 24.7 million, which was 3 million higher and 11.2 percent of sales compared to 21.8 million and 11.3 percent of sales last year. Adjusted diluted EPS for the current year based on adjusted net income was $1.40 compared to $1.22 for the last year. Net income, net reported income for the current year was 6.9 million resulting in diluted EPS of 39 cents compared to net income of 3.7 million and diluted EPS of 21 cents for the fiscal 2003.

Turning to the balance sheet items, the total assets were 371.7 million compared to 367.7 million as at the end of previous quarters. Cash including short term investments was 130.5 compared to 127 million at the end of the prior quarter. Accounts receivable were 57.6 million up from at the end of the last quarter. DSOs based on trailing four quarters are 95 days, slightly higher than 92 days for the previous quarter. This was due to the timing of collections as we had certain anticipated payments not received due to the process delays with the customers. Fixed assets were 13.3 million down from 13.4 million in the previous quarter. Intangibles decreased to 157.8 million from 159.2 million at the end of the third quarter. Goodwill at September 30, 2004 was 106.3 million. Deferred revenue was lower at 65.5 million, down from 67.3 million at the end of the last quarter. The shareholders equity was 265.9 million, higher at the end of the previous quarter. During the quarter 95,700 shares were purchased at the cost of $2 million. And during the full FY we purchased 215,300 shares for a total cost of 4.7 million. Cash and short term investments increased to 130 million in the current quarter from 127 million at 30 June, 2004. Operating cash flows were 10.1 million during the fourth quarter and the positive cash flow from operations during the quarter was partly offset by purchase of shares by repurchases of shares and payment to valid as one of our earn-out payments. This was one of our acquisitions which we had done in 2003. Number of employees at the end of the quarter were 1,433.

I was just briefly summarizing, give everything in the executive conclusion for the benefit of those who may not have joined the call in time. In summary, sales were 59.3 million up by 11.1% over the fourth quarter of last year. Revenue for enterprise solutions were 41.1 million in the quarter up by 15.2% from the fourth quarter a year ago. EBITDA was 11.6 million, up from 10.5 million in Q4 of '03. Adjusted net income was 7.1 million, and adjusted EPS was 41 cents, both higher compared to a year ago. Positive cash flow generated from operation was 10.1 million for the quarter, cash at the end of the quarter was 130.5 million.

With that I will hands it over to Fred for his closing remarks.

Our success in fiscal 2004 would not have been achieved without the dedication, tenacity, and support of our employees globally. Hummingbird is more than just a company. It is a community of diverse individuals with a wide range of skills and background that makes us unique in this market. We are indebted to their continued contribution to the success of our company.

Our success is also attributed to our global network of partners who extends the value of Hummingbird Enterprise with innovative solutions. We also extend our appreciation and gratitude to our thousands of customers globally who continue to have confidence in our capabilities, products, and solutions. We recognize that our customers have choices in this intensely competitive market. We are committed to their success as that is the only way to insure our success, and it is the foundation for our long track record of generating revenue growth, profitability, and shareholder value.

Before I ask for questions, there is one more matter I would like to discuss. I'm sure that you have all seen the press release announcing my decision to step down as CEO of Hummingbird. While this is not an easy decision for me to make, I feel that the time something now right. Hummingbird is now 20 years old. Twenty years is have quite frankly passed in the moment. From our humble beginning to our composition [phonetic] as industrial leaders I believe that the company's is and my own personal goals have been met. I feel as does the Board of Directors comfortable at this time in turning over the reigns to Barry Legion [phonetic] . Barry and have I worked closely for most of the last 28 years. And I look forward to continuing to work closely with him in the future. I cherish the time I spent building Hummingbird and I can say that I would change very little if I could do it all over again. I am proud of everything we have done to get us where we are today nd I am confident that there is a great future for Hummingbird. Thank you very much. Right now I really would like to open the floor for questions.

One moment, please. Ladies and gentlemen, we will now conduct the question and answer session. Your first question comes from Blair Abernethy from Paradigm Capital.

Thank you, nice quarter, gentlemen.

A couple of things, first, can you give us a sense of how the performance of the business was during the quarter across geoographies and in particular Europe? We've been hearing Germany has been quite weak this quarter.

I can just give you very broad geographical areas and I will have to continue after that. America's was about 54% in the quarter, Europe was 41%, and rest of world was 5% which is pretty much the same as what we had seen in the previous quarters.

I think you're right. Germany is still weak as you said. I mean it's been that way for quite a long time now. I think things went pretty much as-planned geographically. The mix was pretty much still the same for us. There was no surprises which is always good.

Okay. Just turning to the service partnership on Sarbanes-Oxley side can you give us some sense of, have you had any traction there yet?

I think it's too early. I think it's just starting up now. There's a couple of -- I think there's a couple that are ongoing right now. We've actual ly had a lot of traction throughout the year but especially this last quarter and in a lot of solutions we are doing especially in the area of contract management. Fred said there was a couple of deals already this quarter. There was award given to Ag-Canada based on the correspondence management stuff. So we've been seeing a lot of good traction from the verticals that we've been pushing. Mostly templated sitting on top of the existing platform.

And just on the expense side, Inder, I didn't hear what the DSO number was. 95 days.

95.

Yes.

Okay. And in terms of your outlook for '05 are you giving any view on revenues?

Yes, I will give you some. First of all in quarter one, 2005, the extent that you probable been, 53-54, top line and between 33-35 cents on bottom line. For the year, I think we see, between 235-237 million and between $1.58-$1.61.

Okay. Great. Thanks very much. I'll get off and let somebody else go. Congratulations both to you, Fred, and Barry.

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

I wonder just in terms of the enterprise contact management industry in general whether you can talk about whether pricing pressure is still an issue in the industry and whether it has gotten any more dramatic over the last three months?

I think every single deal is contested. There is virtually nothing we just walk into that we walkway with. I don't think it's changed. I don't think it's changed at all throughout the year, Scott. People have to fight for the deals they are getting and they are fighting and happily we are winning.

You haven't seen any incremental aggression of note from any vendors?

No, I don't think so. I think everybody has been pretty much fighting the way they always do. So the same players we see consistently have been going along doing whatever they do to if at all possible to try to take deals from us. I haven't seen any changes.

Then you mentioned just on the product side that the up-sell into the existing install base, just curious, what elements of the either the enterprise 2004 or additional products are you finding more successful?

Collaboration work flow. We are selling quite a bit of the mobility stuff in the law enforcement area. Pretty much everything. A lot of the templated solutions aside from that have a number of the components prebundled into the solutions. You will find that they appear in their, R. M., if you consider that as an adding component and not a basic core, they are certainly still moving today as well.

And I guess because it's in one of the charts, the Gartner take on the ECM market, I think most people would agree that Hummingbird is certainly been one of the visionary vendors. Have you had any dialogue as to why you were positioned be it small or not behind some of the vendors that we would consider competitors?

Well, you know, there's always dialogue and it's very easy. I mean they had their ways of looking at thing and we have ours. A lot of our ways of looking at -- the one biggest metric we have for any vision or direction that we go, of course, is revenue. We have customer validation on future sets that we wanted to, we move in those directions. Some of the company's up there in leader's quadrant quite frankly have tanked but they are still in in leader's quadrant. so while we respect Gartner and we respect, I guess, the process which they go through I can't say that we would necessarily agree on the actual to the point positioning of where they put us or even some of the other vendors. But, there's still basically the same number of players up there in the leaders quadrant if you look.

Fair enough. Just , Inder maybe one quick question. I notice the gross margin is declining slightly quarterly likely as a function of more services do consider it to be stable at this point or how should we think about this?

Overall our service revenues which gone up which I have always mentioned in my previous reports as well as some early because of acquisition but I don't think it's going to materially change from these levels [inaudible]. It's not for any other reason it's because of the service component going up and the cost against that is obviously creeps up a little bit.

It should be stable at these levels I recollect (Inder Speaking) Pretty much, yes. (end Inder) Okay. Thanks.

Your next question comes from Paul Steep from Scotia Capital.

First off, congratulations to both Fred and Barry. Barry, I guess in terms of are there any other changes you have planned on the management side that you would see going forward hear now that you are in the position?

There's no changes planned right now. I think, you know, you have to understand that this management team has been in place for quite awhile. As Fred said, this is a logical progression that we were planning or natural succession that we've been planning for quite awhile and I don't think you can expect any radical changes at all.

That's good. In terms of the verticals, can you give us a sense of what the revenue break down within enterprise would be by the various segments or the solutions? Just to get a sense of where the momentum is picking up? You gave Scott sort of a broad vision of it, you talked to it earlier.

Broadly it hasn't changed very much. Legal is roughly around 25% and government, depends on total, take the total of other government's provincial it's roughly around the same level as legal. And the rest is pretty much all commercial, the rest. Commercial is as a percentage and the dollar amount is creeping up from the quarter-over-quarter.

Okay. hen I guess just finally on the solutions side, any sort of sense of how many customers have sort of adopted the GI S product with ESRI or the contract management solution that you have developed?

I don't have off the top of my head an exact count but I know I can think of at least ten, fifteen I know of that were involved with one or more of these solutions. Certainly we are out there now pushing it. It's typically a higher value sale. It puts more components in from the start. I don't have an exact count. I'm sure there's quite a few that I never heard of.

Last couple here, just Inder, I'm certain it's just move around billings but deferred did drop a little bit from Q3 to Q4, the historic pattern looks like Q3 to Q4 tends to go up. Has there just been a little shift in the billing cycle?

No, nothing, not a shift in the billing cycle. Paul, if you remember that in Q2 revenue increased substantially and I mentioned that we had got such large maintenance contracts. So obviously when you take a very big increase in one particular quarter it has to sometimes come down. Only a mixture of what revenues you get in a particular quarter based on the maintenance.

Then finally on the FX impact, where did we enouton the quarter on the top line and EPS?

I talked about the net effect on FX. This was pretty much constant this quarter because we did not see a very dramatic change in FX rates from Q3 to Q4.

Okay. Thanks.

Thank you.

Your next question comes from Paul Lechem from CIBC World Markets, please go ahead. (PAUL LECHEM, ANALYST, OF CIBC WORLD MARKETS) You mentioned in the commentary the upgrade cycle, the up sale cycle, can you put numbers around that, how many customers or what percent of revenues between existing and new customers? And also, how many customers are on the enterprise 2004 platform versus prior conversions of the software?

The new customers are roughly between 25 and 30% In terms of how many customers on the new platform, I don't have that number.

Certainly 100% of new customers are on the new platform. I don't have an exact count of what percentage but it's a pretty significant percentage of older customers that are on Hummingbird Enterprise already. We don't push the other stuff any more at all.

No, I don't know but in 2004 how much of the revenues would have been upgrading customers from previous versions to the current version of enterprise?

Paul, I don't have that number. I don't write that down that way.

Okay. In terms of the verticals just to follow on from that what are you doing expectedly specifically to actually drive revenue in the verticals that you are trying to get who? Are you putting dedicated resources, do you have solutions for them?

Yes, in some cases, that's right. Certainly we have dedicated people looking at financial. We are doing very, very well over the last year. There are other people that are trained in some of the other stuff we've been talking about, correspondence management, contract managemen,t and even the GIS.

Can you put any numbers around people dedicated to the verticals out of your sales force?

Well, it's not so much dedicated to it as that people that have been given training within different regions. It's not so much dedication. At this point people are still selling other stuff. It's not yet got to the point where it is within legal and government for us where there's actually dedicated teams.

You announce add couple weeks back some new integration suite products. Can you talk a little bit about what those mean, what you are doing there.

This is largely utilizing our ETL technology. Quite frankly much more in conjunction with the existing suite. So we are using it quite a bit now at customer sites. We are actually migrating libraries from other vendors stuff into our repository and for actually amalgamating libraries when you're moving to a more centralized solution. So it's used much as a content integration tool instead of in the past ETL. type stuff.

Is that an add on sale what could it mean in terms of incremental revenue?

Yes, it's an add on sale. basically a sale of what was, if you want to think of it as an ETL tool. But for sure it's an extra component within the suite. t we finally done is, probably the last component of technology we had that wasn't actually wasn't brought into Hummingbird Enterprise was the ETL component. And this is what we have essentially done is bring it directly within Hummingbird Enterprise by actually providing some value between the templates of the product and the other suite.

So you seem just to, last couple of questions, in terms of the average sales price where is that trending now?

We don't track it down that way but these 400,000 or so we track down is about 250,000 for [inaudible].

Okay. Lastly, the connectivity business was strong this quarter. Can you talk about why you believe that business continues to remain pretty consistent here?

A thousand times we explain already about connectivity business. Connectivity business is still solid business, [inaudible] business, and probably will be in the future at least in my life time. And right now we [inaudible] around in the last probably three years 70 million in this range and again I'm saying as soon as the economy will pick up what I do see today, I mean, again, the connectivity business will go up.

But in terms of, do you see open standards being a threat to this business as time goes forward?

No,. Not at all.

I first ran into 3270 in 1969. It's still around today and certainly there has been open standards around for a long time that have been pushing different types of models as far as accessing different information. I don't see anybody out there today with the current climate looking to aggressively change their backbone simply because maybe there's a neater way to do it. You know people still use mainframe technology. They still use X technology. They still use NFS file systems and quite frankly i don't see any of it going away, I don't see anything replacing the technology.

Thank you. That's it for me.

Next question, Howard Lis, GMP securities.

Hi, congratulations on a solid year. Most of my questions have been answered. Just a quick question, two quick questions, on Fred's move up to the Chairman roll. Fred, are you planning to sell any of your shareholding in the near term? Secondly, in terms of the sort of the senior operational executive ranks, what additions if any are you contemplating now that you will have sort of one senior body short? Thanks.

First of all I would like to answer your first question. From point of selling or not selling equities For the last life time we probably sold somewhere 50,000 shares, not more, if not more and still the shares with me . I don't see right now that I will sell tomorrow or after tomorrow, no so I don't have that intention at all. Now from point of view you are asking me second part of the question what I will be doing and how to getting some more bodies from point of management? I don't think so. Today I don't see it. I mean Barry knows the company very well for this long time. People know him, too. And I don't really expect that we need some extra body. Maybe in the future. I mean revenue will grow or maybe extra acquisitions that's another story. Today I don't see it absolutely. Plus I mean a gain in spite I am going only to the Chairman position and gave up CEO position. I think it's, I still will be involved in the business development strategy of company and probably sometimes, you know during the weekday asking what is going on. So I don't think sowe need extra people. If I am answering your question.

Thank you.

Thank you.

Your next question comes from David Wright from BMO Nesbitt Burn.

Congratulations, Fred, on your 20 years of entrepreneurship.

Thanks.

I wonder if you could Maybe talk a little more Barry or Fred on the competitive environment? Are there competitors that you, IBM, for instance, that because you're integrating with them, you're finding a more friendly environment and are there other competitors that are getting in your way more or something like that? Is there more color you can offer there?

I honestly David don't think anything has changed. Certainly in Europe we have a friendly relationship with IBM, as a reseller for some of our stuff. Honestly, though, any where else I don't see any change. I mean it's the same players. It's the same competitors. People are still fighting as hard as they can to get deals wherever they can. I don't see any competitive advantages that anybody has achieved over the last quarter that's changed anything in the demographics of how we go out and approach a deal. I think thing are just pretty much consistent in that front. I mean there hasn't been much change in that area for quite awhile. And quite frankly I don't see what's going to change it over the next while either.

Go ahead, sorry?

If I can ad it, if you can take a look probably in what we discussed about magic [inaudible] and what is published every year you will see the same players. And some players from my standpoint do not deserve to be on this plate but anyway you will see the same players a year ago or two years ago. So it's no new really no newcomers in this market space.

But there has been acquisitions and consolidations?

There is sometimes it was acquisitions, sometimes people acquire successfully, sometimes they acquire and, you know, have big problems what I was predicting before. Because, anyway I don't want to mention names. I think you have to very carefully structure a deal from point of acquisition what kind of companies and culture of companies and what they are doing. We are very cautious. I am saying it will be a tradition. But the point is again acquisitions or amalgamations it's a very, very important not to screw up the company. And this is what some people don't understand unfortunately.

Okay. And, Barry, so you said that IBM you have a friend'slier relationship a friendlier relationship as did you say they are reselling your product?

That's correct.

So is there plans for that to be a global relationship?

Right now we are talking because there are some, for example, some products they sell at IBM and Oracle in Europe and probably during let's just say November months, Barry will go probably to Europe or me, doesn't matter, and we will be talking probably how to move to the U.S. market or the North American market.

How long has the European relationship been in place.

About probably a year, year and a half.

and is it just on the ECM products or on is it on all as well connectivity. Only ECM.

Connectivity we've had in the second year, worldwide. It was a long time ago.

Okay. Can I get the employee count and what are your plans for adding employees in the coming year?

It's 1,433 total.

And do you have plans for adding any or subtracting any over the next six to 12 months?

It's possible. It's possible. It's possible that we will do some adjustments mostly probably in Europe to bring really to bring productivity to what we have today in Europe. It's possible but not really substantial, let's just say.

Okay. And philosophically on the acquisition front I guess do you have any further plans of anything of significance? And obviously I'm asking philosophically, are there holes that you still would like to add to your product line?

Absolutely. Absolutely. I mean, you know, I don't want to jump on anything whatever I saw. We have to really, doing the job every day. And we have some

You still have targets out there.

Absolutely. Patience, patience and we will do quite a bit of acquisitions in due course.

Great. Thank you very much.

Thank you, David.

Your next question comes from David Kwan from Raymond James.

Hi, guys, it's day for Stephen Lee. A couple quick housekeeping questions for you. First of all guidance on operation and tax rate going forward, what should we be thinking about? Thanks.

Tax rate is roughly expected to be between 35 and 38%.

All right. And then on the guidance I missed some of the numbers. And also if you can comment on the conservatism of those numbers that would be great.

Can you ask that again?

On how conservative is your guidance.

Guidance is always conservative. I mean, always conservative, always -- this all 20 years. So this is conservative figures what we gave before. And we gave before amd we gave before [inaudible] it's 53 to 54 at the top line, 33 to 35 in the bottom line and for the year, it's, let's see, 235 to 237 on the top line, and $1.58 to $1.61 in the bottom line.

That's what I thought. As well, how many shares did you repurchase in the quarter?

95,700 change.

My final question is on Interwovens conference call yesterday they had mentioned that they replaced you guys at 13 legal firms and I was wondering if you could comment on that.

Yes, I will comment on it. I mean first of all the guys from my standpoint doesn't have any sense what have they are talking about. I will give you some examples if you like. 66% of a law firm, 200 law firms in the U.S. use Hummingbird, 66%. 72% of American top 50th law firms in the United States use Hummingbird, 59% of 200 law firms in the U.S. use Hummingbird. Now if you are taking only the inside, for example, without any components, nine of top ten law firms in Canada use Hummingbird. Three of the top five law firm in the UK use Hummingbird. Number one law firm in the world by, for example, by fee earnings and revenue, I can tell you number one law firm in U.K. use Hummingbird, number one law firm in Australia use Hummingbird, Denmark, Hummingbird, number one, Hummingbird. The top three law firms in Italy use Hummingbird. Five in the top ten in Italy. Number one law firm in , Hummingbird. Number one and number four of the top five law firms in Norway use Hummingbird. And so on, so on. You know, honestly speaking the guys are not aggressive I don't think, , interwoven they are absolutely wrong when they say like buying this crap, what are they talking about? This is what I would like to answer.

Thanks, guys.

Yes.

Your next question comes from Justin from securities [inaudible]

All my questions have been answered. Thank you very much.

Ladies and gentlemen, if there are any additional questions at this time please press star followed by the one. . Floor further questionstism please continue.

Okay. I think it's my probably last conference call and I would like to thank everybody for participation, first of all, and for supporting Hummingbird and me personally and management for all these years and I would only ask you guys to really support in the future by whom takes Barry take the position in the 1st of December. And thank you very much and again all the best for you and God bless you all. Thank you and good bye.

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