Open Text Corp (OTEX) 2006 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Hummingbird, Limited first quarter fiscal 2006 conference call. [OPERATOR INSTRUCTIONS] I would like to remind everyone that this conference call is being recorded on Tuesday, January 31st, 2006 at 5 p.m. Eastern Time. I will now turn the conference over to Barry Litwin, President and Chief Executive Officer. Mr. Litwin, please go ahead.

Thanks, Operator. And good afternoon, everyone, thanks for joining us today. I'm joined here today by Inder Duggal, our CFO. I'll start off by giving you somewhat of an overview, and then I'll turn it over to Inder for the financial highlights.

I'm pleased with our overall performance in Q1. We had another strong quarter, with total revenues up 15% from Q1 last year, driven by 24% year-over-year growth in our rapidly-growing Enterprise Content Management business. We finished the quarter with over 86 million in cash, and adjusted EPS was $0.32. In addition, we booked a record 87 deals over a $100,000 during the quarter.

In large part, our success in Q1 is the result of the investments we have made to focus our development, marketing, and sales initiatives around high-value solution offerings. I am particularly encouraged by the accelerated adoption we are seeing of Hummingbird Enterprise as the platform of choice for content-based solutions, specifically in the areas of Deal Management for financial services, Correspondence Management in government, and Contract Management. This positive momentum confirms that our strategy to invest in building repeatable, high-value Content Management solutions on the Hummingbird Enterprise platform will form a solid foundation for sustained growth as we move forward.

Let me take a moment to provide an update on the RedDot front. As I said last quarter, we successfully implemented collaborative processes between the respective sales teams to ensure that we take full advantage of all opportunities in our combined customer basis. This continues to pay off. As you'll recall, last quarter Hummingbird and RedDot recorded three significant joint wins -- with Stikeman Elliot, Queensland Government, and Verizon Wireless. In Q1 we closed an additional six deals spread pretty much across the world.

In North America long-term Hummingbird customer McCarthy Tétrault and Zarlink Semiconductor have invested in RedDot Solutions. And in Europe, existing Hummingbird customer, the Italian Ministry of Justice, is now working with RedDot. And another Italy-based customer, OM Carrelli Elevatori, has signed on with RedDot. In addition, in Germany, Sysmex, a Japanese-based provider of healthcare equipment is now a RedDot customer.

I'm pleased with our considerable early success at leveraging our joint resources and global customer base to drive the revenue synergies we anticipated at the time of the acquisition. Amongst others during the quarter, RedDot also had wins with GlaxoSmithKline, Thomas Cook, Suffolk University, Northern Alberta Institute of Technology, and UNICEF.

Turning to the government vertical, Hummingbird continues to register traction across all levels of government and geographies. Hummingbird has developed a significant number of reference accounts, drawn from an ever-growing list of the successful deployments of complex ECM solutions for governments worldwide. This puts us in a great position to take advantage of the significant market opportunity ahead.

While, traditionally, the federal government has been our stronghold, I'm pleased to report we're starting to make significant inroads at the state and local level in North America and the U.K. We expect our momentum in the government sector to continue, both with our core Enterprise Content Management offering, and targeted package solutions tailored for the government, such as Correspondence Management.

In Q1 we announced that Hummingbird has been chosen as vendor of record, or VOR, to provide records and document management solutions for the Government of Ontario. This VOR arrangement is mandatory for all Ontario Public Sector clients when acquiring new licenses for Document and Records Management capabilities. And this initiative was established to support the Government of Ontario in reaching its objective of streamlining government business and the delivery of services to the nearly 12 million citizens of the province.

Also in the quarter we announced that the United States Army Corps of Engineers is deploying Hummingbird Enterprise for ESRI, which is our integrated Content Management and GIS solution. After conducting an extensive vendor evaluation, the Army Corps of Engineers chose the Hummingbird solution for its capabilities to improve decision-making through enhanced responsiveness, better asset awareness, improved project planning, and better information sharing. The Army Corps is made up of approximately 36,000 civilian and 650 military members and is currently responsible for the Iraq Reconstruction Information Management System, the Tsunami mission in Southern Asia and Eastern Africa, and the Hurricane Katrina reconstruction effort along the U.S. Gulf coast.

Hummingbird continues to have great success in the legal vertical, by growing existing customer relationships and by generating new business with leading law firms worldwide with our strategic focus on compliance. Our unique high-value, Proactive Compliance solution addresses the fundamental challenges facing today's global law firms. Hummingbird Enterprise for legal continues to gain traction in the marketplace, as more and more law firms take steps to enhance their compliance infrastructure.

As I have mentioned many times before, compliance is a key driver in the legal community, as law firms and legal departments must demonstrate to their clients and to regulatory authorities that they have instituted a sound and reliable compliance infrastructure. The legal marketplace is highly saturated for Document Management, which is now viewed more as a commodity and not a strategic purchase. The real value to law firms is in our ability to address their growing compliance concerns and needs.

To that end, yesterday we launched a Compliance Check-Up programs for law firms at the Legal Tech 2006 show in New York. The Compliance Check-Up program is unique industry initiative that allows law firms to fill out an extensive survey created by compliance domain experts. It is effectively a screening program that was developed by Hummingbird in order to help law firms identify gaps between policy and practice which could potentially expose both firm and client to risk.

The screening survey was developed to highlight potential risks and to encourage cross-communication among law firm departments and staff, from risk partners through the records department and IT personnel. Firms completing the survey will receive a follow-up diagnosis from Hummingbird.

I'm pleased to report our focus on compliance is continuing to help us gain traction in the legal vertical. During Q1 we announced that we'd significantly expanded our relationship with Baker & McKenzie, as one example. Baker & McKenzie is the world's leading global law firm, and a long-standing Hummingbird customer. Baker & McKenzie is recognized as one of the most technologically advanced law firms in the world, having invested in a strong IT infrastructure to offer its clients the most advanced and cost-effective delivery of legal services. Hummingbird will be providing Baker & McKenzie with product and domain expertise to establish a strong and effective compliance framework.

The financial services market is an important growth vertical for Hummingbird. Revenue from financial services has grown considerably over the last two years. We will continue to invest in developing enhanced capabilities and related marketing programs to solve this key target -- to serve this, rather, this key target market. Our investments to date have yielded positive traction, as we have added several major global financial services firms to our customer base for Deal Management solutions.

I'm happy to say that during the quarter Standard Chartered Bank has successfully deployed Hummingbird Enterprise for Contract Management in their London, Singapore, and Hong Kong offices. This demonstrates our success in selling into a target vertical market, with a horizontal solution offering. Standard Chartered Bank invested in Hummingbird's Contract Management solution to capture and proactively manage its legal relationships across a number of regions worldwide, to ensure regulatory compliance and to minimize risk.

I'm very pleased with the momentum we continue to gain with our focus on solutions that target the needs of a specific market requirements. We believe that the real value of Enterprise Content Management lies in the delivery of content-based solutions that address common business challenges in the areas of risk, regulatory compliance, efficiency improvements, and leveraging intellectual assets. We anticipated this evolution in the market and have positioned ourselves exceptionally well to address these organizational priorities.

Historically speaking we're proud to say that Hummingbird was the first to predict that the ECM space was going to become a single, unified, and cohesive market, as opposed to multiple silos of different technologies. We recognized the value proposition of interoperable ECM capabilities, and today we boast a fully-integrated ECM suite that we believe places us ahead of our peers.

During 2005 we received significant market acknowledgement of Hummingbird's though leadership and domain expertise that reinforces the strength of Hummingbird Enterprise is an industry-leading ECM platform. The bottom line is that customers are no longer simply buying technology, but are seeking solutions that solve their problems. We had a first-mover advantage in delivering an integrated suite for managing content, and we're maintaining this first-mover advantage with the establishment of a highly-differentiated strategy around business solution delivery that is starting to gain real traction in the marketplace.

During this quarter we officially launched the next generation of Hummingbird Enterprise. We firmly believe that Hummingbird Enterprise 2005 is the most comprehensive ECM suite in the market today. We are particularly excited about two fundamental innovations in Hummingbird Enterprise 2005 that we believe will considerably advance the Company's position in the ECM market -- Content Drive and Enterprise Client for Microsoft Outlook. Based on extensive market validation and testing with our customers these new capabilities represent an important advancement in usability and performance that will further remove complexity in managing an organization's content.

Our European Summit event during the quarter was a resounding success. We achieved record attendance and garnered significant coverage from European media. Well over 400 customers and partners from over 25 countries attended the event that took place in London, England. Attendees comprised primarily of senior decision makers across all of our target industry segments. And we look forward to our Global Summit event next week in Florida, with all indications pointing towards record-breaking attendance. We expect it to be our best and most successful Summit yet.

Now, as is customary, I will provide you with some statistics for the deals over a 100K. During Q1 we booked a record 87 deals over a $100,000, for a total value of $16.4 million. In the quarter we saw continued traction in our ability to compete in and win deals. We believe this is due to our focused sales and marketing efforts in our target verticals, our highly-structured solutions sales initiatives, and the proven foundation of the Hummingbird Enterprise platform. By the way, some of the customers within that list are Squire, Sanders & Dempsey; Key Energy Services; First Plus; Banc de France; Honda Italia; and a few more, Merrill Lynch; and Boeing.

And with that, I'll turn it over to Inder to share some of the details of our financial and operating results. Inder?

Thank you, Barry. Good afternoon, ladies and gentlemen. Certain of our comments are forward-looking statements which involves risk and uncertainties. Actual results will differ materially as a consequences of a number of factors, including changes in market and competition, technological and competitive development, 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 Canadian Securities Administrators and with the United States Securities and Exchange Commission. Also, please look at the press release for a complete statement on these.

We have reported our financial results in U.S. dollars and in accordance with U.S. GAAP. Some of the numbers exclude the effect of certain items which are later defined there.

The following are a few highlights that summarize the results of our current quarter, after which I will discuss the detailed results of our operations. Sales for the first quarter were 62.1 million, 15.2% higher than 53.9 million in the first quarter of last fiscal year. Hummingbird Enterprise revenues were 45.3 million, with -- while Connectivity sales were 16.8 million. Hummingbird Enterprise sales were 23.7% higher than the first quarter of last year.

Total operating expenses this quarter were 46.6 million, excluding stock compensation expense, compared to 38.4 million in Q1 of fiscal 2005. EBITDA was 8.3 million, compared to 9.6 million in the first quarter of last year. Adjusted net income in the current quarter was 5.6 million, compared to 6.1 million recorded a year ago.

Operating cash flow in the current quarter was 1.7 million, after restructuring payments of $6 million. Cash was 85.8 million. Deferred revenue continues to increase quarter-over-quarter, to 75.7 million in the first quarter, up 1.7 million from the fourth quarter of last fiscal year, and higher by 9.5 million from a year ago.

I will now provide more details on the operations. As mentioned earlier, sales for the current quarter were 62.1 million. Revenue from Hummingbird Enterprise were 45.3 million, an increase of 23.7 million -- I'm sorry, 23.7% from the first quarter of last year. In the current quarter, Hummingbird Enterprise accounted for 73% of total revenues, compared to 68% in the same quarter last year. Revenues from Connectivity were 16.8 million. Product revenue -- Connectivity and Hummingbird Enterprise -- were 25.1 million, 2.8 million higher than 22.3 million in the first quarter of last fiscal year. This increase was primarily due to Hummingbird Enterprise's license growth.

Services revenue were 37.0 million, an increase of 5.4 million from a year ago. Direct and indirect Connectivity -- direct sales were 30%, indirect was 70%. Solutions, the direct was 81%, indirect was 19%. Revenue breakdown for major geographical regions for the first quarter of 2006 were -- Americas had 32 million, which was 51.6%; Europe had 26.9 million, at 43.4%; and rest of the world at 3.1 million, it's at 5% of the total revenues. In the current quarter gross profits were 54.2 million, which is 87.3% of sales, compared to 47.1 million, which is 87.4% of sales in the same quarter of last year.

Sales and marketing expenses were 28.3 million, 45.6% of sales, compared to 21.7 million from the first quarter of last year. It was 40.3% sales. Sales and marketing expenses of 30.1 million were 45.4% of sales for the fourth quarter of last fiscal year. As a percentage of sales the first quarter expenses were in line with the fourth quarter.

R&D expenses were 11.5 million in the current quarter, compared to 10.7 million from a year ago, and 12.3 million in Q4 of fiscal 2005. As a percentage of sales, these expenses were at 18.6%, down from 19.9% in the same quarter of the previous year.

G&A expenses were 7.3 million in the current quarter, including stock compensation, as this was the first quarter for adopting the new accounting standards. Excluding stock compensation, G&A expenses were 6.8 million, compared to 6 million in the first quarter of last year. As a percentage of sales, G&A expenses, excluding stock compensation were 10.9%, compared to 11% in the first quarter of fiscal 2005. Restructuring and other charges were 1.6 million for the quarter.

Total operating expenses, excluding amortization of other intangible assets, restructuring and other charges, and compensation relating to stock options were 46.6 million, up from 38.4 million in the same quarter of last year. The overall increase in expenses is mainly due to inclusion of RedDot expenses in the current quarter. As a percentage of sales, total operating expenses were 75.1%, compared to 71.2% in the same quarter of the previous year, and 74.1% of sales in Q4 of fiscal 2005.

EBITDA was 8.3 million, excluding stock compensation expense, compared to 9.6 million in the first quarter of the prior year. Amortization of other intangible assets was 5.7 million, up 700,000 from Q1 of last year. Interest and other income consists primarily of net interest income. In the current quarter the income tax expense was $100,000.

Overall, the Company reported a net income of $600,000 and basic and diluted earnings per share of $0.03 for the quarter, compared to net loss of 1.7 million and basic and diluted loss per share of $0.10 for the first quarter of the previous year. Adjusted net income, which excludes amortization of intangible assets, restructuring and other charges, compensation related to stock options, all net of related taxes were 5.6 million for the quarter, compared to 6.1 million from the same quarter a year ago.

Adjusted diluted EPS, based on adjusted net income, was $0.32, compared to $0.35 in the first quarter of last year. Adjusted diluted number of shares for the quarter was 17.4 million and 17.6 million in Q1 of fiscal 2005.

Total assets -- coming to the balance sheet, total assets were 385.9 million, compared to 378.6 million as at the end of previous quarter. Accounts receivables were 71.2 million, up from 66.5 million at the end of the last quarter. DSO, based on trailing four quarters of Hummingbird's last reported four quarters, was 107 days, up from 103 days at the end of the last quarter. If we were to take RedDot revenue for the full four quarters, including the period prior to acquisition, the DSOs would be showing -- would be approximately down by 5 to 6 days in the current quarter.

Fixed assets were 11.3 billion [sic -- see Press Release], down from 11.6 million in the previous quarter. Goodwill and other intangible assets increased to 208.4 million, from 204 million at the end of the fourth quarter of last year. Goodwill at 31st December, 2005, was 162.1 million.

Deferred revenues was higher, at 75.7 million, up from 74 million at the end of the last quarter, at the end of December 2004 were 66.2 million. Shareholder's equity was at 259.3 million, the same as 259.3 million at the end of previous quarter. Cash was 85.8 million in the current quarter -- at the end of the current quarter. Operating cash flow for the quarter were 1.7 million, after restructuring payments of 6 million, which were previously approved. Income tax payable of 1.4 million was recorded as at 31st December, 2005, while there were income tax recoverable of 800,000 as at 31st -- I'm sorry, 30 of September 2005. Number of employees at the end of the quarter were 1, 444.

For the benefit of those who may not have joined this call in time, I'll summarize the quarterly results. The sales for the quarter were 62.1 million, up by 8.2 million, or 15.2% from the first quarter a year ago. Revenue for Hummingbird Enterprise were 45.3 million in the quarter, up by 23.7% from the first quarter a year ago. Product revenues of Hummingbird Enterprise and Connectivity were up by 25%. EBITDA was 8.3 million. Adjusted net income was 5.6 million. And adjusted earnings per share were $0.32. Cash was 85.8 million at the end of the quarter, with no bank debt. Deferred revenue's at 75.7 million, and has continued to increase over prior quarters. Operating cash flow was positive by 1.7 million, after accounting for restructuring payments totaling 6 million.

With that I hand it over to Barry for his final comments. Thank you.

Thanks, Inder. In closing, I'd like to reiterate that we're pleased with our performance in Q1. We remain confident that our strategy Enterprise Content Management strategy is on plan, that the investments we're making, especially in solutions will continue to drive growth and form the basis for the ongoing creation of shareholder value.

Let me stop here, and we will take any questions you might have. Operator, can you please -- ?

Thank you. [OPERATOR INSTRUCTIONS] First question comes from Scott Penner of TD Newcrest. Please go ahead.

Thank you. Barry, just on the solution side, are these still being sold mainly to existing enterprise customers?

No, not at all, I don't think so, not at all. We have some of the ones that we've announced over the last while were new customers.

Okay. Is it -- ?

Sometimes it's a different sales focus completely. You're going in and addressing a certain problem, you're going in and addressing a certain solution, whether it's in a government agency with Correspondence Management or it's a banking institution for Contract Management or anybody else, it's not all existing customer base. And I'd say, as a matter of fact, that probably the solutions are being sold on roughly the same mix in and outside the base as the rest of our stuff.

And are these -- is your solutions business being sold by mainly your own direct sales force or partners?

Today it's being sold mostly with our own direct sales force. We have some solutions which are somewhat more synergistic with partners, and in some cases, there are some partners out there selling it. But, overall, I'd say the large bulk of it, certainly in North America, is being done direct. In Europe, probably a larger percentage is being done with partners than in North America.

Great. Just -- I'd appreciate any comments you have about the whole Microsoft's position in the ECM business in general? It's been a highlight of many of your peers' conference calls and strategies. I'd be interested in hearing how you feel Microsoft approaches the partnerships that it has in the industry?

Well, good question. And there are very good answers, but most of this stuff was going to be announced by us next week at Summit. I can tell you today that Microsoft is entering at the, I guess, at a certain level within this space, and they're just providing some incremental value on top of their platform, which they have done in the past many times.

I think that Hummingbird differentiates itself from most of our peers out there in that we have a long history of going very, very deep within the Microsoft offering. I believe some of our peers have released some stuff over the last six months that basically is -- looks like the stuff we were shipping three years ago. If you look at what we've done this year with Content Drive and with the Enterprise Clients for Microsoft Outlook, we're providing integrations into the Microsoft stack and its capabilities that, quite frankly, nobody else out there is.

So I think the approach you'll see is that, yes, they are moving incrementally higher up the food chain, but, quite frankly, so are we. I mean, we're addressing more and more solutions. And it's -- I think it's understandable that over time some of the lower technologies that were more prevalent within the suites themselves will become somewhat more commoditized. A good example is within legal. I think Document Management within legal has become heavily commoditized, and we're basically selling more and more of our Proactive Compliance suite there.

And I think you're going to find that there are a raft functionalities within -- I'll be very generous and say within all of our ECM suites -- that it certainly will not be apparent in the near term within Microsoft's, and that is essentially true for domain expertise. In some ways, I think they will bring a validity to the space, and, actually, their improvements to the platform might prove to be fortuitous to any vendor that is actually providing tight integration into the stack. I know it's a long-winded question, but I -- or answer, rather, I hope it answers your question.

No, it's very helpful. And just on the solutions, just as far as the deals that you're seeing, are you seeing -- I would imagine they're contributing to the number of $100,000 deals, but are these deals that are -- have more seats going in? Are they higher priced? Just any comments there.

Well, we're working on a couple of deals now where we sold Contract Management to that it looks like we're going to actually become far more in endemic within the organization. The good thing is, is that the people that control acquisitions and contracts within a company tend to have quite a bit of influence, certainly within that.

So it is our expected belief that the advantages of solutions are that you can go in and actually sell much higher up the food chain, but, quite frankly, the integration and the amazing capabilities within Hummingbird Enterprise quite often become apparent. So, you're right, some of these deals now actually are becoming included in this larger set, while a year ago they were mostly seated. And, quite frankly, some of these are turning into much larger opportunities.

And, Inder, just, finally, the Connectivity business, has, I guess, the license or product revenue as a percentage of the Connectivity business, is that still around 60%

Well, I mentioned around 55 to 60%, yes, that's still around the same range.

And that's consistent with the prior-year comparable, for instance.

Well, more or less in the range, yes.

Okay. Thanks a lot.

Thank you.

Your next question comes from Paul Steep of Scotia Capital. Please go ahead.

Great. Just on the solutions question, Barry could you talk a little bit about how many of the solutions, particularly, maybe Deal Management, Contract Management, and Correspondence Management are actually out there deployed, or why don't we just start with sold than worry about deployed first?

No, I think that at least the set you mentioned that there are at least some of them are deployed already. It's not just out there testing the waters any more, there's stuff being put out there and deployed. I mean, I would say again, that if I had to pick which was our fastest-growing one today, I would say it's definitely Contract Management.

Okay. And that's primarily targeted in the commercial side more so than the government or is it sort of equal?

No, actually we sold Contract Management in the government, and we've got some interesting stuff on -- you'll be hearing probably not today -- in the U.K. going on with Contract Management. But, quite frankly, Contract Management at this point is being broken up into a number of discrete solutions for more verticalization right now. We've had enough success that we're actually verticalizing one of the solutions. So you're going to see over the next while that the slight differences to Contract Management for financial and Contract Management for legal and Contract Management for industry.

Up-to-date I'd say that there's been probably no one industry that Contract Management has been more successful in than any other. In the Correspondence Management area, it's been more successful in government to date, but that's pretty much what it was designed for.

Looking ahead, it sounds like you have had some good success, if we look a year out or two years out how much of the revenue in licenses and ECM area do you think two years outcomes from the solution.

I would think it's fairly significant. I mean, the sales force now is definitely going out as much as possible trying to push solutions. And, listen, it's all about solutions today. Even if you're out there selling what's called a generic Hummingbird Enterprise, and you're selling to a financial institution, I promise you, they're not buying technology, they're buying a solution. And they might be building a compliance system based entirely on, I don't know, let's say, not the whole thing you might find, for instance, in Contract Management, but possibly just Document and Records Management. But they're buying a solution, they're not saying, I have this inherent terrible desire to own a Document Management system.

So whether the solution is a deal room type of scenario or whether it's a litigation type system, or a risk mitigation, it seems to me, in more and more cases today where we're being successful, certainly in the larger deals, we're going out and selling solutions, not technology. So solutions are split amongst the generic package, amongst the actual targeted solutions we have. And some of them, quite frankly, are just templates. And, so I believe moving out, you're going to see more and more significant percentage of the revenue directly attributable towards solutions as opposed to core product.

Okay, fair enough. A couple quick questions for Inder. I guess, one is on RedDot, I think I've picked this off the right way, which is, I thought there was a contingent payment coming due in December, and maybe I missed it in looking through the statements. Did that actually get paid out?

No, it hasn't got paid out. There's some time factor after December 31st, it will be paid out.

Okay. So they actually met the targets, I guess, was the question?

Yes, they have.

Great. And, then, on the buyback, any buyback activity?

No, last quarter we did not have any buyback, although we do have a plan which was renewed some time in the December -- November, December time frame.

Okay. And, then, the last one just for you, sort of housekeeping is related to the tax element this quarter was a lot lower, I guess, than we'd talked about at the end of last quarter. Is there anything unusual in there or is it ITCs?

Operational tax rate is still around 34%.

Okay, thanks.

Thank you.

Your next question comes from Howard Lis of GMP Securities. Please go ahead.

Good afternoon, guys. Sorry, maybe I missed some of the answers there. That 10.7 million of other payables, that has to do with a performance payment that's due; is that right?

Yes, that's right

Okay. So that will be paid out in the current quarter?

It's expected to be paid out in current quarter, but, I mean, this is only an estimate at this point of time. There's a normal process of going through every number of things.

Okay. And how much sort of ongoing cash restructuring expenses do you expect to have during the rest of this fiscal year?

I don't expect it to be a very large amount. I think most of it is already done. But there is -- the plan is expected to finish by end of the fiscal year. But we don't expect a very big, major payments coming in the balance of three quarters left.

Okay. And in your cash position chart where you show what cash would have been if you added back RedDot and then Valid -- that's the amount you paid for Valid, 11.3?

Correct.

Okay. Great. And, then, on your deals over 100K, as you mentioned, you hit a record 87 deals. That being said, the number -- the total value of those deals was down quite a bit, suggesting the average has dropped quite a bit. Can you talk about the dynamic going on there? And is it -- are customers buying components and sort of slowly rolling it out? Is that what you're finding in the current environment?

No, actually, not at all. I think the difference is, is that we didn't have any million-dollar deals this quarter. And I think that, last couple of quarters, while we had less deals over 100K, we had some spikes which provided more, shall we say, much larger amounts.

Right.

And I think that it just depends on the dynamic. I mean, the good thing that I like about -- I mean, the only thing I like about this metric is that when the metric is set at 100K, it's a much easier to track on a quarter-by-quarter basis, and even as far as pipeline goes, what you see in the pipe. Some of the larger deals are, obviously, take a much longer time to work on. So it's a little bit harder to figure out actually when they're going to drop in or exactly how much they are.

So, personally, I -- you can take any metric with any grain of salt you want, but I'm pretty happy with the metric that shows the deals over 100K is going up. I think the dollar amount sometimes is much more reflective on a couple of particular deals that just might happen to fall within that quarter.

Okay. Okay. And, then, finally, I know you commented a bit on Microsoft, but any other comments you'd like to make on the ECM competitive environment in total? And, also, in terms of guidance for the next quarter?

Okay. I don't think -- I don't think anything's really changed in the competitive landscape, if that -- if I understand you correctly. There's not much -- there's not anything I can think of that's changed over the quarter, let's put it that way.

Okay.

Guidance -- next quarter, I would say approximately $0.34 on the bottom line and about 64 on the on the top line.

Okay. And are you expecting any million-dollar transactions in the next quarter?

It's very difficult to say. We're always hoping. Okay. But, quite frankly, if you look at some of the deals -- I won't go into them by name -- that we've announced over the last while that were larger deals, some of those deals took three years to close. The $1-million-plus deals typically are longer cycles. And while we have -- the way we track them, we have a fair degree of visibility, I guess, on whether the deal is going to go to fruition or not, but knocking it down to a particular quarter, quite frankly, is very difficult.

Great, okay, thank you, gentlemen.

Thank you.

Your next question comes from David Shore of Desjardins Securities. Please go ahead.

Thanks. Barry, can you talk at all about revenue on a vertical basis, do you have any numbers -- ?

David, I'm sorry, we can't hear you. Can you either raise your volume or -- ?

Can you hear me better now?

It's slightly better, yes.

One second, here. Is that better?

That's much better.

Okay. Those darn headsets.

You blew me back from my speaker. Okay.

Okay. Sorry. Revenue by vertical, you did mention financial services, do you have any numbers you can kind of put around that?

Yes, hold on one second, I'll see if Inder has that with him.

Revenue on the verticals for the solutions is roughly about 12% or so of the total solutions revenue.

Was for -- was for financial services?

Yes, that's right

And government and legal?

Government is roughly about 30%, and legal is approximately about 20%.

Okay. The cost of goods spiked up a little bit in this quarter, Inder, anything going on there that we need to know?

No, David, I think more or less, pretty much the same as compared to Q1 of last year, but what does happen sometimes in the quarter that you have services component or something else, which sometimes you -- I mean, we are not a service organization so to complete that, we go and work along with partners and that's why the services component sometimes goes up. But other than that, there is no change at all there.

Okay. How many salespeople are you sitting with?

We have 218 today.

And how would they be split with Connectivity?

Connectivity are roughly about 80 out of that.

Okay. Okay. And, then, finally, Barry, I don't know if you care to comment at all on the lawsuit and where that stands, if anything's changed there?

Well, nothing has certainly changed. And this is an ongoing litigation. All I can say is that there -- we believe that there was a number of improper actions that were taken, and I think that, based on what structures we had in place, I think that some things managed to come in under the radar, and at some point when these things were being done, the dollar value went up and we caught it. And I think that that just goes to show, I believe, that we have the right systems in place to catch it. We caught it, we do not believe that the amount, based on counsel, is material, but by the same token, we believe it was done to damage the Company, and we're going after the people that did it. And it's a currently open matter in the courts, and we'll see what happens.

Is there any possibility of recovering revenue from the end customers?

From the end? There's no -- no. Not from -- we are not letting any customers take any damage for this. I think any customers are fine, we're looking -- whatever moneys can be collected, we're looking from the people we believe that were responsible.

Okay.

No customers will suffer because of this -- these issues.

Okay. But you are going after the people you're suing for -- ?

Yes, we are.

Good, thank you, very much.

Thank you.

Your next question comes from Blair Abernethy of Clarus. Please go ahead.

Hi. Barry, just wondering if you could comment on progress with VERITAS in the quarter and sort of what you hope to accomplish there this year?

VERITAS, we actually -- we have a couple of joint customers already. We have some deals which were signed. Some of those customers are actually working on the integration as the way they want it. I think this has now been finalized, and I think it's actually being shown at Summit, if I remember correctly. The reason is, is that some of the contracts, of course, because it was done at the time when both of us were working and coming up with the integration, the customer had the right to actually determine how it was going to be done in some cases. And because of that, some things, perhaps, didn't move as fast as we would have liked. But I'm still pretty optimistic about that potential pipeline, because we it actually, I think, sold some of it before there was even a product in place.

Can you sort of quantify what -- how many opportunities you see in your pipeline that you think might be able to -- ?

We have a fairly, I think, decent number of customers that overlap or that desire to overlap. I don't really know how I -- I'm not very good at quantifying potential future revenue, but, personally, I believe it's going to be one of our better partnerships that we have.

Okay, good, good. And, just, Inder do you have any sense on the forex impact on revenues this quarter, particularly coming out of Europe?

No. This was not a big change in the quarter this year in this current quarter. So it's a very insignificant amount.

Okay. And are you able to provide, or would you provide, the contribution from RedDot this quarter, giving us the first full quarter?

No, I think, Blair, we have explained that to you and to everybody in the last couple of quarters as well, that it becomes very difficult for us to do it because we are doing a lot of your deals jointly. It's difficult to break the revenue down exactly between RedDot and Hummingbird. I mean, now, at the end of the day, we are just one Company together.

Fair enough. And, Barry, just your sense on RedDot in terms of where you're at now? Are you sort of on plan or ahead of where you thought you might be? And, sort of, what do you expect?

I think from a sales point of view, I think we're probably doing better than even I thought we would have done. I think that the uptake has been really positive. Certainly, there are no lack of salespeople out there who are -- if they are not already up to speed in selling this stuff, really ramping up fast to get there. There's still ongoing training that is going on and will go on for awhile. There's still extensive amount of further integration that is planned, that will appear in a number of phases over this year, where we think we're going to have far more integration than pretty much anybody else has with a WCM product.

Even though -- and I'm happy with what we have today, there's at least three phases I know of where we're adding incremental capability. There's been no real issues between the two organizations that are significant, and I think we will continue to work well together and, eventually, we're just all going to realize it's one entity.

Okay, great, thanks, guys.

Thank you.

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

Thanks, very much. Most of my questions have been answered here, but, maybe, I'll just take a slightly different slant on some of them. You mentioned that financial services was about now -- about 12% of revenues. So is that versus a couple years ago, it was almost nil, and it's grown that much?

We didn't do -- I mean, two years ago, we didn't even talk about financial services. It was pretty much legal and government.

Excellent. Okay. And, Inder, on -- so accounts receivable balance was a little higher than I expected, and you mentioned something about day sales outstanding would have been lower if you had had a year of RedDot revenues in there, so I understand that, but the number was higher. Should we -- were the DSOs on RedDot higher than Hummingbird? And should we expect that coming down over time?

No, I think the intention is, and the -- we are making every effort, again, to bring the DSO down, and I don't expect that number -- this is [FIC] I would say.

Yes.

So I would expect that number of day sales outstanding would come down over a period of time, yes.

Okay. And, I guess, as you integrate, now that you fully own RedDot and as you integrate, should we expect, sequentially, the expenses of the Company would fall sequentially or not that dramatic a change?

No, I don't expect it to happen overnight. And these things are going to take some period of time. I mean, RedDot is doing fairly well, as Barry just pointed out, and the last thing that we want to do is to disrupt the sales forces at this point of time. But gradually, over a period of time, yes, there's going to be some synergy, and we're going to be seeing that. But it's going to take some time.

Okay, great. And, last question just comes back to the average deal size. And is there any sense there that some of the projects there are really sort of pilot projects and they're growing or -- ?

David, we have some pilot projects in financial institutions which are about 5KCs and they're called pilots.

Okay. Okay. Great. Thanks, very much, congratulations.

Thank you David.

Thank you.

Your next question comes from Roger Chuchen of Morgan Stanley. Please go ahead.

Hi, guys, just a couple questions. First off, I think I missed the guidance for the next quarter, can you repeat that?

I said it was about -- hi, Roger. I said it was about $0.34 on the bottom line and about 64 on the top line.

Got it. And, then, secondly, could you talk about the restructuring charges that were taken in the December quarter? What type of returns should we be expecting from that in terms of cost savings? And should that flow to the bottom line?

Yes, we certainly, obviously, we have taken the restructuring charge, or we have taken -- undertaken this plan to cut our normal day-to-day expenses. But as we have mentioned in the previous couple of calls as well, that we do have to take into account cost of inflation, which is going up in any case, and plus, some diversion of expenses which we have not had the luxury of spending, especially on the marketing side. So are we going to see a net benefit? Yes, we're going to see a net benefit from this restructuring over a period of time.

Okay. Any chance that you could quantify the magnitude of it, just on a gross number basis?

Roger, it's difficult to quantify that on a gross basis because we look at it from a net expenses point of view. And as I said, that our intention is fully to have a net benefit on the overall expenses.

Okay. And, then, if you could address, maybe, the sales and marketing portion of your OpEx? It seems like it's about 45.6% this year, and it's up significantly from the same period a year ago. What do you expect that to trend over the next several quarters? And, I guess, at what point should we see returns on that spending?

Well, ultimately, unless we start seeing total synergies from the total restructuring, if I may say so, and that is going to factor down the major reduction which we are going to see, if at all on the net -- on the net basis, is going to come out of sales and marketing and somewhat on R&D side as well. And some of that you have already started seeing on the R&D side, but on sales and marketing side, on the net basis, we're going to see, maybe not immediately, but over a period of time.

I also think some of the -- you're saying benefits. I think you are seeing some of the benefits, because I think a lot of the things that we're able to go out and sell today are the direct result of some of that money that gets spent on sales and marketing. Because, quite frankly, a lot of what the Company is going through requires additional training to be able to sell into the model we've been talking about, and I think you are seeing some of the benefits.

Yes. And, plus, as -- just to continue along with Barry, we've had a European Summit, and this was done after two years, and we are definitely -- we are very proud of having that Summit done, and I think we are very excited about the results. But the results are going to happen after a couple of quarters or so. They don't immediately fall into the revenues immediately in the following quarter or so.

Okay. So if I understand that correctly, you're saying in about a couple quarters sales and marketing should drop as a percentage of sales?

It's expected to.

Okay, got it. All right, thanks, guys.

Thank you.

[OPERATOR INSTRUCTIONS] Gentlemen, there are no further questions at this time. Please continue.

Thank you, everybody. Thanks for joining us today. Again, I'm very optimistic about what the next quarter and subsequent quarters hold for us, and I appreciate you all joining us today. And, hopefully, we'll continue to get together with only good news. Thank you, very much.

Thank you.

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