Open Text Corp (OTEX) 2005 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Hummingbird, Ltd. third quarter fiscal year 2005 earnings conference call. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties during 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 on Wednesday, August 10, 2005 at 5 PM Eastern time. I would now like to turn the conference over to Mr. Barry Litwin, President and CEO. Please go ahead, sir.

Thank you, operator. Good afternoon to everyone. Thank you for joining us today for our third quarter fiscal 2005 results. I am very pleased with our overall performance in Q3. We had a strong quarter with total license revenues up 22% from the prior quarter and we achieved record revenues in our Enterprise Content Management business driven by 15% year-over-year growth. ECM now represents nearly 73% of our total revenues. We generated 12 million in operating cash flow and finished the quarter with over 90 million in cash. Adjusting for the payment we made to acquire RedDot cash at the end of the quarter would have been 139 million, up 10 million from Q2. Adjusted EPS was $0.32 at the top end of our guidance range. Our success in Q3 is attributable to well executed sales and marketing efforts based on the strategy we have put in place focusing Hummingbird sales and marketing initiatives on high value solutions built on a solid Enterprise Content Management platform. This focused effort allows Hummingbird to move away from primarily IT driven departmental pure technology deals where there is more competition and more pricing pressure allowing us to sell on value addressing Enterprise wide strategic issues organizations are facing today.

In Q3 Hummingbird announced the acquisition of RedDot, a privately held Web content management and mid-market focused Enterprise Content Management vendor headquartered in Germany and New York. While RedDot's highly acclaimed Web Content Management solution complements and strengthens Hummingbird's Enterprise Content Management offering, the RedDot acquisition goes far beyond this technology foundation. With over 1,300 clients globally RedDot has a proven "Best of Breed" product, a robust global partner channel and an end-to-end strategy that is well tuned to reach potentially ECM customers in the mid-market. A recent Payne [ph] underlines the largely untapped potential of the mid-market with a poll that reveals that 40% of organizations with up to 1,000 employees are planning ECM implementations over the next 12 to 18 months.

Both Hummingbird and RedDot are ECM players in the mid-market and yet there is less than a 5% overlap in the Companies' respective installed base of customers. This is primarily because Hummingbird Enterprise if more suitable for environments where the ECM drivers are based on a large number of content contributors and a strong requirement for governance and compliance whereas RedDot offers an ECM suite for organizations where there are a smaller number of content creators and a large number of content consumers. The combination of the two companies and their suite of products present Hummingbird with a greater opportunity in the mid-market and global 2000 allowing the Company to address a broader range of requirements. Together Hummingbird and RedDot will grow faster than we would have as separate entities. With RedDot becoming a part of a much larger organization, there is an immediate infusion of credibility in front of potential customers who are comforted by the financial strength, global coverage and support infrastructure offered by Hummingbird. Regardless of the fact that our respective products are already integrated, customers prefer single vendor solutions that are perceived to have a higher likelihood of success. This we strongly believe means Hummingbird will be invited to participated in more RFPs and be short-listed more often. In fact, we've just closed a significant new Hummingbird Enterprise deal where the clincher was the fact that RedDot was the incumbent WCM provider.

We expect demand for Web content management solutions to continue to accelerate in the foreseeable future. A recent report published by The Gartner Group [ph] states that demand for Web content management is increasing as more content is being managed on Internet/intranet sites. This combined with the fact that most organizations built their first significant Web presence about five years ago and they're starting to reevaluate their Web strategy, gives Hummingbird a market opportunity to cross sell RedDot into its existing customer base as a fully integrated solution from a single vendor.

Hummingbird had a good quarter in the legal vertical by growing existing customer relationships and by generating new business with leading law first worldwide. Hummingbird's key value proposition for global offerings today centers around end-to-end compliance. Compliance is a growing concern in the legal community as more and more RFPs for external legal counsel require a solid compliance infrastructure in place to ensure selection of the law firm. This makes the purchase of the compliance solution a highly strategic one for law firms. As a result of this there is a growing demand for compliance solutions that satisfy the need in many projects within pre-approved funding.

An end-to-end compliance solution for law firms requires the following three pillars, automated client matter intake, conflicts resolution and records management. Hummingbird is well positioned to reap the benefits of its compliance suite for legal where we are the only vendor that offers this functionality, significantly ahead of our competition. In addition, there is less pricing pressure for a compliance solution and it is not considered a commodity insuring a healthy pipeline and greater revenue growth opportunities in the legal vertical. Hummingbird's client's matter intake conflicts resolution and records management solution seamlessly integrated into our core document management and collaboration offerings allow law firms to implement the turnkey compliance platform satisfying the most stringent requirements. We see continued traction in legal as more and more law firms review their compliance requirements and allocate budget to address the need.

Hummingbird was able to further its dominance as a leading content management and compliance vendor for government bodies around the world. Q3 was particularly strong with substantial deals in the UK, Australia and Italy. Allow me to provide some color on one of these deals. During the quarter we announced that a significant new relationship with the Australian state of the Queensland. Self described as the "smart state" Queensland prides itself on its progressive approach to government to improve the lives and prosperity of its nearly 4 million citizens. Queensland selected Hummingbird Enterprise to support its whole government document and records management system across all Queensland government operations. In addition this win provides Hummingbird with the upside opportunity to sell into local government councils and government owned corporations without individual tenders. Following a thorough review of potential vendors Queensland selected the Hummingbird Solution based on application functionality, ease of deployment and proven ease of use. Most importantly Hummingbird's significant track record of success in large and complex installations, such as the Canadian Federal Government's RDIM's Initiative, was a key factor in Queensland's decision to partner with Hummingbird.

Increasingly governments show a preference to buy from vendors that not only have the necessary technology but also have the domain expertise and the best practices to implement large-scale Enterprise Content Management's projects. Hummingbird with its many reference accounts in the government sector for successful deployments of Enterprise Content Management solutions is in a great position to continue to take advantage of the market opportunity. We expect the momentum in the government sector to continue both with our core Enterprise Content Management offering and our targeted package solutions tailored for the government, such as Correspondence Management.

In Q3 we continued to invest in marketing programs targeted at the financial services vertical with deal management in applied solutions built on Hummingbird Enterprise. We also continued to gain traction with our Contract Management offering and closed a number of Contract Management deals in the quarter. We believe Contact Management presents a solid growth opportunity for incremental revenues and we continue to invest sales and marketing dollars to increase mind share and gain brand recognition.

On the strategical alliance front I am pleased to report our progress with the already announced Hummingbird VERITAS alliance. VERITAS originally merged with Symantec is one of the largest software companies and the undisputed leader in e-mail archiving with about 30% market share. This partnership represents a powerful combination of ECM and e-mail archival technologies. Together Hummingbird and VERITAS will address the significant market opportunity to help organizations manage and create value from the business content contained in corporate e-mails. Compliance and organizational effectiveness initiatives are driving corporations to capture, protect, control and dispose of e-mail as they would any other important corporate information asset. This is an important alliance for Hummingbird that extends the value of our ECM offering and expands our market access. I am pleased to report that integration is well underway and we are already working with a significant number of joint customers.

Finally, this quarter in deals over 100,000 there were 73 deals in this quarter totaling 23.3 million, up from 18.1 million last quarter. Some of the customers were The American Psychological Association, U.S. Department of the Treasury Controller of the Currency, Commando General Del Amia del Carboneri [ph], State of Queensland and Sonnenshein, Nath and Rosenthal [ph]. And with that I'll turn it over to Inder Duggal. Inder?

Thank you, Barry. Good evening, ladies and gentlemen and thank you once again for joining us for the conference call for the announcement of the third quarter. Certain of our comments are forward-looking statements, which involve risks and uncertainty. Actual results could differ materially as a consequence of a number of factors including changes in market and competition, technological and competitive developments and potential downtrends 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 Canadian Securities Administration and with the United States 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. dollars and in accordance with the U.S. GAAP. Some of the numbers exclude the effect of certain items, which are later defined. The following are a few highlights that summarize the results of our third quarter after which I will discuss the detailed results of our operations.

Sales for the third quarter were 61.7 million, 9.8% higher than 56.2 million in the third quarter of last fiscal year. Hummingbird Enterprise revenues were 44.9 million while Connectivity sales were 16.8 million. Hummingbird Enterprise sales were up 15.1% higher than the third quarter of last year and 17.7% higher than the second quarter of the current fiscal year. Total operating expenses this quarter were 46.9 million compared to 40 million in Q3 of fiscal 2004 and 42.7 million in Q2 of fiscal 2005. EBITDA was 8.6 million with the 13.9% of sales compared to 10.6 million with 18.8% of sales in the third quarter of last year and up from 6 million, which was 11% of sales in the second quarter of the current fiscal year.

Adjusted net income in the current quarter was 5.6 million compared to 6.3 million the quarter a year ago. As a percentage of sales adjusted net income in the current quarter was 9% compared to 11.3% in the third quarter of fiscal 2004. Operating cash flow in the current quarter was 12.1 million. Cash including short-term investments was 90.5 million after payment of RedDot acquisition of 47.9 million. Deferred revenues continue to increase quarter-over-quarter and they were at 72.7 million in the third quarter, up 4.9 million from the second quarter of the current year and higher by 5.4 million from a year ago. I will now provide some more details on the operation.

As mentioned earlier, sales for the current quarter were 61.7 million. Revenues from Hummingbird Enterprise were 44.9 million, an increase of 15.1 from the third quarter of last year. In the current quarter Hummingbird Enterprises accounted for 72.8% of total revenue compared to 69% in the same quarter last year. Revenues from Connectivity were 16.8 million. Product revenues, Connectivity and Hummingbird Enterprise were 28.3 million. These were up by 22% from the second quarter of the current fiscal year. Hummingbird Enterprise product revenues were up approximately about 10% compared to last year. The service revenues were 33.4 million, an increase of 4.7 million from the year ago and up 2.3 million from the second quarter of fiscal 2005.

The revenue breakdown for major geographical regions for the third quarter of 2000 were Americas were 31.7 million, Europe at 23.2 million. In the current quarter the gross profit was 54.5 million, which is 88.4% of sales compared to 49.7 million, which is 88.3% of sales in the same quarter of last year. Sales and marketing expenses were 29.2 million compared to 24.7 million from the third quarter of last year. R&D expenses were 11.7 million in the current quarter compared to 10.1 million from a year ago. G&A expenses were 5.9 million in the current quarter compared to 5.2 million in the third quarter of last year. The restructuring and other charges were 4.1 million for the quarter. Of this amount 1.3 million relates primarily to severance and related benefits and 2.2 million relates to contingent concentration for a fiscal 2003 acquisition,

In process research and development for the current quarter, which resulted from RedDot acquisition was 1.3 million. The total operating expenses excluding amortization of intangibles in process research and development and restructuring and other charges were 46.9 million, up from 40 million in the same quarter last year. So overall increase in expenses was mainly due to the effect of changes in foreign exchange rates, the effect of inflation on costs and the inclusion of RedDot expenses from the date of the acquisition. The amount of foreign exchange loss this quarter was $3.6 million. Most of this exchange loss was included in sales and marketing expenses. The sales and marketing costs also increased due to higher competition and related costs. As a percentage of sales total operating expenses was 76% compared to 71.2% in the third quarter of the previous year.

EBITDA was 8.6 million for the current quarter compared to 10.6 million in the third quarter of the prior year. Amortization of intangibles were 4.4 million, down 1.4 million from the Q3 of last year. Interest and other income consists primarily of net interest income. Income tax expense was $600,000 this quarter. Overall the Company reported a net loss of 1.9 million and basic and diluted loss per share of $0.11 for the quarter compared to net income of 2.4 million and basic and diluted earnings per share of $0.13 for the third quarter of the previous year. Adjusted net income, which excludes amortization of intangibles, in process research and development, restructuring and other charges, deferred income tax rate adjustments, all net of related taxes was 5.6 million for the quarter compared to 6.3 million from the same quarter a year ago. Adjusted diluted EPS based on adjusted net income was $0.32 compared to $0.36 in the third quarter of last year. Adjusted diluted number of shares for the quarter was 17.5 million compared to 17.7 million in Q3 of fiscal 2004.

I come to nine-month results and briefly outline some of the major points of that. The revenue for the net nine months ended 30th June were 169.9 million, an increase of 5.6% over the previous year. The revenue from Hummingbird Enterprise were 119.8 million, up 9.9% from the nine-month period last year, and accounted for 70.5% of year-to-date revenues compared to 67.7% last year. Revenues from Connectivity were 50.1 million for the nine-month period. Product revenue, Connectivity and Hummingbird Enterprise Solutions were at 73.8 million. Services revenue were 96.1 million, an increase of 9.8 million over the same nine-month period a year ago. Revenue breakdown for major geographical regions for the first nine months of fiscal 2005 were Americas at 88.5 million, Europe at 69 million. Net loss for the current nine-month period was 4.8 million resulting in diluted loss per share of $0.28. Adjusted net income for the nine-months ended 30th June, 2005 were 15.4 million compared to 17.6 million for the first nine months of last year. Adjusted diluted earnings per share for the current nine months based on adjusted net income was $0.88.

Coming to the balance sheet and the total assets were 383.7 million compared to 365.3 million at the end of previous quarter. Accounts receivable were 62.1 million, up from 58.8 million at the end of the last quarter. DSOs based on trailing four quarters were 99 days, up from 96 days at the end of the last quarter. They were up dramatically because the stronger sales in the quarter. For up to Q3 the accounts receivables figures less than 90 days constitute about 85% of the total account receivables. Fixes assets were 12.8 million, up from 12.5 million in the previous quarter. Intangibles increased to 205.3 million, up from 149.2 million at the end of the second quarter of the current fiscal year, mainly due to RedDot acquisition. Goodwill at 30th June, 2005 was 161.5 million. We are still in the process of determining the final cost and allocation of the purchase price and any adjustment, if any or if required, will be completed prior to our year-end. Deferred revenue was higher at 72.7 million, up from 67.8 million at the end of this quarter. Shareholder's equity was at 260.4 million compared to 264.2 million at the end of the previous quarter. Cash and cash equivalents were 90.5 million in the current quarter after payment of the RedDot acquisition of 47.9 million. Operating cash flows for the quarter were 12.1 million compared to cash flows of 4.-- sorry, compared to cash outflow of 4.8 million at the end of the second quarter in the current fiscal year. Income of 1.2 million were payable as at 30th June, 2005 while there were income taxes recoverable of 900,000 at the end of March 31st, 2005. Number of employees at the end of the quarter including RedDot were 1,525.

For the benefit of those who may not have joined the call in time I'll summarize the results once again very briefly. Sales for the quarter were 61.7 million, up by 5.5 million or 9.8% from the third quarter a year ago. Revenues for Hummingbird Enterprise were 44.9 million I the quarter, up by 15.1% from the third quarter a year ago and 17.7% higher than previous quarter of 38.2 million. Product revenues for Hummingbird Enterprise were up by approximately 10%. EBITDA was 8.6 million. Adjusted net income was 5.6 million and adjusted earnings per share was $0.32. Cash was 90.5 million at the end of the quarter with no bank debt. Deferred revenue was at 72.7 million. That has continued to increase over prior quarters. Operating cash flow was positive at 12.1 million. With that I'll hand it over to Barry to conclude the final remarks. Thank you.

Thanks, Inder. In closing I'd like to reiterate that we are pleased with our performance in Q3. We remain confident that our Enterprise Content Management strategy is on plan and that the investments we are making will continue to drive growth and form the basis for the creation of shareholder value. Let me stop here and at this point we'll take questions, operator.

[Operator Instructions] Your first question comes from Scott Penner of TD Newcrest.

Inder, could you just-- or Barry. Could you just give us when the RedDot acquisition closed?

21st.

Okay, so it had a negligible, if any, impact on the income statement?

Yes, on bottom line it was nothing and for the benefit of first time I could give you some contribution from their revenues were under $1.5 million there but they were almost breakeven on the bottom line.

And I notice on the cash flow statement, Inder, the amount for cash spent for acquisitions was up around 57 million. You mentioned the 47.9 million payment for RedDot. Can you just fill in the blanks there?

Yes, that was accounting for-- you know when you account for the acquisitions you have to up that number for deferred income taxes and plus also you've got to take into integration costs as well so that is what the differential is.

Are those extra costs per se related to RedDot?

No, they-- well, there would be some purchase costs and integration costs but the main amount is when you gross that amount up by deferred taxes so you're-- when you calculate the purchase equation, what you do is let's say the cost is $100 but you need to gross that up from the taxes, tax effect of that and you've got to put the value of that on the gross amount rather than what exactly has been paid here.

Okay, and in the same section what is the other payable that's listed there?

Just a second. Other payables are mostly-- one second if you don't mind. Other payables are primarily the contingent payment for valid acquisition.

Okay, when does that flow out of the cash?

Well, it will happen in Q4. We had to accrue that when it's determined that the cash-- the amount is payable. So you accrue that at the end of 30th June but it gets paid out in Q4.

Okay, great and, Barry, just looking at the large deal count in particular it looks like certainly the average-- if you will, the average dollar amount per large deal has certainly and has been trending up. Can you speak to that at all as far as were there any million dollar deals in the quarter and then is there anything to read into that as far as any traction regarding either the contract management or deal management where the deal sizes may be larger?

Yes, I mean as I've been saying all along, there's fluctuation on this metric that we give. There were two deals this quarter?

Right.

For $1 million, so I guess if you take the sheer number and the averages, then the deal size was going up. There was some-- there was, as I said, there was Contract Management sales that were made this quarter and the good news is they were usually part of a pull through of a larger deal as well. I don't think they were part of any of those larger deals that I just mentioned, the $1 million deals, but certainly there was. So there is traction in Contract Management, both in Europe and in North America.

Paul Steep of Scotia Capital.

Barry, just on the large enterprise deals obviously Asia Pacific was up fairly significantly. I'm assuming one of those large deals was the Queensland deal that you alluded to. Maybe you could just discuss how similar that is to RDIMs in Canada, i.e. are you getting a large up front license payment to develop sort of a template system and then do we get follow-on licenses as it rolls out into new departments over the years?

No. The way it really works is it's its individual sales. It's we are basically approved for the State of Queensland so anybody within the State of Queensland can actually buy from us. So you're right, there is a great-- there is a potential upside moving forward to have additional deals there so it's not a one-time deal if that's what you're talking about.

No I didn't assume it was one time. I thought there might have been a one-time as well in this quarter too.

No there was a good-- that was a good deal but certainly the main attractiveness about the Queensland arrangement is that there will be subsequent deals.

Great and what was I guess, the deciding factor beyond I guess the large historic docs installed base in Australia? What else helped sort of push you guys over the win line because it looks like it was a 12-month cycle at least?

They ran extremely extensive beta program Hummingbird Enterprise. A lot of it was based on the RM capabilities introduced because of our DOD certification. It was-- I can say that it was quite extensive. Also the fact that we have really good references in government really helped clinch the deal as well but again, the customer-- they took the product. They did more than kick the tires. They dismantled the car and put it back together again so it was quite a long process to actually pick the product.

And then I guess on the Connectivity side post Q2 there was some slippage there. How much of Connectivity pick up this quarter was sort of related to that, the slight slippage in some large deals that we talked about last quarter?

Yes, I think some of the deals that slipped out actually closed early on in the quarter. I mean on every side of the business there's always slippage. There was a little bit more slippage than usual last quarter in Connectivity, which affected us but I think they did okay this quarter.

And you sort of see it now stabilized back to a much as normal as--?

As we've been saying all along we believe that Connectivity is a stable business. The issue last quarter was, like you said, a couple of deals that we expected to come in at the last minute slipped out. They did come in moving forward and business proceeds as normal. You probably saw we made an announcement that our new version of our new Connectivity Suite, which again is to go out there and keep things moving and support the latest Microsoft platforms. We believe Connectivity is healthy.

And then the last one for me would just be to either of you I guess. It looks like we've had about $7 million in severance restructuring costs year-to-date. Are you near the end of the process? Obviously there's some potential with RedDot but in terms of reviewing what you've got are we closer to the end than the beginning or where are we in that process?

Well, I would say that we are somewhat in the middle. We are still looking at our operations very carefully and trying to effectively use our people accordingly so we are still reviewing our staffings and our operations worldwide basis.

As we always do.

And most of it's been staffing so far, right? Is there-- what's the opportunity on the real estate side, Inder?

Well, there could be opportunities on real estate but I don't anticipate too much over there in this case. Real estate opportunity will primarily happen when we actually closed on some offices or whatever. Otherwise, I don't anticipate any major chunk coming out of real estate. Over a period of time we had been scaling our real estate down, which I mean that is moving out of bigger offices and moving into somewhat smaller offices, so that's pretty much what we've been doing. But in this restructuring you may not get to see too large an amount from the real estate at this point in time.

David Wright of BMO Nesbitt Burns.

Congratulations on numbers. The timing of Enterprise 2005, is that-- that's due fairly soon is it?

That is still targeted toward the end of the summer. It's actually out in two, what I would call extremely large deployments now, which we're monitoring closely, one Europe and one which spans Europe and North America.

So are those beta customers? Is that how you view them or what?

We're considering them deployments.

And some of the features that you were expecting to have-- or at least one of the features was where you were leveraging your Connectivity side of the business and access to linked spreadsheets that would allow them to open much quicker. Are you still expecting that feature to be--?

Yes. That's key to the release. That's actually key to one of the deployments that's happening right now and that's actually in and operable today. That's Content Drive you're talking about?

Yes.

Yes. That's-- yes.

Okay, so you're expecting it to be there and the people are going to love what they see there?

I love what I see.

Good. Okay, Inder, on the 4 ex [ph] loss that you talked about a $3.6 million, I think you said-- is that mostly in the sales and marketing expense?

Yes because we have-- this is mostly coming out of European operations so we've treated our European operations primarily as sales and marketing offices so that is where most of that is coming out from.

Okay and is that a one-time thing or is that-- you're just saying that that's the ongoing if you were to look at constant currencies, that would be the number that you'd pull out?

No. This is being the deal amount. That's why we have this loss at this time. We obviously don't anticipate anything happening like this go forward basis of this magnitude but it's very hard to predict.

Okay, my question would be if you had the same number of revenues next quarter, does the sales and marketing number go down by $3.6 million?

Well, I wouldn't say that it will go down because it also depends on how we are spending sales and marketing expenses but yes, if there is possible let's say if there is no exchange lost next quarter.

Yes.

What has happened this quarter, yes, there could be that much less sales and marketing expenses, yes.

So more or less a one-time item here? Okay, very good and what-- do you have assessment of the contribution to revenues from currency fluctuations?

That is very small. That is very small, but if you said these are the reevaluation which you do at the year end rate and contribution to the bottom line, which are sales because of fluctuations on the exchange rate that go through the revenues and expenses is-- if there is a very small loss there as we have seem maybe in the past couple of quarters or so.

Yes, I was just trying to calculate a constant currency revenue growth number.

Yes, I know, but the amount is not-- it's very, very immaterial.

Okay, thank you and Barry, I think in your comments you mentioned that there was a significant deal where RedDot was the incumbent WCM provider. Could you mention who that is if possible?

No, I can't mention the name yet but probably I can in the next call if you want.

Okay and it looks like a lot of what you've said about RedDot is you expect to make sales of RedDot into your customer base. Wouldn't most of your customers already have some kind of Web content management solution and--?

No, amazingly not. I mean people ask the same thing. Who doesn't have some sort of content management yet, but I mean there's still a lot of companies, as I think I mentioned, that a lot of people started investing in the Web about five years ago and a lot of stuff is home grown.

Yes.

--as was ours. We're taking our stuff out now and putting RedDot in. I mean ours was home grown over the last five years or so and there's quite a few companies like that who are now looking at easier to maintain managed finished good products to actually manage their stuff, so we think the opportunity is very good.

Okay, thanks and the employee count, I think, Inder, you said it was 1,525. Is that right?

That's correct.

So you've got the severance. Are you replacing people or unless I have the employee count from last quarter, I don't see the number going down?

No, the number of people which we have taken in restructuring, obviously, they cannot be replaced yet, so we're not replacing those people there but--

Okay, so you're adding people in other areas?

So yes, but we are adding some people in some other areas. That's right.

And how many people were in RedDot?

About 160 if I'm not mistaken. Yes.

And last question, could you provide guidance? You usually do that. Are you going to?

Yes, okay, sure. Guidance for next quarter is top line roughly 64 to 65.5 million and on the bottom line about $0.37 to $0.40.

Thank you, very much for your answers.

Paul Lechem of CIBC World Markets.

Just wanted to actually follow up on a couple of the questions that have been asked. Inder, did you say there'd be bottom line impact from foreign exchange is immaterial or the revenue impact from foreign exchange is immaterial.

The bottom line.

Okay, so if you had a $3.6 million impact on your expenses, you had a similar impact on your revenues?

Well, no, no, no, no, no. Paul, this is 3.6 million is purely because of revaluation of monetary assets. What David was earlier asking for, let's say because of the-- which is very different than what the exchange rate to use for P&L purposes. P&L purposes you use the exchange rate, which are normally the average rates. During the month this is what we used. This revaluation of monetary assets you do at the end of the quarter and compare that to what had happened at the end of last quarter.

Oh, I see.

So what I was talking about is that-- well, I think what David was asking, if I'm not mistaken, is what was the effect on the revenues because of the foreign exchange, which I said was fairly immaterial.

Okay, I've got you.

Yes.

With the new version of Connectivity 2006 shifting, would we expect to see a jump in that line of business in Q4 or would it be-- in this quarter it was down year-over-year. Should we expect it now to start ticking up again?

Well, I mean it's hard to say, Paul, but there's a new release of Connectivity every year, as there has been for more years than I can remember. I mean the main thrust, of course, is to stay ahead of the game to support Microsoft's latest offering, which is the 64 bit platforms and to provide some new functionality. I mean we have to keep our loyal customers happy with what they're getting on their maintenance and they expect something new, so I mean we always we say we believe Connectivity is stable. It's hard to say at any time when there can be an up tick in Connectivity.

In the last Q4 there was a bit of tick up. Is that typical seasonality patterns or is it just happened to be in your fiscal Q4 or should we expect to see more up tick at the end of the year here?

In Connectivity?

Yes.

No, I mean it's very difficult to say. I mean Connectivity is-- again, we tend to look at it as stable across the quarters and it's possible that any one given quarter there can be an up tick or as we found last quarter, it's possible there could be one quarter in the mix which is down a little bit, but all in all we-- again, let me just stress we think the business is stable and steady.

Okay. Last question-- the-- on the last conference call you seemed to be-- obviously, after you had a bit of a short fall but you are issuing a much more cautious tone for this quarter, for Q3, and things came out well ahead of expectations. Has anything changed versus your view of the end of the last quarter and on the conference calls in the market dynamics, have they picked up? Are you seeing anything different out there?

Well, I don't really think anything has changed in the market or in the economy. I think this sales force and the support people proved that we're getting-- we are good at what we do and we understand how to sell into the strengths that we play with in our markets and I think that's the main reason for what you see this quarter. It's not so much because-- there's certainly nothing really out there different on the competitive landscape and there's nothing out there drastically different on the economy.

So your view, your outlook at the end of last quarter was really just a more cautious tone you were taking given the circumstances around that quarter?

More than likely, yes.

Okay, all right. Great, thank you very much.

Blair Abernethy of Clarus Securities.

Just a couple of things. Barry, I wonder if you can give us a little more detail on where you're at with VERITAS in terms of-- just, I guess, in terms of timing? Are you out there in pilot stage yet with customers and are we going to start to see deals closing this year or next year?

We are actually working on the integration with a couple of joint customers right now. I think there are about 10 customers that we're actually jointly involved with right now, actually putting the integrations in place to meet the requirements of these 10 customers and that's what you'll see over the next months or quarter moving forward as far as the final integration.

Okay, so they're-- have they paid? Like, are these deals closed at this point or is that what we're going to see, those first 10?

Some of these deals are their existing customer already and some of them are our existing customers. It's more than likely that some of them will turn into additional revenue moving forward or in both of our cases in first time revenue.

Okay, great and just in terms of your solutions, can you just sort of highlight I guess the top-- in your mind sitting here today sort of what the top two opportunities or the top two areas on the solutions side that you really think have the most potential for you?

I would have to say Contract Management and Correspondence Management.

Okay and just, Inder, with the acquisition in the quarter for part of the quarter, just wondering if you have a view on what your amortization number is going to be going forward?

Blair, I think as I mentioned earlier on the call as well, we are still in the process of determining, allocating the amount and that would obviously make a difference in the allocation of between the goodwill and intangibles so I would, if you don't mind, I would defer that through at least one more quarter when we finalize our numbers and there will be audited numbers then.

Okay. Great, thanks guys.

Ralph Garcea of CSFB.

Just a quick question on the Queensland deal, was there an IT partner or IT services partner there?

Yes, Logica.

Logica?

Yes.

And then on the RDIMs, can you give sort of a percentage on how much you've rolled out through the Canadian government side and what's sort of left to do on that?

I-- honestly I don't know what percentage. I just don't know the number. It's a--

Yes. Ralph, I don't have it on top of my head here but they are suppose to provide us a number of seeds deployed but I don't have that at the moment here.

On the Connectivity side, I guess for Barry, have you seen a change in the competitive environment with Attach Made and WRQ merging? Has that delayed deals at all or I mean or they attacking the market differently now that they've merged?

No, I don't think we've seen much change as of this time. I mean, I guess, it's possible that there could be moving forward but I don't think at this time it's made much of a difference in the deals that we working now.

And then lastly, I guess for Inder or Barry, I mean you used to run the model sort of at a 17% to 18% EBITDA margin. We're down to sort of the 13% range now. As you integrate Red Dot, do you see yourself getting back into the mid to high teens by the end of the next fiscal year?

Next fiscal year, pretty much yes and, Ralph, but on top of that we've had this-- something like foreign exchange devaluation loss, which was not construed at all so that sort of played out. Otherwise, our results would have been somewhat better I would say.

Okay.

But by end of next year, yes. We certainly expect it to get back to those levels if not more.

Okay, thank you.

Follow up question from Scott Penner of TD Newcrest.

Barry on your competitive slide in the presentation, the mid-market competitors, just wondering how you would within that taxonomy how would you characterize Microsoft or Oracle?

Well, I mean honestly I don't think we see Oracle at all, I mean at least as far as I know. Microsoft has some traction in smaller accounts. We see them in some places; it's absolutely true. Occasionally we see them in larger deals. Typically we prevail in those cases largely because of the robustness of our product, but I don't think anything has changed significantly over the last while. Oracle, I mean we just-- we don't see them.

And, Inder, do you have the vertical breakdown for the quarter?

Yes, certainly. Just one second. It was federal government is about 35%. Legal is about 27%. Financial institutions is about 9% and other commercial is about 8 and then rest is all into where this other vertical is there.

Okay, good and just one last thing, Barry or Inder, on the guidance for Q4 RedDot is now closed. They were doing about 15/16 million in trailing euro million. Should we assume that there's a prorata amount of that within the guidance?

Yes. First of all, they were not 15/16 million. I think we had mentioned they were under 15 millions of euros last, trailing. Yes, there would be but summer is this vertical quarter is somewhat a soft quarter for Europe, so I think they will do what we had anticipated, roughly about 20% increase if not more for the whole year, which will be ending December for their fiscal year.

And that 20% is off a base of what? Is that the base of 15 million?

Under 15 million, that's right.

Richard Tse of National Bank Financial.

Just a quick question on one of your slides here, the deals over 100K. It looks like it's sort of been trending down or a loss three quarters. Is this sort of a reflection on the market meaning that you're going to see bigger deals, but fewer of them, or is this--?

No, I think we're talking about a-- I think first of all last quarter was higher and this quarter is down but the dollar amount is down. We've said all along-- I mean it's a metric, which you have to take with a grain of salt. Obviously, we're happy when either part of the metric grows, which is either the number of deals or the dollar amount, but I think the average deal size was probably better this quarter and there was a little bit fewer of them. Last quarter there was more deals as a lower dollar value. I don't think it's really indicative of anything.

Right, so it's not a trend or anything?

And if you look at-- I mean last quarter it definitely wasn't trending down, so if-- I just think it's a metric you take with a grain of salt. We provide it because we've always provided it and it gives some color but like I said, dollar value was up and somehow the deal size was down a little bit this quarter.

Okay, fair enough and with respect to your vertical strategy here I know you gave the numbers but can you give us some color on the progress you're making sort of beyond getting-- I guess, getting beyond the government, the legal and financial market? I think at one point last year at your user conference or analyst day you mentioned that you're going to tackle sort of the manufacturing market and some of the other markets, but what's the progress like on that side?

Well, we are going out. We are hitting utilities and manufacturing. I just-- I don't think those markets have matured for us as much as the financial, the government and the legal ones yet but we do have people out there targeting those markets today.

Robert Moses of RGM Capital.

Just a few quick questions-- Inder, just to follow up on the question of foreign exchange, the impact on revenue is not significant because a lot of your revenue is booked in U.S. dollars?

That's correct.

And the impact on the costs relate to the fact that you're perhaps paying those folks in euros as opposed to Canadian or U.S. dollars?

That's correct.

And so the overall impact is, if I just tax affected about $0.13 you're calling out for the most recent quarter? Does that sound about right?

Well, are you again talking about that 3.6 million?

Yes, I'm just trying to tax affect that and take that into 17.5 million shares. I just wondered if that was the right way to look at it?

Yes, that's probably the right way to look at it but I think we need to treat that separately but it all depends on how a company accounts for that. That doesn't flow into our revenues or cost here. That is purely reevaluation of monetary assets I'm explaining, which is put against cost items depending on where it is coming from.

But that shows up largely in the sales and marketing line?

Yes.

Okay. Just a bigger picture question, sales and marking even excluding the foreign exchange has ramped up pretty significantly, I think in recent conference calls, Barry, you may have mentioned that we'd be willing to pull that number back if we really thought the business was going to slow, not that one growth means you need to do that but are you feeling more confident with the levels of spending giving a bit of a bit of a snap back in revenue?

Well, I mean we're always looking, as Inder said already, at our expenses in our cost line and we're always looking for ways to save. And sure we'd like to get the expensed on her down and it's more than likely that moving forward we will do that but-- so I don't think anything has really changed visa vis my answer. The issue becomes am I more comfortable with it? I mean, no, I'd always like costs to be lower and we will continue to look at it moving forward.

Robert, I would just like an additional comment out there. We have said that [inaudible] years, what is a more appropriate level of sales and marketing level, but sometimes with the economy the way it is today, the cost of business is somewhat going up so sometimes you have to take action where the selling and marketing costs for making a sale does actually go up. And just to give you an example, sometimes for a customer you have to go and help them out in their initial evaluation of the product, so instead of sending one guy you would possibly send two or three guys, so the cost does go up in terms of selling one particular, let's say a sale item and that is something which is very difficult to project and say that okay this is if we were saying this is the optimum level and it will not go up here, so that also plays into the factor sometimes.

Understood and you'd mentioned, Inder, I think in response to another question, comments about margins going out to the next fiscal year just roughly. Were you speaking of EBITDA margins kind of moving back to more historical levels when you made that comment?

Well, eventually I think is how fast if you can into high teens and it is our full expectation and that's how we run a business that we want to get to those levels here. Although we had said in the last call when we acquired RedDot that they would be-- well, they were making a small loss when we acquired and this year they expected to break even. When I say this year it means their fiscal year but go forward basis whether we can get them to doing 18/20% of EBITDA margins I doubt very much. But at the same time our expectation is that with the integration and all that we could possibly get to a double digit EBITDA margin for them, for that business alone sort of a thing, yes. But we have already started integrating some of their operations together and it's going to get very difficult to start determining numbers on them, but ultimately that's what our goal is. That's the short answer.

Thank you and just lastly, I think I saw in your cash flow statement some repurchase after a couple quarters of not buying stock. First, did I read that correctly and secondly, is that something of interest given valuation levels of today over the last few weeks?

Well, it's-- I mean we always felt that the Company was undervalued, so I don't think that's got anything to do with that at the point of time. We always evaluate this as an ongoing basis and yes, we do believe in Company's value and that is one reason we take a look at from time to time and buy back shares. We bought back shares worth about $2 million if I remember the numbers right here.

In the most recent quarter?

Yes and that'll continue to sort of happen there.

Thank you very much.

[Operator Instruction] Mr. Litwin, there are no further questions at this time. Please continue.

Okay again, thank you very much, ladies and gentlemen, for joining us here today and we look forward to talking to you again in another quarter. Thank you, very much.

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